Newsletter: ‘You Wouldn’t Want to Bet Against the American Economy’

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

We Really Don’t Know

Federal Reserve Chairman Jerome Powell said the U.S. economy could take more than a year to recover from the coronavirus-induced shock. “The economy will recover. It may take a while…. It could stretch through the end of next year. We really don’t know,” Mr. Powell said on CBS News’s “60 Minutes” program. He cautioned that it would be hard for the public to be “fully confident” until there is a vaccine for the new coronavirus, Nick Timiraos reports.

“In the long run, and even in the medium run, you wouldn’t want to bet against the American economy.” —Fed Chairman Jerome Powell

The Fed’s $600 billion challenge: lending directly to businesses. The central bank’s Main Street Lending Program is designed to assist companies too large to get for help under the Small Business Administration’s loan program but too small to benefit from the Fed’s other corporate-lending backstops. It’s shaping up to be one of the trickiest things the central bank has ever done.


The National Association of Home Builders housing market index for May is expected to rise to 35 from 30 a month earlier. (10 a.m. ET)

Atlanta Fed President Raphael Bostic speaks on the Fed’s response to Covid-19 at 2 p.m. ET.


Baby Steps

There are signs the economic contraction caused by the pandemic has bottomed out and a tentative recovery may be under way. In a fast-changing environment new trends often appear first in private daily and weekly data. Although less reliable and comprehensive than government figures, they are showing some signs of a turning point. Official data may not show much, if any recovery, in May from April, but a rise in June is quite plausible. If that growth is sustained, this economic contraction could go on record as the deepest since the 1930s, yet also the shortest, lasting as little as two or three months, Greg Ip writes.

Big caveat: The data say nothing about how strong the recovery will be. Economic activity could rise for a few months and then flatline.

While we’re waiting for official data to reflect a possible bottoming out, brace for more reports like this: U.S. retail sales fell in April by a seasonally adjusted 16.4% from a month earlier, the biggest drop since record-keeping began in the early 1990s. Industrial production posted its steepest drop in records dating back more than a century.

Technical Recession

Japan fell into a recession in the first quarter of 2020. The world’s third-largest economy shrank an annualized 3.4% in the January-March period, pushed down by the initial effects of the coronavirus pandemic. That followed a revised 7.3% contraction in the previous quarter that was triggered by an increase in the national sales tax. “The situation has become even more severe in April and May after a state of emergency was issued,” Economy Minister Yasutoshi Nishimura said Monday. Economists are forecasting a contraction at an annualized pace of 20% or more in the current quarter, Megumi Fujikawa reports.

Subcontinent-Sized Crisis

The coronavirus pandemic has pushed India’s jobs crisis from bad to worse, leading the government to take a new look at an old solution: self-reliance. Prime Minister Narendra Modi’s latest plan appears aimed at helping companies to get even more focused on Indian consumers, as opposed to exports, while also using the potentially vast domestic market to lure foreign firms to set up operations in the country and employ Indians, Bill Spindle and Rajesh Roy report.

Stickshifts and Safetybelts

Auto makers are determined to get back to work. General Motors, Ford Motor and Fiat Chrysler plan to gradually restart many U.S. factories on Monday, after firming up safety protocols. But like businesses across the country, they are facing both complications and costs around worker safety and depressed customer demand. Rebooting more than 40 U.S. assembly plants—as well as the thousands of component makers that supply them—is likely to be a slow and arduous process, Ben Foldy and Mike Colias report.

No Pomp, No Circumstance

The coronavirus pandemic has turned vibrant college towns across the U.S. into vacant ones. This weekend was supposed to be one of the busiest of the year for businesses in Blacksburg, Va., as parents, grandparents and well-wishers converged on the town to celebrate the 2020 graduates of Virginia Polytechnic Institute and State University. Instead, the city of 45,000 remains in quiet repose. What is happening in Blacksburg is playing out in cities from Ithaca, N.Y., to Pullman, Wash., where the pandemic hasn’t only shut down many businesses but also emptied out college campuses, Justin Baer reports.

A Bottle of Red, a Bottle of White

Italian restaurants and cafes—institutions central to this country’s identity and economy—are emerging from the lockdown into a brutal new world. They already have lost at least €25 billion ($27 million) in sales, or around 28% of typical annual sales, because of the shutdown, according to restaurant industry association Fipe. New government rules that aim to protect diners and workers from the spread of the coronavirus could stretch restaurants, many of which make paper-thin margins even in good times, to the breaking point, Giovanni Legorano reports.


More than two-thirds of unemployed Americans receive more in benefits than they earned at their old jobs. “High [earnings] replacement rates can provide crucial liquidity necessary for households to smooth consumption during this unprecedented period…At the same time, replacement rates over 100% create distributional issues and may hamper efficient labor reallocation both now, and especially during an eventual recovery,” University of Chicago economists Peter Ganong, Pascal Noel and Joseph Vavra write in a new working paper.


Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.

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