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China’s Economy Contracts
China’s economy shrank in the first three months of 2020 compared with a year earlier, the first such contraction since Beijing began reporting quarterly gross domestic product in 1992. The collapse foreshadows the pain expected in the U.S. and around the world as the coronavirus pandemic shuts borders, halts business activity and cripples global supply chains, Jonathan Cheng reports.
The underlying picture offered some signs of recovery after a nadir in February, but the country’s recovery remains fragile. Many virus-related restrictions have been lifted after nearly two months, but some new ones have been enacted in a bid to prevent a second wave of infections from abroad. And now, most worrying of all, China’s customers in the U.S. and across the West are largely shut, and demand is likely to remain depressed for the foreseeable future.
What’s next? The coronavirus pandemic is making the “decoupling” of the U.S. and Chinese economies a more realistic prospect, American companies in China say.
WHAT TO WATCH TODAY
St. Louis Fed President James Bullard speaks on an online panel at the Reinventing Bretton Woods Committee Seminar at 9 a.m. ET.
The Conference Board’s leading economic index for March is expected to fall 7.2% from a month earlier. (10 a.m. ET)
The Baker Hughes rig count is out at 1 p.m. ET.
Note: This is a partial listing of events and subject to change.
5.2 Million More Americans File for Unemployment Benefits
More than 22 million workers have sought unemployment benefits during a month of coronavirus-related shutdowns, a record-shattering total that reflects a broad shock for the U.S. labor market. Since mid-March, about 13% of the labor force has sought jobless assistance, far outpacing any prior four-week stretch on record. From April 5-11, 5.2 million Americans filed for unemployment benefits, down from figures that approached 7 million in the prior two weeks and a possible sign that the wave of workers filing claims has passed its peak, Eric Morath and Sarah Chaney report.
The U.S. unemployment rate is expected to shoot to a record high in the coming months. As bad as that number will look, the reality will likely be worse. Americans are only counted as unemployed if they are available for work, don’t have a job, and have actively looked for a job in the past four weeks or are waiting to be recalled. The problem? Many of the recently jobless—22 million Americans have applied for unemployment benefits since mid-March—aren’t looking. Instead of being counted as unemployed, they could be counted outside the labor force entirely. In March, the labor force fell by 1.6 million people. “This number will skyrocket going forward—making the headline unemployment level a near-irrelevancy,” said Cornell University’s Daniel Alpert, co-creator of a private job-quality index.
Even with drop-outs suppressing the headline unemployment rate, Goldman Sachs economist Joseph Briggs figures it will hit around 15% in the third quarter—a record for a time series that dates back to 1948. A broader measure, known as the U-6, accounts for people who have stopped looking for work or who couldn’t find full-time jobs. That could hit 29%, Mr. Briggs estimates, well above the 17.2% peak right after the last recession and more representative of massive job destruction in the labor market.
Will the job losses be lasting? Important clues come from layoff reports submitted by large employers to state labor bureaus in accordance with the federal Worker Adjustment and Retraining Notification Act. Authorities in a few states require employers to declare whether a layoff is permanent or temporary, and these reports suggest that most large employers plan to bring their workers back. In California, for example, just 7% of the 122,700 layoffs in March and April so far were deemed permanent, Gwynn Guilford reports.
The coronavirus pandemic is cutting into supermarket meat supplies and affecting choices available in meat cases as plant workers get sick and processors struggle to meet surging demand. Meat-industry officials fear the problems could deepen, further reducing supplies and leaving farmers with nowhere to send livestock and poultry, Jaewon Kang and Jacob Bunge report.
Separation of Powers
President Trump outlined broad new federal guidelines for opening up the country that will put the onus on governors to decide how to restart the economies in their states. In New York, the hardest-hit U.S. state, Gov. Andrew Cuomo extended shutdown orders for nonessential businesses and public gatherings until at least May 15.
The federal government’s $350 billion loan program for small businesses ran out of money as Republicans and Democrats disagreed over how to replenish the funds.
The U.S. government sent more than 80 million direct-deposited stimulus payments this week. Americans are checking their bank accounts and some are surprised at how much or how little they got, Richard Rubin writes.
The coronavirus stimulus package passed last month will add $1.76 trillion to federal budget deficits over the coming decade, the Congressional Budget Office said Thursday.
We Can Do It!
True Value retooled two paint-filling lines to produce jugs of FDA-approved hand sanitizer. Apple and Google are developing software that would alert users if they came in contact with someone infected with the virus. The efforts are among countless private-sector initiatives that represent an underappreciated asset in Americans’ fight against the coronavirus. It is a 21st-century version of the “Arsenal of Democracy,” the mobilization of industrial might that helped win World War II, only this time to make personal protective equipment, ventilators, tests and vaccines instead of uniforms, ammunition, tanks and bombers. And where that arsenal was orchestrated by the federal government, this one has been largely the spontaneous, uncoordinated effort of businesses, entrepreneurs and innovators driven as much by the urge to contribute as by future profit, Greg Ip writes.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Emerging-market economies must be allowed to defer all payments to international creditors for at least one year. “Without a standstill, debtor countries will be forced to impose harsh austerity measures, relegating their economies to a lost decade or more, compromising the health of their citizens and, in turn, the health of the rest of the world. In this scenario, many countries will opt to default, precipitating a debt crisis far more serious than the one in Latin America during the 1980s and the one in Asia during the 1990s,” Soros Fund Management’ George Soros and Lion’s Head Global Partners’ Chris Canavan write at Bloomberg Opinion.
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