Monday, May 11, 2020

Newsletter: From Furloughs to Factory Closings

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

Coronavirus Hits Industrial Economy

Factory furloughs across the U.S. are becoming permanent closings. Makers of dishware in North Carolina, furniture foam in Oregon and cutting boards in Michigan are among the companies closing factories in recent weeks. Caterpillar said it is considering closing plants in Germany, boat-and-motorcycle-maker Polaris plans to close a plant in Syracuse, Ind., and tire maker Goodyear Tire & Rubber plans to close a plant in Gadsden, Ala. Those shutdowns will further erode an industrial workforce that has been shrinking as a share of the overall U.S. economy. While manufacturing output last year surpassed a previous peak from 2007, factory employment never returned to levels reached before the financial crisis, Austen Hufford and Bob Tita report.


Atlanta Fed President Raphael Bostic speaks on the Fed’s coronavirus response at 12 p.m. ET and Chicago Fed President Charles Evans speaks on the economy and monetary policy at 12:30 p.m. ET.

President Trump and administration officials hold a press briefing on coronavirus testing at 4 p.m. ET.

China’s consumer and producer prices for April are out at 9:30 p.m. ET.


Not Drawn to Scale

News stories often describe the coronavirus-induced global economic downturn as the worst since the Great Depression. This is likely to be literally true. Yet for many, the comparison does more to terrify than clarify. Economists say there is likely to be a big difference between a downturn that is the worst since the Depression and conditions as bad as the Depression. Many find a scenario rivaling the Great Depression in severity and duration hard to imagine. By most estimates, the current downturn is likely to be comparable in scale and duration to recessions in the early 1980s and from 2007-09, Josh Zumbrun reports.


Corporate America unveiled another wave of layoffs and warned of additional reductions. The burst of job-cut announcements two months after officials moved to shut the economy to halt the spread of the coronavirus indicates many companies are bearing down for a sustained slowdown as the economy searches for traction. Some are also using the moment to accelerate strategic shifts, Micah Maidenberg reports.

“Based on the current situation, we now believe that some of our colleagues may not return to work this year.” —MGM Resorts acting Chief Executive Bill Hornbuckle

Nearly a third of Kentucky’s labor force has filed for unemployment insurance, the largest share of any U.S. state. The numbers partly reflect officials’ encouragement to apply and an early move to expand workers’ eligibility, combined with a high concentration of factories and the postponement of the Kentucky Derby, Kim Mackrael reports.

Saved By Zero

Federal Reserve officials are unlikely to consider using negative interest rates to stimulate economic growth. The topic resurfaced Thursday after investors in futures markets began betting the Fed’s benchmark federal-funds rate would go below zero by year-end, which sent yields on two-year Treasury securities to an all-time low. But Fed leaders see negative rates as a very last resort—and a remote one, still—worrying they would have harmful effects on financial markets and the banking industry. More broadly, there is little political support for the policy in the U.S., Nick Timiraos reports.

Take the A Train

Cities around the world are butting up against an intractable problem as they emerge from their coronavirus lockdowns: It is almost impossible to make their mass transit systems comply with social distancing during the rush-hour crush. Keeping passengers several feet apart in buses, on train platforms and on board subways could reduce ridership by as much as 80%, according to officials and public transport companies. Some operators warn that stringent requirements to disinfect seats, stanchions, door panels and miles of handrails several times a day will also make it harder to get busy cities back up and running, hindering any economic recovery and disrupting everything from business meetings to school and university classes, David Gauthier-Villars, Giovanni Legorano and Miho Inada report.

Two Steps Forward…

U.S. states are working to ramp up coronavirus testing capacity as part of their reopening strategy. Doing so will help determine who can safely go back to work. 

British Prime Minister Boris Johnson said the U.K. would take some small steps this week in easing the lockdown he put in place seven weeks ago.  

South Korea is back on the defensive, with Seoul’s bars and clubs ordered closed after the country reported its biggest one-day increase in new infections in a month. The fresh virus cases show how difficult it might be to return to normalcy. The country of roughly 51 million people hadn’t resorted to a lockdown like the U.S. and Europe. Instead, South Korea relied on aggressive testing, tech-heavy contact tracing and a willingness by many to stay indoors, Timothy W. Martin and Dasl Yoon report.

Circle of Life

Shanghai Disneyland welcomed visitors for the first time since January, becoming one of the highest profile tourist spots to reopen as China reboots parts of its economy. If Monday’s reopening was anything to go by, Walt Disney’s theme park kingdom is likely to regain its magic slowly. Visitor numbers were capped, some attractions remained closed and the day featured none of the hallmarks for which the Disney parks are known: parades, fireworks and meet-and-greets with familiar characters, Trefor Moss reports.


When Americans vote in November, unemployment will be below 6%. “I think that despite the tragedy of the Covid-19 epidemic there is no reason to believe that the U.S. economy–and the global economy for that matter–shouldn’t recover quite fast from this crisis. Much faster than after the 2008-9 crisis. Numerous policy mistakes have been made around the world both in combating and containing the pandemic and in terms of the monetary and fiscal response to the crisis and more mistakes are likely to be made, but we should nonetheless remember that market economies emerge much faster from negative supply shocks than from demand shocks,” Markets & Money Advisory economist Lars Christensen writes.

What happened to all the fast-growing startups? Writer Cheryl Winokur Munk looks at six theories on why they seem to be disappearing.


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.

from Real Time Economics

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