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V-Shaped Recovery Unlikely
China’s factory-gate prices in April fell by the steepest margin in four years. Manufacturers have struggled with deflationary pressures from the coronavirus pandemic, which has crimped demand both at home and abroad. Many economists believe wholesale prices will notch a further decline in May. The downward pressure is a worrying omen for Chinese factories, whose profits fell by 36.7% in the first three months of the year compared with a year earlier. Ravaged by the pandemic, China’s economy in the first three months of 2020 suffered its first contraction in more than four decades, Jonathan Cheng reports.
“There will be no V-shaped rebound in economic activity,” said Liu Xuezhi, an analyst at Bank of Communications. “The recovery from the Covid-19 will be slow.”
WHAT TO WATCH TODAY
U.S. consumer prices for April are expected to fall 0.8% from a month earlier and rise 0.3% from a year earlier. Excluding food and energy, prices are expected to fall 0.2% from a month earlier and rise 1.7% from a year earlier. (8:30 a.m. ET)
The U.S. federal budget deficit is expected to widen in April. The Congressional Budget Office estimates a $737 billion shortfall as tax revenues drop by more than half and spending doubles from a year earlier. (2 p.m. ET)
Federal Reserve: St. Louis’s James Bullard speaks about the economy at 9 a.m. ET, Vice Chairman Randal Quarles speaks on supervision and regulation at a virtual Senate Banking Committee hearing at 10 a.m. ET, Philadelphia’s Patrick Harker speaks about Covid-19’s impact on Delaware at 10 a.m. ET, and Cleveland’s Loretta Mester speaks online to the CFA Society Chicago at 5 p.m. ET.
TOP STORIES
What Shape for a Recovery?
As China’s data is showing, the world can probably forget about a V-shaped recovery: a short, sharp collapse followed by a bounce back to pre-virus levels of activity. Policy makers and corporate executives now expect a “swoosh.” Named after the Nike logo, the forecast predicts a large drop followed by a painfully slow recovery, with many Western economies not back to 2019 levels of output until late next year—or beyond, Paul Hannon and Saabira Chaudhuri report.
Come and Take It
The U.S. death toll from the coronavirus pandemic surpassed 80,000 Tuesday as state governors from New York to California took steps toward reopening businesses.
Business owners across Texas are pushing against the state’s coronavirus shutdown orders and its phased reopening plan. The business owners don’t represent most in Texas, who have generally followed rules. But such defiance is increasing, drawing nationwide support from those frustrated with shutdown orders and concerned about the economic toll they are taking, Elizabeth Findell reports.
Public pension plans lost a median 13.2% in the three months ended March 31, according to Wilshire Trust Universe Comparison Service data released Tuesday, slightly more than in the fourth quarter of 2008. “There will be a lot of pressure to cut benefits,” said Don Boyd, co-director of the State and Local Government Finance Project at the University at Albany.
Elon Musk said Tesla is resuming production of cars at its lone U.S. assembly factory in defiance of local authorities. The announcement Monday on Twitter supercharged a standoff over government orders that the company’s California plant remain closed.
Toyota forecast revenue would fall 20% this fiscal year. Japan’s biggest auto maker by sales said it expected the car market to bottom out by June and return to the same level as the previous year by the end of 2020.
Outlook: Bleak
Americans’ outlook for the job market and their personal finances deteriorated in April. The Federal Reserve Bank of New York’s monthly survey of consumer expectations found that respondents’ median expectation of losing their job over the next year rose to a series high, while expected earnings, income and spending growth each reached series lows.
The outlook among small businesses has cratered. The National Federation of Independent Business small business optimism index posted its largest two-month fall on record as of last month. Sales expectations dropped to the lowest reading in the survey’s 46-year history. The one positive: The share of owners expecting the economy to improve over the next six months rose to 29%, hardly a majority but still a big improvement from the prior month’s minus-17%.
Small businesses are taking a relatively big hit from efforts to contain the coronavirus.
Welcome Back
The world is trying to figure out how to reopen schools. In Europe, millions of children are returning to classrooms, turning the continent into a giant lab for what works and what doesn’t. Here is what we know and don’t know about children and Covid-19, what measures schools in Europe are taking or planning, and what we’re about to find out.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
State-level school closures and shutdown orders aren’t behind an initial, massive surge in coronavirus jobless claims. “Most of the economic disruption was driven by the health shock itself. Put differently, it appears that the labor market slowdown was due primarily to a nationwide response to evolving epidemiological conditions and that individual state policies and own epidemiologic situations have had a comparatively modest effect,” economists from Indiana and Ohio State universities write in a National Bureau of Economic Research working paper.
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