Newsletter: The Worst May Be Over

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Creeping Back to Life

The worst may be over. Truck loads are growing again. Air travel and hotel bookings are up slightly. Mortgage applications are rising. And more people are applying to open new businesses. These are among some early signs the U.S. economy is, ever so slowly, creeping back to life. Plenty of data show the country was still mired in a severe downturn in April and May, with overall business activity falling and layoffs rising—though more slowly than in the early weeks of the coronavirus crisis. Current projections have the economy contracting by 6% to 7% this year and unemployment lingering in double-digit percentages for a while. But, for the first time since the pandemic forced widespread U.S. business closures in March, it appears conditions in some corners of the economy aren’t getting worse, and might even be improving, Harriet Torry and Josh Mitchell report.

The economic outlook remains highly uncertain. The latest hopeful signs coincide with a surge in emergency spending from Congress, a decline in the daily number of newly reported Covid-19 cases and the slow reopening of all 50 states—all factors that could prove temporary.

WHAT TO WATCH TODAY

The S&P/Case Shiller home-price index for March is out at 9 a.m. ET.

The Conference Board’s consumer confidence index for May is expected to sink to 82.3 from 86.9 a month earlier. (10 a.m. ET)

U.S. new-home sales for April are expected to fall to an annual pace of 490,000 from 627,000 a month earlier. (10 a.m. ET)

The Dallas Fed’s manufacturing survey for May is out at 10:30 a.m. ET.

Minneapolis Fed President Neel Kashkari speaks online with health and economic experts at 12 p.m. ET.

Bank of Canada Gov. Stephen Poloz appears via videoconference before the Standing Senate Committee on National Finance at 5 p.m. ET.

TOP STORIES

Take a Chance on Me

The economic benefits of Sweden’s decision to eschew broad lockdowns in response to Covid-19 are so far mixed. According to Monday’s labor report, in April employment fell 2% from February and the unemployment rate rose to 7.9% from 7.1%. That’s a much milder hit than the U.S. suffered in the same period when unemployment soared to 14.7% from 3.5% and employment sank 16%. However, Swedish employers may have responded to falling demand by reducing hours more than jobs. Total hours worked in April were down 11% from a year earlier, and in accommodation and food services, hours plunged 36%. (Caveat: Swedish data is volatile.) That’s a smaller drop, but in the same ballpark, as the U.S. where total hours fell 17% in April from a year earlier and hours in leisure and hospitality sank 51%. The U.S. has done better than Sweden in Covid-19 deaths, but not by much: around 300 per million people so far, compared to 400 in Sweden, according to Our World In Data. —Greg Ip

European companies idled workers instead of firing them, using billions in state subsidies to cover their payrolls until they were ready to reopen for business. Now that governments have lifted their lockdowns, however, many businesses are calling on governments to keep the money flowing for months to come. For many governments, the matter boils down to whether they are funding a bridge to nowhere, Stacy Meichtry, Paul Hannon and Tom Fairless report.

Fresh coronavirus outbreaks in Europe are prompting a debate about the speed of easing lockdowns. As in the U.S., European governments are under mounting economic pressure to lift remaining constraints. But the new clusters of infections highlight the risk of a rebound in Covid-19 cases—even where the spread has been slowing, Bojan Pancevski reports.

The world’s largest developing nations are following recent steps by the U.S. and Europe to ease restrictions in order to spare further pain to their battered economies. There is, however, a crucial difference: Poorer countries are starting to reopen while new infections and deaths are growing, rather than slowing, David Luhnow and Joe Parkinson report.

Japan on Monday fully lifted a state of emergency and declared success in checking the new coronavirus. Unlike many Western countries, Japan didn’t impose a strict lockdown and didn’t implement broad testing to establish the general extent of infection, Alastair Gale reports.

Trading Down

Global trade flows posted their biggest fall since the financial crisis. The first-quarter contraction is likely a preview worse to come as the coronavirus pandemic causes policy makers and multinationals to reconsider globe-spanning supply chains, Paul Hannon and Stu Woo report.

Build Me Up

With interest rates falling to the lowest level on record, this should be a banner time for households in search of a new mortgage. It isn’t. Mortgage availability has tightened sharply as lenders impose tougher income, credit-score and down-payment conditions and drop some loan types altogether. The economic shock from the coronavirus pandemic explains some of this credit crunch. But the economic factors have been exacerbated by policy decisions in Washington, Andrew Ackerman and Nick Timiraos report.

Lumber futures have soared since the start of April, driven by cutbacks at mills, signs that the home-building season might be salvaged and brisk business at home-improvement stores. Among major commodities only gasoline and crude oil have seen a sharper rise as Americans emerge from stay-at-home orders, Will Horner and Ryan Dezember report.

Take Me Out to the Ballgame

The sports comeback has begun. More than two months into the shutdown, the biggest U.S. leagues have decided their games must go on. What their plans have in common is an acceptance that some players may be infected—and a belief that leagues should focus on limiting potential outbreaks.

WHAT ELSE WE’RE READING

Great power competition is back. “The rivalry between China and the United States in the twenty-first century holds an uncanny resemblance to the one between Germany and Great Britain in the nineteenth. Both rivalries take place amidst the emergence of economic globalization and explosive technological innovation. Both feature a rising autocracy with a state-protected economic system challenging an established democracy with a free-market economic system. And both rivalries feature countries enmeshed in profound interdependence wielding tariff threats, standard-setting, technology theft, financial power, and infrastructure investment for advantage,” Markus Brunnermeier and Rush Doshi and Harold James write in The Washington Quarterly.

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