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Spending Splurge
Consumer spending likely rebounded last month. The big question now is whether the growth is sustainable. The Commerce Department is set to release its monthly report on personal income and spending at 8:30 a.m. ET today. Household outlays crashed in April as many businesses remained shuttered under state and city orders to prevent spread of the new coronavirus. Many state economies reopened in May, and a surge in household income from the federal stimulus bill and unemployment gave consumers money to spend, Josh Mitchell reports.
But the April boost in personal income will likely be a one-off as aid programs expire, unless Congress approves new assistance. Meanwhile, new virus infections have picked up in 33 states recently, a Wall Street Journal analysis showed this week, and some businesses that reopened have shut back down.
WHAT TO WATCH TODAY
U.S. personal income for May is expected to fall 7.0% from the prior month and consumer spending is expected to rise 8.7% from a month earlier. (8:30 a.m. ET)
The U.S. personal consumption expenditure price index excluding food and energy for May is expected to be unchanged from a month earlier and rise 0.9% from a year earlier. (8:30 a.m. ET)
The University of Michigan consumer sentiment index for June is expected to tick up to 79.0 from a preliminary reading of 78.9. (10 a.m. ET)
Vice President Mike Pence leads a White House coronavirus task force briefing at 12:30 p.m. ET.
The Baker Hughes rig count is out at 1 p.m. ET.
TOP STORIES
Flattening the Wrong Curve
The number of workers seeking jobless benefits has held steady at about 1.5 million each week so far in June, signaling a slow recovery for the U.S. economy. While weekly totals have gradually eased from a late March peak of nearly 7 million, they remain well above the prepandemic record of 695,000 in 1982. Meanwhile, the number of people receiving benefits, an indicator for overall layoffs, totaled 19.5 million in the week ended June 13, down only slightly from previous weeks. Economists say the sluggish improvements in claims dim prospects for a quick recovery. Further, a recent increase in coronavirus cases could affect efforts to get people back to work and spending money, Sarah Chaney reports.
Containing Coronavirus
Texas paused reopening plans as new virus cases and hospitalizations increased. Gov. Greg Abbott also issued an executive order requiring hospitals in several counties to halt nonessential surgeries to increase capacity for coronavirus patients. In California, Gov. Gavin Newsom warned that a potential influx of coronavirus-related hospitalizations could affect reopening plans.
The Trump administration is trying to temper fears about a surge in cases in some parts of the country. Senior administration officials are distributing data to lawmakers and governors meant to show that the increases are concentrated rather than widespread across the country and that many of the new cases are being diagnosed in less vulnerable populations, Andrew Restuccia reports.
Once the center of the coronavirus crisis, Europe is looking ahead with new hope. More than a month since countries across the continent began lifting lockdowns, new infections are continuing to decline in most countries, despite concern about some new clusters. And there is optimism that a second wave, if it comes, won’t be as bad as the first. Much of Europe has used the lockdown period to build up new systems for testing, tracking down and isolating virus carriers. Millions of Europeans have made social distancing and mask wearing part of their daily routine, Margherita Stancati and Jason Douglas report.
Is there an economic red flag for more coronavirus cases? “The level of spending in restaurants three weeks ago was the strongest predictor of the rise in new virus cases over the subsequent three weeks,” JPMorgan Chase economist Jesse Edgerton said in an analysis of the bank’s credit card spending data. ” ‘Card-present’ restaurant spending (meaning in-person, rather than online, spending) is particularly predictive.” The results echo similar findings using OpenTable data, Mr. Edgerton said.
Trading Down
International trade has fallen off a cliff. The U.S. merchandise trade deficit widened in May as exports fell faster than imports. That echoes trends around the world. The Netherlands Bureau for Economic Policy Analysis recorded a historical 12.1% decline in the world trade volume in April as economies around the globe grappled with the new coronavirus. The bright side: April’s sharp decline was probably as bad as it will get for international shipments.
Take the Money and Run
U.S. banks are healthy enough to withstand the coronavirus crisis. But not without some pain. The Federal Reserve said a prolonged economic downturn could saddle the nation’s biggest banks with up to $700 billion in losses on soured loans and ordered them to cap dividends and suspend share buybacks to conserve funds, Ben Eisen and Andrew Ackerman report.
The Internal Revenue Service paid nearly $1.4 billion in stimulus checks to dead people, according to a Government Accountability Office report that provides the first tally of such payments. GAO said the IRS made almost 1.1 million such payments before Treasury Department officials determined that deceased people were ineligible and began asking recipients to return the money. Those checks amounted to less than 1% of the total stimulus payments, Richard Rubin reports.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Bank of Japan promised to do whatever it takes to keep 10-year bond yields close to zero. The result? It didn’t have to do much. “While the BoJ announced that the rapid pace of government bond purchases would not change, it turned out that the yield target approach allowed for a dramatic scaling back in purchases. In Japan’s case, the commitment to purchase whatever was needed to keep the ten-year rate near zero has meant that very little in the way of asset purchases have been required,” New York Fed economists Matthew Higgins and Thomas Klitgaard write at Liberty Street Economics.
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