Newsletter: Hey Big Spender

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Shop Till You Drop

U.S. shoppers stepped up spending in May as states eased restrictions to contain the novel coronavirus, boosting retail sales and adding another sign the economy is recovering from earlier lockdowns. Retail sales, a measure of purchases at stores, at restaurants and online, posted their biggest monthly jump in records dating back to 1992. Still, retail spending remained below pre-pandemic levels following a record drop in April. The swing in sales reflected the nature of the shock from the pandemic, where the coronavirus and related lockdown shut off an economy that previously was growing at a steady pace—and reopenings restored at least some demand for goods, Harriet Torry and Sarah Nassauer report.

Retail executives said government stimulus helped boost their sales in the end of April and May, but continued spending will depend on the labor market’s recovery. Other wildcards: How consumers and authorities will respond if there are coronavirus flareups, and whether Congress extends or replaces pandemic-related benefits such as a $600-a-week boost to unemployment insurance, which expires at the end of July.

WHAT TO WATCH TODAY

U.S. housing starts for May are expected to rise to an annual pace of 1.09 million from 891,000 a month earlier. (8:30 a.m. ET)

Federal Reserve Chairman Jerome Powell appears before the House Financial Services Committee at 12 p.m. ET.

Minneapolis Fed President Neel Kashkari participates in a virtual rural development forum at 11 a.m. ET, Atlanta Fed President Raphael Bostic speaks at an Atlanta Consular Corps online meeting at 12 p.m. ET and Cleveland Fed President Loretta Mester discusses coronavirus during a virtual Council for Economic Education event at 4 p.m. ET.

TOP STORIES

Long-Term Damage

Federal Reserve Chairman Jerome Powell said the economy faces potentially significant long-term damage from higher unemployment and a wave of small business failures despite recent signs of an economic rebound. Mr. Powell, appearing before the Senate Banking Committee, also warned that because recent job losses have fallen hardest on low-income workers, including minorities and women, the current downturn risked aggravating longstanding socio-economic disparities in living standards, Nick Timiraos reports.

Mr. Powell today returns, virtually, to Capitol Hill for a second day of testimony—and likely more questions about the economy and future economic relief measures. Mr. Powell on Tuesday signaled support for more spending in at least three broad areas: Aid for unemployed workers, funding for cities and states facing a budget crunch and confidence-inducing health measures such as virus testing and contact tracing.

“Until the public is confident that the disease is contained, a full recovery is unlikely.” —Fed Chairman Jerome Powell

Mixed Data

While retail data was robust, other indicators have been mixed. A measure of builder confidence improved, suggesting a rebound for construction activity and the broader housing market.

But the Fed’s industrial production report for May fell short of expectations, with only a modest gain for the manufacturing sector.

The overall mix of data led some economists to revise upward estimates for second-quarter gross domestic product. Even with a small boost, the loss of output is expected to be extreme. 

Bite Out of the Big Apple

New York City hotels went into the coronavirus crisis suffering from falling occupancy and room rates, mostly because of a glut of new development. Travel restrictions and a tattered economy have aggravated an already-bad situation. As many as 25,000 rooms, or 20% of New York’s total, might not reopen, analysts and hotel owners say. That is equivalent to the entire size of hotel markets in Louisville, Ky., or Jacksonville, Fla., Peter Grant reports.

Oh Lord, Won’t You Buy Me a Mercedes-Benz

After reopening factories and sorting out supply chains, Europe’s car makers are facing a new problem related to the coronavirus pandemic: a glut of unsold cars. New-car sales in the European Union, in its affiliate free-trade association partners and in the U.K. fell 57% in May from a year earlier, according to the European Automobile Manufacturers’ Association. Production is still well below precrisis levels, but with such comatose demand even this reduced output is creating a surplus of vehicles, William Boston reports.

Discount Bin

Deflation is returning to Japan—and may be spreading world-wide. While consumers welcome discounts at the store, deflation is generally considered bad for an economy because it can reduce corporate investment and growth—and ultimately bring down wages. In the worst case, all those declines can feed on each other, Megumi Fujikawa reports.

First Wave

“In recent days, the media has taken to sounding the alarm bells over a ‘second wave‘ of coronavirus infections. Such panic is overblown.” —Vice President Mike Pence

“People keep talking about a second wave. We’re still in a first wave.” —Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases

Second Wave

Authorities in Beijing raised the coronavirus alert for the city to the second-highest level and canceled a large number of flights in and out of the capital. The move comes as the city attempts to contain a cluster of infections associated with a wholesale meat-and-produce market.

WHAT ELSE WE’RE READING

The U.S. economy is rebounding. But it could require as much as $2 trillion more in stimulus to return it to its prepandemic trajectory. Former Obama economic adviser Jason Furman, Obama Treasury Secretary Tim Geithner, Bush economic adviser Glenn Hubbard and University of Maryland scholar Melissa Kearney in a new paper for the Aspen Institute’s Economic Strategy Group outline a series of proposals to boost incomes and employment, and support small businesses and state and local governments. The focus: “Any expenditure or tax cut of $1 that adds at least $1 to GDP should be pursued because it would generally not raise the ratio of debt to GDP in the short run and depending on the size of the multiplier and the persistence of the effects might improve fiscal sustainability over the longer run.”

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