Newsletter: Long, Slow Recovery

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

Road to Recovery

Many retailers and restaurants, already crippled by the coronavirus pandemic, are grappling with damage to their properties and new closures following protests sparked by the death of George Floyd. Target, Walmart, Nike and small family businesses have collectively closed hundreds of locations or are recovering from looting and physical damage related to protests. Adidas said it was temporarily closing all its U.S. stores, while Amazon.com said it had scaled back or adjusted delivery routes in a handful of cities to protect employees, Sarah Nassauer and Heather Haddon report.

Even without the protests, the U.S. economy appears poised for a long, slow recovery. U.S. consumer spending, the U.S. economy’s main engine, fell by a record 13.6% in April, the steepest decline for records tracing back to 1959, Sarah Chaney and Gwynn Guilford report.

Federal rescue programs, including one-time payments of $1,200 and unemployment insurance, helped support incomes during the month. Even so, Americans’ expectations about the economy’s trajectory soured in May, underscoring the uncertain outlook.

WHAT TO WATCH TODAY

IHS Markit’s U.S. manufacturing index for May is out at 9:45 a.m. ET.

The Institute for Supply Management’s May manufacturing index is expected to rise to 44.0 from 41.5 the prior month. (10 a.m. ET)

U.S. construction spending for April is expected to fall 5.8% from the prior month. (10 a.m. ET)

TOP STORIES

Speed Bump

China’s economic recovery hit a speed bump in May. More and more Chinese factories have reopened for work in the past three months as authorities have eased their once-aggressive coronavirus measures. But now they are facing the dire reality of falling orders from overseas customers. The conundrum can be seen in gauges of China’s factory activity. China’s official manufacturing purchasing managers index showed expansion for the third straight month but the magnitude of the gains fell. Worryingly, the new-export-orders subindex, a gauge of external demand, continued to remain deep in contractionary territory. The result: Production is more robust than demand and the pace of the economic recovery is slowing, Jonathan Cheng reports.

Private gauges of factory activity for China, the U.K. and the eurozone told a similar story: tepid expansion in China alongside weak demand in Europe. While measures of activity in Europe again signaled contraction, they were better in May than April. “The survey brings hope that the goods-producing sector may at least see some stabilisation—and even potentially a return to growth—in the third quarter,” said IHS Markit economist Chris Williamson.

Hong Kong is widening the U.S.-China divide. President Trump’s decision to downgrade relations with the city shows how his clashes with China increasingly feature ideological differences that are more difficult to resolve than trade disputes.

The American semiconductor industry is gearing up for a lobbying push to obtain billions of dollars in federal funding for factory building and research to keep the U.S. ahead of China and other countries that heavily subsidize their chip industries, Bob Davis, Asa Fitch and Kate O’Keeffe report.

Leading market economies are erecting new walls against foreign investment and suspicious trade practices, spurred by coronavirus-triggered economic upheaval and China’s increasing assertiveness. Free-market countries world-wide have pumped out trillions of dollars in subsidies and have enhanced their defenses against foreigners bargain-hunting prized companies in sectors including technology, mining and pharmaceuticals, Valentina Pop reports.

Demand Curve

Plexiglass is the new hot commodity. Manufacturers are racing to crank out the hand sanitizer, masks and clear plastic dividers that are emerging as integral elements for reopening the U.S. economy. Stepped-up demand has sent prices for materials soaring: The alcohol used in sanitizer has tripled in price since January. Wait times for plexiglass-style sheeting are now measured in months rather than weeks. Scores of companies are hunting for fabrics that block virus-laden particles to supply their employees with masks, Sharon Terlep and Austen Hufford report.

A national meat-supply crunch is beginning to ease. But consumers are still paying more as production remains hampered by Covid-19 and grocery distributors struggle to get some orders filled. The U.S. food industry heads into the summer months with beef and pork production last week about 7% lower than the same time last year, Jacob Bunge and Jaewon Kang report.

American drivers are starting to take advantage of low gasoline prices as states loosen travel restrictions. More people on the roads is a boon for the energy industry and a hopeful signal for the U.S. economy, Amrith Ramkumar reports.

Back to School

A number of countries that have reopened schools in the past two months have reported no resulting increase in coronavirus infection rates, an encouraging sign for authorities around the world that are contemplating how and when to safely bring children back to the classroom. Researchers and European authorities said the absence of any notable clusters of infection suggested that children aren’t significant spreaders of the new coronavirus, Bojan Pancevski and Naja Dandanell report.

WHAT ELSE WE’RE READING

Coronavirus doesn’t need lockdowns to destroy jobs. “At most half of the job losses in the U.S. and U.K. can be attributed to lockdowns. … Our finding suggests that the lifting of lockdowns in the U.S. and U.K. may lead to only modest recoveries in employment unless Covid-19 infection rates fall,” Sangmin Aum, Sang Yoon (Tim) Lee and Yongseok Shin write in a National Bureau of Economic Research working paper.

SIGN UP FOR OUR CALENDAR

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 https://ift.tt/3gGISf8