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Essential Spending
Spending by Americans with the lowest incomes has registered a far bigger bounce since the worst of the Covid-19 crisis than spending among the better off. Considering that low-income workers have been hit hardest by the crisis as restaurants, hotels and other service-industry businesses laid off workers in droves, the recovery in spending among poorer Americans is striking. It speaks to the power of federal stimulus, including one-time payments to most households, the addition of $600 to weekly unemployment checks and the expansion of unemployment insurance. And it also underscores how lower-income consumers devote more of their budget to essential purchases such as clothing, food and housing than those at the top. But with many stimulus checks already spent, and with unemployed Americans scheduled to stop receiving the extra $600 a week in jobless benefits on July 31, poorer Americans’ wherewithal to spend is in danger of collapsing. Unless the job market is materially better by then, there is a risk of widespread financial distress, Justin Lahart writes.
WHAT TO WATCH TODAY
The International Monetary Fund updates its global economic growth forecasts at 9 a.m. ET.
Chicago Fed President Charles Evans speaks at 12:45 a.m. ET and St. Louis Fed President James Bullard speaks at 3 p.m. ET.
TOP STORIES
Ready for Takeoff?
The global economy is gradually pulling out of its stall as businesses reopen after pandemic-induced lockdowns. Output across the manufacturing and service sectors contracted at a slower pace in the U.S., Europe and Asia this month, according to surveys of purchasing managers. A U.S. composite index produced by data firm IHS Markit climbed to its highest level in four months—though it still indicated activity was in decline. The data could be a sign that the sharp drop in output that started in March has bottomed out and hints at stronger growth in coming months, Paul Hannon and David Harrison report.
Another sign that businesses are coming back—but not all the way: La-Z-Boy said it is ramping up furniture production. The manufacturer and retailer of reclining chairs, sofas and other home furnishings is moving toward 80% of prior-year production levels as July draws nearer, Chief Executive Kurt Darrow said. The company has called back about 6,000 workers it had furloughed. However, La-Z-Boy also has also moved to reduce its workforce amid the pandemic, saying earlier this month it was cutting 850 jobs, or 10% of employees around the world, Micah Maidenberg reports.
U.S. new-home sales picked up in May. “Pent up demand ahead of the virus outbreak and households’ shifting preference for more space as well as lower mortgage rates are likely boosting sales,” said High Frequency Economics economist Rubeela Farooqi. The pace of the labor-market recovery will be a key for the second half of the year.
Are protests affecting consumer demand? Perhaps in Minneapolis, but only a little and for just a few days. Data from Earnest Research shows the metro area’s consumer spending had been slightly outperforming the national recovery—until the week of May 28 to June 3, when both in-store and online spending growth rates fell much more steeply than the national deceleration in online spending. (Protests started May 26.) Even if protests were the cause, things started bouncing back by the next week. —Gwynn Guilford
Microsoft Chief Executive Satya Nadella laid out plans to double the number of black managers and senior leaders in the U.S. over the next five years. Microsoft, where black workers represented about 4.5% of U.S. workers in the most recent year, joins companies like Alphabet’s Google and Facebook in pledging to address racial injustice amid an outcry following George Floyd’s killing, Maria Armental reports.
Silicon Valley executives criticized President Trump’s order suspending new immigration on several employment-based visas programs, warning it could damage the U.S. tech industry’s competitiveness and ultimately jeopardize domestic job creation. The temporary ban, announced Monday, includes the H-1B type of visa for high-skilled workers many tech companies employ. Apple Chief Executive Tim Cook, Tesla CEO Elon Musk and Sundar Pichai, boss of Google-parent Alphabet, were among the executives who criticized the action, Asa Fitch and Aaron Tilley report.
[wsj-responsive-sandbox id = "0" ]Remember Brexit?
Traders’ sentiment toward the British pound has reached its lowest since the run-up to last year’s election as attention shifts from the coronavirus pandemic to stalled Brexit negotiations. The currency has weakened 1.8% against the dollar over the past 10 trading days, taking the decline this year to 5.6%. Britain officially exited the EU in January and both sides are hoping for a breakthrough by the fall toward a trade agreement. Without such a deal, the U.K. could face higher tariffs—and slower economic growth—starting next year, Caitlin Ostroff reports.
Warning to Poorer Nations
Latin America is the grim new center of the coronavirus pandemic, with more than two million people infected and 100,000 deaths. The region, with more than 30 countries from the Rio Grande in the north to Tierra del Fuego in the south, has 8% of the world’s population, but accounted for 47% of coronavirus deaths recorded in the past two weeks. The pandemic is taking a huge toll on the economies of poorer nations, sending poverty rates skyrocketing and eroding the social gains made in the past two decades. Mexico’s antipoverty agency predicts up to 10 million people will have fallen into poverty by the end of June, and in Peru the figure will likely be 2.5 million by year’s end, Luciana Magalhaes and Juan Forero report.
WHAT ELSE WE’RE READING
The U.S. is in the grip of two epidemics, and at least one isn’t getting better. “Well before Covid-19 struck, there was another epidemic running rampant in the United States, killing more Americans in 2018 than the coronavirus has killed so far. What we call ‘deaths of despair’– deaths by suicide, alcohol-related liver disease, and drug overdose–have risen rapidly since the mid-1990s, increasing from about 65,000 per year in 1995 to 158,000 in 2018. … [T]he most likely post-Covid America will be the same as pre-Covid America, only with even more inequality and dysfunction,” Princeton’s Anne Case and Angus Deaton write at Project Syndicate.
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