Newsletter: Fiscal Cliff

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It’s a big week for fiscal and monetary policy, with unemployment benefits running out for millions of Americans, Senate Republicans ready to roll out a pandemic-response package and the Federal Reserve set to issue a statement. Jeff Sparshott here with the latest economic news to start the week.

Speed Limit

The U.S. economy lagged in July and Europe’s bounced back, evidence that the two economic powerhouses are recovering at different speeds from the coronavirus pandemic. In the U.S., output in the service sector shrank for the sixth consecutive month as companies faced a wave of coronavirus cases that prompted new restrictions in several states. Manufacturing output expanded for the first time since February as new orders ticked up. Overall, economic activity in the U.S. was unchanged. In Europe, overall activity increased at the fastest pace in more than two years after four months of contraction, Paul Hannon and David Harrison report.

The divergence suggested that European countries could be benefiting from the strict lockdowns they pursued in the spring, as well as current policies regarding mask wearing, social distancing and bans on large gatherings. Most European countries are seeing just several hundred cases of new infections a day, compared with several thousand at the peak of the crisis. 

WHAT TO WATCH TODAY

U.S. durable goods orders for June are expected to rise 5.4% from a month earlier. (8:30 a.m. ET)

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

TOP STORIES

Deadline: Yesterday

Republicans are set to release their proposal for the next coronavirus relief bill on Monday, with millions of Americans on the verge of losing expanded unemployment benefits. The Republican bill, estimated to cost about $1 trillion, will include another round of direct $1,200 payments to many Americans, $100 billion in aid to schools and universities and additional money for coronavirus testing, according to administration officials. A $600-a-week supplemental unemployment benefit is a major point of contention. Because of how states process aid, the benefit effectively ran out this weekend for many Americans, though it is officially set to expire on July 31. Democrats want to extend it through January, while Republicans, saying the benefit discourages people from returning to work as parts of the economy reopen, are looking to rejigger benefits so that they replace roughly 70% of a worker’s former wages, Rebecca Ballhaus and Andrew Duehren report.

Federal Reserve officials meet Tuesday and Wednesday facing growing doubts about the prospect for a sustained economic rebound. Officials have warned this month in speeches and interviews that the economy faces a deeper downturn and more difficult recovery if the country doesn’t take more effective action to slow the spread of Covid-19 infections. The Fed isn’t likely to roll out new stimulus measures this week but is debating how to provide more support to the economy once the economic outlook becomes clearer, Nick Timiraos reports.

Jumbo mortgages aren’t the cheapest anymore. The reversal is just one of the ways the coronavirus crisis has wreaked havoc on the mortgage market. The same force pushing most mortgage rates to record lows—investors piling into safe-haven assets like government bonds—has pushed jumbo loans out of favor, Orla McCaffrey reports.

Gold prices rose to a new closing record for the first time since 2011, extending a summer surge fueled by nervous investors adding bullion to their portfolios as the coronavirus muddies the global economic outlook, Amrith Ramkumar and Joe Wallace report.

Big Old Jet Airliner

Boeing and Airbus are making planes that airlines aren’t collecting, as the coronavirus pandemic wreaks havoc on travel and the aerospace industry. Boeing delivered 20 aircraft in the second quarter, the lowest quarterly total since 1963, the early part of the jet age. Airbus reported delivering 74 jets in the second quarter, down from 227 in the same period a year before. The drop in deliveries has added financial stress at the plane makers, which analysts expect to report burning through billions of dollars in cash during the second quarter, Andrew Tangel reports.

Around the World

Australia reported only a handful of new coronavirus cases in early June, while Hong Kong went three weeks without a single locally transmitted infection that month. Japan had already lifted a state of emergency in May after the number of new cases dropped to a few dozen nationwide. All three reported new high-water marks in daily infection numbers in the past week, showing how difficult it can be to keep the virus at bay, even in places lauded for taking early and decisive action. The fresh waves demonstrate the tricky balancing act authorities face as they attempt to reopen their economies, Philip Wen and Joyu Wang report.

South Africa is battling one of the world’s fastest-growing coronavirus outbreaks. South Africa’s sharp increase in hospitalizations and deaths in recent weeks followed the June reopening of large parts of the economy. It is a Catch-22 that spotlights how economic realities are restricting politicians’ ability to act against the pandemic in low- and middle-income countries that can’t afford the large stimulus packages adopted by richer nations, Gabriele Steinhauser and Aaisha Dadi Patel report.

Russia’s central bank cut its key interest rate to a record low as the coronavirus pandemic has pushed the economy into a deep recession. The bank on Friday lowered its benchmark rate by 0.25 percentage point to 4.25%, following a one-percentage-point cut in June to a post-Soviet low. The bank’s move makes lending to businesses and consumers cheaper in an economy hit hard by a twin strike of lockdowns and lower oil prices, Georgi Kantchev reports.

WHAT ELSE WE’RE READING

Rescues are ruining capitalism. “When the pandemic passes, authorities need to shift out of rescue mode and start weaning capitalism off easy money and bailouts. They have to recognize how heavy government intervention is distorting the price signals that make free markets efficient in allocating capital. Otherwise, they will continue creating more zombies and monopolies, widening inequality, undermining productivity and slowing growth. For all their good intentions, they will continue to feed the dysfunction that is alienating younger generations and deforming capitalism,” Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, writes in the WSJ.

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