May 15, 2020

Axios Markets

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­čÄÖ ÔÇťI always knew looking back on my tears would bring me laughter, but I never knew looking back on my laughter would make me cry.ÔÇŁ - See who said it and why it matters at the bottom.

1 big thing: Why PPP is coming up short
Data: NFIB; Reproduced from Deutsche Bank; Chart: Axios Visuals

A report from the Census Bureau finds that three out of four U.S. small businesses have sought financial assistance through the Small Business AdministrationÔÇÖs Paycheck Protection Program, but data show that just a fraction of those have received funding.

  • While the first iteration of the PPP exhausted its $349 billion of capital in two weeks, the second round of the program still has nearly 40% of its funding left, almost three weeks after being launched.

What it means: There are more than 30 million small businesses in the country but just under 6 million have gotten the loans. That means it's likely many in need of funding haven't been able to get it or have chosen not to pursue it.

Why it matters: The PPP was designed to keep employers tied to their workers ensuring that more Americans could easily get their jobs back once the coronavirus outbreak was tamed and the economy could restart.

What happened: "Backlash against publicly traded firms that dipped into the funds, and heightened federal scrutiny have likely chased away some firms," TD Securities macro strategist Oscar Mu├▒oz writes in a note to clients.

  • "Limits imposed on the use of the funds to cover operational expenses other than payrolls have also diminished interest."
  • "Note that loans are fully forgiven if at least 75% is used to cover payroll costs."

Between the lines: Small business owners and various trade organizations also complained that the PPP's 60-day time constraint, delayed rollout, and the way it countered newly increased unemployment benefits meant many business owners simply didn't want it and others were unable to apply.

The last word: The real success or failure of PPP won't be known until we reach the eight week mark from when the loans were given out, Torsten Slok, chief economist at Deutsche Bank Securities, tells Axios.

  • "For the program to be a success ultimately you need to see one thing and only one thing: You need to see job growth go up in the millions in May and in June because thatÔÇÖs when we get closer to the deadline for companies to hire back their workers."
2. Catch up quick

GeorgiaÔÇÖs decision to allow businesses to reopen almost three weeks ago has so far not resulted in a surge of hospitalizations or death and may encourage other states to ease restrictions. (Bloomberg)

Chinese industrial output rebounded in April, but unemployment worsened and retail sales declined more than expected. (WSJ)

Top executives at J.C. Penney got big bonuses ahead of mass layoffs and an expected bankruptcy filling this week, the company reported. (The Hill)

The NYSE will reopen its trading floor the day after Memorial Day, its president says. (WSJ)

The Fed released its report detailing COVID-19's impacts on U.S. households. (Report on the Economic Well-Being of U.S. Households)

3. The ripple effects of oil's collapse
Data: Federal Reserve Bank of Dallas; Chart: Sara Wise/Axios

Axios' Ben Geman writes: The brutal downturn in oil markets is likely to create a substantial drag on the wider economy as energy companies slash spending, Dallas Fed economists say in a new analysis.

Why it matters: It shows how the U.S. production boom over the last decade-plus has raised the economic stakes when the industry thrives ÔÇö or takes a gigantic hit.

Driving the news: Oil-and-gas companies of all sizes are cutting investment as they grapple with the unprecedented pandemic-fueled collapse in demand and prices.

  • They estimate that U.S. producers' capital spending will decline by at least 35% in the second quarter en route to an even steeper annual decline.
  • That's steeper than declines in the 2008ÔÇô2009 financial crisis and the oil price collapse in the mid-2010s.
  • Companies are shutting down existing wells. The number of rigs deployed, which is a metric of current activity and future output, has also greatly slid.

The big picture: "The decline in oil and gas capital expenditures will be a major drag on U.S. business fixed investment in second quarter 2020," the report states, noting this investment is an important part of GDP.

  • "We estimate that investment declines in the energy sector alone may lead to a 6.1-percentage-point decline in U.S. fixed investment in the second quarter," it finds (emphasis added).
4. Millions more on unemployment
Data: U.S. Employment and Training Administration via St. Louis Fed; Chart: Andrew Witherspoon/Axios

The number of people receiving unemployment benefits is at its highest level ÔÇö┬á22.8 million ÔÇö in American history.

The big picture: 36 million Americans have filed jobless claims in the past two months, including 3 million last week, the lowest tally of that span, Axios' Courtenay Brown reports.

The better news: For those who've managed to get applications approved, the extra $600 a week should help avert household financial catastrophe.

  • The Treasury Department paid out $48 billion in unemployment in April, greater than three times the amount paid at the monthly peak of the 2007-09 recession.
  • Brookings Institution researchers estimated that the "April unemployment payments helped offset more than half of the wages and salaries that were lost during the month," the Wall Street Journal writes.

The bad news: The extra cash won't last forever, and timelines for economic recovery are becoming less optimistic.

  • "Several executives have said on earnings calls that they are expecting various other shapes of recovery ÔÇö U-shaped, L-shaped, and W-shaped among them ÔÇö that indicate that the rebound will be slower," WSJ reports.

The worst news: Most of the layoffs so far have been considered temporary, but that could change if their employers close for good in the months to come.

  • "One in every four U.S. restaurants will go out of business due to the coronavirus quarantines that have battered the food-service industry, according to a forecast by OpenTable," Bloomberg writes.

Between the lines: The pace of new applications has slowed from its peak in March, but are still more than four times the pre-pandemic record for claims filed in a single week ÔÇö 695,000 in 1982.

  • More Americans are eligible for unemployment, including gig workers, and unemployment offices are racing through an avalanche of unemployment filings.

The bottom line: Measuring the backlog is "like trying to measure the ocean, it's constantly moving," New York Labor Department commissioner Roberta Reardon said.

Thanks for reading!

Quote: "I always knew looking back on my tears would bring me laughter, but I never knew looking back on my laughter would make me cry."

Why it matters: Yusuf, previously known by the stage name Cat Stevens, is a British singer-songwriter and multi-instrumentalist who was inducted into the Rock and Roll Hall of Fame in 2014. He converted to Islam in December 1977.