Axios Markets

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September 16, 2020

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🚨 Spain's Caixabank and Bankia are set to announce a merger. (Reuters)

🎙 "It's better to be a pirate than to join the Navy." - See who said it and why it matters at the bottom.

1 big thing: Leaving the jobs behind

Illustration of an empty suit with smoke where the head would be. 

Illustration: Aïda Amer/Axios

Businesses are positioning themselves for an increasingly competitive landscape by doing everything they can to ramp up productivity and cast off excess costs.

Why it matters: Much of that cost savings will likely come from cutting jobs and adding new ones more slowly, as companies look to invest in new technology and what Carlyle Group's head of global research Jason Thomas calls intangibles.

  • Intangibles are things like R&D, software, patents or "inventory management technology, customer acquisition software ... to increase efficiency and dampen the practical impact from cutbacks in other areas," he writes in a new paper.

What we're hearing: "Almost every client that we deal with, irrespective of sector, is trying to drive cost down and make their products and services more affordable," Tim Ryan, U.S. chair and senior partner at consulting and tax firm PwC, said during a call with reporters Tuesday.

  • "Regardless of sector, most would tell you that they operate in a hyper-competitive sector — whether it be retail, insurance, health care — and there has been this ongoing focus and search for productivity and ways to drive costs down to be more competitive."

What's happening: The dueling realities of the U.S. K-shaped recovery not only mean that some industries and workers will suffer big losses while others prosper, it also means there are limited spoils for the winners.

  • Now fighting for a “bigger piece of a smaller pie” and unable to raise prices meaningfully — but also needing to push forward with technology upgrades and investment to compete — businesses have already begun looking at cutting back in other areas.

The big picture: Companies historically spend more money on things like software, patents and content, while spending less on employees, facilities, warehouses and delivery trucks coming out of recessions.

  • Carlyle's data show the percentage of fixed income spending used on intangibles has increased — rising following every recent recession, from 3.4% after the 1981–82 recession to 7.5% following the 2007–2009 recession.
  • The share is on pace to grow to 11% in 2020.

The bottom line: "Past increases in the intangible share of corporate outlays have been associated with slower recoveries in employment," Carlyle's Thomas says.

  • "If that relationship holds this cycle, a return to full employment in the U.S. may be much further off than the late 2021 or 2022 recovery in GDP."

Bonus chart: Election expectations

Adapted from PwC; Chart: Naema Ahmed/Axios

Adapted from PwC; Chart: Naema Ahmed/Axios

The stock market has shown limited reaction to changes in polling on the presidential election and PwC's latest survey of top executives show most have largely similar plans for the future regardless of who wins in November.

Watch this space: The PwC survey also showed that execs are almost uniformly in support of additional stimulus measures, with 95% saying some type of fiscal policy is needed and 78% saying their own business needs further fiscal policy support.

Of note: Congress' inability to agree on new stimulus measures could add further to the downside on jobs. Without additional relief, Morgan Stanley analysts estimate the economy will take an additional six months to return to where it was before the pandemic, until the fourth quarter of 2021.

2. Catch up quick

The Fed will hold a press conference following its latest policy meeting today. Its Main Street Lending Program has provided 0.2% of the program's dedicated funding to struggling business owners. (Bloomberg)

A bipartisan group of 50 House members unveiled a roughly $2 trillion coronavirus stimulus bill. (Axios)

The FTC is preparing an antitrust lawsuit against Facebook, having spent more than a year investigating concerns the company has been using its market position to suppress competition. (WSJ)

U.S. Trade Representative Robert Lighthizer called the World Trade Organization "completely inadequate" after the body ruled U.S. tariffs on $200 billion of Chinese imports violated its trade rules. (Reuters)

3. Lofty Q3 GDP expectations stall and diverge

The latest real-time Fed estimates of U.S. GDP from the New York and Atlanta Fed “nowcasting” models both show the economy’s momentum has slowed over the summer, but diverge widely.

By the numbers: The Atlanta Fed's model has jumped thanks largely to better-than-expected readings on ISM manufacturing and services sector and government GDP and employment data.

  • The New York Fed's model put less emphasis on the ISM surveys, which track sentiment rather than hard numbers.
  • The New York Fed's forecast also puts greater emphasis on import and export data, which is particularly negative for the U.S. as it has had to import an increasing amount of goods from China, where most of the medical equipment needed to deal with the coronavirus pandemic is made.

The big picture: After GDP declined by 32% in the second quarter, the most in history, growth is expected to bounce back strongly in the third.

Between the lines: The Atlanta Fed notes that a collection of forecasts from "blue chip" economists estimates Q3 GDP at just over 20%.

4. Working from (your parents') home

Illustration of laptop on a mini child’s desk.

Illustration: Eniola Odetunde/Axios

Axios' Erica Pandey writes: Nearly 30 million Americans are spending their 20s in the same place they spent their grade school years: at home with their parents.

The big picture: For the first time since the Great Depression, the majority of 18- to 29-year-olds have moved back home. Those living arrangements can come with a great deal of awkwardness and pain, but families across America are making the most of it.

"I’m worried about it," says Jeffrey Arnett, a psychologist at Clark University, who coined the term "emerging adults" for 18- to 29-year-olds. "I think we all should be. The rates of being depressed and anxious have really gone up among emerging adults."

Reasons for moving home vary. The coronavirus recession has hit young people especially hard, and many are living with family because they've lost their jobs or haven't been able to find work after college or grad school. Others wanted some company during lockdowns.

  • "You can’t imagine how great it is to hear that I’m in the majority of my generation," says Elsa Anschuetz, a 24-year-old working in public relations out of her childhood bedroom.
  • "It is definitely not where I thought I’d be at this stage in my life, but, at least to me, it is definitely better than living in an apartment alone during this crazy pandemic."

But, but, but: There's a host of unforeseen consequences that come with moving back in with parents, young people say.

And for those in their late 20s, who likely had been living on their own for years, returning home can be even more painful. "It’s much harder, and it feels like much more of a retreat," Arnett says.

5. Eurozone economic sentiment rises to the highest in 16 years

Data: ZEW; Chart: Axios Visuals
Data: ZEW; Chart: Axios Visuals

The September reading of the eurozone’s ZEW survey of economic growth expectations rose 10 points from August to 73.9, the highest level in 16 years.

By the numbers: The September reading of Germany’s ZEW survey also rose, hitting 77.4, which is up six points and about eight points higher than the estimate.

  • The survey results for the current situation was a full 15 points higher than the month before.
  • The index was last positive in June 2019.

What they're saying: “The ZEW Indicator has increased again, signalling that the experts continue to expect a noticeable recovery of the German economy,” said ZEW president Achim Wambach.

  • “Stalled Brexit talks and rising COVID-19 cases could not dampen the positive mood.”

Thanks for reading!

Quote: “It's better to be a pirate than to join the Navy.”

Why it matters: On Sept. 16, 1997, Apple named co-founder Steve Jobs its interim CEO.

  • Jobs took the position after having left Apple years earlier.
  • Upon his return, he oversaw the introduction of the iMac, iTunes, iPod, iPad and the iPhone, and Apple became the most valuable company in the world.