Jul 14, 2020

Axios Markets

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🎙"When a country is suppressed by another politically, the native traditions of the art of the suppressed begin to die out. Then the artists also begin to lose their individual and the values of their own artistic idiom. Art, under this situation, is doomed." - See who said it and why it matters at the bottom.

1 big thing: PPP was not enough

Illustration: Sarah Grillo/Axios

The Paycheck Protection Program (PPP) has left much to be desired for needy small businesses around the U.S., and the overwhelming majority of recipients are about to exhaust their funding and may start laying off employees.

What's happening: A new survey from Goldman Sachs provided first to Axios finds 84% of PPP loan recipients will exhaust their funding by the first week of August and only 16% say they're very confident they will be able to maintain payroll if no further government relief is provided.

  • A recent survey by the right-leaning National Federation of Independent Business found 22% of PPP recipients anticipate having to lay off at least one employee after using their loan.

Why it matters: The PPP has been derided by some economists and researchers as inefficient and ineffective, but Goldman's survey shows that even for the businesses and employees it helped, it has not been enough.

The big picture: The $669 billion program was meant to be a bridge between government-imposed economic shutdowns and a reopened U.S. economy that would recoup its earlier strength.

  • Goldman's survey found 77% of loan recipients were able to maintain 75%–100% of payroll.
  • But extended lockdown periods, continued fear of the virus, and the recent uptick in new infections and deaths have meant small business owners are facing more significant troubles now than when the program was launched.

By the numbers: 63% of small business owners say less than 75% of their revenue before the pandemic started has returned.

  • 60% say that less than 75% of their customers from before the pandemic started have returned.

Between the lines: The picture is even worse for Black-owned businesses, Goldman notes.

  • 34% say less than 25% of their pre-coronavirus revenue has returned (compared to 20% of survey respondents overall).
  • 7% percent are very confident they will be able to maintain payroll if no further government relief is provided (Overall: 16%).
  • 28% believe they can survive another wave of the pandemic should similar shutdown protocols become necessary (Overall: 37%).

Of note: PPP applications were extended until Aug. 8 in an 11th-hour deal before the deadline expired June 30. However, there is still around $150 billion left unclaimed as few new borrowers have been approved for loans and more money has been returned.

2. Catch up quick

JPMorgan kicked off earnings season beating expectations and announcing record trading revenue. (CNBC)

The S&P 500 and Nasdaq ended lower on Monday, reversing earlier gains that saw the S&P touch its highest since Feb. 25 and Tesla go from up 16% to closing down 3% in one session. Meanwhile, Amazon, Microsoft and other recent big-name leaders of Wall Street’s rally closed at least 2% lower. (Reuters)

The federal government’s budget deficit soared to a monthly record high of $864 billion in June, higher than a comparable 9-month period in 2019 and on pace for a $3.7 trillion deficit for the year. (MarketWatch)

California closed indoor dining and bars, and two of its largest school districts won't reopen in autumn as a result of worsening coronavirus infections. (Bloomberg)

3. As stocks have risen, Americans have lost trust in the Fed

Data: Axios/Ipsos poll; Note: 1,063 U.S. adults were surveyed in July with a ±3.1% margin of error; Chart: Andrew Witherspoon/Axios

The number of Americans who say they have a great deal or fair amount of trust in the Federal Reserve fell to 41% in the latest Axios-Ipsos Coronavirus Index.

Why it matters: The results show that as the stock market rose to new highs and credit markets have shown significantly improved functioning over the past two months, Americans' trust in the Fed declined.

By the numbers: Mistrust of the Fed continues to continues to defy age, race and even level of education, with a majority of respondents across the board saying they either had very little or no trust at all in the central bank.

  • 6% of respondents say they trust the Fed a great deal, compared to 19% who say they do not trust the Fed at all.

One level deeper: However, the latest decline does largely reflect political leanings.

  • Trust has been little moved among Republicans, 54% of whom say they trust the Fed compared to 55% in May.
  • But just 37% of Democrats say they trust the Fed, down from May's 44%.
  • And 39% of independents trust the Fed, down 9 percentage points from May.

The intrigue: Surprisingly, the Fed's ratings don't improve much with investors.

  • Of those who own financial assets like stocks, 42% say they have some trust in the Fed versus 38% of those who don't own financial assets.

The big picture: "We are seeing a broad-based decline in confidence in all measures of government institutions stemming from the failure to contain COVID-19," Chris Jackson, senior vice president for Ipsos Public Affairs, tells Axios.

  • 32% of respondents in the latest poll said they had a great deal or fair amount of trust in the federal government.
  • That's down from 53% of respondents in the March 20–23 survey.
  • The Fed's falling ratings "are really just collateral damage," Jackson says.
4. The myth of closing the wealth gap through "stronger families"

Reproduced from Zaw e. al, 2017, "Women, Race & Wealth"; Note: "With children" refers to households with children under 18; Chart: Axios Visuals

In proposing fixes for the racial wealth gap in the U.S., public figures can conflate the effects of inequality with causes, researchers say.

What's happening: Often the increased rate of Black single motherhood or "Black family disorganization" is referenced as a reason for the gap in wealth accumulation.

  • "These explanations tend to confuse consequence and cause and are largely driven by claims that if blacks change their behavior, they would see marked increases in wealth accumulation," note researchers from the Samuel DuBois Cook Center on Social Equity in 2018.
  • "This is a dangerous narrative that is steeped in racist stereotypes."

Between the lines: "Compared to both white and Hispanic women, Black women marry later in life, are less likely to marry at all, and have higher rates of marital instability," a 2015 study posted to the National Institutes of Health library finds.

  • And marriage clearly helps increase family wealth. Data show that married Black women have substantially more wealth than single Black women.

Yes, but: "[W]ealth differences among white and black women persist despite type of family structure, marriage, age, or education," the DuBois Cook Center's study finds, tracking data from the Panel Study of Income Dynamics.

  • "In fact, single white women with kids have the same amount of wealth as single black women without kids."
  • "The median single-parent white family has more than twice the wealth of the median black or Latino family with two parents."

The state of play: The racial wealth gap among women and families is upheld in large part by intergenerational transfers "like financing a college education, providing help with the down payment on a house and other gifts to seed asset accumulation," per the DuBois Cook Center.

The bottom line: "[N]either marriage, a college education nor a lifetime of work provides the answer for equalizing opportunity between black and white women."

5. Atlanta and N.Y. Fed GDP forecasts diverge
Data: Atlanta Fed, N.Y. Fed; Chart: Axios Visuals

The New York and Atlanta Fed's GDP forecasts for the second quarter have diverged wildly since late May.

Details: The spread has come largely since late May as the Atlanta Fed's indicator pushed expectations for the quarter to below -40% after retail sales, industrial production and manufacturing data. The N.Y. Fed's metric remained elevated.

  • Similarly, late May readings of personal income and outlays and a series of advanced economic indicators sent the Atlanta Fed's GDP forecast below -50%, while the N.Y. Fed's forecast fell only as low as -35.5%.

Thanks for reading!

Quote: "I know that when a country is suppressed by another politically, the native traditions of the art of the suppressed begin to die out. Then the artists also begin to lose their individual and the values of their own artistic idiom. Art, under this situation, is doomed."

Why it matters: On July 14, 1917, painter and sculptor Ben Enwonwu, one of the most influential artists of the 20th century, was born in Onitsha, Nigeria. Enwonwu was the first African artist to be commissioned for a portrait of a British monarch in 1956, sculpting Queen Elizabeth II. He also painted what's known as the African Mona Lisa and the legendary "Tutu."

  • He is among a short list of artists to have a crater on another planet named for him — the Enwonwu crater on the planet Mercury.
  • Check out some of his most famous paintings here.