Jun 17, 2020

Axios Markets

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🎙 “It isn't that life ashore is distasteful to me. But life at sea is better.” - See who said it and why it matters at the bottom.

1 big thing: PPP failed to get money where it was most needed

Data: S&P Global; Table: Axios Visuals

With the deadline for businesses to secure funding from the Small Business Administration's Paycheck Protection Program (PPP) less than two weeks away, the most high profile portion of the $2 trillion CARES Act looks to have left out the people who needed it most.

Driving the news: Fed chair Jerome Powell said during his testimony to the Senate Banking Committee Tuesday that despite the nearly $700 billion program, the coronavirus pandemic was "presenting acute risks to small businesses."

Between the lines: That seemed to be doubly true for black-owned businesses, which were statistically much more likely to need the funds.

  • Research shows 41% of black business owners have shut their doors since the pandemic started, perhaps in part because, according to a recent analysis, 95% of black-owned businesses were shut out of the PPP.

Details: An April Fed survey found some 21% of black-owned businesses were financially "distressed" at the end of 2019 compared to 5% of white-owned businesses.

  • Black-owned small businesses also are highly concentrated in retail, restaurants and other service industries most affected by the shutdowns, Reuters noted.
  • The ACLU and other civil rights organizations filed a lawsuit Tuesday, claiming PPP unfairly denied black and Latino business owners PPP loans.

The big picture: PPP money generally missed the industries and areas most heavily impacted by COVID-19.

  • A second analysis of the program from S&P Global U.S. chief economist Beth Ann Bovino finds just 42.4% of total PPP loans approved went to service industries significantly affected by social distancing — even though the sector accounted for 66.8% of job losses.
  • Similarly, seven of the 10 states that received the smallest dollar amount of loans were among the 10 states with the highest number of people approved for unemployment claims as of May 23.

What's next: There remains approximately $100 billion of government funding allocated for PPP that has not yet been claimed.

The last word: "While the opening of some states may have come just in the nick of time for some businesses in the service sector, there is still a long way to go," Bovino said in the report.

  • "It remains unclear how many of these companies survived, or will survive, the first stage of the sudden-stop recession. That may make the climb back to prepandemic economic levels even steeper."
Bonus chart: Coronavirus racial disparities are worse than we thought

Adapted from Brookings; Chart: Naema Ahmed/Axios

In addition to not getting business loans from the government, black people also have been dying at a much higher rate over the last few months.

What's happening: Black and Hispanic/Latino Americans have coronavirus mortality rates as much as 10 times higher than white Americans' when age is taken into account, according to a new analysis by the Brookings Institution, Axios' Caitlin Owens writes.

  • When age is taken into account, the death rate for black Americans is 3.6 times that of white Americans, and Hispanics' is 2.5 times higher.

The bottom line: "Race gaps in vulnerability to Covid-19 highlight the accumulated, intersecting inequities facing Americans of color (but especially Black people) in jobs, housing, education, criminal justice – and in health," the study's authors write.

2. Catch up quick

Morgan Stanley’s former global head of diversity is suing the bank for racial discrimination and retaliation, saying she was fired after 26 years for pushing too hard to get the bank to change its ways. (N.Y. Times)

A U.S. appeals court ruled the SEC cannot force stock exchanges to conduct a costly experiment to see how the fees they charge and the incentives they offer affect brokers’ trading habits. (Reuters)

The European Commission launched two formal probes into whether Apple violated competition laws through its Apple Pay service and App Store. (WSJ)

Low-dose steroid treatment dexamethasone could cut the risk of death from COVID-19 by a third for patients on ventilators and by one-fifth for patients receiving oxygen, health experts say. (BBC)

3. Mortgage applications jump for 11th week in a row

Data: Mortgage Bankers Association; Chart: Naema Ahmed/Axios

Mortgage applications rose 8% from one week earlier for the week ending June 12, up for the 11th straight week and hitting the highest level in more than 11 years, according to data from the Mortgage Bankers Association.

What they're saying: “The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement.

  • “Mortgage rates dropped to another record low in MBA’s survey, leading to a 10 percent surge in refinance applications. Refinancing continues to support households’ finances, as homeowners who refinance are able to gain savings on their monthly mortgage payments in a still-uncertain period of the economic recovery.”

State of play: While refinancings are helping buoy the housing market, their share of total applications remains below highs seen in previous recessions, especially given all-time low mortgage rates.

  • That suggests the demand is due to consumers buying and not just current homeowners hoping to lower their monthly payments.
  • The refinance share of mortgage activity increased to 63.2% of total applications from 61.3% the previous week (see above chart).
4. Retail sales pop after record drop, but remain at multiyear low

Data: U.S. Census Bureau; Chart: Axios Visuals

U.S. retail sales rose by 17.7% in May over April's reading, the largest month-over-month increase on record. However, year over year, sales declined by 6.1%.

On one side: Excluding the prior two months, May's $485.5 billion of sales was the lowest since August 2017.

  • Retail sales have been under $500 billion in each of the past three months after holding above that marker every month since May 2018.
  • Even after this month's bounceback, the decline from February to May is nearly equal to the largest decline recorded in a similar period during the Great Recession.

On the other side: May's increase came during a time when parts of the country remained under quarantine orders and some states had yet to fully reopen.

  • And the 17.7% monthly jump is the largest in U.S. history.
5. SCOTUS ruling on LGBTQ rights should boost growth

This week's Supreme Court ruling that American companies cannot fire workers for their sexual orientation "is good news for the U.S. economy," Paul Donovan, chief economist at UBS Global Wealth Management, writes in a note to clients.

  • In fact, he says, "The impact is potentially quite big."

The big picture: The decision provides employment security to an additional 5% of American workers and gives the U.S. an international comparative advantage.

  • "Around 60% of the countries in the world still allow your boss to fire you if they do not like who you date," Donovan says.
  • That could mean the U.S. attracts and retains a higher number of the international workforce than it would have previously.

Further, "If prejudice could cost someone their job, they needed cash as insurance. If that risk is reduced, LGBTQ+ investors can consider more diverse investment options. Taking money out of idle cash balances to invest should be positive for the economy."

Finally, the ruling should increase labor mobility as LGBTQ+ workers no longer have to fear moving to states (which were previously about half of the U.S.) where employers had legal permission to fire an employee for their sexual orientation.

  • This should increase productivity and employment, Donovan argues.
  • "Mobility will be important with the structural changes of the fourth industrial revolution."

Quote: “It isn't that life ashore is distasteful to me. But life at sea is better.”

Why it matters: Sir Francis Drake, a notable English maritime navigator, played a vital role in the English colonization of the Americas when he landed in what is now California on June 17, 1579.

  • The first research report I ever wrote was about Sir Francis Drake in third grade.
  • Drake was one of the most renowned sailors of his time, famed for his role in the English victory against the Spanish Armada in 1588, and being a pioneer in circumnavigating the globe.
  • He also played a central role in the foundation of England’s involvement in the slave trade, which I did not learn when I wrote my research paper about him.