Jerome Powell tells lawmakers a prolonged downturn could exacerbate inequality.
Jerome H. Powell, chair of the Federal Reserve, told lawmakers on Tuesday that the path to economic recovery remains uncertain and warned that a prolonged downturn could widen existing inequalities.
While some parts of the economy are seeing a modest rebound, “levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” Mr. Powell said in testimony before the Senate Banking Committee.
Mr. Powell stressed that the damage could be long-lasting if the pandemic drags on, particularly for lower-income workers.
“Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African-Americans, Hispanics, and women have been greater than that of other groups,” Mr. Powell said. “If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”
Mr. Powell’s remarks, part of his two-day semiannual testimony before Senate and House lawmakers, come as communities across the United States continue to protest systemic racial inequality after a black man’s death at the hands of the police in Minneapolis in late May. Black Americans are often at a stark disadvantage in the labor market, and along with other minority groups, they have been hard-hit by pandemic-era job losses.
The Fed chair told lawmakers that a full economic recovery is unlikely until the public is confident that the disease is contained.
Retail sales rebounded in May after April’s record drop.
National retail sales rebounded in May as thousands of stores and restaurants reopened after lockdowns were lifted and federal stimulus checks and tax refunds fueled a burst of spending. But many of the stores and restaurants that welcomed back customers last month did so with fewer employees, reflecting a permanently altered retail landscape and an ominous sign for the economy as it tries to recover from the coronavirus pandemic.
Total sales, which include purchases in stores and online as well as money spent at bars and restaurants, rose 17.7 percent in May from the previous month, the Commerce Department said Tuesday. That followed a 14.7 percent drop in April, the largest monthly decline in nearly three decades of record-keeping, and an 8.3 percent decline in March.
Economists had expected a bounce back from April, when widespread business closures drove retail sales to their lowest level since 2013.
The rise in May is the largest monthly surge on record — drawing a celebratory Twitter post from President Trump — but the retail industry is nowhere near back to normal. Overall sales were still down 8 percent from February. Some categories, like clothing, were down as much as 63 percent from a year ago.
After more than a month of quarantine, May brought a tentative restart of brick-and-mortar retail across most of the country, with major chains like Macy’s and Gap reopening hundreds of stores. Some restaurants that had either closed or shifted their business to delivery and curbside pickup also reopened for in-person dining.
Driving some of the sales gains was warm weather, a sense of relief after weeks cooped up at home and optimism from some that the worst of the pandemic could be over. But they were also lifted by stimulus money — totaling $1,200 per recipient, plus $500 per child — that will run out in the coming months, with no indications that Congress intends to pass another round of assistance.
“I think a lot of it is lockdown fatigue,” said Beth Ann Bovino, chief U.S. economist at S&P Global. “I would caution not to be fooled by this large gain. We still have a long way to go in repairing the economy.”
After slaughterhouses in several states were closed when thousands of workers tested positive and dozens died, the industry publicly lobbied the Trump administration to intervene with state and local officials or risk major meat shortages across American grocery stores.
Some retailers put limits on the amount of meat customers could buy, and the fast-food chain Wendy’s, at one point in May, ran low on hamburger.
Smithfield Foods was the first company to warn in April that the coronavirus pandemic was pushing the United States “perilously close to the edge in terms of our meat supply.” In April, Smithfield sent China 9,170 tons of pork, one of its highest monthly export totals to that market in the past three years. Tyson Foods, which said that “millions of pounds of meat will disappear” from the nation’s supply chain, exported 1,289 tons of pork to China, the most since January 2017.
After decades of relatively stagnant pork consumption in the United States and a recent thaw in the trade war with China, this was the year that the pork exports were set to take off.
“The meat companies were saying the sky was falling, and it really wasn’t,” said Tony Corbo, a senior lobbyist at Food & Water Watch, a consumer and environmental watchdog group.
The industry stands by its warnings about shortages and the need to keep the plants operating. “As long as our nation’s harvest facilities continue to operate, not only do we have enough meat to feed Americans, but also to feed the world,” Smithfield said in a statement.
Wall Street’s roller coaster continued on Tuesday, as investors cheered a surprisingly strong rise in retail sales and a new study on a potential treatment for Covid-19 and contended with reports of new cases in the U.S. and measures in China to contain a fresh outbreak.
The S&P 500 was up more than 2 percent by midday, but off its highest points of the day. Oil prices also rose, though they were also off their highs. Benchmark American crude oil was up more than 1 percent, after rising more than 4 percent earlier.
Investors have become more wary of a potential second wave in coronavirus cases, one that could force governments to reinstate restrictions that would damage global growth. That concern has competed with investors’ hopes for a return to normal in the economy.
On Tuesday, both factors were on display. Stocks initially rose more than 2 percent, after data showed that retail sales jumped 18 percent in May, a stronger than expected rebound. It was the biggest jump on record, after the biggest-ever collapse the previous month. Even after the surge in May, retail sales remain 8 percent below their February level, “indicating that the recovery in consumption is only partial at this stage,” wrote analysts with Oxford Economics.
Retail stocks like Nordstrom, Kohl’s, Gap and L Brands rose in early trading. Bulls were also heartened by news that scientists at the University of Oxford said on Tuesday that a 6,000-patient trial in Britain showed that a low-cost steroid, dexamethasone, could reduce deaths significantly for hospitalized Covid-19 patients.
That optimism helped lift share prices for companies in industries especially exposed to the virus. Airlines, cruise lines and casino companies rose.
The bounce on Tuesday followed a sudden swing in sentiment on Monday, after the Federal Reserve announced that it would start to buy corporate debt issued by individual firms. The Fed chair, Jerome H. Powell, said Tuesday that while the corporate bond market had calmed considerably, the central bank must follow-through on its prior announcements.
“I don’t see us as wanting to run through the bond market like an elephant, doing things and snuffing out price signals and things like that,” Mr. Powell said. “We just want to be there if things turn bad in the economy or if things go in a negative direction.”
Traders were also reacting to a Bloomberg News report that the Trump administration was considering $1 trillion in infrastructure spending to help the economy rebound. Infrastructure related shares such as Caterpillar and asphalt maker Vulcan Materials and crushed stone and aggregate producer Martin Marietta Materials rose.
But a series of updates about coronavirus cases undermined some of that optimism.
China reported 27 new cases in Beijing, where there has been a fresh outbreak, and the government reimposed some travel restrictions and locked down some residential areas in the city as it fought to contain the infections. In the United States, coronavirus cases in Florida and Texas continued to spike.
After being criticized for not doing enough to make passengers wear masks, the nation’s biggest airlines said on Monday that they would get tougher on people who refused to cover their faces.
Airlines for America, a trade association, said that its members would take masks more seriously, including by not letting people without face coverings get on planes. But many big airlines have said that before, and passengers concerned about their health have pointed out that enforcement on board has often been lax.
“U.S. airlines are very serious about requiring face coverings on their flights,” Nicholas Calio, the chief executive of Airlines for America, said in a statement. “Face coverings are one of several public health measures recommended by the C.D.C. as an important layer of protection for passengers and customer-facing employees.”
According to the association, all of four of the largest U.S. airlines — Southwest Airlines, American Airlines, Delta Air Lines and United Airlines — have agreed to communicate their mask policies to customers before flying, reiterate the requirements in onboard announcements and enforce them when customers refuse to comply. Southwest issued a separate statement saying that it would “deny boarding” to passengers that refused to comply with its face covering requirement.
United said that, starting Thursday, any passenger who openly disregarded its rules could face a temporary travel ban on future flights. The airline, like others, grants exceptions for those with a medical condition or disability that prevents them from wearing a mask, as well as those who cannot put on or remove a mask themselves and small children. Customers may remove their masks to eat and drink.
The airline association said each airline would establish its own punishment for passengers who refuse to comply, “up to and including suspension of flying privileges.”
Airlines have so far been reluctant to publicly establish clear consequences for failure to wear face coverings, and many passengers have chided the companies on social media with photos of planes filled with people not wearing masks and sitting close to each other.
A strong rebound in oil demand is predicted, but airlines will lag.
The International Energy Agency forecast Tuesday that demand for oil, which has been slammed by the coronavirus pandemic, would rebound by a record amount next year but would still remain below 2019 levels largely because of what it called “an existential crisis” in commercial aviation.
Demand, especially among large oil importers like China and India, is already recovering rapidly from the April lows, the Paris-based group said. The agency forecast that demand will increase by 5.7 million barrels a day in 2021, but even this growth would not be enough for consumption to completely recover from the drop of 8.2 million barrels a day expected for 2020.
Most of the lingering shortfall is likely to be in aviation fuel, the group said, as travel restrictions designed to prevent the spread of the virus weigh heavily on long-distance flying.
The agency said in its Monthly Oil Report, published Tuesday, that the aviation recovery may depend on the discovery and dissemination of a vaccine for the virus, which it said might require another 12 to 18 months.
Overall, the agency’s analysis seemed to support the recovery in oil prices from their April lows. In the agency’s view, demand for oil may exceed output by the third quarter of this year if deep cuts by the Organization of the Petroleum Exporting Countries and Russia and well shutdowns in countries like the United States persist.
The fitness chain 24 Hour Fitness filed for Chapter 11 bankruptcy protection on Monday, after the coronavirus pandemic forced its clubs to shut for nearly two months.
“Put simply, the Covid-19 pandemic upended the debtors’ operating model, leaving the debtors without a source of revenue to fund their operations,” the filing stated.
The national gym chain said in its bankruptcy filing that it had permanently closed 100 locations across 14 states. But the chain is expected to re-emerge: It has secured $250 million in funding to reopen some of its clubs, and expects a majority of its remaining 300 locations to be open by the end of June.
The pandemic has been particularly devastating to the gym industry. Also on Monday, Town Sports International said that it was considering bankruptcy because of revenue losses as a result of the shutdown. The company, which owns about 200 gyms including New York Sports Club and Boston Sports Club, said in a regulatory filing that the “scope and duration of the interruption to our operations has substantially reduced our cash flow.”
Catch up: Here’s what else is happening.
British employment data released Tuesday showed a sharp decline in the number of people on payrolls, but the overall unemployment rate for the February-March period remained steady, at 3.9 percent, as the country’s furlough program kept many people off the jobless rolls. Over 600,000 people were shed from payrolls between March and May, a 2.1 percent decline an the first drop after years of steady growth.
The Academy of Motion Picture Arts and Sciences said on Monday that it would push back the next Oscars ceremony to April 25 from Feb. 28, citing the coronavirus pandemic. The postponement, the fourth since the Academy Awards were introduced in 1929, could prompt the Golden Globes and other entertainment award shows to recalibrate.
Reporting was contributed by Sapna Maheshwari, Michael Corkery, Stanley Reed, Mohammed Hadi, Niraj Chokshi, David Yaffe-Bellany, Gillian Friedman, Carlos Tejada and Brooks Barnes.