with Brent D. Griffiths

Investors have been surfing a wave of fragile optimism for the past three weeks. Stocks rallied on hope that Washington’s massive response to the economic shutdown would limit its damage. The S&P recovered nearly half of what it lost in the immediate aftermath of the coronavirus global spread, when the index shed a third of its value after touching an all-time high two months ago.

But the worst is not behind us, as readings from every corner of the economy Wednesday delivered a dose of grim reality From retail and manufacturing activity to sentiment among home builders — not to mention reports from C-suites to Main Street of deepening stress — the new evidence makes plain the coronavirus-induced shock is severe already and getting uglier.

The data tell the story.

Retail sales dropped by a record 8.7 percent in March.

The strength of consumer spending had helped the economic expansion power through some weak spots before the coronavirus crisis, so the collapse in spending is particularly concerning, if not entirely surprising (the consensus estimate among economists had forecast an 8 percent drop-off).

Buying across nearly all categories plummeted compared to February, with auto and furniture sales dropping by a quarter; a similar decline in tabs at restaurants and bars; apparel sales falling by half; and spending at gas stations dipping by 17 percent, according to the Commerce Department. A rare bright spot: Grocery store sales surged 27 percent as shoppers loaded up on food to shelter in place.

“Plummeting consumer confidence, collapsing employment, and lockdown restrictions have compounded into an extraordinary and multifaceted shock to consumer spending and brought the economy’s main engine to a sudden halt,” Oxford Economics writes in a note. “Amid strict lockdown measures that limit large gathering and restrain social activities, discretionary spending and “social consumption” will plunge even further in coming months.”

JPMorgan Chase chief U.S. economist Michael Feroli put the retail snapshot in earthier terms, titling his note on it, “All the toilet paper in the world can't clean up this report.” Based on the reading, he estimates annualized GDP sank by 10.8 percent in the first quarter, which would make it “the worst quarter ever in data going back to 1947.” The firm projects the second quarter to get significantly worse, with GDP falling 40 percent.

Manufacturing is also contracting sharply.

Industrial production fell 5.4 percent in March, its worst decline since 1946, according to a new report from the Federal Reserve.The falloff in activity — which includes output from factories, utilities and oil and gas producers — “dwarfs any decline during the Great Recession,” Ryan Sweet of Moody’s Analytics writes in a note.

Zooming in on manufacturing, the largest contributor to the measure, offers an alarming view. It declined 6.3 percent last month, per the report. And another reading of manufacturing activity, the Empire State manufacturing index, which measures the sector's strength in New York, cratered by 56.7 points to its own record low. “Manufacturing has never been in worse shape,” Oxford Economics concludes. “The sudden stop in economic activity is very damaging.” 

From Grant Thornton chief economist Diane Swonk: 

And as bad as both the industrial production and retail sales measures look, economists say they are bound to get worse. “Business closures and lockdowns began in earnest in mid-March, so only half the month was hit,” Pantheon Macroeconomics chief economist Ian Shepherdson writes. 

The housing market is registering severe distress, too.

The National Association of Home Builders index posted its biggest-ever monthly decline, with sentiment among homebuilders plummeting 42 points to its lowest level since 2012. It now stands at 30, well under the 50-point mark below which confidence is in negative territory — and even further undershooting the consensus estimate of 55.

“The early spring homebuying season clearly will be a bust, but things should improve in June if lockdowns are eased somewhat and people are able to visit new home developments,” Pantheon's Shepherdson writes. “That said, the unfolding nightmare in the labor market has removed large numbers of potential homebuyers from the pool, so the market can’t quickly return to the robust and rising trend in place before the virus.”

Anecdotal reports from small enterprises to the biggest companies filled in the dark picture.

The Fed’s latest Beige Book, its survey of economic conditions on the ground as related by business people across the country, offered up a mosaic of misery. Economic activity has contracted “sharply and abruptly” across the map, with contacts in every region reporting “highly uncertain outlooks” and "most expecting conditions to worsen in the next several months,” the report found.

From Evercore ISI's Ernie Tedeschi:

From the New York Times's Jeanna Smialek: 

The view from top C-suites is much the same. The biggest U.S. banks have kicked off earnings season by reporting precipitous profit declines as they brace for a surge in personal and business loan defaults. “On Wednesday, Bank of America, Goldman Sachs and Citigroup all said their first-quarter profits were down at least 40 percent compared with the same period last year. On Tuesday, JPMorgan Chase and Wells Fargo announced quarterly declines of 69 percent and 89 percent, respectively,” Rachel Siegel and Tom Heath report.

To top it off, crude oil prices fell to an 18-year low, with the benchmark West Texas Intermediate, trading “just above $19 per barrel, a price so low that almost no oil producer can make a profit,” per Rachel and Tom.

Investors spooked.

The collective weight of the reports took a toll on stocks. The Dow Jones industrial average shed 1.9 percent, and the S&P 500 tumbled 2.2 percent. As Chris Rupkey, chief financial economist at MUFG Union Bank, told CNBC’s Patti Domm, “The economy is clearly in ruins here.”

New weekly jobless claims due out this morning will offer a clearer sense of the toll the crisis is taking on workers. Economists expect some 5.1 million people sought unemployment benefits in the week ending April 11, per a Reuters survey, though some put the number as high as 8 million. “Going by the average forecast, last week’s claims data would bring the cumulative unemployment benefits claims to more than 20 million since the week ending March 21,” Reuters's Lucia Mutikani reports

The reopening argument

Business executives say that a White House advisory panel is a haphazard mess.

Trump had hoped to enlist business leaders in his reopening push: “But across the business world, there was private unhappiness with how the White House handled the announcement of the advisory council — which it has dubbed its ‘Great American Economic Revival Industry Groups’ — and others warned that Trump’s goal of a May 1 reopening date for much of the country was unrealistic,” Robert Costa,  Ashley Parker, Josh Dawsey and Felicia Sonmez report.

“Many of the chief executives urged the White House to focus more on mass testing, according to several participants on the calls. Public health experts have argued that widespread testing is a key prerequisite to reopening the economy because it would determine who is infected and needs to be isolated, giving Americans greater confidence that they can safely return to work and public life. Trump seemed to downplay the issue while speaking in the Rose Garden."

  • More details from the chaotic calls: “The president — who acted as the emcee of the call — expressed his personal view that the economy will snap back quickly as soon as the country begins to reopen, citing what he described as pent-up demand. But some on the call were skeptical of such a robust economic reboot, predicting it may be steady, but slower.”
  • Key quote: "We got a note about a conference call, like you’d get an invite to a Zoom thing, a few lines in an email, and that was it. Then our CEO heard his name in the Rose Garden? What the [expletive]?” one prominent Washington lobbyist for a leading global corporation, who spoke on the condition of anonymity to discuss the sensitive matter, told my colleagues. “My company is furious. How do you go from ‘Join us on a call’ to, ‘Well, you’re on our team?’”

The TCJA reunion tour: “As Trump mulls the matter of how and when to push for a return to normal business for the country, he is hearing from a chorus of right-wing voices who helped shaped his tax-cut plan during the 2016 campaign, with conservative economist Stephen Moore, Steve Forbes and supply-side advocate Arthur Laffer joining him by phone. Officials said Trump takes them seriously because he sees the GOP tax law they pushed as one of his signature agenda items.”

Money on the Hill

Congress remains deadlocked as a key small-business program is set to run out of money.

Talks are resuming, though: “Negotiations between Congress and the White House resumed … over replenishing the small-business loan program designed to support businesses hit by the coronavirus pandemic. The Paycheck Protection Program was on track to exhaust its initial allocation of $350 billion later in the day. As of Wednesday morning, the Small Business Administration said it had approved about 1.3 million applications, totaling more than $289 billion in loans,” the Wall Street Journal's Kristina Peterson reports.

“Both Democrats and Republicans want to add $250 billion to the small-business aid program, but have been sparring for days over whether to add restrictions to the funds. Democrats want to expand access to the loans as well as include more money for hospitals, food assistance and state and local governments. Republicans, meanwhile, said they want to keep the bill focused on increasing small-business aid and defer other funding debates until the next, broader legislation is crafted.”

  • Another program is running weeks behind: “The Economic Injury Disaster Loan program, or EIDL, a long-standing program run by the Small Business Administration (SBA), is separate from the $349 billion Paycheck Protection Program for small businesses that is the subject of a political fight on Capitol Hill,” Aaron Gregg, Jeanne Whalen and Erica Werner report. “Demand for the EIDL loans and grants quickly overwhelmed the system, leaving many applicants without funds weeks later, Democratic lawmakers and industry groups said. The SBA ― which accepts disaster loan applications itself rather than outsourcing that work to banks ― has received well over 3 million applications, a Democratic lawmaker and an SBA official said. A shortage of funds threatens to limit the size of grants and loans small businesses receive.” 

Coronavirus fallout

In the U.S.:
  • The death toll in the U.S. is nearing 31,000, and reported cases number at least 637,000. 
  • Governors confront opposition over lockdowns: “Even before these multistate groups get to work, they face considerable obstacles as they seek guidance for how to reintegrate tens of millions of Americans into the workforce. At the same time, the governors face stiffening political pressure from [Trump[ and his Republican allies, who want much of the nation to reopen more quickly,” Tim Craig, Scott Wilson and Shayna Jacobs report of the states that have decided to form regional coalitions.
  • The NFL is preparing a contingency plan: “While still publicly committed to kicking off its 2020 season in September to packed stadiums, the NFL has been contemplating contingencies that include a potentially shortened schedule, holding games in empty or partially filled stadiums, and moving or rescheduling games if necessary, three people familiar with the league’s planning said,” Mark Maske and Dave Sheinin report.
  • The Trump administration is paying a premium for N95 masks: “The government has paid the companies more than $5 per unit, nearly eight times what it would have spent in January and February when U.S. intelligence agencies warned of a looming global pandemic, procurement records show,” Isaac Stanley-Becker, Desmond Butler and Nick Miroff report.
Corporate impact:
  • Airlines eyeing more loans after grants: Several major U.S. airlines are preparing to apply this week for a $25 billion U.S. government loan program after winning billions in federal payroll grants, people familiar with the matter said, as the industry braces for a slow recovery from the coronavirus pandemic,” Reuters's Tracy Rucinski and David Shepardson report.
  • Grocery delivery struggles to meet unprecedented demand: “The system is cracking under the weight of surging demand, and an incommensurate supply of workers and groceries. Shoppers throughout the country are reporting weeks-long waits on platforms like Instacart, Shipt, Peapod and Amazon’s Prime Now, fueling ongoing frustrations and questions about how, or when, the outlook might improve,” Abha Bhattarai reports.
  • Companies walk legal tightrope on earnings guidance: “The Securities and Exchange Commission said that by providing broad guidance, corporate America would help paint a clearer picture of when the country could get back to work — a dilemma the White House is eager to resolve as soon as possible,” Reuters's Katanga Johnson reports. “That could put companies in a legally risky position, however.”
  • Trump aims to help farmers: “The Trump administration plans to buy milk and meat from U.S. farmers as part of an initial $15.5 billion effort to help them weather the impact of the coronavirus outbreak, Agriculture Secretary Sonny Perdue said,” Reuters's Richard Valdmanis reports.
Around the world:
  • Amazon suspends distribution in France: The company is “temporarily close its distribution centers in France, a day after a French court ordered a ban on nonessential sales during the coronavirus pandemic and upbraided the e-commerce giant for providing insufficient protections for its workers,” James McAuley reports from Paris. (Amazon CEO Jeff Bezos also owns The Washington Post)
  • British parliament moves online: A decision on how and when to meet could come as early as [today]. But going online is not easy for an institution so steeped in tradition that casting a vote requires lawmakers to pass through a narrow lobby where their names are recorded by officials in formal dress," the New York Times reports.

Market movers

Wall Street traders are prospering. WSJ's Liz Hoffman and David Benoit: "Big banks’ trading desks posted their strongest results in years during the first three months of 2020—when the deepening coronavirus crisis wreaked havoc on the markets—buying and selling trillions of dollars worth of stocks and bonds, commodities and interest-rate products. 

“Goldman Sachs Group Inc.’s debt traders had their best three-month stretch in five years, pulling in nearly $3 billion. Bank of America Corp.’s stock traders’ $1.7 billion in revenue was a quarterly record… The results show how Wall Street has changed since the financial crisis. Today’s banks carry smaller inventories of securities than they once did… Instead, they mostly stand in between clients who want opposite sides of the same trade.”

Could the Fed tighten screws on big banks paying dividends? We wrote here yesterday that Federal Reserve chair Jerome Powell had given Wall Street giants cover to continue dividend payments even as they weathered the economic crisis by noting they are “highly capitalized.” 

But Better Markets president Dennis Kelleher writes in to argue that could change after the banks face their annual stress tests: “Unlike the stress tests during the relatively benign economic circumstances over the last 10 years, these stress tests are in the middle of a pandemic and will be one of the most important institutional credibility tests for the Fed since the March 2009 SCAP (Supervisory Capital Assessment Program). That’s because the public will be able to quickly judge the validity of the Fed’s actions based on observable economic and financial developments over the next few months.”

Trump tracker

President Trump on April 15 threatened to use Article II of the Constitution to force Congress to adjourn to make recess appointments. (The Washington Post)
Trump leveled an unprecedented threat against Congress if it doesn't confirm his nominees.

Among his picks that he mentioned were his two Fed appointments: “Trump threatened to try to force Congress to adjourn so he could fill his administration’s vacancies without Senate approval, the second time this week he has claimed unprecedented executive authority amid the coronavirus pandemic,” Colby Itkowitz and Mike DeBonis report.

“The president cited a never-exercised constitutional power to shut down Congress if the House and Senate are in disagreement over adjourning, pushing both the executive and legislative branches into uncharted territory … Senate Majority Leader Mitch McConnell (R-Ky.) spoke to Trump on Wednesday, but signaled that he wasn’t on board with the president’s plan. Any attempt to formally adjourn the Senate would require all 100 senators traveling back to Washington for such a vote — which McConnell and Senate leaders have deemed an unsafe move at this point.”

  • A leading constitutional expert dismissed Trump's comments as an empty threat: "Leaving aside that he probably *can’t* do this (because it’s unlikely the chambers will disagree), he‘s not actually going to send Congress home — foreclosing any additional relief legislation — in the middle of a national public health and economic crisis with elections in November,” Steve Vladeck, a professor at the University of Texas School of Law, tweeted.

One of those Fed picks, you might recall, had Republican detractors: “Sen. Patrick J. Toomey (Pa.) and Sen. Richard C. Shelby (Ala.), top Republicans on the Senate Banking, Housing and Urban Affairs Committee, told reporters after the hearing that they had ‘concerns’ about her,” Heather Long wrote in February after Judy Shelton struggled through her confirmation hearing.

Campaign 2020

Former presidential candidate Sen. Elizabeth Warren (D-Mass.) tweeted this video on April 15 to announce support for former vice president Joe Biden as nominee. (Twitter/Elizabeth Warren)
Biden gets another big endorsement while his campaign opens the door to big money.

Warren backs Biden: "In a sign of her stature coming out of the presidential contest, [Sen. Elizabeth] Warren earned a slot in Biden’s week of premier endorsements, officially giving him her support Wednesday. She followed former president Barack Obama, who endorsed Biden on Tuesday, and Sen. Bernie Sanders (I-Vt.), the last competitor to leave the presidential race, who backed Biden on Monday,”  Annie Linskey reports.

  • What's next for her?: “Allies who have spoken to her since she left the race have touted her as a potential partner for Biden, who has pledged that a woman will be his running mate. Failing that, they envision her securing a leading role in his administration should he win in November — potentially as the country’s first female treasury secretary or running the Consumer Financial Protection Bureau, which she helped create.”
  • Not everyone is amused by the VEEP talk: "Lol,” one Biden donor wrote in a text to my colleague when asked how Wall Street would react to Warren on the ticket.

Priorities USA becomes the preferred super PAC again: “Joe Biden’s presidential campaign signaled … that it favors a Democratic super PAC established during the Obama era over another group formed last year as the party prepares for a general-election battle against [Trump],” the WSJ's Ken Thomas reports.

“The signal that Priorities USA, which was founded in 2011, is the campaign’s preferred political-action committee sends a message to top donors about where they should give money and is a key step as [Biden] takes charge of the Democratic fundraising infrastructure. The Biden campaign said in a statement to WSJ that Priorities USA ‘is an organization of proven effectiveness and the work they are doing to elect Joe Biden and defeat Donald Trump is absolutely critical.’ "

  • Behind the announcement: “Both Priorities USA, which has more than 100 staff members and is competing in its fifth election cycle, and Unite the Country, a pro-Biden super PAC created in October, have been seeking a sign from Mr. Biden’s campaign about which would be the preferred organization for the general election.”

Chart topper

“All told, the U.S. government has committed more than $6 trillion to arrest the economic downturn from the pandemic,” Andrew Van Dam reports. “When you combine the steps taken by Congress and the Fed and account for how the two interact, America’s national coronavirus response represents more than a quarter of U.S. economic output.”



  • The Labor Department releases the latest weekly jobless claims
  • Abbott Laboratories, Honeywell, Rite Aid, Skechers USA and BlackRock are among the notable companies reporting their earnings


The funnies

Bull session