with Brent D. Griffiths
Congress will imminently approve another massive burst of relief funding to limit the economic damage from the coronavirus pandemic, according to House Speaker Nancy Pelosi (D-Calif.). Except that it will do no such thing, according to Senate Majority Leader Mitch McConnell (R-Ky.).
The two leaders are pursuing different strategies as the economic crisis sparked by the virus continues to flame. Democrats are pushing $2 trillion in new spending to put out the fire, including aid to state and local governments, while Republicans want to hit pause and allow the nearly $3 trillion that Washington has already approved work its way into a badly damaged economy.
Both Pelosi and McConnell are projecting they will prevail in the staring contest — as senators return to work in Washington while House Democrats, still working remotely, race to assemble a package they hope will set the terms of debate.
“I think I can speak for our conference by saying we're not ruling that out, but we think we ought to take a pause here, do a good job of evaluating what we've already done,” McConnell told reporters after a closed-door lunch with his members, adding Senate Republicans will “keep talking to each other and decide to act when and if it's appropriate to act again.”
But Pelosi predicted holdout Republicans will capitulate. “They'll come around on this,” she said in a Tuesday evening MSNBC interview. “You know why? Democratic and Republican, Republican and Democratic governors need this.”
Indeed, Senate Republicans are split on the matter and “engaged in a vigorous debate over lunch about whether to dump more money into state and local governments,” CNN’s Manu Raju, Ted Barrett and Lauren Fox report. The divide is pitting those alarmed by the revenue losses state and local governments are facing as they deploy their own emergency measures against those concerned by the rising tide of federal red ink.
Pelosi, meanwhile, is urging House Democrats to “think big."
House committee chairs are responding to that summons with a laundry list of spending requests, some of which don’t directly relate to the pandemic. “Money is being eyed for a large array of other provisions including housing, social services, law enforcement, tribal government needs, food security, the Postal Service, rural broadband, rent and mortgage relief, as well as veterans issues,” Seung Min Kim, Mike DeBonis and Erica Werner report.
House Ways and Means Committee Chairman Richard E. Neal (D-Mass.), for example, told fellow Democrats on a Monday conference call he wants to send Americans another round of cash relief; provide child-care assistance to front line workers; and extend unemployment insurance, according to a summary circulating among lobbyists, whose accuracy was confirmed by a person on the call. But Neal also wants to shore up multi-employer pension plans, a top priority for labor unions since long before the pandemic.
Among the other priorities for some of those wielding gavels:
- House Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.) is pitching a boost to federal matching funds for Medicaid and more money for facilities that provide Medicaid services; a ban on water, electric and gas utility shut-offs; and an expansion of broadband access.
- House Financial Services Committee Chair Maxine Waters (D-Calif.) wants to extend eviction and foreclosure bans; prohibit negative credit reporting; provide $175 billion in assistance to homeowners and renters, and more in aid to those with student loans.
- House Small Business Committee Chair Nydia M. Velázquez (D-N.Y.) is proposing to replenish the Paycheck Protection Program; carving out funds for Community Development Financial Institutions, microlenders, and nonprofits; clarifying the forgiveness terms for the loans; extending their terms from two years to five; and lengthening the program’s coverage through August at least.
The PPP running dry again could force the issue.
Businesses are snapping up the second tranche of the small business loan program in a hurry, with $175 billion of the extra $310 billion claimed by Sunday morning. As the fund empties again, Democrats hope Republicans will feel enough urgency to restock it that they will negotiate on some of Democratic requests. The package could be ready for a floor vote as soon as next week.
McConnell, for his part, dismissed President Trump’s renewed push for a payroll tax cut in any new measure. He said his focus instead will be on providing protections against liability stemming from the pandemic response. “I think I can safely say for our team here, the Republican Senate majority, if there’s any red line, it’s on litigation,” he told reporters.
The latest on the federal response
Jared Kushner's coronavirus effort was hampered by inexperienced volunteers.
Kushner's team was overwhelmed by possible leads:“About two dozen employees from Boston Consulting Group, Insight, McKinsey and other firms have volunteered their time — some on paid vacation leave from their jobs and others without pay — to aid the Trump administration’s response to the coronavirus pandemic, according to administration officials and others familiar with the arrangement,” Yasmeen Abutaleb and Ashley Parker report.
“Although some of the volunteers have relevant backgrounds and experience, many others were poorly matched with their assigned jobs, including those given the task of securing personal protective equipment (PPE) for hospitals nationwide, according to a complaint filed last month with the House Oversight Committee.”
- Volunteers were instructed to fast track leads from “VIPs”: “'Fox & Friends' host Brian Kilmeade, for example, called two people he knew in the administration to pass along a lead about PPE in an effort to be helpful, said two people familiar with the outreach. Fox News Channel host Jeanine Pirro also repeatedly lobbied the administration for a specific New York hospital to receive a large quantity of masks, one of the people said.”
- The team had trouble building relationships: “In part because they were using personal email accounts, rather than official government email addresses, the House Oversight Committee complaint states. Three senior administration officials confirmed the volunteers’ use of personal email addresses.”
- And Kushner had his own stockpile: “Even as the volunteer group struggled to procure PPE, about 30 percent of ‘key supplies,’ including masks, in the national stockpile of emergency medical equipment went toward standing up a separate Kushner-led effort to establish drive-through testing sites nationwide, according to a March internal planning document obtained by The Post and confirmed by one current and one former administration official. Kushner had originally promised thousands of testing sites, but only 78 materialized; the stockpile was used to supply 44 of those over five to 10 days, the document said.”
Trump's watchdog appointee pledges independence. NYT's Alan Rappeport: "Trump’s nominee to serve as the special inspector general for the Treasury Department’s $500 billion pandemic recovery fund vowed on Tuesday to be fair and impartial in his efforts to combat misuse of the bailout money, telling a Senate committee that he would resign if the White House pressured him to overlook wrongdoing.
“During two hours of intense questioning at his confirmation hearing, Brian D. Miller, who currently serves as a White House lawyer, tried to defuse fears that he would not be independent enough for the prominent oversight role and to alleviate concerns among senators and watchdog groups that he put Mr. Trump’s interests ahead of those of American taxpayers.”
In the U.S.:
- Ousted vaccine official alleges he was demoted for prioritizing "science and safety": Rick Bright, former director of the Biomedical Advanced Research and Development Authority, “portrays himself in the 89-page complaint as an administration health official trying to sound the alarm about the virus beginning in early January … he also ”alleges in the complaint that [assistant secretary for preparedness and response at HHS Robert] Kadlec and others pressured him to buy drugs and medical products for the nation’s stockpile of emergency medical equipment from companies that were linked politically to the administration and that he resisted such efforts," Yasmeen Abutaleb and Laurie McGinley report.
- White House adviser expects unemployment was “north of 16 percent” in April: “We are looking at probably the worst unemployment rate since the Great Depression. It’s a tremendous negative shock, a very, very terrible shock,” White House economic adviser Kevin Hassett told CNN. He said the jobless rate could be as high as 20 percent.
- Federal Reserve Vice Chair Richard Clarida: Worst shock of our lifetimes. Clarida, in a CNBC interview, also predicted unemployment will hit its highest level in decades. But he also said the economy could start to bounce back in the third quarter: “I do think the recovery can commence in the second half of the year.”
- Chicago Fed president likewise says it's “reasonable” to expect growth to return in second half of 2020: “The pickup in activity will likely be slow at first, because of continued social distancing and other safety precautions” Chicago Federal Reserve President Charles Evans predicted in a phone call with reporters, Reuters's Ann Saphir reports. “Some businesses will be able to ramp back up to their productivity levels before the pandemic, he predicted, while others, including travel and hospitality services, won’t.”
- Starbucks will reopen 85 percent of its shops: The company will follow through on its plan “with an emphasis on mobile ordering, contactless pickup and cashless payments” by the end of the week, Abha Bhattarai reports. “Starbucks shares spiked 3.2 percent Tuesday after the company’s plan was made public.”
- Norwegian Cruise Line sees “substantial doubt” about its future: “In a securities filing, the Miami-based cruise company said it expects to see hits to operations, growth, reputation, cash flow, share price and more as customers weigh whether it is safe or even feasible to travel. Bookings for the rest of 2020 are ‘meaningfully lower’ than last year even with deep discounting, with declines projected for 2021 as well,” Rachel Siegel reports.
- Fiat Chrysler plunges to first-quarter loss of $1.8 billion: The automaker warned of a ‘significant’ loss this quarter, even as it prepares to reopen its most profitable North American truck plants on May 18," Reuters's Giulio Piovaccari reports.
- Pfizer begins testing vaccine in people: It's “the first step toward establishing the safety, dosage and most promising candidate to take into larger trials that will test effectiveness,” Carolyn Y. Johnson reports.
- Private equity is mostly getting denied in appeals for federal help. The industry's lobbing push is coming up short, including in seeking to broaden access to the Fed's Main Street Lending Program, the NYT's Kate Kelly and Peter Eavis report.
- Lord & Taylor will liquidate all its stores when it reopens. The retailer plans to sell off the inventory in all of its 38 department stores as it enters a bankruptcy from which it doesn't expect to emerge, Reuters reports.
- Where's the beef? Nearly a fifth of Wendy's restaurants are out of it. “Stephens analyst James Rutherford said that a study of online menus for every Wendy’s location nationwide revealed that 1,043 restaurants — or 18% of its national footprint — have listed beef items as out of stock,” CNBC's Amelia Lucas reports.
- Walgreen to return to normal hours at most U.S. stores: The resumption will begin today, Reuters's Manojna Maddipatla reports. “Certain stores, specifically those in tourist regions, downtown city centers, or markets with government-mandated curfews, will continue to operate under the adjusted timings, the company said.”
Around the world:
- Britain surpasses Italy for most deaths in Europe: “Britain said 29,427 people have died of the coronavirus in the country, a count that for the first time exceeds the tally in Italy. Italy, which until now was the hardest-hit country in Europe, on Tuesday reported that the virus has killed 29,315 people there,” William Booth and Karla Adam report from London. On a purely per capita basis, the small nation of San Marino, which has less than 35,000 people, has the worst death rate in Europe at 121.4 deaths per 100,000 people.
- International airline group says face masks should be worn: “David Powell, medical adviser to the International Air Transport Association, told reporters … that while normal seat allocation can be maintained, it was recommending the mandatory wearing of masks or face coverings on board,” Reuters's Sarah Young reports.
- Lufthansa to pay no dividend as it seeks bailout: “Lufthansa shareholders … agreed to not distribute 298 million euros ($323 million) in retained profits as a dividend for 2019,” Reuters's Ilona Wissenbach reports. “[The airline] needs to be rescued after coronavirus travel bans forced the German group to ground 700 of its aircraft, leading to a 99 percent drop in passenger numbers and causing the group to lose about 1 million euros ($1.1 million) in liquidity reserves per hour.”
Companies cut thousands of workers, but reward shareholders.
Caterpillar, Levi Strauss, World Wrestling Entertainment and others paid out more $700 million in cash dividends: “They are not alone. As the pandemic squeezes big companies, executives are making decisions about who will bear the brunt of the sacrifices, and in at least some cases, workers have been the first to lose, even as shareholders continue to collect,” Peter Whoriskey reports.
“Executives say the layoffs support the long-term health of their companies, and often the executives are giving up a piece of their salaries. Furloughed workers can apply for unemployment benefits. But distributing millions of dollars to shareholders while leaving many workers without a paycheck is unfair, critics argue, and belies the repeated statements from executives about their concern for employees’ welfare during the coronavirus crisis.”
- The Business Roundtable in August dropped its insistence on “shareholder primacy": “But of the chief executives who endorsed the Business Roundtable statement, at least three of their companies are among those that have implemented at least some furloughs while also issuing dividends: Caterpillar, Stanley Black & Decker and Steelcase.”
- Some companies have suspended buybacks: “The Gap, which has furloughed tens of thousands of employees, announced in March that it was suspending its dividend. So did Darden Restaurants, which owns the Olive Garden and LongHorn Steakhouse. American Eagle Outfitters deferred its dividend and halted its stock buyback program.”
Oil surges 20 percent, continuing its longest winning streak since July: “Oil prices surged on Tuesday as optimism around ongoing production cuts and a recovery in demand with the reopening of economies around the world pushed prices higher,” CNBC's Pippa Stevens reports.
“West Texas Intermediate, the U.S. benchmark, jumped 20.45 percent, or $4.17, to settle at $24.56 per barrel. The contract gained 3.08 percent on Monday — closing above $20 for the first time since mid-April … International benchmark Brent crude settled 13.86 percent higher at $30.97 per barrel, and also posted its fifth-consecutive positive session.”
The earnings callback
Companies offer “glimmers of hope.”
Executives are leavening an ugly earnings season with some optimism in their forecasts. NYT's Peter Eavis reports, "Some senior executives said that business in April was slightly better than in the dark days of March as the virus quickly spread… Others tentatively outlined what a post-pandemic recovery might look like by pointing to how things were going in China, where the pandemic started and has since ebbed.
“These shreds of optimism may have been an exercise in corporate spin, meant to reassure shareholders — or to tell them something many investors already appear to believe. The stock market has rebounded 27 percent from its March low as investors have become confident that the Federal Reserve and the Treasury Department will prevent the economy from going into a tailspin.”
Yet Disney sees profit drop, and the worst is likely still to come.
The entertainment giant was mum on a number of fronts as it reported earnings: “As its theme parks began to be shuttered, movies could not be released and sports could be played, Disney saw total operating income drop 37 percent to $2.4 billion in the quarter ending March 31. Parks and cruises had profit go from $1.5 billion in the quarter last year to $639 million this year, with a loss of about $1 billion in revenue,” Steven Zeitchik reports.
“Earnings per share, meanwhile, dropped to just 60 cents, a 63 percent decline compared to the same quarter a year ago and lower than the 89 cents many forecasters expected. Those reduced numbers were cushioned by the fact that much of the quarter played out before the crisis hit in the United States, and many analysts and investors believe the worst is yet to come."
- One of the company's parks is set to reopen: “The company announced plans to reopen Shanghai Disneyland on May 11 … the entertainment giant said the Shanghai park will have ‘limited and pulsed attendance,’ meaning visitors will only be able to buy tickets for specific dates and annual pass holders will need to make a reservation,” Hannah Sampson reports.
Trade deficit widens amid service sector contraction.
Further possible evidence of the virus upending global trade: “The U.S. trade deficit increased by the most in more than a year in March as a record drop in exports offset a shrinking import bill …,” Reuters's Lucia Mutikani reports.
“Other data …. showed the tough measures to slow the spread of [covid-19] pushed the nation’s vast services sector into contraction in April for the first time in nearly 10-1/2-years. The Commerce Department said the trade deficit jumped 11.6 percent, the largest rise since December 2018, to $44.4 billion. Economists polled by Reuters had forecast the trade gap increasing to $44.0 billion in March.”
- Manufacturing continues to struggle: “A survey … from the Institute for Supply Management (ISM) showed its non-manufacturing activity index fell to a reading of 41.8 last month, the first contraction since December 2009. It was also the lowest level since March 2009 and followed a reading of 52.5 in March.”
Biden faces competing pressures on VP choice.
But not from Bernie, who is not backing Warren: “Some liberals are backing Sen. Elizabeth Warren (D-Mass.), who ranks far above others on the left as a potential running mate. But rancor from the primaries has led to schisms on the left: Sen. Bernie Sanders (I-Vt.), the final competitor to cede to Biden and the liberal figure best positioned to push for concessions, has declined to support Warren despite their ideological alliance, according to three people familiar with his conversations with Biden, who spoke on the condition of anonymity to recount the private discussions,” Matt Viser, Annie Linskey and Vanessa Williams report.
Harris and Abrams are taking different approaches: “Abrams has been extraordinarily blunt in saying she would accept the job. Harris has taken the opposite tack, remaining low-key while others advocate for her.”
Money on the Hill
Lawmakers pressure Treasury over holding back on tax credit.
A bipartisan group says the department is not following Congress' intent: “Companies that cover the cost of health insurance for their furloughed workers may miss out on a key tax credit,” Darla Mercado reports.
“There’s a surprise snag in the employee retention tax credit: According to a new batch of ‘frequently asked questions’ from the IRS, employers can’t use the credit if they lay off or furlough workers and cover their health insurance while not paying them wages. The issue caught the attention of Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), ranking member Sen. Ron Wyden (D-Ore.), and House Ways and Means Committee Chairman Richard Neal (D-Mass). The lawmakers wrote to Treasury Secretary Steven Mnuchin on Monday, asking the department to change course and allow these companies to claim the credit.”
- What if this applies to you: Remember the employee retention credit cannot be added to any PPP loans. You can choose one or the other, but not both. If you are using the credit, CNBC reports, “Until Treasury and the IRS provide further guidance, employers who are footing the bill for furloughed workers’ health insurance might want to consider paying even a small amount of wages so that they can qualify for the credit, said Dan Herron, CPA and principal at Elemental Wealth Advisors in San Luis Obispo, California.”
California AG and cities sue Uber and Lyft over misclassifying workers.
The fight is over a new state law: “The suit, filed in San Francisco Superior Court, alleges Uber and Lyft have denied their workers key benefits and protections by classifying drivers as contractors rather than employees,” CNBC's Lauren Feiner reports.
“The lawsuit gets to the heart of a recent debate between gig economy companies and California officials. It’s based on a California law that went into effect earlier this year, known as Assembly Bill 5. Uber, Lyft and other companies opposed the law, which was created as a way to require gig economy companies to classify their drivers as employees, rather than contractors.”
Impossible Foods reaches deal to sell i Kroger's: “Plant-based meat maker Impossible Foods will start selling its flagship burgers in supermarket chain Kroger Co’s 1,700 stores in the United States, as it taps growing demand for vegan alternatives among home chefs,” Reuters's Nivedita Balu reports.
- CVS Health, General Motors, Lyft, Wendy’s, GrubHub, T-Mobile US, Re/Max Holdings, Discovery, Peloton Interactive, Hyatt Hotels, New York Times, Office Depot, and Papa John’s are among the notable companies reporting their earnings
- The Labor Department releases weekly jobless claims
- JetBlue Airways, Anheuser-Busch InBev, ViacomCBS, Hilton, Norwegian Cruise Line, Roku, Bristol-Myers Squibb, Raytheon Technologies, Denny's and YETI Holdings are among the notable companies reporting their earnings
- Labor releases April unemployment numbers
- Hostess Brands, Bloomin’ Brands and SeaWorld Entertainment are among the notable companies reporting their earnings