with Brent D. Griffiths

Small businesses in states hit hardest by the coronavirus pandemic and its economic fallout have gotten short shrift from the federal effort aimed at rescuing them, a New York Fed report finds.

The study is the latest in a string of revelations about where hundreds of billions of taxpayer-backed dollars surging through the Small Business Administration’s Paycheck Protection Program are landing. They add up to a damning picture: The companies getting shut out are those without established banking connections; those owned by minorities and women; and the ones in the epicenters of the disease’s destruction.

“One of the biggest problems this program has had from the very beginning is not who got it. It’s who didn’t,” Senate Small Business Committee Chairman Marco Rubio (R-Fla.), who co-sponsored the initiative, said Wednesday on a webinar organized by Intuit's QuickBooks. “And the reason why is because it became this sort of 'Hunger Games' free-for-all for limited funds”

Policymakers are debating the program’s future.


The latest look into the uneven distribution of the cash comes as the program is starting to run low on its second tranche of funding. After about 1.7 million businesses gobbled up the first $350 billion in forgivable loans in less than two weeks, lawmakers added another $310 billion, more than half of which has already been committed. 

Now, as lawmakers examine their options for extending the program’s funding a third time, the New York Fed report and others that reached similar conclusions suggest a need for fundamental changes. Rubio, for one, indicated he wants to work within the program to get more relief to small businesses and their employees. “I think we need to do it,” he said of approving additional funding.

Others are looking beyond PPP. House Democratic leaders are testing support in their ranks for a guaranteed income proposal from Rep. Pramila Jayapal (D-Wash.) that would give employers a grant to cover three months worth of worker wages and benefits. That proposal likely carries a hefty price tag, but House Speaker Nancy Pelosi (D-Calif.) is touting its potential to meet the scale of the economic disaster where the PPP has only nibbled at it.

The New York Fed study finds the PPP is also stacked against the neediest.

The report found the areas hardest hit by both the disease and the layoffs that followed — including New York, New Jersey, Michigan and Pennsylvania — are “getting fewer loans than some Mountain and Midwest states on a per-small-business basis,” according to New York Fed economists Haoyang Liu and Desi Volker. 

For example, in New York, which has suffered the worst outbreak so far, less than 20 percent of small businesses have been approved for PPP loans. Meanwhile, more than 55 percent of them in Nebraska have received funding.

These two maps from the report demonstrate the mismatch between states with the highest percentages of small firms securing loans and those with the most cases of the virus: 

And the states with the highest number of unemployment claims starting March 15 likewise have seen no commensurate boost to the share of their small businesses securing loans: 

The findings track with those of researchers at the University of Chicago’s Booth School, Massachusetts Institute of Technology’s Sloan School and the National Bureau of Economic Research. In a paper published last week, they found only 15 percent of businesses in the hardest hit congressional districts were able to secure PPP loans through the first round of funding. By contrast, more than twice that number in the least affected areas were able to tap the program.

The New York Fed economists find evidence that instead of being distributed by need, the loans concentrated in states where smaller banks do more of the lending. Those institutions “have been reported to view PPP as a chance to expand their customer base,” and became key to channeling the funds.

The lopsided lending could carry long-term consequences for communities missing out on the emergency relief.

As the economic fallout hammers already distressed neighborhoods, those tumbling into high poverty are likely to stay there, according to a report this week from the Economic Innovation Group.

The think tank, which studies geographic income and wealth disparities, found “the number of neighborhoods in which 30 percent or more of the population lives in poverty doubled from 1980 to 2010 and has remained stubbornly high despite a decade of national economic expansion.” Indeed, average annual real household income in those areas has actually dropped over the last two decades. And the immiseration entrenches itself: 64 percent of high-poverty neighborhoods in 1980 remain so.

“The takeaway is that national growth is not enough. It’s necessary but not sufficient to reduce the number of high-poverty areas around the country,” EIG president John Lettieri tells me. “This is a crisis that challenges all of our typical notions of what’s big or fast enough.

He continued: “PPP is a great example. We are spending by any conventional measure a lot of money yet coming nowhere close to what’s required. On every score, Congress needs to move faster and at greater scale and be less worried about the high-class problem of too much spending and too much debt.”

Coronavirus fallout

There are also staggering racial disparities in job losses amid the pandemic.

Hispanics are almost twice as likely as whites to be laid off: A Washington Post-Ipos poll “finds that 20 percent of Hispanic adults and 16 percent of blacks report being laid off or furloughed since the outbreak began in the United States, compared with 11 percent of whites and 12 percent of workers of other races,” Tracy Jan and Scott Clement report

“Economists predict that the picture will grow even more dire Friday when the Department of Labor releases the first jobs report covering an entire month of shutdowns. Economists expect to see unemployment rates of 16 percent and record job losses of more than 20 million, said Heidi Shierholz, policy director at the Economic Policy Institute.”
  • Some of the factors at play: “Black and Hispanic workers are bearing the brunt of the economic crisis because they are overrepresented in industries that were hit first by social distancing mandates and stay-at-home orders, economists say. These include leisure and hospitality, such as hotels and restaurants; retail; and construction, where Latino men make up more than a quarter of workers.”

Many are struggling to get assistance: “The Post-Ipsos survey of more than 8,000 adults and over 900 laid-off workers finds half of those who were laid off have applied for unemployment since March 1, with 28 percent of all those laid off saying they received benefits. Among those who did not receive benefits, 40 percent say they could not complete the application because phone lines were busy, they got disconnected or the website did not work.”

But Americans are optimistic they'll return to their old jobs.

Economists say the path back for those laid off or furloughed might be more difficult:The vast majority of laid-off or furloughed workers — 77 percent — expect to be rehired by their previous employer once the stay-at-home orders in their area are lifted, according to a nationwide Washington Post-Ipsos poll. Nearly 6 in 10 say it is ‘very likely’ they will get their old job back, according to the poll, which was conducted April 27-May 4 among 928 workers who were laid off or furloughed since the outbreak began," Heather Long and Emily Guskin report.

Private payrolls lost 20.2 million jobs in April.

The ADP Research Institute's report is the worst since it began in 2002: It's “double the last record set in February 2009, during the Great Recession, Ahu Yildirmaz, co-head of the ADP, said in a news release,” Taylor Telford reports

“What’s more, the job losses do not fully represent the economic carnage of the pandemic, ADP said. The report uses data only through the 12th of the month, in keeping with the Bureau of Labor Statistics. More than 8 million Americans filed for unemployment in the weeks that followed … Services — including business and financial, education, administrative jobs and leisure and hospitality — saw the lion’s share of losses, shedding more than 16 million jobs in April."

Another 3 million likely applied for jobless claims last week. That's according to Bloomberg data, and it would mark the fifth straight weekly report to show a decline, Business Insider's Carmen Reinicke reports. Any number in the millions, of course, is still historically huge and awful — and demonstrates the havoc the shutdown continues to wreak on the economy. 

In the U.S.:
  • At least 1,222,000 coronavirus infections have been reported; 73,243 people have died.
  • Justice Department opens criminal investigation into firm that failed to provide masks: “Blue Flame Medical, a firm created by two well-connected Republican operatives started selling covid-19 supplies this spring … Prosecutors are focused on at least two contracts that the firm signed for medical masks and other equipment with Maryland and California… Both states ultimately canceled those contracts,” Tom Hamburger and Juliet Eilperin report.
  • States cut Medicaid as jobless workers look for safety net: “State officials are worried that they’ll have to slash benefits for patients and payments to health providers in the safety net insurance program for the poor unless they get more federal aid,” Politico's Rachel Roubein and Dan Goldberg report.
  • CVS warns of surge in non-covid health issues: CVS, which owns insurance giant Aetna, says patients in April received fewer new prescriptions, as many have started fewer new treatments and seen doctors less frequently — a concern especially for patients who have chronic conditions such as diabetes and heart disease, which can lead to costly hospitalizations when not treated consistently,” the Wall Street Journal's Sharon Terlep reports.
Corporate impact: 
  • BlackRock's Fink has a grim outlook: Mass bankruptcies, empty planes, cautious consumers and an increase in the corporate tax rate to as high as 29% were part of a vision BlackRock CEO Larry Fink sketched out on a call this week… Fink said on the call with clients of a wealth advisory firm that bankers have told him they expect a cascade of bankruptcies to hit the American economy, and he wondered if the Fed needed to do more to provide support,” Bloomberg's Sridhar Natarajan reports.
  • Airlines want relief from flying near-empty planes: “A lobbying group representing U.S. airlines … said federally mandated minimum service requirements are ‘unsustainable’ for carriers as the covid-19 pandemic sends passenger numbers to the lowest levels since the 1950s,” CNBC's Leslie Josephs reports.
  • GM sets May 18 to restart most North American plants: The automaker “reported a stronger than expected quarterly profit, sending its shares up 5.3 percent,” Reuters's Nick Carey and Ben Klayman report. “GM said ended the first quarter with $33.4 billion in automotive cash, including an approximately $16 billion drawdown from its revolving credit facilities. One ray of hope has been China, where the pandemic began but where GM has resumed production.”
  • Uber to cut 3,700 jobs, or 14 percent of its workforce: “The San Francisco-based company confirmed in a Securities and Exchange Commission filing that fewer people are taking rides … The company has implemented a hiring freeze in addition to cutting thousands of jobs from its customer service and recruiting teams, it said in the filing,” Rachel Lerman reports.
  • Remdesivir is a major breakthrough, but there are concerns over what comes next: “Gilead has rocketed into the public consciousness with one of the most promising coronavirus treatments, but the company’s history of sky high drug pricing is drawing increasing scrutiny from Congress about how much it will charge for remdesivir and who will get access,” Politico's Zachary Brennan reports.
  • Hertz and Avis cancel orders: “Rental-car companies struggling to survive … have been working with automakers to call off purchases, in some cases even redirecting vehicles in transit to their now largely neglected parking lots,” Bloomberg News reports.
Around the world:
  • EU says recession will be worst in its history: “E.U. policymakers offered a grim forecast, predicting that even if the handling of the crisis goes smoothly and societies do not need to shutter again now that many have started easing restrictions, the economy of the European Union is expected to shrink by 7.4 percent in 2020,” Michael Birnbaum reports from Brussels. “ By comparison, Europe’s economy declined by just 4.4 percent in 2009, the worst year of the global financial crisis.”
  • Germany is fairing better: “German authorities, unlike those in Italy and Spain, gave all factories the option to stay open through the pandemic. More than 80 percent of them did so, and only one-quarter have canceled investments, according to a recent survey conducted by the Institute for Economic Research, a Munich think tank,” WSJ's Tom Fairless reports. Some are looking to Germany for lessons on how to reopen. How Germany did it: “Businesses implemented strict safety rules early on. Managers involved unions and employees in safety planning. Regional governments moved quickly to test and trace chains of infection. And strong ties to China, where many German firms have operations, gave companies a jump on planning.”
  • WHO says it's in talks to send mission to China: “The World Health Organization is in talks with China to send a follow-up mission to the country to investigate the source of the coronavirus pandemic, a WHO official said,” CNBC's William Feuer and Berkeley Lovelace Jr. report. “WHO officials previously said the coronavirus emerged from a seafood market in Wuhan, China, and likely originated in bats, then jumped to an ‘intermediate host’ before infecting humans.”

Money on the Hill

Lawmakers are considering an auto industry bailout.

The industry has tanked amid a drop in car sales and shuttered factories: “Democrats and Republicans largely representing the hard-hit, auto heavy-Midwest are leading an early push to persuade their colleagues to help manufacturers and suppliers as part of a future pandemic relief package. Absent that assistance, they warn that massive losses could leave workers unemployed and stall any economic recovery,” Tony Romm reports.

“To make their case, lawmakers including Reps. Marcy Kaptur (D-Ohio), Debbie Dingell (D-Mich.) and Fred Upton (R-Mich.) began circulating a draft letter Tuesday emphasizing that the ‘projected economic fallout for the industry is grave,’ according to a copy obtained by The Washington Post. In some respects, they said, the challenges facing the automotive ecosystem ‘exceed those of the 2008 financial meltdown,’ referring to the recession more than a decade ago that ultimately yielded an approximately $80 billion auto industry bailout.” 

Democrats are revisiting $150 billion in tax breaks: “Republican-sponsored provisions from the March stimulus law let companies offset their losses against previously taxed profits and get quick refunds. Republicans said the provisions would offer much-needed relief to businesses hurt by the pandemic. But Democrats now argue that Congress was too generous when it gave tax breaks for losses incurred before the outbreak and that some of the new rules disproportionately benefit high-income investors and business owners,” the WSJ's Richard Rubin reports.

“The controversy highlights a less frequently discussed area of tax law that has suddenly gained importance in an economic downturn, and the ideological deadlock over these provisions is likely to shape the congressional response as the crisis evolves.” 

Market movers

Stocks snap rally. Associated Press: “A late-day dip left stocks mostly lower on Wall Street Wednesday, giving the S&P 500 its first loss this week. Losses in financial, health care and other sectors outweighed solid gains by technology stocks, including Apple and Microsoft… The S&P 500 fell 20.02 points, or 0.7%, to 2,848.42. The Dow Jones Industrial Average sank 218.45 points, or 0.9%, to 23,664.64.”

The Treasury Department said Wednesday it plans to ramp up auction sizes of longer-dated securities and will issue a new 20-year bond at an initial offering of $20 billion, much larger than Wall Street analysts were expecting.
WSJ

The earnings callback

Companies are more fearful than in 2008.

Fed researchers scoured 600 earnings calls last month: “Some 42 percent of American non-financial public companies are discussing slashing investments, 27 percent are talking about equity payouts and 17 percent are focused on drawing down on credit lines, conclude economists Andrew Y. Chen and Jie Yang. At the peak of the last recession the figures were 25 percent, 11 percent and 7 percent, respectively,” Bloomberg News's Justina Lee reports.

“The duo collected the number of times senior company officials used words laced with financing worries for clues on what’s next in this economic crash … Based on trends in 2008, sentiment won’t normalize for a year, according to the Fed researchers.”

Key reports:

  • Lyft shares jumped after the company reported more riders: “Shares shot up as much as 17 percent,” CNBC's Lora Kolodny reports. “It's active rider number represented a 3 percent year-over-year improvement, despite the impact of covid-19. “During a … earnings call, CEO and co-founder Logan Green acknowledged that covid-19 had a ‘profound impact’ on Lyft’s customers and core business; he revealed that for the month of April, rides were down around 75 percent year-over-year, and were still down 70 percent last week.”
  • Match Group reports people are still swiping: The company that owns Tinder, Match.com and OkCupid and other dating apps “reported a relatively in-line first quarter … saying it expects to continue to grow revenue on an annual basis in the second quarter, even as lockdowns persist. Quarantine, it seems, has ignited users’ desire to connect with potential mates. Match said Tinder’s daily users and swipes reached records ‘in the depths of the crisis,’ ” the WSJ's Laura Forman reports.

China showdown

U.S., Chinese officials to talk after Trump threatens to “terminate” trade deal. Negotiators will speak as soon as next week, per Bloomberg: "Chinese Vice Premier Liu He will be on the call, according to people familiar with the matter. The U.S. will be represented by Robert Lighthizer, one of the people said.

“The planned phone call will be the first time Liu and Lighthizer speak officially about the agreement since it was signed in January, just before the global coronavirus pandemic hit the world’s two biggest economies and upended global supply chains. The deal called for Liu and Lighthizer to meet every six months, making next week’s call slightly ahead of schedule.”

Chinese exports rose unexpectedly in April, bucking a pandemic-induced economic slump that has crimped demand and disrupted supply chains world-wide.
WSJ

Pocket change

Facebook-backed Libra gets new CEO.

The embattled cryptocurrency is trying to make itself more palatable: “Stuart Levey, a former U.S. Treasury undersecretary who has spent the last eight years as HSBC’s chief legal officer, said he would leave the bank this summer to become the Switzerland-based Libra Association’s chief executive,” the WSJ's Jeff Horwitz reports.

“The hire of a prominent banking industry attorney with a background in compliance reflects the association’s efforts to overhaul its plans for the digital currency in ways that will make them more palatable to governments around the world.”

  • The social network also rolled out an oversight board: “Facebook's new content oversight board will include a former prime minister, a Nobel Peace Prize laureate and several constitutional law experts and rights advocates among its first 20 members,” Reuters's Elizabeth Culliford reports. “The independent board, which some have dubbed Facebook’s ‘Supreme Court,’ will be able to overturn Chief Executive Mark Zuckerberg’s decisions on whether individual pieces of content should be allowed on Facebook and Instagram.”

Former Trump national security adviser H.R. McMaster joins Zoom's board: “Zoom has enjoyed a surge in popularity … but the attention also has increased scrutiny of the platform over how it handles data. In the U.S., more than two dozen attorney general’s offices have raised questions about privacy issues, Zoom said, adding it is cooperating with authorities,” the WSJ's Aaron Tilley reports. “In a statement, McMaster said that his goal ‘is to help the company navigate rapid growth and assist in meeting Zoom’s commitment to becoming the world’s most secure video communications platform.’ ”

Campaign 2020

Trump allies are targeting Steve Wynn and Robert Mercer for donations.

The two had previously limited their giving. Wynn, who "resigned as CEO of Wynn Casinos after being accused of sexual misconduct, and Robert Mercer, the former co-CEO of hedge fund Renaissance Technologies and investor in the now-defunct Cambridge Analytica” are among the donors being privately pushed to give more, CNBC's Brian Schwartz reports.

“The pitch to these influential donors started last year, one of the people said. The effort, geared toward helping Trump defeat apparent Democratic nominee Joe Biden this fall, appears to have been a success. Wynn has given more than $1 million to Republican-related entities in the 2020 election cycle. Mercer wrote a $360,600 check in February to one of the Trump-GOP joint fundraising committees.”

Sen. Kelly Loeffler (R-Ga.) is embracing her wealth in new campaign ad: “The Georgia senator, facing declining poll numbers and ongoing scrutiny over controversial stock trades, this week launched a $4 million ad campaign highlighting ways she’s used her wealth for covid-19 aid efforts in her state. Those include donating her salary, deploying her private plane to help transport stranded cruise ship passengers and making a $1 million personal donation to a relief organization, along with her support of the Senate's legislative responses,” Politico's Marianne LeVine and James Arkin report.

Trump tracker

Mnuchin exchanges Twitter snipes with Guns N’ Roses frontman Axl Rose. The Post's Allyson Chiu: "Rose threw down the gauntlet shortly before 6:30 p.m. Wednesday when he hopped on his seldom-used Twitter account and declared to his 1.2 million followers, without context, ‘Whatever anyone may have previously thought of Steve Mnuchin he’s officially an a--hole.’ … 

“Then, in a move that prompted collective surprise, Mnuchin hit back. “What have you done for the country lately?” he tweeted, tacking what appeared to be an emoticon of the United States flag to the end of his response.”

Daybook

Today:

  • 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

Friday:

The funnies

Bull session