with Brent D. Griffiths
The economic crisis is not only highlighting some ugly truths about the gap between people at either end of the income scale. It is making that gap wider.
The coronavirus pandemic shutdowns that forced the economy into a deep freeze over the past two months have prompted a staggering 38.6 million people to seek jobless benefits, according to the Labor Department. Over the same period, the nation’s billionaires have added a collective $434 billion to their wealth, or 15 percent, the Institute for Policy Studies, a liberal think tank, finds in a new report.
The dynamic is playing out across the economy, as lower-income earners absorb the worst of the economic shock: A majority of those from households earning less than $50,000 a year report their income has taken a hit since mid-March, new U.S. Census data shows; only one in three from households earning over $200,0000 say the same.
Or consider this, from former Treasury Department economist Ernie Tedeschi, crunching numbers from daily surveys by Civis Analytics for the New York Times:
If anything, that divergence looks primed to accelerate.
Low-wage workers and small businesses are quickly exhausting what little in cash reserves they have, as the Paycheck Protection Program aimed at salvaging small businesses tests its limits. In New York City, nearly one in four people lacks adequate access to food, Mayor Bill de Blasio (D) said Thursday, as the city prepares to distribute 1.5 million meals a day.
The stock market, meanwhile, keeps plodding back from its late-March trough, a recovery that disproportionately benefits the wealthy. The tech-heavy Nasdaq is back in positive territory for the year, not far off record highs.
And the matter is primed to take on new urgency from Capitol Hill to the presidential campaign trail. A partisan fight is heating up in Congress over whether to extend enhanced unemployment benefits expiring in July, as some Trump officials and Republican lawmakers argue the aid discourages workers from returning to their jobs.
The fate of billionaires is hardly everything but helps crystallize the issue.
The billionaire study produced a splashy result, since it begins measuring that class’s wealth gains from the point the stock market bottomed out. Looking at the full year, some of the richest Americans have seen their wealth shrink, as CNBC’s Thomas Franck notes: Warren Buffett has lost $20 billion; Bill Gates has shed $4.3 billion.
But others are richer than ever, including eight of the top ten Americans in the three-comma club, according to the Bloomberg Billionaires Index. Amazon CEO Jeff Bezos, who owns The Washington Post, has padded his net worth by $35.5 billion; Facebook CEO Mark Zuckerberg is up $9 billion; Tesla CEO Elon Musk, $13.2 billion.
None of those three new-economy barons have cut particularly sympathetic figures.
- Bezos, worth an estimated $148 billion and climbing, is facing heat over accusations his company maintained unsafe working conditions at its warehouses as the virus spread, then retaliated against whistleblowers.
- Musk’s cheerleading for a speedier reopening of the economy, including his own Tesla plant in Fremont, Calif. — aligning with President Trump against warnings from public health officials — has touched off a backlash. Critics charge the billionaire is putting profits ahead of worker safety.
- As Facebook’s stock hit an all-time high Thursday, Zuckerberg announced certain employees will be allowed to work remotely full time — and then will have their pay cut in proportion to the local cost of living. He warned of “severe ramifications” for those who don’t fess up.
Other billionaires are addressing the issue.
- JPMorgan Chase CEO Jamie Dimon, in a memo to employees ahead of the bank’s shareholder meeting this week, called the crisis “a wake-up call and a call to action” for business and government to tackle “the structural obstacles that have inhibited inclusive economic growth for years.”
- Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, recently said the American dream is “lost” and the wealth and income gaps are a “national emergency.”
- Hedge fund billionaire Leon Cooperman last month took to CNBC to say “capitalism is changed,” and call for tax hikes on the wealthy. He stopped short of endorsing Sen. Elizabeth Warren’s (D-Mass.) proposed wealth tax, over which the two clashed last fall.
Federal Reserve Chair Jerome H. Powell has made repeated reference in recent appearances to the disproportionate damage the crisis is wreaking on the working poor. “It has already erased the job gains of the past decade and has inflicted acute pain across the country,” Powell said at a virtual “Fed Listens” event Thursday. “And while the burden is widespread, it is not evenly spread. Those taking the brunt of the fallout are those least able to bear it.”
His point: Policymakers should focus now on doing everything they can to minimize the pain for those with low incomes, including providing extra fiscal support that most Republicans are so far resisting.
Bloomberg Opinion’s Noah Smith, for one, remains skeptical. “Some have called the virus a great equalizer, because it can strike even the rich and powerful,” he recently wrote. “in terms of the long-term effect on economic outcomes, the disease is likely to be anything but an equalizer."
PROGRAMMING NOTE: The Finance 202 won't publish Monday in observance of Memorial Day. Enjoy the long weekend, and we'll you back here Tuesday.
Latest on federal response
Trump says he may support another stimulus bill.
Treasury Secretary Steven Mnuchin added there will likely be one: “Mnuchin said the U.S. economy ‘will be great again’ in 2021, a day after the Congressional Budget Office forecast that unemployment will remain elevated through the end of next year. [He said] that the recession caused by efforts to contain the coronavirus will likely bottom out in the second quarter—a view shared by many economists—and predicted a ‘gigantic increase’ in output in the fourth quarter,” the Wall Street Journal's Paul Kiernan reports.
“Mnuchin reiterated the preference of the Trump administration and Senate Republicans to hold off on approving additional support for the economy, though he said there’s a ‘strong likelihood’ more will be needed.”
- More on what Trump said: “I think we will. I think we’re going to be helping people out ... There could be one more nice shot,” the president told reporters at a Ford factory.
If it's up to Mitch McConnell (R-Ky.), that legislation won't extend some unemployment benefits: The Senate majority leader made the comment Wednesday on a call with House GOP lawmakers … The $600 per week federal unemployment benefit, which adds to the sum individuals normally get from states, will expire at the end of July," CNBC's Jacob Pramuk reports.
Top White House economic adviser expresses uncertainty about recovery.
Larry Kudlow says a pandemic is very hard to model: He said “there are some ‘small glimmers of hope’ and voiced optimism about a dramatic improvement this summer. But he emphasized the coronavirus still poses a unique and unpredictable threat to the nation’s economy and that the overall picture appears bleak,” Jeff Stein and Robert Costa report.
“'Look, it’s really hard to model a virus, a pandemic, the likes of which we have not seen for 100 years,' Kudlow said at a Washington Post Live event. ‘The numbers coming in are not good. In fact, they are downright bad in most cases. But we are seeing some glimmers, perhaps … there’s a lot of heartbreak here. There’s a lot of hardship here. There’s a lot of anxiety here. It’s a very difficult situation.’” Kudlow’s remark suggests Trump’s eager touting of a “tremendous” economic recovery may not be the phrasing used by some of his senior advisers as they confront the crisis and troubling data."
U.S.-China fears are rocking the markets, again.
Today's opening doesn't look much brighter: “U.S. stock futures fell early Friday after a decline in some major tech stocks, along with dismal employment data and rising tensions with China [more on that below], pushed the market lower a day earlier. Dow Jones Industrial Average futures implied a drop of about 170 points at the open. S&P 500 and Nasdaq 100 futures also pointed to a negative open,” CNBC's Fred Imbert reports.
“The Dow fell just over 100 points earlier on Thursday while the S&P 500 and Nasdaq dropped 0.8 percent and nearly 1 percent, respectively. Amazon shares fell more than 2 percent after hitting a record high.”
From the U.S.:
- At least 1,570,000 cases have been reported; at least 93,000 people have died.
- Trump mostly skips mask during Ford plant tour: “Trump declined to wear a protective face mask in public during a visit to a Ford manufacturing plant in Michigan that is turning out ventilators and masks for use in the pandemic, despite a request from the carmaker that he wear one and an executive order from the state’s Democratic governor requiring them,” Anne Gearan reports.
- Atlanta Fed president says Georgia's reopening has been “a mixed bag": “Georgia’s economy has taken some steps ahead, though there are still signs that a recovery is going to take some time, Atlanta Federal Reserve President Raphael Bostic told CNBC,” Jeff Cox reports.
The corporate front:
- Meat workers crowd into reopened plants: “Based on 13 interviews with employees, labor representatives and a U.S. government inspector at meat plants in states including Arkansas, Virginia, Nebraska, North Carolina and Texas, employees are still standing elbow-to-elbow along production lines,” Bloomberg News's Lydia Mulvany, Jen Skerritt, Polly Mosendz, and James Attwood report.
- Tesla returns to “normal operations” at U.S. factories: “Tesla’s HR boss, Valerie Workman, said in an e-mail to employees … that the company is returning to ‘normal operations’ at its Fremont, California, vehicle assembly plant and Sparks, Nevada, battery factory this week, with some health-related precautions in place,” CNBC's Lora Kolodny reports.
- Morgan Stanley CEO sees only half of employees returning by year's end: James “Gorman joined other finance-industry leaders in warning that operations won’t be fully back to normal this year,” Bloomberg's Sridhar Natarajan reports.
- IBM is firing people. “International Business Machines Corp. cut an unspecified number of jobs across the U.S., eliminating employees in at least five states. The company declined to comment on the total number, but the workforce reductions appear far-reaching," Bloomberg's Olivia Carville reports. “Based on a review of IBM internal communications on the Slack corporate messaging service, the number of affected employees is likely to be in the thousands, said a North Carolina-based worker who lost his job along with his entire team of 12.”
- Americans splurge at Walmart and Target: “The Trump Administration’s relief payment provided a fillip to sales of major retailers in April as millions of Americans used the money to buy everything from video games to sewing machines even as the country struggles with record job losses,” Aishwarya Venugopal reports.
Around the world:
- Sweden is a long way from herd immunity: “The Scandinavian nation made a controversial bet to avoid large-scale lockdowns, keeping schools, restaurants and even nightclubs open as long as they adhere to social distancing guidelines,” Antonia Farzan reports. “But according to data released Wednesday by Sweden’s Public Health Authority, only 7.3 percent of people in Stockholm had developed the antibodies required to fight covid-19 by late April. That’s nowhere near the 60 percent that some experts anticipate being the threshold for herd immunity.”
- Guatemalan president pushes back on deportation flights: “As the United States deported hundreds of migrants to Guatemala earlier this year, it said some of the deportees were healthy — even though they tested positive after landing, authorities in the Central American nation said,” Teo Armus reports. “El Salvador and Honduras, which have both welcomed the deportation flights without complaint, have received shipments of medical aid along with deportees. But Guatemala has been an exception — in part, it seems, because President Alejandro Giammattei is speaking up.”
When superpowers collide
Senators to propose sanctioning Chinese officials as fight over Hong Kong erupts.
Beijing signaled that it will rein in the territory's autonomy: “Sen. Chris Van Hollen (D-Md.) and Sen. Pat Toomey (R-Penn.) said they had been working on the bill, which aims to defend human rights in Hong Kong and pressure China to preserve the territory’s special status. They said Thursday’s developments made the legislation more urgent, and they will press Senate leaders to take up the matter quickly,” WSJ's Lindsay Wise reports.
“With U.S. businesses among Hong Kong’s biggest investors, the sometimes raucous antigovernment protests that erupted last year made the territory a more prominent issue in Washington and a new source of friction in U.S.-China ties, with Beijing accusing the U.S. of meddling.”
China is undercutting Hong Kong like never before: "China's Communist Party will impose a sweeping national security law in Hong Kong by fiat during the annual meeting of its top political body, officials said, criminalizing ‘foreign interference’ along with secessionist activities and subversion of state power," Shibani Mahtani, Anna Fifield and Tiffany Liang report from the city.
“After steadily eroding Hong Kong’s political freedoms, Beijing signaled that the national security law will be a new tool that allows it to directly tackle the political dissent that erupted on Hong Kong’s streets last year. The months-long and sometimes violent protests began last June and fizzled out only over public health concerns related to the coronavirus outbreak. The new tactic marks an escalation in Beijing’s crackdown in the former British colony and the clearest indication that it views Hong Kong as a restive region to be brought to heel after last year’s protests … The legislation could pass as early as next week and will bypass all of Hong Kong’s usual processes.”
From Charles Schwab & Co. chief investment strategist Liz Anne Sonders:
Intuitively, we can sense that stocks have disconnected from earnings estimates; but check out below, which shows that correlation betweeen S&P 500 & forward earnings estimates has been .90 over past 20 years, but a mirror image -.90 since 3/23/20 pic.twitter.com/7xet0QqXLX— Liz Ann Sonders (@LizAnnSonders) May 21, 2020
- China kicks off its annual legislative session, the National People's Congress
- Alibaba Group, Deere, Foot Locker and Buckle are among the notable companies reporting their earnings
From The Post's Tom Toles: