Stocks Waver as Powell and Mnuchin Face Lawmakers: Live Updates
The United States economy faces irreparable damage from the fallout of the coronavirus pandemic, the nation’s top economic policymakers warned lawmakers on Tuesday, as the Congress and the White House grapple with how to restart business activity and how much additional government support is needed.
In a joint appearance before lawmakers, Treasury Secretary Steven Mnuchin and the Federal Reserve chair, Jerome H. Powell, offered a stark assessment of the fragile state of the economy, warning of more severe job losses in the coming months. But they offered contrasting views of how best to buttress the economy, with Mr. Powell suggesting that more fiscal support to states and businesses might be needed to avoid permanent economic damage and Mr. Mnuchin suggesting that, without an expeditious reopening, the economy might never fully recover.
“There is the risk of permanent damage” if states delay reopening, Mr. Mnuchin told members of the Senate Banking Committee.
The hearing, which was held by video conference, came at a pivotal moment, as Congress and the White House are beginning to debate the outlines of a second major economic relief bill and potentially inject trillions of additional taxpayer dollars into the economy.
Mr. Mnuchin’s comments reflect the change in tone among administration officials, who have begun trying to shift the economic discussion away from more financial support to allowing states to reopen. In his opening remarks, Mr. Mnuchin said “it is so important to begin bringing people back to work in a safe way.” The Trump administration has said that providing liability protection for businesses against lawsuits from workers who get sick is a priority in future legislation.
Mr. Powell sounded a more cautious tone, explaining that a full recovery will not come until the health crisis is resolved.
“The No. 1 thing, of course, is people believing that it’s safe to go back to work, and that’s about having a sensible, thoughtful reopening of the economy, something that we all want — and something that we’re in the early stages of now,” Mr. Powell said. “It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine.”
And he noted that state and local governments, in particular, could slow the economic recovery if they laid off workers amid budget crunches, suggesting that Congress might need to funnel more money to localities.
The Fed generally tries to steer clear of fiscal policy, leaving it to Congress and the White House. But Mr. Powell has repeatedly warned over the past two weeks that if the coronavirus economic slump is long, additional policy support may be needed to get the economy through unscathed.
He was careful to avoid giving Congress explicit advice and made sure to cushion his suggestions as a conditionality — that fiscal policymakers “may” need to do more if the recovery takes time — but he reiterated Tuesday that it was crucial for policymakers to not pull the plug too quickly.
“My concern has been the risk and possibility of longer-run damage to the economy,” Mr. Powell said, noting that the policymakers will have information on whether more is needed “fairly quickly here” as economic reopening starts and it becomes clearer how quickly consumers will return to stores and workers to payroll.
Layoffs of state and local workers could slow the economic recovery, the Fed chair says.
Jerome H. Powell, the Federal Reserve chair, suggested that the central bank might expand its program to buy municipal debt and agreed that state and local governments could slow the economic recovery if they laid off workers amid budget crunches.
“We have the evidence of the global financial crisis and the years afterward, where state and local government layoffs and lack of hiring did weigh on economic growth,” Mr. Powell said while testifying before the Senate Banking Committee, in response to a question from Senator Bob Menendez, Democrat of New Jersey.
“I think something like 13 percent of the work force is in state and local government,” Mr. Powell said in response to another question, pointing out that balanced budget requirements can mean that “when revenue goes down sharply, it can mean job cuts and service cuts.”
Facebook announced a new online retail initiative on Tuesday, aimed at spurring digital commerce as small businesses and retailers grapple with the economic devastation from the coronavirus.
The new product, called Facebook Shops, lets users sell goods and services online through storefronts hosted by Facebook and Instagram. The goal, said Mark Zuckerberg, Facebook’s chief executive, was to make people feel more comfortable buying things online and to rejuvenate the mom-and-pop businesses struggling to stay afloat in the pandemic.
Mr. Zuckerberg said the effort includes improving online checkout for Facebook Shops, which will occur inside Facebook or Instagram instead of redirecting users to an outside website. Customers will be able to purchase items without leaving the app and can pay faster using their saved credit card information with Facebook Pay, another of the company’s e-commerce products.
“Small businesses are particularly important for us,” Mr. Zuckerberg said in an interview with Mike Isaac. “They’re the vast majority of our advertisers and make up the biggest portion of our revenue.” More than 160 million small and medium-sized businesses with fewer than 500 employees use Facebook to promote their operations, with 7 million of those also purchasing paid advertising products from the social network.
Mr. Zuckerberg said he had pushed Facebook’s employees to move quickly on the new commerce product, especially given how quickly the virus ravaged businesses. He said he believed it would be difficult for some time.
“I think this is a really tough period for a lot of folks,” he said. “Long after we’re worried about getting the virus, I expect that the economic fallout will continue to exist.”
Google, one of the first companies to allow employees to work from home as the coronavirus started to spread, is developing a plan to reopen its workplaces with staff rotating into the office once or twice a week
Sundar Pichai, chief executive of Google’s parent company Alphabet, said on the Vergecast podcast that the company planned to start reopening conservatively once local ordinances allowed it by bringing back around 15 percent of its staff to the office and rotate employees to come in once or twice a week.
By the end of the year, he said he expected Google’s offices to return to around 20 to 30 percent capacity, allowing about 60 percent of its workers to come into the office once a week.
Public companies have returned less than half of the funds they received through a troubled federal loan program meant to stabilize small businesses.
The loans to publicly traded firms drew scrutiny from members of the public and policymakers who said the money would have been put to better use with smaller businesses. The Treasury Department and the Small Business Administration gave public companies until Monday to decide whether they would return their loans or face possible sanctions if they had been able to get funds from other sources.
As of Monday night, about $512 million of the roughly $1.52 billion in loans disclosed by public companies had been returned, including some of the largest that had been disclosed. Additional companies may disclose their decision to return their loans in the coming days.
More than 440 public companies have disclosed receiving the loans since early April. At least 58 of them, from the burger chain Shake Shack to the auto dealer Penske Automotive Group, have given the funds back.
Even as companies returned the loans, more public companies received them in the program’s second round. That group included companies like Ark Restaurants and The ONE Group, which runs the STK chain of steakhouses. Both firms said they could not have gained access to capital elsewhere.
Walmart, the nation’s largest retailer, said sales in the first quarter soared more than 10 percent in the United States as customers flocked to its stores and online to buy food and health care products during the coronavirus pandemic.
Deemed an essential business, Walmart has been able to keep its stores and e-commerce network operating every day of the crisis, giving it an advantage over some competitors who have been forced to close.
Across the company, including its international business and Sam’s Club unit, operating income increased 5.6 percent to $5.2 billion from a year earlier, while revenue increased 8.6 percent to $134.6 billion.
E-commerce sales increased 74 percent, double the company’s typical online growth rate, as Walmart shipped more items from its stores to customers’ homes and expanded its curbside pickup business.
The company also said on Tuesday it had hired more than 235,000 new employees to handle the surging demand and paid more than $900 million in bonuses and higher wages.
The S&P 500 was flat on Tuesday, as markets regrouped after Wall Street’s biggest daily gain in about six weeks.
Investors were watching the Federal Reserve chair, Jerome H. Powell, testify before Congress, where he told lawmakers that the central bank would use its “full range of tools” to support the economy as it reels from the coronavirus pandemic. Treasury Secretary Steven Mnuchin also testified on how the $500 billion in stimulus funding had been managed so far.
The drop followed a jump of more than 3 percent in major Wall Street indexes on Monday, as a drug company, Moderna, said that early testing of its coronavirus vaccine on a small group of people had shown promising results. Investors also focused on comments from Mr. Powell, who said that the central bank could do more to help the American economy.
Other negative news began to sink in on Tuesday, including more signs of rising tensions between the United States and China. Investors also were cheered on Monday after Germany backed the idea of collective European debt to help countries hit hardest by the outbreak, but on Tuesday, the lack of details and the prospect of a long and slow recovery weighed on sentiment.
Catch up: Here’s what else is happening.
Sephora, the cosmetics chain known for bustling stores where shoppers typically touch and try its products, said on Tuesday that it planned to reopen more than 70 stores on May 22, with many locations in Georgia, Texas and Tennessee. As part of a set of new protocols, it will not offer services like makeovers, testers will be for display only and returned products will be destroyed.
Kohl’s, the midpriced apparel and accessories chain, said on Tuesday that its revenue fell 41 percent in the first quarter to $2.4 billion. It also reported a net loss of $541 million. The retailer said that it had reopened about half of its 1,100 locations since May 4.
It’s over for Pier 1 Imports. The home goods retailer, which filed for bankruptcy protection in February, announced Tuesday that it would liquidate its business. The company had closed its stores in March because of the pandemic, but was still hoping to find a buyer to keep going. Pier 1 said that it would sell its remaining inventory and assets as soon as it could open stores after government-mandated lockdowns lift.
Thai Airways, Thailand’s flagship carrier, announced on Tuesday that it would reorganize in bankruptcy court. The airline, which is majority owned by the government, stopped all flights in April in response to travel restrictions to limit the spread of the virus. The government is stepping in to help the airline restructure so that it does not go bankrupt and cost the jobs of 22,000 people, Prime Minister Prayuth Chan-ocha told reporters.
A prolonged global recession is the top near-term worry among leaders in risk management, according to a report published on Tuesday by the World Economic Forum. The report relied on surveys of 350 risk professionals, who also listed high unemployment, another outbreak and protectionism among their fears in the next 18 months.
Reporting was contributed by Jeanna Smialek, Jim Tankersley, Alan Rappeport, Deborah Solomon, Michael Corkery, Mike Isaac, Alexandra Stevenson, Eduardo Porter, Daisuke Wakabayashi, David Yaffe-Bellany, Hisako Ueno, Sapna Maheshwari, David McCabe, Ben Dooley, Carlos Tejada, Maria Abi-Habib, Keith Bradsher, Kate Conger, Rich Barbieri, Mohammed Hadi and Gregory Schmidt.