Tag Archives: Economy

Analysis: Trump or Biden, new U.S. president faces troubled economy

By Ann Saphir and Jonnelle Marte

(Reuters) – It’s still not clear yet if the next U.S. president will be incumbent Donald Trump or Democratic challenger Joe Biden, but whoever triumphs will face monumental challenges on the economic front.

The recession has been ugly. It has wiped away more than a year of economic output and more than five years of jobs growth.

The workforce is now smaller than it was a year before Trump first took office.

One bright spot – consumer spending – is stronger than it was right after the pandemic exploded in March, but still only back to where it was last June.

Housing prices are on the rise, which is a great thing for U.S. homeowners but at the same time is worsening the affordability crisis for aspiring home buyers.

Manufacturing activity – a key concern in the Midwestern battleground states – has rebounded, but manufacturing employment is in worse shape than employment overall.

And the coronavirus is still surging across most of the United States. Nearly 6,000 people died last week, and there’s growing concern that the U.S. might need to reinstate lockdowns that happened across Europe in order to get it under control.

But despite signs the economy has begun to slow again amid another viral onslaught, “it is almost certain that the economy will get better over the course of 2021,” says Jason Furman, a key economic advisor to Barack Obama, the last U.S. president elected during a time of economic turmoil.

Late 2021 is still a long ways away, not just in political terms but for those living paycheck to paycheck, or out of work.

Federal Reserve policymaker projections put unemployment at 5.5% by the end of next year – worse than the 4.7% when Trump was first elected, but an improvement over the current 7.9%.

Beyond jobs lost and economic output curtailed, either Trump or Biden will face a list of long-term headwinds including deepening inequality, rising federal debt and tattered international trade relations.

In the run-up to the election, Trump consistently polled better than Biden on his ability to create jobs and manage the economy, if not the virus.

But even with the election outcome uncertain, and likely to remain so for some time amid legal challenges, stock market investors like what they see.

That’s partly because Republicans look likely to keep their hold on the Senate, leaving policy priorities relatively unchanged if it’s Trump emerging the winner, or as preventive force to a president Biden from trying to push through any big policy changes should he come out on top in the ballot box.

It’s also because Senate Majority Leader Republican Mitch McConnell signaled Wednesday he was open to a new coronavirus aid bill in the “lame duck” session before the elected members of Senate and U.S. House of Representatives are sworn in.

For the still-weak economy, a lot will depend on the timing, size and shape of a pandemic relief package, which eluded lawmakers and the White House before the election.

A more modest fiscal package could mean “the growth outlook and corporate profits may not be as vigorous as hoped,” said James Knightley, chief international economist for ING.

A Biden presidency with a majority Republican Senate could offer the worst case for the economy in 2021 because Republicans are likely to oppose a substantial stimulus package, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.

That would be bad news for the millions of low- and middle-income Americans out of work and struggling to find jobs in sectors such as travel and entertainment that are likely to remain moribund until the pandemic is under better control.

A scenario where Trump is re-elected and the Senate stays in Republican control could potentially result in more stimulus because Trump has advocated for more stimulus and could have more sway if he is re-elected, Luzzetti said.

Whatever the election outcome, any aid package should provide additional assistance for the unemployed, help for small businesses and assistance for state and local governments, to keep economic momentum going, Luzzetti said.

(Reporting by Ann Saphir and Jonnelle Marte; Editing by Heather Timmons, Paul Simao and Edward Tobin)

‘You are no longer my mother’: How the election is dividing American families

By Tim Reid, Gabriella Borter and Michael Martina

LOS ANGELES (Reuters) – When lifelong Democrat Mayra Gomez told her 21-year-old son five months ago that she was voting for Donald Trump in Tuesday’s presidential election, he cut her out of his life.

“He specifically told me, ‘You are no longer my mother, because you are voting for Trump’,” Gomez, 41, a personal care worker in Milwaukee, told Reuters. Their last conversation was so bitter that she is not sure they can reconcile, even if Trump loses his re-election bid.

“The damage is done. In people’s minds, Trump is a monster. It’s sad. There are people not talking to me anymore, and I’m not sure that will change,” said Gomez, who is a fan of Trump’s crackdown on illegal immigrants and handling of the economy.

Gomez is not alone in thinking the bitter splits within families and among friends over Trump’s tumultuous presidency will be difficult, if not impossible, to repair, even after he leaves office – whenever that is.

In interviews with 10 voters – five Trump supporters and five backing Democratic candidate Joe Biden – few could see the wrecked personal relationships caused by Trump’s tenure fully healing, and most believed them destroyed forever.

Throughout his nearly four-year norm-smashing presidency Trump has stirred strong emotions among both supporters and opponents. Many of his backers admire his moves to overhaul immigration, his appointment of conservative judges, his willingness to throw convention to the wind and his harsh rhetoric, which they call straight talk.

Democrats and other critics see the former real estate developer and reality show personality as a threat to American democracy, a serial liar and a racist who mismanaged the novel coronavirus pandemic that has killed more than 230,000 people in the United States so far. Trump dismisses those characterizations as “fake news.”

Now, with Trump trailing Biden in opinion polls, people are beginning to ask whether the fractures caused by one of the most polarizing presidencies in U.S. history could be healed if Trump loses the election.

“Unfortunately, I don’t think national healing is as easy as changing the president,” said Jaime Saal, a psychotherapist at the Rochester Center for Behavioral Medicine in Rochester Hills, Michigan.

“It takes time and it takes effort, and it takes both parties – no pun intended – being willing to let go and move forward,” she said.

Saal said tensions in people’s personal relationships have spiked given the political, health and social dynamics facing the United States. Most often she sees clients who have political rifts with siblings, parents or in-laws, as opposed to spouses.

NEIGHBOR VS NEIGHBOR

Trump’s election in 2016 divided families, tore up friendships and turned neighbor against neighbor. Many have turned to Facebook and Twitter to deliver no-holds-barred posts bashing both Trump and his many critics, while the president’s own freewheeling tweets have also inflamed tensions.

A September report by the non-partisan Pew Research Center found that nearly 80% of Trump and Biden supporters said they had few or no friends who supported the other candidate.

A study by the Gallup polling organization in January found that Trump’s third year in office set a new record for party polarization. While 89% of Republicans approved of Trump’s performance in office in 2019, only 7% of Democrats thought he was doing a good job.

Gayle McCormick, 77, who separated from her husband William, 81, after he voted for Trump in 2016, said, “I think the legacy of Trump is going to take a long time to recover from.”

The two still spend time together, although she is now based in Vancouver, he in Alaska. Two of her grandchildren no longer speak to her because of her support for Democrat Hillary Clinton four years ago. She has also become estranged from other relatives and friends who are Trump supporters.

She is not sure those rifts with friends and family will ever mend, because each believes the other to have a totally alien value system.

Democratic voter Rosanna Guadagno, 49, said her brother disowned her after she refused to support Trump four years ago. Last year her mother suffered a stroke, but her brother – who lived in the same California city as her mother – did not let her know when their mother died six months later. She was told the news after three days in an email from her sister-in-law.

“I was excluded from everything that had to do with her death, and it was devastating,” said Guadagno, a social psychologist who works at Stanford University, California.

Whoever wins the election, Guadagno is pessimistic that she can reconcile with her brother, although she says she still loves him.

UNCERTAIN POST-TRUMP WORLD

Sarah Guth, 39, a Spanish interpreter from Denver, Colorado, said she has cut several Trump-supporting friends out of her life. She could not reconcile herself to their support for issues such as separating immigrant children from parents at the southern border, or for Trump himself after he was caught on tape bragging about groping women.

Guth and her Trump-voting father did not speak to each other for several months after the 2016 election. The two now do speak, but avoid politics.

Guth says some of her friends cannot accept her support for a candidate – Joe Biden – who is pro-choice on the question of abortion.

“We had such fundamental disagreements about such basic stuff. It showed both sides that we really don’t have anything in common. I don’t believe that will change in the post-Trump era.”

Fervent Trump supporter Dave Wallace, 65, a retired oil industry sales manager in West Chester, Pennsylvania, is more optimistic about feuding families in a post-Trump world.

Wallace says his support for Trump has caused tensions with his son and daughter-in-law.

“The hatred for Trump among Democrats, it’s just amazing to me,” Wallace said. “I think it’s just Trump, the way he makes people feel. I do think the angst will decrease when we’re back to a normal politician who doesn’t piss people off.”

Jay J. Van Bavel, a professor of psychology and neural science at New York University, said this “political sectarianism” has become not only tribal, but moral.

“Because Trump has been one of the most polarizing figures in American history around core values and issues, people are unwilling to compromise and that is not something you can make go away,” Van Bavel said.

Jacquelyn Hammond, 47, a bartender in Asheville, North Carolina, no longer speaks to her Trump-supporting mother Carol, and is also discouraging her son from speaking to her.

She said she would like to heal the relationship, but believes that will be difficult, even if Trump loses the election.

“Trump is like the catalyst of an earthquake that just divided two continents of thought. Once the Earth divides like that, there’s no going back. This is a marked time in our history where people had to jump from one side to the other. And depending on what side you choose, that is going to be the trajectory for the rest of your life,” she said.

Hammond said she first realized her relationship with her mother was in trouble shortly after the 2016 election when she defended Clinton while driving with her mother.

“She stopped the car and told me not to disrespect her politics. And if I don’t want to respect her politics, I can get out of the car.”

Bonnie Coughlin, 65, has voted mostly Republican all her life, except in 2016 when she backed a third party candidate. This time she is all in for Biden, even holding a small rally for him on the side of a highway near Gilbertsville, Pennsylvania.

Raised in a Republican, religiously conservative family in Missouri, she says her relationships with her sister, father and some cousins – all ardent Trump supporters – have soured.

Coughlin says she still loves them, but “I look at them differently. It’s because they have willingly embraced someone who is so heartless and just shows no empathy to anyone in any circumstances.”

She added: “And if Biden wins, I don’t think they will go quietly into the night and accept it.”

(Reporting by Tim Reid in Los Angeles, Gabriella Borter in Raleigh, N.C. and Michael Martina in Detroit; Additional reporting by Elizabeth Culliford in London; Editing by Ross Colvin and Daniel Wallis)

U.S. weekly jobless claims below one million; but labor market recovery ebbing

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell below 1 million last week for the second time since the COVID-19 pandemic started in the United States, but that does not signal a strong recovery in the labor market.

The drop in initial claims to a five-month low reported by the Labor Department on Thursday largely reflected a change in the methodology it used to address seasonal fluctuations in the data, which economists complained had become less reliable because of the economic shock caused by the coronavirus crisis.

There are growing signs the labor market recovery from the depths of the pandemic in mid-March through April is faltering, with financial support from the government virtually depleted.

“There are new seasonal adjustment factors this week which brings down the joblessness slightly,” said Chris Rupkey, chief economist at MUFG in New York. “The labor market looks just as bad as it was and it will be a miracle if economic growth can continue at such a fast clip during this recovery if it has to drag along millions and millions of workers without paychecks.”

Initial claims for state unemployment benefits fell 130,000 to a seasonally adjusted 881,000 for the week ended Aug. 29. Economists polled by Reuters had forecast 950,000 applications in the latest week. A staggering 29.2 million people were on unemployment benefits in mid-August.

The Labor Department has switched to using additive factors to more accurately track seasonal fluctuations in the series. The government dropped the multiplicative seasonal adjustment factors it had been using because they could cause systematic over-or under-adjustment of the data in the presence of a large shift in the claims series.

Unadjusted claims rose 7,591 to 833,352 last week. The increase in the raw numbers, which many economists prefer to focus on, added to a raft of data suggesting the labor market recovery was ebbing.

A report on Wednesday from the Federal Reserve based on information collected from the U.S. central bank’s contacts on or before Aug. 24 showed an increase in employment. The Fed, however, noted that “some districts also reported slowing job growth and increased hiring volatility, particularly in service industries, with rising instances of furloughed workers being laid off permanently as demand remained soft.”

Private employers hired fewer workers than expected in August. In addition, data from Kronos, a workforce management software company, and Homebase, a payroll scheduling and tracking company, showed employment growth stagnated last month.

Another report on Thursday showed job cuts elevated in August amid layoffs by airlines. United Airlines said on Wednesday it was preparing to furlough 16,370 workers on Oct. 1.

Stocks on Wall Street were trading sharply lower. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

SEVERE DISTRESS

The weak labor market reports raise the risk of a sharper slowdown in job growth in August than is currently anticipated by financial markets. The government is scheduled to publish August’s employment report on Friday.

According to a Reuters survey of economists non-farm payrolls likely rose by 1.4 million jobs last month after increasing by 1.763 million in July. That would leave non-farm payrolls about 11.5 million below their pre-pandemic level.

The claims report also showed the number of people receiving benefits after an initial week of aid dropped 1.238 million to 13.254 million in the week ending Aug. 22. Part of the decrease in so-called continuing claims was likely because of people exhausting eligibility for benefits.

The number of people receiving unemployment benefits under all programs jumped 2.2 million to 29.2 million in the week ended Aug. 15.

“While Wall Street hits record highs, much of Main Street remains in severe distress,” said Ron Temple, head of U.S. Equity at Lazard Asset Management in New York. “The pandemic and the federal failure to sustain necessary assistance to households as well as state and local governments are weakening long-term economic growth and social stability.”

Fiscal stimulus boosted economic activity after it nearly ground to a halt following the shuttering of nonessential businesses in mid-March to control the spread of COVID-19. That set up the economy, which plunged into recession in February, for a sharp rebound in the third quarter.

A $600 weekly unemployment supplement expired in July and funding programs for businesses have also lapsed, leaving the outlook for growth uncertain. Also clouding the growth prospects, the trade deficit jumped 18.9% to a 12-year high of $63.6 billion in July, driven by a record surge in imports.

While the rise in imports could be blunted by an increase in inventories, export growth was moderate in July. That could threaten a recent acceleration in manufacturing activity.

A fourth report on Thursday showed growth in the services industry slowed in August. The services sector, which accounts for more than two-thirds of the U.S. economy, has been hardest hit by the pandemic.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)

Coffee, ketchup and Nike Air Max: it’s the COVID consumer economy

By Nick Carey, Richa Naidu and Siddharth Cavale

(Reuters) – Instant coffee, ketchup, Lululemon yoga pants and Nike Air Max sneakers are all in. Bottled water, pricey diapers and Burberry luxury trench coats are out.

Welcome to America’s pandemic consumer economy. And it’s like nothing we’ve seen before.

“Everything we knew about supply and demand, we can essentially throw out the window because consumer behavior has changed completely,” said Piotr Dworczak, assistant professor of economics at Northwestern University.

A Reuters analysis of a varied basket of goods shows how the COVID-19 crisis has upturned a decades-old consumer model for everything from clothing to food. This has given some companies surprising power to raise prices or withdraw discounts.

Many of the new trends can be attributed to one factor, according to retail specialists: working from home.

Almost overnight, a consumer-driven economy with clearly delineated work and home spending, changed profoundly. Rising demand for certain items, as well as global supply-chain disruptions, has driven up prices.

Americans are now shelling out significantly more than a year before for coffee, eggs, sliced ham, ketchup and cheese, for example, according to the Reuters analysis of the latest pricing data from Nielsen Co, the Brewers Association and StyleSage Co.

Yet it’s a complex picture, and some of the changes in behavior seem counter-intuitive during a time of deep economic uncertainty.

Demand and prices have also increased for more expensive, or “splurge”, items like $106 men’s Nike Air Max sneakers, $105 Lululemon yoga pants and even a $1,500 Louis Vuitton handbag.

Economists put this apparent discrepancy in behavior down to the fact that many people, unable to spend outside, have more cash in hand. Even many workers on furlough are receiving jobless benefits that match their wages under a federal stimulus plan.

“If I were to consider the consumer situation right now, in a strange way, they may have more disposable income, if they kept their job,” said Nirupama Rao, an assistant professor of business economics and public policy at the University of Michigan. “Of course we’re facing mass layoffs, but the bulk of people have maintained their wages and earnings.”

‘UNPRECEDENTED PRESSURE’

Shoppers paid roughly 8% more on average for JM Smucker’s instant coffees, including Folger’s and Dunkin’, at bricks-and-mortar stores in the four weeks to Aug. 8 versus a year before, according to Nielsen data analyzed by Bernstein.

They shelled out nearly 10% more for Kraft Heinz sauces and about 5% extra for Tyson Foods’ sliced hams.

Such inflation might make commercial sense, given the bump in demand for home staples. But some consumer experts complain retailers and big brands are cutting back on promotions and using their power to shore up profits during a health crisis that has led to millions losing their livelihoods.

“Brand manufacturers have been fattening their pockets with profits while putting unprecedented pressure on the consumer who has to pay those higher prices,” said Burt Flickinger, retail consultant at Strategic Resource Group.

JM Smucker said it did not raise prices of its instant coffees in the four weeks to Aug. 8, but did cut back on some promotions for in-demand products. Kraft Heinz declined to comment, but said during earnings in July that second-quarter prices went up as it pulled some offers and discounts for scarce products. Tyson did not respond to a request for comment.

Other industry experts point out that companies have had to grapple with costly production shifts to adapt to the new landscape. They note that before the pandemic, when costs were lower and there were more promotions and discounts, prices of Heinz sauces were declining.

Pre-COVID-19, tens of millions of commuters grabbed a coffee to-go en route to work. Suddenly, instead of 20-pound (9.1 kg) bags of coffee for restaurants, or large containers of ketchup, producers have had to switch to smaller, home-use packaging.

As ketchup, mayonnaise and vinegar sales surged, Kraft Heinz diverted resources to running these production lines around the clock, while suspending others. It added extra shifts for factory workers to make grocery-sized bottles.

Egg suppliers, like market leader Cal-Maine Foods Inc., have had to overcome a shortage of cartons.

“If you look at eggs, before they’d be powdered to send to restaurants and now they have to be put in cardboard containers to go to supermarkets,” said Daniel Bachman, senior U.S. economist at Deloitte. “It took a high price to induce the change.”

Yet consumer companies cannot take demand for granted and can be burnt by raising prices.

Prices for bottled water and disposable diapers have gone up, while demand has fallen for most of the pandemic. People are unwilling to pay out extra when they can drink their own water at home, and can opt for reusable or cheaper generic diapers at a time when there’s a lack of child daycare, some economists say.

“You’re at home anyway so you’re not sending your child off somewhere in a diaper that fails,” said Rao.

A $2,245 COAT, ANYONE?

Lockdowns have meant many Americans do not travel, eat out, or go to movie theaters. As they have not been commuting or taking kids to school, many are using less gas in their cars.

So they can now splash out on other things, perhaps.

Michael Collins, a professor at the University of Wisconsin’s consumer science department, calls this a “substitution effect.”

“It’s pretty clear people behave as if they have different pots of money,” he said. “Now I don’t eat out at all, so I have a couple of hundred dollars of new income not allocated to anything. I can substitute that money away from eating out and treat myself to other things.”

This effect could help explain the rise in demand and prices for the Air Max. Nike sold about 63% of their online stocks of the shoes in July, compared with only 10% a year earlier, according to apparel data company StyleSage which collects sales information from brand websites.

Air Max prices surged 10.5% on average versus a year before.

Prices for Lululemon’s yoga pants rose 7.2%, and about 45% of stocks were sold in July versus 15% the year before.

Meanwhile, the price of Louis Vuitton’s Neverfull MM Monogram handbag has risen 5% on its website since the start of May. In July, Louis Vuitton owner LVMH said sales momentum had picked up since June, even as its star label raised prices for a third time during the pandemic.

There are some limits, though.

Demand for a Burberry woman’s trench coat has declined, with only 3% of online stocks sold in July versus 14% a year earlier.

It’s a snip at $2,245, down 3.5%.

Nike and Burberry did not respond to requests for comment, while LVMH declined to comment beyond its July remarks. Lululemon said it hadn’t raised prices on some of its core yoga pant styles, including Align and Wunder Under, but had seen a significant rise in demand for yoga products since April. The strong July sales reflected its “Warehouse Sale” offer that month, it added.

HOW LONG WILL IT LAST?

Much remains uncertain.

The U.S. epidemic and its economic consequences are moving targets, and it is unclear when – or even if – American life and consumer behavior will revert to “normal”.

The University of Michigan’s Rao said food producers had been reluctant to invest in permanent changes to retool factories. “They’re hindered by the fact there’s so much uncertainty as to how long this will last.”

Indeed, consumer demand, as well as brands’ pricing power, could change in the coming weeks and months as many Americans feel more financial pain.

The government’s first round of COVID-19-related benefits expired on July 31, leaving about 30 million unemployed Americans without the $600 weekly boost that sustained their households and promoted some discretionary spending.

With the money spigot turned off, analysts say recessionary spending behavior should take hold, with consumers cutting back.

The University of Wisconsin’s Collins said loan forbearance on mortgages, credit cards and student loans since the spring had also helped consumers.

“Eventually that will all end, and people could start to tighten up again.”

(Reporting By Nick Carey, Richa Naidu and Siddharth Cavale; Additional reporting by Silvia Aloisi; Editing by Vanessa O’Connell and Pravin Char)

Israel, UAE will cooperate on financial services, investment

JERUSALEM (Reuters) – Israel and the United Arab Emirates agreed on Tuesday to set up a joint committee to cooperate on financial services, aiming to promote investment between the two countries, an Israeli statement said.

An Israeli delegation is in Abu Dhabi on a historic trip to finalize a pact marking open relations between Israel and the Gulf state.

Representatives from both countries signed the understanding, Israeli Prime Minister Benjamin Netanyahu said in the statement.

One focus, Netanyahu said, would be on “cooperation in the field of financial services and removing financial barriers for making investments between the countries, as well as promoting joint investments in the capital markets”.

The countries will also collaborate in banking services and payment regulations, he said.

Separately, the state-run Abu Dhabi Investment Office (ADIO) and Invest in Israel, part of the economy ministry, agreed to set out a plan to establish formal cooperation between then, they said in a joint statement.

“The organizations will explore mutually beneficial areas of collaboration to unlock investment and partnership opportunities for companies in Israel and Abu Dhabi with a strong focus on innovation and technology,” they said.

An initial virtual meeting was held between Ziva Eger, Invest in Israel chief executive, and Monira Hisham al-Kuttab who leads ADIO’s international promotional activity. Further meetings are scheduled throughout September.

“Israel’s ecosystem has a lot to offer to the UAE’s economy in terms of innovation, specifically in the Life Sciences, CleanTech, Agtech and Energy sectors,” Eger said in the statement.

ADIO Director General Tariq Bin Hendi said ADIO’s investor care team would “facilitate connections throughout Abu Dhabi’s ecosystem” and explore opportunities over the coming months.

Israeli officials have been quick to play up the economic benefits of the accord, which once formalized would also include agreements on tourism, technology, energy, healthcare and security, among other areas.

A number of Israeli and Emirati businesses have already signed deals since the normalization deal was announced.

(Writing by Jeffrey Heller and Yousef Saba; editing by Ari Rabinovitch, Larry King, William Maclean)

Powell: Jobs recovery faces ‘long tail’ of a couple of years

(Reuters) – Despite “a lot of strength in the economy,” millions of U.S. workers displaced from restaurant, travel, and similar jobs will struggle to find new employment and need steady support from the government, Federal Reserve Chair Jerome Powell said on Thursday, warning a full jobs recovery could take years.

“There is a particular part of the economy which involves getting people together and feeding them, flying them around the country, having them sleep in hotels, entertaining them,” Powell said in online remarks to the Fed’s annual economic symposium. “That part of the economy will find it very difficult to recover…That is millions of people who are going to struggle to find work. We need to stay with those people….We are looking at long tail of probably a couple of years at least.”

(Reporting by Howard Schneider; Editing by Chizu Nomiyama)

Trump approves emergency aid for Iowa after storm

(Reuters) – U.S. President Donald Trump on Monday said he approved federal disaster aid for Iowa after a hurricane-force storm hit last week, causing widespread damage in towns and farms and leaving thousands without power.

Iowa Governor Kim Reynolds said on Sunday she requested about $4 billion in emergency funds following the Aug. 10 storm.

The destruction compounded troubles for a U.S. agricultural economy already battered by extreme weather, the U.S.-China trade war and disruptions to labor and food consumption from the COVID-19 pandemic.

“I just approved an emergency declaration for Iowa,” Trump told reporters at the White House before departing on a trip to the Midwest. “It really did a lot of damage,” he said of the storm.

Trump, who is scheduled to speak on Monday in Minnesota and Wisconsin, said he aimed to visit Iowa.

“I’ll be going very soon and maybe today,” he said.

Media reports said the storm caused at least three deaths in Iowa. Winds as high as 100 miles per hour (160 kph) hit eastern Nebraska, Iowa, Wisconsin and parts of Illinois.

The storm impacted 37.7 million acres of farmland across the Midwest, including 14 million in Iowa, the Iowa Soybean Association said on Friday, citing estimates from the U.S. Department of Agriculture.

“I’ve never seen the corn flattened as much as it has from this terrific windstorm,” U.S. Senator Charles Grassley of Iowa told reporters on Monday. “The number of grain bins flattened is humongous.”

The storm affected 58,000 holders of crop-insurance policies with a liability of around $6 billion in Iowa, according to the Iowa Soybean Association.

Grassley said crop insurance covers about 90% of Iowa farmland. It is too early to determine whether there will be enough storage space for the autumn harvest, he said.

(Reporting by Kanishka Singh in Bengaluru; Steve Holland; in Washington; and Tom Polansek in Chicago; Editing by Nick Macfie and Dan Grebler)

COVID-19 tanks U.S. economy in second quarter, outlook shaky

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus.

Gross domestic product collapsed at a 32.9% annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947, the Commerce Department said on Thursday. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter.

Economists polled by Reuters had forecast GDP plunging at a 34.1% rate in the April-June quarter.

The bulk of the historic tumble in GDP occurred in April when activity almost ground to an abrupt halt after restaurants, bars and factories among others were shuttered in mid-March to slow the spread of the coronavirus.

Though activity picked up starting in May, momentum has slowed amid a resurgence in new cases of the illness, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again or pausing reopenings. That has tempered hopes of a sharp rebound in growth in the third quarter.

Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The U.S. central bank kept interest rates near zero and pledged to continue pumping money into the economy.

“The bottom fell out of the economy in the second quarter,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high and that means economic growth cannot gain any traction.”

The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package. President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice three months before the Nov. 3 election, said on Wednesday he was in no hurry.

Economists say without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper. The package offered companies help paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires on Saturday. Many companies have exhausted their loans.

This, together with the sky-rocketing coronavirus infections is keeping layoffs elevated. In a separate report on Thursday, the Labor Department said initial claims for unemployment benefits totaled 1.434 million in the week ending July 25.

(Reporting by Lucia Mutikani; Editing by Chris Reese)

China orders U.S. to shut Chengdu consulate, retaliating for Houston

By Yew Lun Tian, Tony Munroe and Doina Chiacu

BEIJING/WASHINGTON (Reuters) – China ordered the United States on Friday to close its consulate in the city of Chengdu, responding to a U.S. demand for China to close its Houston consulate, as relations between the world’s two largest economies deteriorate.

The order to close the consulate in Chengdu, in southwestern China’s Sichuan province, continued Beijing’s recent practice of like-for-like responses to U.S. actions.

China had warned it would retaliate after it was this week given 72 hours – until Friday – to vacate its consulate in the Texas city, and had urged the United States to reconsider.

Relations between Washington and Beijing have deteriorated sharply this year over issues ranging from trade and technology to the novel coronavirus, China’s territorial claims in the South China Sea and its clampdown on Hong Kong.

“The Ministry of Foreign Affairs of China informed the U.S. Embassy in China of its decision to withdraw its consent for the establishment and operation of the U.S. Consulate General in Chengdu,” China’s foreign ministry said in a statement.

Foreign ministry spokesman Wang Wenbin said some Chengdu consulate personnel were “conducting activities not in line with their identities” and had interfered in China’s affairs and harmed China’s security interests, but he did not say how.

Senior Chinese diplomat Wang Yi, who is also foreign minister, blamed Washington for the deterioration in ties.

“The current difficult situation in Sino-U.S. relations is entirely caused by the United States, and its goal is trying to interrupt China’s development,” Wang said in a video conversation with his German counterpart.

U.S. President Donald Trump’s administration said the closing of the consulate was aimed at protecting American intellectual property and personal information.

“We urge the CCP (Chinese Communist Party) to cease these malign actions rather than engage in tit-for-tat retaliation,” John Ullyot, a spokesman for the White House National Security Council, said in a statement.

The consulate in Chengdu was given 72 hours to close, or until 10 a.m. on Monday, the editor of the Global Times newspaper said on Twitter.

The consulate opened in 1985 and has almost 200 employees, including about 150 locally hired staff, according to its website. It was not immediately clear how many are there now after U.S. diplomats were evacuated from China during the novel coronavirus outbreak.

Global share markets fell after the announcement, led by a heavy drop in Chinese blue chips, which fell 4.4%, while the yuan hit a two-week low. [MKTS/GLOB]

The U.S. State Department warned Americans in China of a greater risk of arbitrary law enforcement including detention, repeating a similar warning two weeks ago.

TROUBLED TIES

Secretary of State Mike Pompeo said in a speech on Thursday Washington and its allies must use “more creative and assertive ways” to press the Chinese Communist Party to change its ways.

A source had told Reuters China was considering shutting the U.S. consulate in Wuhan, where Washington withdrew staff as the coronavirus outbreak raged.

“The Chengdu consulate is more important than the Wuhan consulate because that is where the U.S. gathers information about Tibet and China’s development of strategic weapons in neighboring regions,” said Wu Xinbo, a professor and American studies expert at Fudan University in Shanghai.

He said the Chengdu consulate was less important for economic activity than U.S. consulates in Shanghai, Guangzhou and Hong Kong.

Chinese social media users, who had denounced the order to close the Houston mission, lauded the response.

The comment, “let’s renovate it into a hotpot restaurant!”, a reference to a popular dish in Chengdu, got 100,000 likes on the Weibo account of state broadcaster CCTV.

(Reporting by Tony Munroe and Yew Lun Tian; additional reporting by Huizhong Wu and Judy Hua in Beijing, Rama Venkat in Bengaluru, Tom Westbrook in Singapore and Doina Chiacu in Washington; Editing by Michael Perry, Timothy Heritage and Jonathan Oatis)

When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?

By Howard Schneider

WASHINGTON (Reuters) – During a blue-sky moment in 2018 near the end of a decade-long economic expansion, it was the United States that helped pull the world along as the extra cash from tax cuts and government spending flowed through domestic and global markets.

But if it was U.S. policy that pushed the world higher then, it is U.S. policy that threatens to pull the world under now as the country’s troubled response to the coronavirus pandemic emerges as a chief risk to any sustained global recovery.

Officials from Mexico to Japan are already on edge. Exports have taken a hit in Germany, and Canada looks south warily knowing that any further hit to U.S. growth will undoubtedly spill over.

“Globally there will be difficult months and years ahead and it is of particular concern that the number of COVID-19 cases is still rising,” the International Monetary Fund said in a review of the U.S. economy that cited “social unrest” due to rising poverty as one of the risks to economic growth.

“The risk ahead is that a large share of the U.S. population will have to contend with an important deterioration of living standards and significant economic hardship for several years. This, in turn, can further weaken demand and exacerbate longer-term headwinds to growth.”

It was a clinical description of a grim set of facts: After the U.S. government committed roughly $3 trillion to support the economy through a round of restrictions on activity imposed to curb the virus in April and May, the disease is surging in the United States to record levels just as those support programs are due to expire. More than 3.6 million people have been infected and 140,000 killed. Daily growth in cases has tripled to more than 70,000 since mid-May, and the 7-day moving average of deaths, after falling steadily from April to July, has turned higher.

Meanwhile the country has fractured over issues like mask-wearing that in other parts of the world were adopted readily as a matter of common courtesy. With some key states like Texas and California now reimposing restrictions, analysts have already noted a possible plateau to the U.S. recovery with the country still 13.3 million jobs shy of the number in February.

A GLOBAL DISAPPOINTMENT

For other major economic powers, that is a weight added to their own struggles with the virus and the economic fallout.

The U.S. economy accounts for about a quarter of world gross domestic product. Though much of that is service-related, and much of the direct impact of the virus is tied up in industries like restaurants with weak links to the global economy, the connections are still there. A lost job leads to lower consumer spending leads to fewer imports; weak business conditions lead to less investment in the equipment or supplies that are often produced elsewhere.

Year-to-date U.S. imports through May are down more than 13%, or roughly $176 billion.

In Germany, whose measures to contain the pandemic are considered to have been among the most effective, exports to the United States plunged 36% year-over-year in May. Analysts see little prospect for improvement, with year-to-date U.S. auto sales through June down nearly 24% from a year earlier.

“That is really a disappointment,” said Gabriel Felbermayr, president of the Kiel Institute for the World Economy, in a recent interview with radio network Deutschlandfunk. The spike in U.S. infections, he said, could not have been expected.

In Japan, the speed of the recovery is seen tied directly to U.S. success in stemming the virus.

“Japan’s recovery will be really delayed if the spreading of the coronavirus in the United States isn’t stopped and U.S.-bound exports from various Asian countries don’t grow,” said Hideo Kumano, a former Bank of Japan official who is now chief economist at Dai-ichi Life Research Institute.

PESSIMISM AT BOTH BORDERS

The IMF projected U.S. GDP will shrink this year by 6.6%, in line with many analysts’ projections.

The Bank of Canada is more pessimistic, forecasting U.S. GDP to fall 8.1% on the year. That has already been lowered once as the health situation decayed.

A further leg down would hit Canada directly, with perhaps three-fourths of the country’s exports headed over the U.S. border.

“We did take down our U.S. projection … I would underline that there’s a lot of uncertainty, and the principle source of the uncertainty is the evolution of the coronavirus itself,” said BOC governor Tiff Macklem.

At the southern border, Mexico is also posting record daily numbers of new cases, but President Andres Manuel Lopez Obrador has at times deflected criticism of his government’s efforts by pointing to the U.S. numbers.

Lopez Obrador undertook a risky visit with President Donald Trump earlier in July, couching his journey to Washington as a matter of economic necessity as Mexico attempts to revive an economy that could shrink by 10% or more this year, according to forecasts.

The Mexican president hopes the new United States-Mexico-Canada Agreement (USMCA) trade deal, which took effect on July 1, will spur business and investment, but pessimism about the outlook has been growing.

“To the point that people in the U.S. are losing jobs or incomes it is a downward weight … and it will have ramifications on the ability to consume globally,” said Elizabeth Crofoot, senior economist at the Conference Board, which documented a record drop in global consumer confidence in a recent survey.

“We take one step forward and two steps back.”

(Reporting by Howard Schneider in Washington; Additional reporting by Reinhard Becker and Christian Kraemer in Berlin, Leika Kihara in Tokyo, Steve Scherer in Ottawa and Dave Graham in Mexico City; Editing by Dan Burns and Matthew Lewis)