McConnell says U.S. needs ‘another boost’ as coronavirus relief talks continue

By Patricia Zengerle

WASHINGTON (Reuters) – Senate Majority Leader Mitch McConnell on Thursday said the U.S. economy needs an “additional boost” to cope with the fallout of the coronavirus pandemic, as his Democratic counterparts and White House officials try to hash out a next wave of relief.

As talks neared the end of their second week, the four principal negotiators – a group that does not include McConnell – appeared to be near agreement on some topics, but still trillions of dollars apart on major issues including the size of a federal benefit for tens of millions of unemployed workers.

McConnell said he agreed with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin that agreement is needed on another aid package, even though some of his fellow Republicans in the Senate do not think so.

“I think we need an additional agreement,” the Republican Senate leader told CNBC, adding “the economy does need an additional boost.” Nonpartisan analysts say McConnell’s Republicans face a risk of losing their Senate majority in November’s elections.

McConnell continued to insist that unemployment benefits in any deal should be adjusted downward and that the agreement should include liability protections against lawsuits for reopening businesses during the pandemic.

Mnuchin was due to join fellow Republican Mark Meadows, the White House chief of staff, and the two top congressional Democrats, House of Representatives Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer, for talks on Capitol Hill at 5 p.m. EDT (2100 GMT).

Others not in the negotiation room considered their own actions, as Republican senators said they had been told that no deal by Friday would mean no deal at all.

Republican President Donald Trump stood ready to use executive orders to address issues such as unemployment benefits and protections against evictions if talks failed, according to Meadows.

Republican Senator Marco Rubio told reporters that the Senate on Thursday could also take up a new version of the Payroll Protection Program that provides financial assistance to small businesses in the form of forgivable loans.

Congress passed more than $3 trillion in relief legislation early in the pandemic. But lawmakers missed a deadline last week to extend the $600 per week in enhanced unemployment payments that played a key role in propping up the economy.

Pelosi and Schumer have pushed for a comprehensive package of assistance for the unemployed, the poor, hospitals, schools and state and local governments.

“The leader and I are determined that we will come to agreement. But it has to meet the needs of the American people,” Pelosi said.

Mnuchin has warned that the Trump administration would not accept “anything close” to the $3.4 trillion in new aid sought by Democrats. Senate Republicans have proposed a $1 trillion package that many of their own members have rejected.

Americans on COVID-19 jobless benefits spent more than when working, study shows

By Jonnelle Marte

(Reuters) – Americans who received enhanced unemployment benefits due to the coronavirus pandemic spent more than when they were working, a study released on Thursday said, adding to concerns about a steep fall in spending when the emergency benefits expire.

The $600 weekly supplement added to jobless benefits as part of the CARES Act helped unemployed households spend 10% more after receiving benefits than they did before the pandemic, according to research by the JP Morgan Chase Institute.

Researchers analyzed transactions for 61,000 households that received unemployment benefits between March and May. Spending dropped for all households as the virus spread and led to business shutdowns, but then rose when households began receiving jobless benefits, the study found.

That contrasts with a typical recession, when households receiving unemployment benefits usually cut spending by 7% because regular jobless benefits amount to only a fraction of a person’s prior earnings, the research found.

The analysis highlighted how the additional unemployment benefits are helping to prop up the U.S. economy and consumer spending after the pandemic led to a surge in joblessness across the country.

More than 30 million Americans are estimated to be receiving unemployment benefits – and they could be pushed off an income cliff when the supplemental benefits, which are due to expire at the end of July, are withdrawn.

“Our estimates suggest that expiration will result in large spending cuts, with potentially negative effects on both households and macroeconomic activity,” the researchers wrote.

The data also reflected the financial pain faced by households that encountered big delays in collecting benefits after states across the country were overwhelmed by applications.

Households that had to wait several weeks for their first unemployment check to arrive cut spending by about 20%, the study found. Spending recovered after the checks arrived.

(Reporting by Jonnelle Marte; editing by Richard Pullin)

Fears of second U.S. coronavirus wave rise on worrisome spike in cases, hospitalizations

By Lisa Shumaker, Carl O’Donnell and Michael Erman

(Reuters) – About half a dozen states including Texas and Arizona are grappling with a rising number of coronavirus patients filling hospital beds, fanning concerns that the reopening of the U.S. economy may spark a second wave of infections.

The rally in global stocks came crashing down on Thursday over worries of a pandemic resurgence. The last time the S&P 500 and Dow fell as much in one day was in March, when U.S. coronavirus cases began surging.

A recent spike in cases in about a dozen states partially reflects increased testing. But many of those states are also seeing rising hospitalizations and some are beginning to run short on intensive care unit (ICU) beds.

Texas has seen record hospitalizations for three days in a row, and in North Carolina only 13% of the state’s ICU beds are available due to severe COVID-19 cases. Houston’s mayor said the city was ready to turn its NFL stadium into a make-shift hospital if necessary.

Arizona has seen a record number of hospitalizations at 1,291. The state health director told hospitals this week to activate emergency plans and increase ICU capacity. About three-quarters of the state’s ICU beds are filled, according to the state website.

“You’re really crossing a threshold in Arizona,” said Jared Baeten, an epidemiologist at the University of Washington. “The alarming thing would be if the numbers start to rise in places that have clearly already peaked and are on their downtrend,” he said, referring to New York and other Northeastern states where new cases and deaths have plummeted.

Health experts worry there could be a further rise in infections from nationwide protests over racial injustice and police brutality that packed people together starting two weeks ago.

STATES WITH RISING CASES

Arizona, Utah and New Mexico all posted rises in new cases of 40% or higher for the week ended June 7, compared with the prior seven days, according to a Reuters analysis. New cases rose in Florida, Arkansas, South Carolina and North Carolina by more than 30% in the past week.

Dr. Anthony Fauci, the top U.S. infectious disease official, told Canada’s CBC news that more cases are inevitable as restrictions are lifted.

“We also as a whole have been going down with cases,” Fauci said. “But I think what you mentioned about some states now having an increase in the number of cases makes one pause and be a little bit concerned.”

Even if hospitals are not overwhelmed by coronavirus cases, more hospitalizations mean more deaths in the coming weeks and months, said Spencer Fox, research associate at the University of Texas at Austin.

“We are starting to see very worrying signs about the course the pandemic is taking in cities and states in the U.S. and around the world,” he said. “When you start seeing those signs, you need to act fairly quickly.”

Total U.S. coronavirus deaths are now over 113,000, by far the most in the world. That figure could exceed 200,000 at some point in September, Ashish Jha, the head of Harvard’s Global Health Institute, told CNN.

Jha said the United States was the only major country to reopen without getting its case growth to a controlled level – defined as a rate of people testing positive for the coronavirus remaining at 5% or lower for at least 14 days. Nationally, that figure has been between 4% and 7% in recent weeks, according to a Reuters analysis.

Health officials have stressed that wearing masks in public and keeping physically apart can greatly reduce transmissions, but many states have not required masks.

“I want the reopening to be successful,” Harris County Judge Lina Hidalgo, the top executive for the county that encompasses Houston, told reporters. “But I’m growing increasingly concerned that we may be approaching the precipice of a disaster.”

(Reporting by Michael Erman and Carl O’Donnell in New York and Lisa Shumaker in Chicago; Additional reporting by Lewis Krauskopf in New York and Brad Brooks in Austin, Texas; Writing by Lisa Shumaker; editing by Peter Henderson and Bill Berkrot)

Explainer: What to look for in the Fed’s U.S. economic outlook

By Ann Saphir

SAN FRANCISCO (Reuters) – U.S. Federal Reserve policymakers on Wednesday will publish their first economic projections since the coronavirus pandemic set off a recession in February, estimates expected to signal a collapse in output this year and near-zero interest rates for the next few years.

They’ll also give shape to the range of views at the U.S. central bank about the expected speed of the recovery and any longer-term damage to the world’s biggest economy from a pandemic that has so far killed nearly 111,000 Americans and prompted unprecedented restrictions on commerce and movement to slow its spread.

Here is a guide to what the projections may show and what questions they may raise about the future of the U.S. economy as authorities lift those restrictions.

WHAT ARE THEY?

Every three months, each of the Fed’s 17 policymakers develops a set of multi-year forecasts for U.S. unemployment, inflation, economic growth and interest rates. The projections are published in summary form at the end of the policy-setting meeting. The Fed did not release a quarterly summary of economic projections in March, however, because of massive uncertainty about the spread of the novel coronavirus, the resulting lockdowns, and the economic fallout. Though plenty is still uncertain, one thing is clear: the projections on Wednesday will be starkly worse than the Fed’s largely favorable outlook in December. (Please see graphic )

DOES THIS HAVE ALL THOSE DOTS?

Yes. The projections’ centerpiece is the so-called dot plot, a graphic representation of where each unnamed policymaker sees interest rates in coming years. This collection of rate-setters’ individual views has also occasionally functioned as a loose policy promise about the path of rates. This is one of those times. The Fed has signaled it will keep its key overnight lending rate near zero until the recovery is well underway. The dots, which will likely show most Fed policymakers expect no change in rates through 2022, “could be seen as a soft way of reinforcing that guidance,” said Michael Feroli, chief U.S. economist at JP Morgan.

HOW DEEP, HOW LONG?

With states in various stages of reopening after weeks or more of stay-at-home orders that precipitated the recession, the Fed policymakers’ forecasts will map their sense of how quick the recovery will be.

“The Fed likely forecasts a strong rebound in growth in H2, but the level of GDP will remain well below the pre-coronavirus level until late 2021” Oxford Economics’ Kathy Bostjancic wrote. Her view was widely echoed by other economists.

The U.S. unemployment rate, which fell unexpectedly to 13.3% in May, may be projected to end this year in double digits and remaining well above healthy long-run levels next year. The Fed will likely project inflation to undershoot its 2% target for the foreseeable future, Bostjancic and others say.

Importantly, the Fed’s summary of projections reflects what policymakers see as the most likely path for the economy, which for many does not factor in a second wave of infections – a key unknown for now.

But deaths from COVID-19, the respiratory illness caused by the novel coronavirus, continue to increase in many U.S. states, and public health officials have flagged the possibility of further spread after crowded Memorial Day celebrations in parts of the country in late May and ongoing mass protests against racial inequalities since the May 25 death of George Floyd, a black man, in police custody in Minneapolis.

“The risk to our forecast, and likely the Fed’s, is skewed to the downside,” Bostjancic said.

LONG-TERM DAMAGE?

The economic projections being released on Wednesday will also offer insight into whether Fed officials see the pandemic as inflicting permanent damage on the economy. Nomura economist Lewis Alexander projects little change to the Fed’s earlier estimate that the economy can sustain about 1.9% yearly growth in the long run, along with 4.1% unemployment, though both could erode. More broadly, he said, “it is important to emphasize the significant amount of uncertainty” around the forecasts.

(Reporting by Ann Saphir; Editing by Dan Burns and Paul Simao)

Scarred and scared: post-Covid consumers not their old selves

By Mark John

LONDON (Reuters) – Michael Clark of Amy’s Housewares has one big fear as its London stores prepare to reopen on June 15 along with other retailers around Britain: “Customers not spending, having no trust in the economy.”

His concern, captured in a survey by the British Independent Retailers Association (BIRA) before a nationwide easing of social distancing measures, may be well-founded.

Across the world, consumers are emerging from lockdowns warier and more thrift-conscious than before. That will drag on any recovery and could encourage governments and central bankers to follow up on coronavirus handouts with more costly stimulus.

The new thrift is showing up in various ways: some households are hoarding the cash they saved during lockdowns; some are flocking to cheaper brands or sticking with essentials.

GRAPHIC: Savings rates in Europe rise Savings rates in Europe rise – https://graphics.reuters.com/ECONOMY-EU/SAVINGS/yxmvjkqlnpr/chart.png

Other risks to consumer demand include the outright collapse of purchasing power among those whose livelihoods were ruined by the pandemic and even imponderables such as what happens to spending patterns if more people continue to work from home.

In China, shopping malls began to fill up again from April after lockdown eased. Online sales have surged in some categories, often helped by discounts and state coupons.

But a lingering wariness about items deemed non-essential means consumers may still not emerge as the pillar of growth which Beijing hopes they will be.

“Consumers are placing a greater focus on essential spending categories,” Fitch Solutions said in a June 4 report, predicting a fall in Chinese household spending this year and slashing its 2020 growth forecast to just 1.1% from 5.6% before the pandemic.

DOLLAR STORE CLIENTELE GROWS

In the United States, commonplace brands such as chocolate giant Hershey or toothpaste-maker Colgate say consumers have traded down. Dollar stores, meanwhile, expect to open their doors to a new set of customers as they did after the 2008-09 Great Recession.

“In 2008, folks lost jobs … and they found us. And I think that’s some of what we’re planning for as we take a look into our crystal ball at back half of the year and 2021,” Dollar Tree Chief Executive Gary Philbin said on May 28.

Much hangs now on what happens to the mountain of savings built up by those U.S. households which weathered the worst of the lockdown fall-out and have pushed the overall U.S. savings rate to a record 33% of income.

GRAPHIC: Savings rates in the U.S. rise – https://graphics.reuters.com/ECONOMY-USA/SAVINGS/nmovakbjdva/chart.png

While that rate will fall, those who expect cash to flood back into the economy may be disappointed. A 2012 paper by IMF researchers found that lingering uncertainty after the onset of the 2008-09 recession boosted saving rates durably, leading to lower consumption and growth in the wider economy.

Moreover many U.S. households are about to suffer “income cliffs” with one-off tax rebates expiring in May and pandemic unemployment compensation ending in July, Oxford Economics said, forecasting lower household income through the rest of the year.

“This will likely act as a constraint on the consumer spending recovery well into 2021,” it said in a June 3 note.

Such a scenario could force policy makers across the world to encourage savers to spend by speeding up moves to ease lockdowns, offering more economic support or pushing interest rates further towards, and even into, negative territory.

The same dilemma exists in Europe. The European Central Bank expects household savings to rise six points to 19% of income this year and remain high next year due to what economists call “scarring”, when an event leaves a durable impact on behaviour.

Citing the risk of cash-hoarding, French Finance Minister Bruno Le Maire has called for direct incentives to boost demand. The budget he will present next week will forecast a drop in consumer spending of 10% this year as households amass savings.

Germany has announced a cut in valued-added tax for the second half of the year to drive consumption, coupling that with cash handouts to parents.

Presenting hefty downgrades of the bank’s eurozone growth protections on Thursday, ECB President Christine Lagarde said the depth of scarring of domestic demand was one big factor that will determine the size of the contraction and recovery to come.

She warned: “Overall, the (ECB) Governing Council sees the balance of risks … to the downside.”

(Additional reporting by Reuters bureaux; editing by Philippa Fletcher)

Exclusive: Internal Chinese report warns Beijing faces Tiananmen-like global backlash over virus

BEIJING (Reuters) – An internal Chinese report warns that Beijing faces a rising wave of hostility in the wake of the coronavirus outbreak that could tip relations with the United States into confrontation, people familiar with the paper told Reuters.

The report, presented early last month by the Ministry of State Security to top Beijing leaders including President Xi Jinping, concluded that global anti-China sentiment is at its highest since the 1989 Tiananmen Square crackdown, the sources said.

As a result, Beijing faces a wave of anti-China sentiment led by the United States in the aftermath of the pandemic and needs to be prepared in a worst-case scenario for armed confrontation between the two global powers, according to people familiar with the report’s content, who declined to be identified given the sensitivity of the matter.

The report was drawn up by the China Institutes of Contemporary International Relations (CICIR), a think tank affiliated with the Ministry of State Security, China’s top intelligence body.

Reuters has not seen the briefing paper, but it was described by people who had direct knowledge of its findings.

“I don’t have relevant information,” the Chinese foreign ministry spokesperson’s office said in a statement responding to questions from Reuters on the report.

China’s Ministry of State Security has no public contact details and could not be reached for comment.

CICIR, an influential think tank that until 1980 was within the Ministry of State Security and advises the Chinese government on foreign and security policy, did not reply to a request for comment.

Reuters couldn’t determine to what extent the stark assessment described in the paper reflects positions held by China’s state leaders, and to what extent, if at all, it would influence policy. But the presentation of the report shows how seriously Beijing takes the threat of a building backlash that could threaten what China sees as its strategic investments overseas and its view of its security standing.

Relations between China and the United States are widely seen to be at their worst point in decades, with deepening mistrust and friction points from U.S. allegations of unfair trade and technology practices to disputes over Hong Kong, Taiwan and contested territories in the South China Sea.

In recent days, U.S. President Donald Trump, facing a more difficult re-election campaign as the coronavirus has claimed tens of thousands of American lives and ravaged the U.S. economy, has been ramping up his criticism of Beijing and threatening new tariffs on China. His administration, meanwhile, is considering retaliatory measures against China over the outbreak, officials said.

It is widely believed in Beijing that the United States wants to contain a rising China, which has become more assertive globally as its economy has grown.

The paper concluded that Washington views China’s rise as an economic and national security threat and a challenge to Western democracies, the people said. The report also said the United States was aiming to undercut the ruling Communist Party by undermining public confidence.

Chinese officials had a “special responsibility” to inform their people and the world of the threat posed by the coronavirus “since they were the first to learn of it,” U.S. State Department spokeswoman Morgan Ortagus said in response to questions from Reuters.

Without directly addressing the assessment made in the Chinese report, Ortagus added: “Beijing’s efforts to silence scientists, journalists, and citizens and spread disinformation exacerbated the dangers of this health crisis.”

A spokesman for the U.S. National Security Council declined to comment.

REPERCUSSIONS

The report described to Reuters warned that anti-China sentiment sparked by the coronavirus could fuel resistance to China’s Belt and Road infrastructure investment projects, and that Washington could step up financial and military support for regional allies, making the security situation in Asia more volatile.

Three decades ago, in the aftermath of Tiananmen, the United States and many Western governments imposed sanctions against China including banning or restricting arms sales and technology transfers.

China is far more powerful nowadays.

Xi has revamped China’s military strategy to create a fighting force equipped to win modern wars. He is expanding China’s air and naval reach in a challenge to more than 70 years of U.S. military dominance in Asia.

In its statement, China’s foreign ministry called for cooperation, saying, “the sound and steady development of China-U.S. relations” serve the interests of both countries and the international community.

It added: “any words or actions that engage in political manipulation or stigmatization under the pretext of the pandemic, including taking the opportunity to sow discord between countries, are not conducive to international cooperation against the pandemic.”

COLD WAR ECHOES

One of those with knowledge of the report said it was regarded by some in the Chinese intelligence community as China’s version of the “Novikov Telegram”, a 1946 dispatch by the Soviet ambassador to Washington, Nikolai Novikov, that stressed the dangers of U.S. economic and military ambition in the wake of World War Two.

Novikov’s missive was a response to U.S. diplomat George Kennan’s “Long Telegram” from Moscow that said the Soviet Union did not see the possibility for peaceful coexistence with the West, and that containment was the best long-term strategy.

The two documents helped set the stage for the strategic thinking that defined both sides of the Cold War.

China has been accused by the United States of suppressing early information on the virus, which was first detected in the central city of Wuhan, and downplaying its risks.

Beijing has repeatedly denied that it covered up the extent or severity of the virus outbreak.

China has managed to contain domestic spread of the virus and has been trying to assert a leading role in the global battle against COVID-19. That has included a propaganda push around its donations and sale of medical supplies to the United States and other countries and sharing of expertise.

But China faces a growing backlash from critics who have called to hold Beijing accountable for its role in the pandemic.

Trump has said he will cut off funding for the World Health Organization (WHO), which he called “very China-centric,” something WHO officials have denied.

Australia’s government has called for an international investigation into the origins and spread of the virus.

Last month, France summoned China’s ambassador to protest a publication on the website of China’s embassy that criticized Western handling of coronavirus.

The virus has so far infected more than 3 million people globally and caused more than 200,000 deaths, according to a Reuters tally.

(Editing by Peter Hirschberg)

Florida to unveil reopening plan as data shows painful contraction of U.S. economy

By Maria Caspani and Doina Chiacu

WASHINGTON (Reuters) – Florida Governor Ron DeSantis on Wednesday was preparing to unveil his plan for loosening restrictions on business activity in one of the most populous states in the United States as data showed the economy contracted 4.8% in the first three months due to the shutdowns aimed at battling the coronavirus.

Commerce Department data showed the economy shrank at its sharpest pace since the Great Recession due to the stringent measures to slow the spread of the novel coronavirus, ending the longest expansion in U.S. history.

Economists generally define a recession as at least two months of negative growth in a row.

“The economy is in free fall, we could be approaching something much worse than a deep recession,” said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. “It’s premature to talk about a recovery at this moment, we are going to be seeing a lot of bankruptcies for small and medium sized businesses.”

With millions unemployed, about a dozen states have been forging ahead to restart shuttered commerce without being ready to put in place the large-scale virus testing or means to trace close contacts of newly infected individuals.

Public health experts have urged caution, saying that a premature rollback of social-distancing policies could trigger a resurgence of infections.

In Florida, the largest state so far to contemplate re-opening, DeSantis is expected to announce a “phase one” loosening of restrictions a day after it reported a record-high 83 deaths and more than 700 new infections from the previous 24 hours on Tuesday. Despite being spared the worst of the pandemic, the state has so far tallied 32,846 cases of COVID-19, the disease caused by the virus, including 1,171 deaths.

U.S. deaths from the novel coronavirus was approaching 60,000 on Wednesday, and cases crossed the 1 million mark. The death toll has already surpassed the number of American lives lost in the Vietnam War, and the outbreak will soon be deadlier than any flu season since 1967, according to a Reuters tally.

White House adviser Jared Kushner, President Donald Trump’s son in law, said on Wednesday that May would likely become a transition month as states begin reopening in phases.

“I think you’ll see by June, a lot of the country should be back to normal and the hope is is that by July, the country is really rocking again,” he told Fox News.

He said the White House would begin another round of calls on Wednesday with all the governors to ask what additional supplies they need and what their two-month plan is.

Some businesses in Tennessee were allowed to reopen on Wednesday following an executive order issued by Governor Bill Lee to restart the state’s economy.

Some restaurants will be able to serve food to customers seated at tables, granted they observe state-mandated guidelines, while close-contact personal service businesses like barber shops, salons and spas will remain closed for now.

In California, Governor Gavin Newsom said curbside retail, manufacturing and other “lower-risk workplaces” should reopen within weeks as testing and contact-tracing improve.

Health experts have stressed the importance of testing and contact tracing to prevent a resurgence of the virus, but a nationwide strategy remains elusive and Trump has said the testing onus rests with single states.

 

(Reporting by Maria Caspani, Editing by Sonya Hepinstall)

Much of U.S. economy still plugging along despite coronavirus pain

By Howard Schneider

WASHINGTON (Reuters) – Garbage haulers still collect trash. Cops are on the beat. Couriers deliver food and packages. Insurance agents work from home.

The coronavirus crisis would appear to have put the entire U.S. economy on ice. Twenty-six million people have filed for unemployment in just a month, with millions more likely waiting in electronic queues at overtaxed state unemployment systems.

Still the U.S. job count stood at more than 152 million as of February. Paychecks are arriving for tens of millions of government workers, hospital, sanitation, utility and other employees deemed to be doing essential jobs; an army of employees working from home; and even chefs cooking for carry-out. For roughly 42 million retirees, and millions more with disabilities, monthly Social Security payments continue.

When the first gross domestic product reports of the pandemic era are issued Wednesday, the numbers will show a large hit from the virus-fighting efforts that began in mid-March. Forecasters expect anywhere from $2 trillion to $5 trillion of output to be wiped out by year’s end.

But in a nearly $22-trillion economy, that leaves a lot on the table, the foundation for the gradual reopening being announced by state governments to build upon.

While described as a “lockdown,” the restrictions recommended or put in place around the country have just as often amounted to a rearrangement. For tens of millions of Americans, work has shifted from office to home and moved online. Other businesses may have been ordered to close, but have hunted for ways to cope and maintain some revenue.

For some companies, the pandemic could even bring a bumper year.

Wickliffe, Ohio-based Lubrizol Corp, the specialty chemicals maker owned by Warren Buffett’s Berkshire Hathaway Corp, has avoided layoffs among its 4,700 U.S. employees. And it continues to churn out products like the gelling agent used to make hand sanitizer.

“We’ve tripled our production of that material,” Chief Executive Officer Eric Schnur told Reuters, “and we still can’t get enough of that to our customers.”

Procter & Gamble Co and Kimberly-Clark Corp both recently posted their best sales growth in years on demand for cleaning and personal hygiene products, as evidenced by shelves stripped bare of toilet paper at grocery stores nationwide.

Citrix Systems Inc, the software maker enabling millions of people to work from home, posted record sales in the first quarter.

None of this is to downplay the staggering blow the pandemic has dealt to the U.S. economy. The United States won’t thrive on teleconferencing and toilet paper, of course, and the scope of the downturn is unprecedented. It could get worse if the virus isn’t controlled or a vaccine developed. In the meantime, small entrepreneurs and those thrown out of work are depending on trillions of dollars in approved government aid to keep them afloat.

Even if the health crisis passes soon and the economic rebound is sharp, there may be lasting structural change — whether in the type of jobs available, the travel and dining habits of consumers, or the look of Main Street if small businesses collapse.

BIG GOVERNMENT, ESSENTIALS AND THE HOME OFFICE

Still, parts of the economy have been buffered.

Start with government, accounting for a steady 17.5% of U.S. gross domestic product at the combined federal, state and local levels over the past three years, or $3.7 trillion of GDP in 2019.

That includes administrators, clerical workers and technology staff running the benefits programs that other Americans now rely upon, as well as firefighters and others who maintain basic services, including teachers leading online classrooms.

Much of that employment is likely to continue, at least for now. But difficult choices loom for state and local governments as costs for their pandemic responses rise, while key revenue sources like sales and income taxes tumble. That could force layoffs.

Calls for a broad package of federal help for local governments have so far been resisted by leading congressional Republicans. However the Federal Reserve this week expanded the scope of a $500-billion lending program for state, county and local governments. That will allow the Fed to buy short-term bonds from hundreds of local government entities to help them raise money needed to pay staff wages and other bills.

The federal government, meanwhile, will borrow massively to fund nearly $3 trillion in emergency programs. A large share of that is in the form of direct payments to households and expanded unemployment benefits. Jobless families will spend much of that on food, housing and perhaps medical care. Consumer spending accounts for about two-thirds of U.S. output.

In contrast to government, the private sector has absorbed a massive blow: Roughly one of every six workers was laid off in the space of a month. Airlines have been grounded, the industry so stricken it was singled out for direct government loans. Hotels and restaurants were also among the direct casualties of social distancing edicts.

But the dramatic headlines mask what’s still going on among two large categories of workers: those working remotely and those whose occupations are deemed “essential.” The latter category encompasses an enormous swath of workers, including front-line medical personnel, public safety officers, people laboring to keep the food supply intact, those distributing goods around the country and utility workers keeping the lights on and the water flowing.

A Brookings Institution study using the Department of Homeland Security’s guidance on “essential industries” estimated that up to 62 million employees might qualify, as much as 40% of total employment before the crisis.

Searches for “telehealth nurse” increased more than 10-fold from March to mid-April on Indeed.com, the job site’s Chief Economist Jed Kolko said in a recent presentation. Online sellers and food retailers, notably Amazon.com Inc and Walmart Inc, have added tens of thousands of employees to ship goods to homebound Americans instructed not to venture out if possible.

Many of those people bunkered in their houses are still earning income. Up to 37% of U.S. jobs “can plausibly be performed from home,” according to a recent study by Jonathan I. Dingel and Brent Neiman, researchers at the University of Chicago Booth School of Business. They estimated those jobs account for an outsized 46% of U.S. wages, and include perhaps 80% of workers in the finance and insurance industries, and in scientific and professional fields.

Many of those jobs could still prove vulnerable. Architects and civil engineers, for example, could be laid off alongside bricklayers and carpenters if construction slumps. The longer a downturn lasts, the more troubles will mount for the nation’s white-collar workforce.

TOUGH RESTRICTIONS, BUT WORK GOES ON

But even in the hardest-hit industries and states, some activity continues.

Michigan, for example, has been hammered by the coronavirus, with more than 38,000 COVID-19 cases. It ranks in the Top 10 nationally both by the total number of cases and in the infection rate, estimated at roughly 3,400 infections per 100,000 people. Michigan’s automotive sector closed down early, and other industries followed under Governor Gretchen Whitmer’s March 23 stay-at-home order, considered among the strictest in the country.

(For a state-by-state breakdown of U.S. coronavirus cases, see: https://tmsnrt.rs/35oYKhr)

The unemployment rate in Michigan, among people covered by unemployment insurance, hit 17.4%, the highest in the country.

But even Michigan’s tough rules deemed 14 industries to have at least some essential workers, including financial services, communications and “critical manufacturing,” along with health and public safety.

Restaurants, bars and many retail outlets had to close to the public. But restaurants could still offer carry out, hotels could stay open if they chose, and construction on many types of projects could continue under social distancing rules.

All businesses were allowed to keep some employees on site for “minimum basic operations” such as maintaining equipment and inventory, guarding property, processing payroll or transactions, or supporting those working remotely.

An analysis of Michigan’s unemployment claims by Michael Horrigan, president of the Upjohn Institute, a labor think tank, showed the differential spread of the crisis across industries and gave some sense of the workforce still on the job.

As of mid-April, as many as 54% of workers in Michigan’s construction sector were still employed, according to Horrigan’s analysis. He compared unemployment claims filed in the industry with employment levels as of the first quarter of 2019, the most recent data from the federal government’s comprehensive Quarterly Census of Employment and Wages. For agriculture, finance and utilities the share of workers still employed could be above 90%, he said.

The numbers will no doubt change as more unemployment claims are processed and as restrictions are lifted, a process Whitmer has already begun.

Based on 2019 output levels for the state by industry, if current levels of joblessness held for a year it would cut Michigan’s GDP by perhaps 23%, knocking the state back to where it was in 2013. Nonetheless, that would still mean Michigan workers and factories would generate $422 billion in goods and services this year.

SOME ADAPT, SOME THRIVE

Across the country, firms are coping in different ways. Some are finding small bits of revenue to sustain themselves, while others are adjusting to an unexpected surge in demand.

Utah greenhouse owners Scott and Karin Pynes had built a solid events business alongside selling plants, but those gatherings vanished overnight under social distancing orders. The Pynes don’t expect to be hosting weddings or corporate events anytime soon, they said in a recent webcast seminar on business survival sponsored by the David Eccles School of Business at the University of Utah.

Their business, Cactus and Tropicals, is still taking online orders for plants and offering outdoor displays and pickups. The Pynes are holding video landscaping consultations by Skype and Zoom, and hunting for a new business model that will work as the economy reopens, perhaps under new rules to keep people more distant from each other.

Scott Pynes said the company has scaled back seasonal hiring, but kept around 85 permanent staff on the payroll with the help of a Small Business Administration loan. With the peak season starting on Mother’s Day, he has his fingers crossed.

“We feel confident we will make it through,” he said in an interview with Reuters. “We will be a bit scarred.”

Richard Schwartz, chief executive of Austin, Texas-based Pensa, faces the opposite challenge — keeping up with a burgeoning workload.

Schwartz’s firm offers automated inventory tracking to retailers so they can plan orders, detect shortages and let manufacturers know to ramp production up or down accordingly. It does that with the help of artificial intelligence software and drones that prowl the aisles of stores to count items on shelves.

Pensa’s flying checkers, he said, were a “sleepy” part of the wholesale-to-retail supply chain before coronavirus hit. Many stores were content to use human workers to jot down inventory on clipboards.

With virus-panicked shoppers emptying shelves and manufacturers struggling to keep pace, robots offer a fast way to keep track of inventory and ordering needs. Schwartz says potential customers now are poised to adopt in a matter of months technology they might have rolled out over years.

Technology “normally goes in fits and spurts,” he said.

Coronavirus, Schwartz said, “is one of those accelerators where it shines a light on a problem.”

(Reporting by Howard Schneider; Additional reporting by Ann Saphir and Timothy Aeppel; Editing by Dan Burns and Marla Dickerson)

Millions of Americans locked out of unemployment system, survey finds

By Andy Sullivan

WASHINGTON (Reuters) – Millions of Americans who have been thrown out of work during the coronavirus pandemic have been unable to register for unemployment benefits since the U.S. economy entered a free fall, according to a poll released on Tuesday.

The left-leaning Economic Policy Institute found in an online poll that for every 10 people who have successfully filed unemployment claims, three or four people have been unable to register and another two people have not tried to apply at a time of acute economic crisis.

Official U.S. statistics show that 26.5 million people have applied for unemployment benefits since mid-March, wiping out all of the jobs gained during the longest employment boom in U.S. history.

EPI’s survey indicates that an additional 8.9 million to 13.9 million people have been shut out of the system, said Ben Zipperer, the study’s lead author.

“This study validates the anecdotes and news reports we’re seeing about people having trouble filing for benefits they need and deserve,” Zipperer said.

Idled workers say they have encountered downed websites and clogged phone lines, as the state governments that administer the program have been overwhelmed by applicants.

“It’s a shame how you work for so many years and then when you need it, you can’t get it,” said Jim Hewes, 48, who said he was unable to file a claim online for more than two weeks after he was furloughed from his job at an Orlando, Florida, second-hand store in March.

Hewes said he mailed off a paper application on April 9 but had not heard back from the state.

“It’s almost set up to fail. It was made complicated so people would get discouraged and give up,” he said.

EPI surveyed 24,607 U.S. adult internet users using Google Surveys between April 13 and April 24. The poll has a confidence interval, an indicator of accuracy, of plus or minus 1%.

Some 9.4% of poll respondents said they had successfully applied for unemployment benefits, while 3.4% said they tried but could not get through.

A further 1.9% said they did not apply because the process was too difficult.

STILL NO PAYMENTS FOR MANY

States like New Jersey and Georgia have struggled to find staffers who know how to update computer systems that run on decades-old technology. Others that have moved to newer technology have also encountered technical woes.

States have also had to incorporate enhanced federal benefits that provide an extra $600 per week and extend coverage to Uber drivers and other independent contractors.

On top of that, many states entered the crisis with fewer workers to handle unemployment claims as an improving economy had allowed them to cut staff.

States had the equivalent of 26,360 full-time workers in their unemployment offices in the 2018 fiscal year, according to the U.S. Labor Department, down 30% from staffing levels during the peak of the Great Recession in 2009 and 2010.

Many Americans who managed to file claims have yet to receive payments weeks after they lost their jobs.

Labor Department statistics show that 71% who apply are getting payments, although that figure varies significantly by state.

Florida, for example, said on Saturday it had sent payments to roughly one in five of those who had successfully submitted claims.

Among those waiting are Rachel Alvarez, 44, who says she now hides snacks in her bedroom so her three children cannot eat them too quickly. The former restaurant server in Naples, Florida, says she has run through her savings since she was laid off on March 25.

“I have nothing,” she said. “As much as I don’t want my kids to see me stress out, each one has seen me cry.”

(Reporting by Andy Sullivan; Editing by Scott Malone and Peter Cooney)

Trump suggests U.S. states re-open economies in three phases in new guidelines

WASHINGTON (Reuters) – Parts of President Donald Trump’s guidelines for re-opening the U.S. economy amid the coronavirus pandemic trickled out on Thursday afternoon, revealing a three-phase plan that could allow some states to begin as early as this month lifting limits meant to contain the disease’s spread.

In the first phase of Trump’s guidelines, to be publicly unveiled on Thursday evening, larger venues like restaurants and movie theaters could operate again with strict social distancing, according to a copy seen by Reuters. Non-essential travel could resume and schools could open their doors again in phase two. In phase three medically vulnerable people could resume public interactions.

The New York Times reported that Trump told governors of states that some could re-open their states by May 1 or earlier. He was also expected to soon announce hiring plans for tracking the disease’s spread, according to the Times.

(Reporting by Jeff Mason, Eric Beech, Lisa Lambert and Tim Ahmann; Editing by Chris Reese)