Tag Archives: United States

Coming next from the Fed: How much for Main Street?

By Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve responded fast to the coronavirus crisis with open-ended programs to keep financial markets running and ensure major companies could raise cash as they usually do through large capital markets.

By forcing major parts of the economy to simply stop operating, however, the current crisis poses a direct threat to the hundreds of thousands of small and medium-sized businesses that don’t raise money by issuing stocks or bonds, but rely on myriad combinations of bank loans, owner’s capital and, in some cases, personal credit cards or home equity loans.

The Fed, in coordination with the Treasury Department, is planning a Main Street Lending Facility as one of its linchpin programs in the crisis. U.S. Treasury Secretary Steven Mnuchin said on Wednesday he hoped to announce details of the program this week.

Ahead of that, the following summarizes what is known about the Main Street program and what analysts who watch the Fed closely think it might look like:

WHO WILL PAY FOR IT?

In the $2.3 trillion emergency response bill enacted on March 27, $454 billion is set aside for the U.S. Treasury to use for new programs at the Fed, including the one for “Main Street.”

HOW BIG WILL IT BE?

This is the crisis where “trillions” have become the go-to denomination. Joseph Brusuelas, an economist with business consulting firm RSM who has followed the Fed’s crisis response closely, expects the Fed to receive an $85 billion capital contribution from Treasury and turn that into $1 trillion of lending power for businesses.

HOW DOES THE FED DO THAT?

The Fed gets its punch through “leverage,” or taking a given amount of money from Treasury and allowing financial institutions to create perhaps 10 times that amount in credit. The Fed is not supposed to take losses, since that would amount to laying out taxpayers’ money that it is not authorized to spend. But most loans don’t go bad: in effect every dollar provided by Treasury allows many more dollars of lending, because most of it will be repaid. The Treasury’s funds are there to cover only the small portion expected to go bad.

HOW WILL IT WORK?

The Fed is restricted from lending directly to companies or individuals. But it can provide financing to a “special purpose vehicle” that then either lends to or buys assets from, say, a bank that does provide business and consumer loans. Because those lending institutions now know they can send the loans to the SPV, they are willing to make deals with companies and consumers even in a risky environment. Cornerstone Macro analyst Roberto Perli said the Fed’s SPV could either buy loans directly, one at a time, from banks, or have banks bundle them into larger securities.

WHO WILL BE ELIGIBLE?

This may be the most difficult issue. Large companies get credit ratings from independent agencies such as Standard & Poor’s or Moody’s, and the Fed has used those credit ratings to draw a line around which companies are eligible for its programs. For “Main Street” lending, the Fed may have to lean on banks to assess the finances of midsize companies and sift those struggling only because of the coronavirus from those that were struggling anyway. The focus may be on firms with 500 to 10,000 employees, since those below the cutoff can get small business loans and those above it typically use the capital markets. As of early 2019 there were about 18,000 companies with more than 500 workers – including more than 2,000 midsize manufacturers that are an important piece of the U.S. industrial base.

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)

U.S. appeals court allows abortion curbs in Texas during coronavirus outbreak

By Lawrence Hurley

WASHINGTON (Reuters) – A U.S. appeals court on Tuesday ruled that Texas can enforce limits on the ability of women to obtain abortions as part of the state’s policy requiring postponement of non-urgent medical procedures during the coronavirus pandemic.

A three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals on a 2-1 vote threw out a federal judge’s order issued last week that had blocked the state’s action. The appeals court had earlier temporarily put the district judge’s ruling on hold.

The appeals court action allows state officials to continue to enforce the restrictions that were part of an emergency order issued by the state’s Republican governor, Greg Abbott. The state says abortion providers are covered under a provision requiring postponement of non-urgent medical procedures as healthcare providers focus on battling COVID-19, the illness caused by the novel coronavirus.

Abortion providers that challenge the state’s order could now turn to the Supreme Court, which has a 5-4 conservative majority.

“This is not the last word. We will take every legal action necessary to fight this abuse of emergency powers,” said Nancy Northup, president of the Center for Reproductive Rights, an abortion rights group representing clinics in the case.

Texas and other states that previously pursued abortion restrictions have sought to crack down on their availability during the pandemic, prompting a series of court battles. On Monday, the Cincinnati-based 6th U.S. Circuit Court of Appeals declined to block a similar district court ruling that prevented the state of Ohio from banning abortion procedures.

Writing for the majority, Judge Kyle Duncan faulted Austin-based District Court Judge Lee Yeakel on several counts, saying he had “usurped the state’s authority to craft emergency health measures.”

Duncan, who was appointed to the bench by Republican President Donald Trump, concluded that the state must prevail “given the extraordinary nature of these errors, the escalating spread of COVID-19 and the state’s critical interest in protecting the public health.”

Yeakel had ruled that Paxton’s action “prevents Texas women from exercising what the Supreme Court has declared is their fundamental constitutional right to terminate a pregnancy before a fetus is viable.”

Abortion providers including Whole Woman’s Health and Planned Parenthood sued to block the Texas policy after clinics said they were forced to cancel hundreds of appointments for abortions across the state. They note that abortions are time-sensitive, with Texas banning abortions 20 weeks after fertilization.

The restrictions violate the right to abortion under the U.S. Constitution as recognized by the U.S. Supreme Court in its 1973 Roe v. Wade decision, the abortion providers argued.

(Reporting by Lawrence Hurley. Additional reporting by Nate Raymond.; Editing by Chris Reese and Bill Berkrot)

Small U.S. businesses were already struggling. Then coronavirus hit

By Jonnelle Marte

(Reuters) – Many small businesses were struggling with funding shortfalls and financial challenges even before the coronavirus pandemic hit, leaving them with little cash on hand to weather the slowdown caused by the virus, according to data released by the Federal Reserve on Tuesday.

Many small firms, particularly the smallest businesses and those owned by black and Hispanic entrepreneurs, also lack traditional banking relationships, which could make it more difficult for them to receive financial assistance during the crisis.

“Small businesses nationwide now face unprecedented challenges as the country grapples with the significant economic and social effects of the COVID-19 pandemic,” Claire Kramer Mills, assistant vice president at the New York Fed, said in a statement.

The majority of small employers reported growing revenue last year and more than a third even expanded their staffs, according to the 2019 survey report of more than 5,500 small firms issued by the 12 Federal Reserve Banks.

However, two-thirds of the businesses said they faced financial challenges last year, according to the report, which focused on businesses with fewer than 500 employees.

In a supplemental brief, researchers at the New York Federal Reserve assessed the ability for small businesses to cope with a substantial hit to revenue, categorizing firms according to their financial health – a metric based on their profitability, credit scores and earnings. Among the “healthy” firms, only about 20% had enough cash saved to continue operating as normal after losing two months’ worth of revenue.

Most small businesses surveyed by the Fed said they would have to shrink their staffs, delay payments or scale down operations after taking such a hit. Many firms would need to go into debt or turn to personal funds to close the gap.

That hypothetical scenario – two months without revenue – posed to businesses owners at the end of last year is now a reality for many firms, which closed down or substantially reduced their operations because of nationwide efforts to contain the spread of the coronavirus.

A new $349 billion small business bailout fund launched last week to shore up businesses with fewer than 500 employees got off to somewhat rocky roll out last week after some banks grappled with unclear rules and inconsistent government infrastructure. Some banks initially said they were prioritizing existing customers, putting some small business owners at a potential disadvantage for the first-come, first-served program.

Only 44% of small businesses had turned to a bank for a loan in the past five years and just 6% had turned to a credit union, according to the Fed survey. Businesses with more than $1 million in annual revenue and those with white owners were more likely to have used banks for funding, while smaller businesses and those with black or Hispanic owners were more likely to have used online lenders.

(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)

Russian space agency says Trump paving way to seize other planets

MOSCOW (Reuters) – The Russian space agency, Roscosmos, accused Donald Trump on Tuesday of creating a basis to take over other planets by signing an executive order outlining U.S. policy on commercial mining in space.

The executive order, which Roscosmos said damaged the scope for international cooperation in space, was signed on Monday.

It said the United States would seek to negotiate “joint statements and bilateral and multilateral arrangements with foreign states regarding safe and sustainable operations for the public and private recovery and use of space resources”.

It said U.S. citizens should have the right to engage in such activity and that “outer space is a legally and physically unique domain of human activity, and the United States does not view it as a global commons”.

Roscosmos said the order put the United States at odds with the notion of space belonging to all humanity.

“Attempts to expropriate outer space and aggressive plans to actually seize territories of other planets hardly set the countries (on course for) fruitful cooperation,” its statement said.

Relations between Russia and the United States are at post-Cold War lows, but cooperation on space has continued despite an array of differences over everything from Ukraine to accusations of election meddling.

Kremlin spokesman Dmitry Peskov told reporters that “any kind of attempt to privatise space in one form or another – and I find it difficult to say now whether this can be seen as an attempt to privatise space – would be unacceptable”.

(Reporting by Tom Balmforth; Editing by Kevin Liffey)

U.S. economy will eventually reopen but with big changes: White House’s Kudlow

WASHINGTON (Reuters) – The Trump administration is aiming to reopen the U.S. economy when the nation’s top health experts give the go-ahead, but Americans’ lives will be drastically different, White House economic adviser Larry Kudlow said on Tuesday.

Even when people in the United States return to work and school, they will likely have to stay home when they have signs of sickness, face more widespread and ongoing testing and submit to routine temperature taking, he told Politico in an interview.

“We are aware that things are going to be different,” he said. “That’s going to be a new feature of American life. And I don’t know how quickly that gets up and going, but it’s going to be very, very important because we obviously want to prevent any recurrences.”

It remains unclear when the country, which remains largely shuttered amid the ongoing outbreak that has crushed the economy, will resume more normal operations as a number of states approach their potential peak number of cases amid federal guidelines to isolate until the end of April.

Health officials have called on Americans to brace for a tough week as the death toll rises, but on Tuesday said there were optimistic signs ahead that mitigation efforts were helping to contain the highly contagious and potentially lethal virus.

“It is the health people that are going to drive the medical decisions, here, the medical-related decisions,” Kudlow told Politico, adding that he still believes “that in the next four to eight weeks we will be able to reopen the economy and that the power of the virus will be substantially reduced and we will be able to flatten the curve.”

(Reporting by Susan Heavey and Jeff Mason; Additional reporting by Tim Ahmann; Editing by Chizu Nomiyama and Nick Zieminski)

U.S. health officials say death toll may fall short of most dire projections

By Doina Chiacu and Susan Heavey

WASHINGTON (Reuters) – Two senior U.S. health officials have said they now believe the coronavirus outbreak may kill fewer Americans than some recent projections, pointing to tentative signs that the death toll was starting to level off in New York and other hot spots.

U.S. Surgeon General Jerome Adams on Tuesday said he concurred with the director of the Centers for Disease Control and Prevention that some research models have projected death totals that may prove too high, though neither would offer an alternate estimate.

The White House coronavirus task force projected a death toll of 100,000 to 240,000 a week ago, saying containing deaths to that range was possible if strict social distances measures were respected, implying it could go even higher.

Adams on Tuesday told ABC’s “Good Morning America” that he was encouraged by recent data showing a possible “flattening” of the outbreak in some areas, referring to the shape of the curve when deaths are shown on a graph.

Asked if he believed the death toll would come in below the dire White House task force projection, Adams said, “That’s absolutely my expectation.”

“I feel a lot more optimistic, again, because I’m seeing mitigation work,” he said, adding that he agreed with CDC director Robert Redfield that deaths could fall short of totals that some computer models showed.

The governors of New York, New Jersey and Louisiana pointed to tentative signs on Monday that the coronavirus outbreak may be starting to plateau but warned against complacency.

The coronavirus death toll has surpassed 10,000 in the United States and confirmed cases have topped 367,000.

President Donald Trump, who previously said the coronavirus would miraculously disappear, responded to the recent White House projection by saying any death toll less than 100,000 would be considered a success.

Redfield on Monday told KVOI radio in Tucson, Arizona, that social distancing of the type ordered by nearly all state governors was effective.

“If we just social distance, we will see this virus and this outbreak basically decline, decline, decline. And I think that’s what you’re seeing,” Redfield said. “I think you’re going to see the numbers are, in fact, going to be much less than what would have been predicted by the models.”

A research model from the University of Washington – one of several cited by leading health authorities – forecasts 81,766 U.S. coronavirus fatalities by Aug. 4, down about 12,000 from a weekend projection.

The pandemic has upended daily life around the globe, killing more than 74,000 people and infecting at least 1.3 million.

American hospitals have been overwhelmed with sufferers of COVID-19, the respiratory illness caused by the novel coronavirus, reporting shortages of personnel, protective garments and other supplies while patients agonize alone, prohibited from receiving guests.

Even so, rates of growth and hospitalizations were slowing, possibly signaling a peak was at hand in three U.S. epicenters of the pandemic, the governors of New York and New Jersey said on Monday.

New York Governor Andrew Cuomo said statewide deaths from COVID-19 had leveled off around 600 per day in recent days, highest in the nation. But hospitalizations, admissions to intensive care units and the number of patients put on ventilator machines to keep them breathing had all declined, Cuomo said.

In neighboring New Jersey, the state with the second-highest number of cases and deaths, Governor Phil Murphy said efforts to reduce the spread “are starting to pay off.” Louisiana Governor John Bel Edwards likewise expressed cautious optimism, noting that new hospital admissions were trending down.

(Reporting by Doina Chiacu and Susan Heavey; Writing by Daniel Trotta; Editing by Howard Goller)

Canada, U.S. farms face crop losses due to foreign worker delays

By Rod Nickel and Christopher Walljasper

WINNIPEG, Manitoba/CHICAGO (Reuters) – Mandatory coronavirus quarantines of seasonal foreign workers in Canada could hurt that country’s fruit and vegetable output this year, and travel problems related to the pandemic could also leave U.S. farmers with fewer workers than usual.

Foreign labor is critical to farm production in both countries, where domestic workers shun the hard physical labor and low pay.

In Canada, where farms rely on 60,000 temporary foreign workers, their arrivals are delayed by initial border restrictions and grounded flights. Once they arrive, the federal government requires them to be isolated for 14 days with pay, unable to work.

In the United States, nearly 250,000 foreign guest workers, mostly from Mexico, help harvest fruit and vegetables each year. The State Department is processing H-2A visas for farm workers with reduced staffing, though some companies are still having a hard time getting workers in on time.

Watermelon and asparagus farmer Mike Chromczak, who is waiting for labourers to arrive and begin their mandatory quarantine against coronavirus disease (COVID-19), poses at Chromczak Farms in Brownsville, Ontario, Canada April 2, 2020. REUTERS/Carlos Osorio

Ontario farmer Mike Chromczak said he was afraid he might be unable to harvest his asparagus crop next month unless his 28 Jamaican workers start arriving by mid-April.

“It would be well over 50% of our farm’s revenue” lost, Chromczak said. “But I see it as a much bigger issue than me. This is a matter of food security for our country.”

Steve Bamford’s 35 Caribbean workers are just starting to trickle in to his Ontario apple orchards. Then they are isolated and paid for 40 hours per week during that period without touching a tree. Pruning work, a critical step to maximize yields, is now overdue.

“It’s an extreme cost. You don’t plan on bringing people in and not work for two weeks,” Bamford said.

Some Canadian farmers expect to reap smaller fruit and vegetable harvests this year if foreign labor is not available soon, said Scott Ross, director of farm policy at the Canadian Federation of Agriculture.

In the United States, “delays are potentially very hazardous to farmers who were counting on that workforce to show up at an exact period of time to harvest a perishable crop,” said Dave Puglia, CEO of Western Growers Association, which represents fruit and vegetable companies in states like California and Arizona.

He said workers in the United States do not have to wait 14 days before they start working, although more efforts are being made to space workers out on the farms.

Dannia Sanchez, president of D & J and Sons Harvesting in Florida, is awaiting approval to bring in some 200 temporary agriculture workers, while blueberries in Florida ripen and Michigan asparagus nears harvest.

Abad Hernandez Cruz, a Mexican farmworker harvesting onions in Georgia, said he is working 12 or more hours a day.

“A lot of people are missing,” he said, referring to farmworkers whose visas weren’t approved after the United States scaled back some consular activities in response to coronavirus.

“If the farm doesn’t produce, the city doesn’t eat.”

(Reporting by Rod Nickel in Winnipeg, Manitoba and Chris Walljasper in Chicago; Editing by David Gregorio)

Fed’s Powell to update on economy Thursday in webcast statement

WASHINGTON (Reuters) – Fed Chair Jerome Powell will give an update on the economy Thursday at 10 a.m. in a webcast sponsored by the Brookings Institution, a Washington-based think tank, the Fed announced on Monday.

It will be the Fed chair’s first public remarks since an appearance March 26 on NBC’s “Today Show.”

(Reporting by Howard Schneider; Editing by Chris Reese)

Florida, Nevada may be hit hardest by coronavirus economic shock: study

By Howard Schneider

WASHINGTON (Reuters) – Florida beaches remained packed with partying college students as the coronavirus crisis gathered force, and the Republican governor was slow to impose social distancing in a tourist-dependent economy.

That may come back to haunt the U.S. state – and not just in the form of a sky-rocketing case load. According to a newly released study by Oxford Economics, Florida is among the states most vulnerable to the economic shock being caused by the pandemic. (https://reut.rs/34cmzs3)

Oxford ranked the 50 U.S states and Washington D.C. using 10 measures its economists felt could make a local economy more vulnerable, including the share of the population over 65, dependence on retail sales, and the importance of the tourist industry.

Maine, with its proportionately older population and comparatively large number of people who are self-employed or work in small businesses, is considered the most vulnerable state economy, according to Oxford. Nevada, with its massive casino-based tourism industry, was second, while rural Vermont was third.

Florida is the only heavily populated state near the top of the list, with a comparatively large share of its 21 million residents over the age of 65, and an economy that is relatively dependent on retail sales and tourism.

The state’s COVID-19 case load topped 10,000 last week and it is adding a thousand cases a day. Governor Ron DeSantis imposed a statewide “stay at home” order that took effect Friday, weeks after some U.S. states.

“We see what’s going on in New York now, we see that people are dying,” Rick Scott, the Florida senator, told Fox News Channel on Saturday. “People are taking this very seriously now.”

States such as New York and California that have so far had the heaviest COVID-19 case loads may actually be among the more economically resilient, the Oxford team found.

“Lockdown and containment measures are the key determinants of first-round economic impacts of the coronavirus, but structural economic vulnerabilities determine the severity of second-round impacts,” Oxford lead economist Oren Klachkin wrote. Long-term results could depend on the strength of local government budgets and health systems.

Economists are struggling to get a grip on the potential aftermath of the crisis as it continues to deepen. Companies cut more than 700,000 jobs from their payrolls in March, a likely understated measure of rapidly rising unemployment: More than 6 million people filed for unemployment benefits in the week ended March 28 alone.

President Donald Trump initially downplayed the dangers of the virus and did not quickly recommend nationwide health orders. Local governments, which vary widely in their finances and ability to cope, had different initial responses to the threat, a fact that could shape the ultimate outcome of the crisis nationally.

The situation has produced a quick flowering of research on pandemic economics, with most studies finding that stricter health measures taken early on lead to deeper, but shorter, economic downturns and faster recoveries.

There are political as well as economic implications.

Florida, for example, is an important battleground state in the U.S. electoral system, and the perceived success or failure of efforts to control the virus and support local businesses and households could influence Trump’s reelection chances.

IHS Markit U.S. regional economist Karl Kuykendall also ranked Florida among the more vulnerable states, using a different methodology focused on estimated declines in employment and economic output. The state may lose about 8% of its jobs by the end of the year, he calculated.

The manufacturing heavy “rust belt” states from Pennsylvania to Michigan, also politically important constituencies that swung the 2016 race for Trump, are in line to take similarly heavy hits to employment, Kuykendall estimated.

Personal finance site WalletHub.com used a broader set of metrics, including work from home capacity and local financial strength, for another ranking.

Florida is in the middle of that pack because of its comparatively few small businesses and stronger state finances, WalletHub found. It said Louisiana was most “exposed,” with Maine and Nevada also high on the list. Among the more populous states, Pennsylvania and Illinois were in WalletHub’s top 10.

None of the studies accounted for the help coming to households, businesses and local governments from the $2.3 trillion emergency rescue package approved by Congress in late March, or the wide set of programs established by the Federal Reserve.

The combined aim of those efforts is to offset the economic impact of the virus. Officials are focused now on whether the aid can reach where it is needed fast enough to matter.

(Reporting by Howard Schneider: Editing by Heather Timmons and Daniel Wallis)

With hospitals stressed, U.S. enters ‘peak death week’ in coronavirus crisis

By Doina Chiacu and Susan Heavey

WASHINGTON (Reuters) – The United States entered what an official called the “peak death week” of the coronavirus on Monday while a watchdog report said hospitals were struggling to maintain and expand capacity to care for infected patients.

The U.S. death toll, now at more than 9,600, was rapidly closing in on Italy and Spain, the countries with the most fatalities to date at nearly 16,000 and about 12,500 respectively, according to a Reuters rally of official data.

“It’s going to be the peak hospitalization, peak ICU week and unfortunately, peak death week,” Admiral Brett Giroir, a physician and member of the White House coronavirus task force, told ABC’s “Good Morning America” on Monday.

He raised particular alarm for the states of New York, New Jersey, Connecticut and the city of Detroit.

Results of a national March 23-27 survey showed that “severe shortages” of testing supplies and long waits for test results were limiting the ability of hospitals to keep track of the health of staff and patients, the U.S. Department of Health and Human Services Office of Inspector General said. https://bit.ly/2xOZfof

“Hospitals also described substantial challenges maintaining and expanding capacity to care for patients,” said the report, described as a snapshot of the issues hospitals faced in mid-March. Efforts were being made to address those issues, it said.

The survey, which included information from 323 hospitals, confirmed reports that shortages of beds, ventilators and protective gear were creating chaotic conditions, with patients, isolated from their families, dying alone.

Meanwhile, more than 90 percent of Americans are under stay-at-home orders issued by state governors.

The watchdog said hospitals reported “that changing and sometimes inconsistent guidance from federal, State, and local authorities … confused hospitals and the public.” Widespread shortages of personal protective equipment put hospital staff and patients at risk, it said.

GLIMMER OF HOPE Despite the grim warnings, at least one model offered hope that the death rate was slowing.

The University of Washington model, one of several cited by U.S. and some state officials, now projects U.S. deaths at 81,766 by Aug. 4, down about 12,000 from a projection over the weekend.

The model, which is frequently updated with new data, projects the peak need for hospital beds on April 15 and for daily deaths at 3,130 on April 16.

Trump, who has oscillated between issuing dire warnings and expressing optimism that contradicts the views of his medical experts, tweeted “USA STRONG!” and “LIGHT AT THE END OF THE TUNNEL!” on Monday.

Trump has deferred to state governors for issuing stay-at-home orders.

Eight states, all with governors from Trump’s Republican Party, have yet to order residents to stay home: Arkansas, Iowa, Nebraska, North Dakota, South Carolina, South Dakota, Utah and Wyoming. Georgia, which has recorded 6,600 cases and more than 200 deaths, ordered residents to stay home but then allowed some beaches to reopen.

In Washington, D.C., and other places, some people flouted the social distancing guidelines over the weekend. Sunshine and warm weather brought hordes of people out to bike trails and open spaces near the Potomac River. While a number of people wore masks, some groups moved together in close proximity.

TASK FORCE CLASH

White House trade adviser Peter Navarro on Monday acknowledged that members of the White House coronavirus task force disagreed over the weekend about the efficacy of a malaria drug, hydroxychloroquine, for use against the disease.

Navarro had clashed with Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, Axios reported. Fauci and other top health advisers have argued there have not been enough studies done to prove the drug was effective against COVID-19, the respiratory disease caused by the new coronavirus.

U.S. President Donald Trump has made his opinion on the drug well known and personally pressed federal health officials to make the drug available to treat coronavirus, two sources have told Reuters. [nL1N2BS06Q]

In an interview on CNN on Monday, Navarro said 29 million tablets of hydroxychloroquine were sitting in a warehouse.

He told CNN that at the task force meeting on Saturday, “there was unanimous agreement” that the Federal Emergency Management Agency “would immediately begin surging hydroxy into the hot zones to be dispensed only between a doctor and a patient decision not the federal government.”

(Reporting by Doina Chiacu, Susan Heavey and Peter Szekely; Writing by Daniel Trotta and Grant McCool; Editing by Frank McGurty and Howard Goller)