Troubling streak for the labor market

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Quick Fix

Troubling streak for the labor market — Jobless claims have come in higher than a million — and more than double the worst week of the Great Recession — for 17 straight weeks. Last week, initial claims totaled 2.4 million, including the self-employed and gig workers, just a couple of weeks away from the expiration of federal unemployment insurance that adds $600 a week on top of state benefits. Evercore ISI dug into the data and found that allowing the expiration to happen would lead to a 2 percent smaller GDP by the end of the year than if the benefit were fully extended.

Ernie Tedeschi, Trekkie and policy economist at Evercore ISI: “Overall, emergency UI doesn’t appear to be a drag on job finding right now. Its positives are far outweighing its theoretical negatives, and that’s likely to continue in the near-term.”

The proof is in the retail sales — Retail sales rose 7.5 percent in June, according to the Commerce Department, nearly back to where they were before the pandemic. Experts point to this number as evidence that enhanced unemployment benefits have been saving the economy from a worse fate even as the country continues to shed jobs by the millions. An even clearer sign: JPMorgan Chase Institute found that, for people who received unemployment insurance in April, their spending dropped 25 percent before they got their benefits, but after they got the money, they spent 10 percent above pre-pandemic levels. Meanwhile, aggregate spending among employed Americans dropped 10 percent.

“Workers receiving unemployment insurance have a large increase in consumption due to UI, spending almost 73 cents of every $1 received, showing that the federal benefit supplement is well-targeted,” the institute said.

Trump’s new red line: payroll tax cut — Our John Bresnahan and Jake Sherman with the latest on coronavirus relief negotiations: “President Donald Trump has signaled to Hill Republicans that he will not sign a new coronavirus stimulus package without the inclusion of a payroll tax cut, according to three sources close to the issue. This new red line from the White House serves to illustrate the challenges that lay ahead in negotiating another Covid-19 relief package. GOP and Democratic congressional leaders are trillions of dollars apart in funding goals for the package, as well as how those funds will be spent.”

THANK GOODNESS IT’S FRIDAY — Good news, MM fans! Ben White is returning from his hiatus and will be back in your inboxes next week. Send tips to him at [email protected] or @morningmoneyben, and to Aubree Eliza at [email protected] or @AubreeEWeaver.

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Driving the Day

More earnings … Treasury Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza testify at House Small Business 10:30 a.m. … Former Fed Chairs Ben Bernanke and Janet Yellen testify before the coronavirus subcommittee at 12:30 p.m. … Americans for Financial Reform hosts a virtual event with Sen. Elizabeth Warren and former CFPB Director Richard Cordray at 3 p.m.

SENATE GOP AID PLAN EXPECTED TO CONTINUE SOME CARES PROVISIONS — Bloomberg Tax’s Colin Wilhelm: “Senate Republicans plan to unveil their opening bid for the next round of economic aid next week, and will continue providing unemployment insurance subsidies, tax incentives for employers to avoid layoffs and encourage rehiring, and a new round of checks and direct payments sent by the IRS.

“The proposal will resemble much of the historically large aid package passed in March known as the CARES Act. But it isn’t likely to include a new round of direct aid to state and local governments, or the full $600 per week unemployment subsidy provided by that law, according to multiple sources familiar with internal deliberations of Senate Republicans.”

HOMEOWNERS RUSH TO REFINANCE AS RATES DROP BELOW 3% — AP’s Alex Veiga: “With the 30-year mortgage rate falling this week below 3% for the first time in a half-century, more U.S. homeowners are likely to seize the chance to refinance their home loans.

“Americans refinanced nearly 2 million home loans from January through April, more than double the same four-month stretch in 2019, according to real estate data company CoreLogic. And ‘cash-out’ refinancing, when homeowners withdraw equity from their home’s value, typically to pay down higher-interest debt or cover remodeling expenses, rose more than 70% from a year earlier.”

TRADERS BET THE FED’S BOND-BUYING BINGE HAS JUST BEGUN — Bloomberg’s Liz McCormick and Craig Torres: “The Federal Reserve has bought trillions of dollars in Treasuries just to fix the bond market. It may need to buy a lot more to help repair the economy. A surge of new coronavirus cases is clouding the economic outlook in the U.S., and that’s likely to translate into pressure for more action from the Fed -– maybe as soon as this month’s meeting. Fed Governor Lael Brainard hinted as much on Tuesday, saying the central bank should pivot its policies toward providing longer-run accommodation.”

MORTGAGES, CREDIT CARDS TOP CONSUMER COMPLAINTS — Our Katy O’Donnell for Pros: “The number of consumer complaints to the CFPB has soared during the coronavirus crisis, with the bureau receiving a record amount in each of the months since the pandemic hit. … Mortgage, credit card and credit reporting complaints top the list of pandemic-related complaints, according to [an agency] review.”

TREASURY MARKET BLUES — New research from the Office of Financial Research suggests that hedge funds maybe weren’t to blame for the Treasury market stress earlier this year: “We find that the Treasuries that were most likely to have been directly affected by losses on the basis trade actually became more valuable during March 2020.”

NEW: FINCEN ASKED TO BRIEF CONGRESS ON RUSSIAN BOUNTIES — Reps. Emanuel Cleaver and French Hill this week asked for Treasury officials to brief the House Financial Services Committee on recent intelligence that Russia offered Afghan militants bounties to kill U.S. troops and allied forces in Afghanistan. Cleaver, who chairs the Financial Services subcommittee on national security, and Hill, the subcommittee’s ranking member, asked that lawmakers be updated within the next two weeks.

“The safety of U.S. and allied forces are of paramount priority to us, and we share a desire to understand the financial intelligence that underpins your assessment of Russia’s activities,” the pair wrote in a letter to Isabel Patelunas, assistant secretary for intelligence and analysis, and Kenneth Blanco, director of the Financial Crimes Enforcement Network.

FIRST LOOK: Q1 SMALL BIZ TRENDS — The Consumer Bankers Association and Small Business Financial Exchange are releasing their latest look at the trends in small business lending, based on data from the first quarter of the year. Among the findings: Credit limits and balances started to drop at the end of the quarter, with balances declining faster, leading to an overall decline in credit utilization.

Fly Around

WALL STREET ENDS LOWER — Reuters’ Noel Randewich: “The S&P 500 dropped on Thursday, pulled lower by Microsoft Corp and Apple Inc, as elevated levels of unemployment claims heightened concerns about the economic toll from rising coronavirus cases. … A jump in cases of the virus has forced California and other states to shut down again, sparking fears of more business damage and slowing the pace of a Wall Street rally. The S&P 500 is about 5% below its February record high.”

FED BOUGHT $12M IN ONE DAY OF MAIN STREET LOAN PURCHASES — Bloomberg’s Catarina Saraiva: “The Federal Reserve has bought $12 million so far in loans through its Main Street Lending Program, the central bank disclosed Thursday in its weekly reserve balance report. Although the program was fully launched July 6, the Fed only started buying loans on Wednesday, so the disclosure captures just one day of purchases. Banks that make eligible loans to small- and mid-size businesses are able to sell 95% of each loan to the Fed. Loans can range in size from $250,000 to $300 million for an expansion of existing credit.”

NEGATIVE RATE BETS CONTINUE, BUT UNLIKELY TO HAPPEN — Reuters’ Gertrude Chavez-Dreyfuss: “Negative U.S. interest rates could be the norm next year and all through to 2023 if fed funds futures are any indication. Or it could just be traders hedging their bets. Fed funds futures have implied negative rates next year on-and-off since May, when the contracts priced them for the first time. They flipped back to show positive rates, but over the past month, futures contracts at different points have again signaled negative rates as early as spring 2021. Futures are now betting interest rates could go below zero all the way to June 2023.”

CHINA’S ECONOMIC REBOUND COULD BE HARD TO SUSTAIN — Bloomberg’s Keith Bradsher, Elaine Yu and Russell Goldman: “China’s growth from April through June is an abrupt turnaround from first quarter, when its economy shrank 6.8 percent, the first contraction that the government has acknowledged in nearly half a century. The new figures partly reflect the restrictions that China imposed after its early missteps delayed the response to the outbreak and fed public anger, as well as the government’s continued reliance on infrastructure spending instead of domestic consumption.

“But all the recent spending on highways and rail lines raises questions about whether China’s economic turnaround is sustainable and whether it can become the engine needed to drive the global economy out of a slump.”

HOW BANKS COULD TURN COVID PAIN INTO EVENTUAL GAINS — WSJ’s Telis Demos: “The basic business of banking in the age of Covid-19 isn’t proving to be easy. But for some, there could be light at the end of the tunnel. Banks’ core lending profit margin, measuring their cost to borrow versus what they earn in interest, took a beating across the board in the second quarter. That margin dropped an average of 0.34 percentage points at Bank of America, Citigroup, JPMorgan Chase and Wells Fargo from the first quarter.”

BANK OF AMERICA SEES RECESSIONARY IMPACTS ‘DEEP INTO 2022’ — AP’s Ken Sweet: “Bank of America’s second-quarter profits were sawed in half and the consumer banking giant set aside billions of dollars to cover potentially bad loans caused by the coronavirus pandemic. Earnings from the nation’s biggest banks are painting a picture of American families and businesses struggling to pay bills with swaths of the nation’s economy shut down. While consumers have been able to withstand the brunt of the downturn due to the government’s economic stimulus efforts, banks are now bracing for a long, protracted recession that could last well into 2022.”