Job trouble? Wave of rehiring after economy reopened to fade in July after viral spiral


The engine of the U.S. economy may have gotten clogged again — no thanks to the recent acceleration in coronavirus cases. That’s bad news for Americans hoping to return to their old jobs.

Just how much damage has been done will become more evident this week, especially from the U.S. employment report for July due next Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled a combined 7.5 million.

Wall Street
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economists predict the U.S. added about 1.5 million jobs in July.

Even that estimate may be inflated though by seasonal changes in educational employment at the state and local level, Morgan Stanley contends. Private-sector jobs could increase by less than one million, the investment bank calculated.

See: MarketWatch Economic Calendar

Whatever the case, a much smaller increase in hiring or rehiring in July would bode ill for the U.S. recovery from the coronavirus pandemic. The government last week reported that gross domestic product sank a whopping 32.9% in the second quarter on an annualized basis, the biggest decline since World War Two.

Read: Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

Also:‘A massive welfare economy’ – federal aid prevents even steeper GDP collapse

“The big question hovering over next week’s employment report is whether the two-month surge in job gains stopped in July,” says David Donabedian, chief investment officer of CIBC Private Wealth Management. He thinks that’s exactly what happened.

It will be hard for the economy to make up a lot of lost ground in the third quarter unless hiring snaps back even faster.

See:MarketWatch Coronavirus Recovery Tracker

The U.S. lost a record 22 million jobs in March and April, according to Labor Department data. So far the economy has recovered less than one-third of those jobs.

The weekly tally of jobless claims, meanwhile, showed an even higher 30 million unemployed people were collecting benefits as of mid-July, representing about one in five Americans who said they were working before the pandemic, according to a Labor Department survey of households.

Robert Frick, corporate economist at Navy Federal Credit Union, said many people who expect to return to work are going to find they have no jobs or businesses to which they can return, a “grim reminder” of how much long-term damage the pandemic has caused.

“In the long run we are going to see a sobering slowdown in job growth,” he said.

The still-high level of unemployment, the viral spiral, and the uncertainty over whether Washington will provide more financial aid has understandably made Americans feel less confidence. On Friday Congressional lawmakers were still at odds on the next relief package with many benefits set to expire at the end of July.

A variety of measures that monitor consumer attitudes show a clear deterioration in July that’s likely to bleed over into August. That will make a recovery even harder.

Read:Consumer confidence wanes in July and points to rockier economic recovery

And:Consumer sentiment falls as coronavirus cases rise and federal aid set to expire

The news might not all be negative next week, however.

Manufacturers — auto makers in particular — have shown more resilience than the service side of the economy. The closely followed ISM manufacturing survey could show improvement for the third straight month.

The housing industry has also snapped back faster than expected amid a surge in home sales. Prospective buyers with secure jobs are taking advantage of record-low interest rates to buy new homes, a trend that may have been fueled by people fleeing the closed spaces of cities with a high number of coronavirus cases.

Even that potential bit of good news, however, has been overshadowed by the broader damage to the economy from the latest spike in coronavirus cases in many American states.

A full recovery can’t take root and blossom, economists say, until the disease is brought under control.

See: Pandemic will continue for some time, experts tell Congress as U.S. case tally nears 4.5 million



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Congress risks creating a ‘recipe for disaster,’ if more pandemic aid isn’t delivered quickly to consumers, warn bond investors


Consumers drove the U.S. economy to its longest period of economic expansion in history—or at least until the pandemic hit.

That is something bond investors want policy makers in Washington to keep in mind as they haggle over another coronavirus aid package, and get down to the wire on the fate of the extra $600 a week CARES Act unemployment benefit that expires Friday.

“COVID 19 isn’t anybody’s fault,” said Michelle Russell-Dowe, head of securitized credit at global asset manager Schroders, in an interview. “But it’s created a lot of potholes that need to be filled in by monetary and fiscal stimulus.”

Russell-Dowe also said its “pretty critical” for the economy, which shrank a record 32.9% in the second quarter, that “Congress gets something together for consumers.”

“Otherwise, what we’ve been fending off is having good borrowers, or even good companies, go bad as collateral damage.”

In June, data on car loans, credit cards and other forms of U.S. consumer debt packaged into bond deals in the $1.5 trillion asset-backed bond market showed 30-day plus delinquencies decline from a year prior, according to Goldman Sachs analysts.

Stimulus in action


Goldman Sachs

Goldman’s team points out the declines can be attributed to “strong fiscal support” from the CARES Act and the willingness of lenders to modify loans to keep borrowers current. But longer loan terms have been a harbinger of higher defaults, and focusing on the recent dip doesn’t show how borrowers with weak finances have struggled to stay current even before the pandemic.


“Your most levered borrower has had to borrow to stay afloat, and already has been victimized by income inequality.”


— Dave Goodson, head of securitized credit at Voya

Take subprime auto loan delinquencies, an area flagged as a potential concern even while the economy was roaring. Goldman’s team pegged miss payments of at least 30 days at 8.85% in June from 10.86% a year prior. But “pre-pandemic” delinquencies also rivaled those during the aftermath of the 2007-08 global financial crisis, according to BofA data.

“In our view, if further support is not provided, credit performance will deteriorate more markedly,” wrote BofA Global’s team of analysts led by Chris Flanagan, in their second half outlook.

Ralph Saturne, senior research analyst at Income Research + Management, said he’s already seeing a roughly doubling of loan extensions and 60-plus day delinquencies in July, across the major consumer bond issuers he tracks, when comparing the year’s first half with the same period of 2019. “I think that’s definitely a concern,” he said.

Federal Reserve Chairman Jerome Powell struck a similar tone Wednesday, when he warned that the economic recovery is showing signs of fading as U.S. Covid-19 infections accelerated since late June. He again vowed to use the Fed’s “full range of tools” until the economy has weathered the storm of the pandemic and urged more spending by Congress.

Powell also cautioned against pulling the rug out from under lower-income borrowers who have been the hardest-hit by the pandemic, which this Urban Institute report shows has been impacting Black and Hispanic, or Latino, households the most.

“In an environment like this, and even before the economic slowdown, your most levered borrower has had to borrow to stay afloat, and already has been victimized by income inequality,” said Dave Goodson, head of securitized credit at Voya.

“The CARES Act was a godsend for those borrowers,” he told MarketWatch, adding that it not only propped up struggling households, but also contributed to an eye popping rate of personal savings since February.

“If we get caught up in a world of uncertainty, because both sides of the political aisle negotiate this aid package into oblivion, how are borrowers supposed to plan what to do next?” he asked. “That could be a real recipe for disaster.” 

U.S. stocks came under pressure Thursday, with the blue-chip Dow Jones Industrial Average
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off 0.9%, but still only about 7.8% away from erasing its losses for the year, while the Nasdaq Composite Index
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+0.42%

was 0.4% higher, following the release of data showing the U.S. gross domestic product plunged in the second quarter to a historic low.

Related: Americans will be living with the coronavirus for decades



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Look out for these ten scams being used by coronavirus crooks preying on worried consumers


Coronavirus has seen planes grounded, bars boarded up and stadiums emptied. 

But one line of business has been booming since the outbreak began – scamming. 

On Wednesday the banking lobby group U.K. Finance said fraudsters had been taking advantage of the pandemic, preying on the financial concerns of a worried public.

The swindlers are after personal and financial information which could put people’s purses and privacy in jeopardy, it said.

U.K. Finance gave MarketWatch a list of the top tactics being used by coronavirus, which range from dodgy dating profiles to get-rich-quick investment schemes. Here’s what to watch out for.

Fake financial support

Dubious dealers are imitating government officials and sending emails offering grants to unsuspecting victims worth sometimes as much as £7,500 ($9,708). When victims click through on hyperlinks they are taken to sites which steal personal and financial information. 

Further playing on the financial woes of weary consumers, criminals are also advertising made-up tax breaks, unemployment support, and access to non-existent ‘Covid-19 relief funds’.

Read: Buyer beware: SEC warns investors to avoid coronavirus-related frauds and scams

These tactics are all designed to lure people into paying out or sacrificing valuable private information and use advanced techniques to appear legitimate. 

Health scams

U.K. finance said one of the most shocking scams it has seen involves phishing emails, those that hope to trick customers into giving up personal or financial information, being sent under the pretence of the U.K.’s coronavirus testing and tracing system.

Emails are being sent out claiming the recipient has been in contact with a coronavirus patient, only to take them to a website which will steal their information or infect their computer with a virus. 

U.K. finance also said unscrupulous traders are advertising hand sanitisers and face masks, which have been in short supply during the pandemic, that actually do not even exist. 

Lockdown tricks 

Adapting to life under lockdown, which has seen streaming subscriptions surge and driven demand for dating apps, has presented an opportunity for fraudsters to exploit too.

Criminals are creating fake profiles on dating sites to manipulate victims into handing over money, often adopting the identities of real people in the process.  

Read: Creative cyber swindlers take advantage of coronavirus confusion by phishing firms

Fake emails pretending to be from streaming services have also been a popular tactic, asking customers to update their payment details before stealing their credit card information. 

And finally fraudsters are taking advantage of turbulent financial markets, using social media to advertise fake investment opportunities urging victims to ‘take advantage of the financial downturn’. Would-be investors are then exposed to fake companies and fake websites. 

The solution?

U.K. Finance offered three steps from its Take Five to Stop Fraud campaign to protect yourself from opportunistic scammers taking advantage of the pandemic are: stop, challenge and protect.  

Take a moment to consider the safety of parting with any money or information, question the legitimacy of any emails or advertisements, and contact your bank immediately if you think you’ve been scammed. 

Some telltale signs of a scam include unexpected website addresses, requests for information, random phone calls, too-good-to-be-true discounts and spelling and grammar mistakes. 

“During this pandemic we have seen criminals using sophisticated methods to callously exploit people’s financial concerns, impersonating trusted organisations . . . . to trick them into giving away their money or information,” said Katy Worobec, managing director of economic crime at U.K. Finance.



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Coronavirus spike in the dog days of summer saps economy of momentum


Summer doldrums are taking on a whole new meaning during the coronavirus pandemic. The momentum in the U.S. economy appears to have melted away.

It’s not the July heat that’s at fault, of course. It’s a wave of new outbreaks of COVID-19 across the country that has forced some states to reimpose economic restrictions and others to pause further business reopenings.

Thirty-eight U.S. states have seen a rise in cases in the past 14 days. Harvard Global Health Institute researchers have developed a national tracker to trace the severity of the outbreak on a state-by-state basis, and it’s flashing red for Arizona, Florida, Louisiana, South Carolina and Georgia, with 25 cases per 100,000 people.

The loss of momentum in the recovery is evident in key segments of the economy such as retail and dining out. Some businesses in California, Texas and elsewhere have been ordered to scale back operations again. At the same time, fear of catching the virus has made Americans more reluctant to venture out.

Two companies that track how many workers punch digital time clocks or time-tracking apps, Homebase and Kronos, indicate the number of shifts worked began to flatten out at the end of June and declined in the first week of July.

See: MarketWatch Coronavirus Recovery Tracker

Some of the decline in shifts worked is clearly the result of the July 4 holiday, but the spike in coronavirus cases has also played a role.

“Rising COVID-19 cases, particularly across the Midwest and Southeast, present a new challenge for businesses trying to reopen and stay open,” said David Gilbertson, vice president of HCM strategy and operations at Kronos.

Another worrisome sign is an explosion in the number of people applying for unemployment benefits under an emergency-federal relief program.

These claims have surged 53% in the past month to nearly 14.5 million, nearly equaling the 16.8 million people collecting benefits through the traditional state-run unemployment compensation system.

Read: Soaring demand for federal jobless benefits points to fresh fissures in the economy

And: Jobless claims tell us 32.9 million people are unemployed, but is it really that bad

Workers who file under the federal program include the self-employed such as doctors, writers, Uber
UBER,
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drivers and other “gig” economy workers who would not have been eligible for jobless benefits in the past.

Read: Wholesale prices drop in June — inflation very low due to the coronavirus pandemic

The increase indicates the latest economic troubles are “hitting non-traditional workers harder than those in regular payroll jobs,” said Ian Shepherdson, chief economist of Pantheon Economics.

Whatever the case, the economic recovery can’t sustain its recent momentum if more than 30 million people are out of work and collecting unemployment benefits. The expiration of a $600 a week unemployment bonus at the end of July will add to the problems: A divided Congress is unlikely to extend the bonus.

Read:Goodbye, extra $600: Jobless benefits won’t exceed former wages in next relief bill

Investors on Wall Street, already nervous about the coronavirus spike, will look for further clues on whether the economy is slowing in reports this week on retail sales in June and consumer sentiment in July.

See: MarketWatch Economic Calendar

Economists predict retail sales rose by more than 5% in June following a nearly 18% rebound in May. Sales probably were OK in June because states didn’t began to reimpose restrictions until later in the month. Yet if retail sales disappoint, the reaction on Wall Street may well be negative.

What will probably be more telling is the preliminary look at consumer sentiment in early July. There are signs Americans have reduced travel, avoided restaurants, and taken more precautions with the virus running amok again in many states.

While there’s many reasons to be worried about the economy, states in the Northeast such as New York continue to reopen businesses. And even the states that have tightened restrictions again have done so in a more limited way than they did in the early stages of the lockdown when much of the economy was closed.



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Weekend reads: A breakdown of all the COVID-19 relief programs for consumers


Even after many months of tragedy and shutdowns, the coronavirus crisis continues to unfold. It was easy to expect a steady, organized reopening of businesses, state by state, but the new outbreak of infections has complicated the economic recovery.

Joy Wiltermuth shares a guide that lists various assistance programs for people suffering financial losses from the coronavirus crisis, and eligibility requirements.

Related:Coronavirus is changing us — but which of these lessons are we learning?

Where to retire

Silvia Ascarelli continues her series offering readers retirement destinations to fit their personal circumstances. This couple is eyeing North Carolina and South Carolina — but not along the coast.

Where should you go? Try MarketWatch’s retirement location tool for a customized set of answers.

Avoid these mistakes when selecting a retirement destination

Don’t focus just on low taxes, writes CD Moriarty. And consider whether your vacation spot truly works for everyday life.

Ready to head back to the office?


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Will you really have to go back to the office when the boss says it’s time?

Elizabeth Tippett, an associate professor at the University of Oregon’s School of Law in Eugene, explains what your options might be if your employer insists you stop working from home.

How to protect yourself when you lend money to a family member

Even with the best of intentions among everyone involved, you can take a painful financial hit if you lend money to a family member. Bill Bischoff explains how to make a tax-smart loan.

Will you ever achieve financial independence?

Alessandra Malito helps a reader who feels overwhelmed with debt, a growing family and the need to move for work.

An overlooked investment opportunity brought about by COVID-19

Michael Brush says stocks in this industry are overly discounted and that this is the time to buy.

More from Brush:Five ways to beat the stock market — from a fund manager who’s done this for years


FactSet

Bank earnings season

The KBW Bank Index
BKX,
+2.62%

has fallen 38.6% this year (with dividends reinvested), while the S&P 500 index
SPX,
+0.28%

is down only 1.4%. Some investors see an opportunity in cheaply valued bank stocks, while others steer clear amid the economic uncertainty. Here’s what to expect when the largest U.S. banks report their second-quarter results next week.

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