Here’s what you need to know:
- Wall Street rally ends and European markets fall.
- The coronavirus outbreak is undermining nonprofits.
- The national debt is about to soar. Without a rescue, it would probably soar higher.
- Migrant workers are locked out, leaving farms short of labor.
- State and local governments get billions, but less than during the last crisis.
Wall Street rally ends and European markets fall.
Stocks fell on Friday as investors who initially cheered progress on a $2 trillion U.S. relief package saw further economic troubles ahead.
The legislation, which was passed by the Senate, is set for a vote in the House on Friday but could be delayed a day if any lawmaker insists on a recorded vote. At least one Democrat and one Republican have suggested they might do so. While the plan is the largest emergency spending program in the nation’s history, some economists have said it might not be enough to counter the potentially enormous economic damage from the coronavirus pandemic.
The S&P 500 dropped by more than 3 percent on Friday.
Wall Street had surged for the past three days, with the S&P 500 climbing more than 17 percent, as investors this week bid up shares of companies that were set to receive support from the aid bill. The S&P 500 climbed 6.2 percent on Thursday, even after the government reported a staggering jump in unemployment claims by workers.
Shares in Europe also fell. Investors may be concerned that European leaders were far apart on bolder measures like joint debt to fend off the looming recession facing the eurozone. They instructed a group of finance ministers to report back in two weeks.
Declines in London, Paris and Frankfurt ranged from 2 to 4 percent on Friday. Earlier, Asian markets were generally higher, on the heels of Thursday’s 6 percent gain in U.S. stocks.
Other markets signaled persistent unease. Prices for U.S. Treasury bonds, a traditional safe place to park money in times of trouble, rose in early European trading. Oil prices, another indicator of attitudes toward the economy, were mixed.
The coronavirus outbreak is undermining nonprofits.
Nonprofit organization are ubiquitous in the United States: built on a dream, dedicated to good works, thinly capitalized. And like so much in American life, they have been upended — perhaps temporarily, maybe forever.
Crucial spring fund-raisers and conferences have been canceled. Donors are stretched in many directions, preoccupied with their own problems, and much less flush than they were two months ago. Nonprofits that are paid by local governments said new rules against large gatherings were making it impossible to deliver services.
“Everyone is losing revenue, and many have skyrocketing demand. You do the math,” said Tim Delaney, chief executive of the 25,000-member National Council of Nonprofits.
In central New Jersey, it took it took Stephanie Cartier nearly three years to open No Limits, a cafe operated by people with intellectual disabilities. That was early February. It took only a few days in March to close the 65-seat restaurant indefinitely.
Customers dwindled as fears of the coronavirus increased. There was not enough cash coming in to pay the staff.
“It was the first time many of them had a job, and now it’s gone,” Ms. Cartier said. “They didn’t even work long enough for unemployment.”
The national debt is about to soar. Without a rescue, it would probably soar higher.
The United States government is poised to take on a huge amount of debt to contain the effects of the coronavirus pandemic, with budget deficits on a scale not seen since World War II looking likely.
But the only thing worse for the public debt outlook would be if it didn’t. That’s why a broad range of economic analysts — including even many fiscal conservatives who generally view high public debt as a long-term threat — support aggressive action.
The very large deficits on the way in 2020 are more likely to leave the United States in a better fiscal situation for the years ahead than an alternative in which the government is more tightfisted but fails to prevent the widespread collapse of American businesses or help workers in desperate financial straits.
Economists focus not on the absolute level of the debt, but on the interest costs to service it relative to the size of the economy. So a prolonged recession tends to be worse for the debt picture than some extra spending. Moreover, signals from financial markets suggest that the government should have little trouble borrowing vast sums of money on favorable terms.
Migrant workers are locked out, leaving farms short of labor.
Border lockdowns in Europe are creating a labor shortage on farms, as migrant workers who usually harvest crops are unable to make the necessary trips.
In Britain, farmers are struggling to find people to pick raspberries and potatoes. Part of Germany’s prized white asparagus crop risks rotting in the ground. And in Italy, over a quarter of the strawberries, beans and lettuce due to ripen in the coming months may lack harvesters.
With seasonal workers unable to cross borders, governments have been forced to rethink how to supply farm labor. France’s agriculture minister this week appealed to hairdressers, waiters, florists and others temporarily unable to work to head to the nation’s fields and start picking. More than 40,000 people had applied by Thursday, but 200,000 are needed.
“I’m calling on this shadow army, on the many men and women who want to work,” Didier Guillaume, the minister, said on BFM television on Tuesday. “We have to produce to feed the French.”
THE AID PLAN
State and local governments get billions, but less than during the last crisis.
The $2 trillion coronavirus package approved by the Senate sets up a $150 billion relief fund for states and local governments, offers tens of billions more for running local infrastructure like mass transit systems and airports and expands the Federal Reserve’s authority to buy municipal bonds.
The fund is smaller than the $282 billion that states and cities received under the American Recovery and Reinvestment Act of 2009, and it has tighter limits on what it will pay for. “We do not believe there is much flexibility,” said Tom Kozlik, head of municipal strategy and credit at Hilltop Securities, an investment firm in Dallas. “It can only be spent on activities that are directly related to Covid-19.”
THE DETAILS The relief fund would make at least $1.25 billion available to each state, with amounts adjusted upward according to population. Money will also be available to the District of Columbia, territories like Puerto Rico and tribal governments.
Additional amounts will be available to school districts and higher educational institutions, airports and mass transit systems and urban housing programs. The Federal Reserve is authorized to buy up to $454 billion of debt securities — municipal bonds as well as corporate securities.
THE CONTEXT The Federal Reserve’s new bond-buying program is intended mainly to keep the markets running smoothly on bonds that have already been issued. Earlier this month, there was a rout when mutual funds had to sell municipal bonds to raise cash when herds of investors started stampeding to redeem their shares. The supply of municipal bonds exceeded market demand, and the Fed stepped in to balance things out. The legislation expands the amounts and types of debt the Fed can buy to keep that from happening again.
In addition to municipal bonds on the market, the Fed would also be able to buy new bonds as they are issued by governments. Until just weeks ago, states and local governments were not issuing much new debt. But now that the pandemic has prompted governments to delay their income-tax deadlines, some states may have to issue short-term debt just to tide themselves through until the tax revenue starts arriving, probably in summer.
The Aid Plan
How the Fed’s magic money machine will turn $454 billion into $4 trillion.
With the Federal Reserve’s help, the government plans to turn a $454 billion spending package working its way through Congress into a more than $4 trillion booster shot for the United States economy.
How, you might ask, does that add up?
The answer lies in the central bank’s emergency lending authorities, given to it by the Federal Reserve Act. When the Fed declares that circumstances are unusual and exigent, and Treasury Secretary Steven Mnuchin signs off, it can set up special programs that essentially buy debt from — or extend loans to — businesses large and small.
The Fed could simply print the money to back that lending, but it avoids taking on credit risk, so it asks for Treasury funding to insure against losses. But those taxpayer dollars can be leveraged: Because the Fed expects most borrowers to pay back, it does not need one-for-one support. As a result, a mere $10 billion from Treasury can prop up $100 billion in Fed lending. And voilà — the money Congress dedicates to Fed programs can be multiplied many times.
Catch up: Here’s what else is happening.
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Cheesecake Factory said Friday it has furloughed 41,000 hourly workers, who won’t be paid but will keep benefits until June 1. They will also be offered one free meal a day at their restaurant. Pay for corporate and administrative employees has been cut by 10 to 20 percent.
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Britain’s property market has been frozen as the government has told people not to put their homes on the market or to allow viewings of their properties. It also advised people in the middle of a transaction to delay the process and avoid moving in during the lockdown period.
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India’s central bank cut a key interest rate by three-quarters of a percentage point on Friday in an effort to reduce the economic fallout from the nationwide 21-day lockdown that began on Wednesday.
Reporting was contributed by David Streitfeld, Mary Williams Walsh, Vindu Goel, Amie Tsang, Carlos Tejada, Kevin Granville and Daniel Victor.
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