The ripple effect of COVID-19 on how we shop, work and shape our economy.
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What To Know
America is the largest economy in the world & its influence is far-reaching.
Multiple economic reports this week reflect the statistical impact of COVID-19 on the U.S. economy.
Much of this data considered the first three months of 2020. Social distancing went into effect for only part of that period, in March.
What You Spend
A measure on consumer spending showed a significant drop in March – The biggest month-to-month drop on record.
Why It Matters: American spending fuels the overall U.S. economy. Economists estimate consumers are responsible for two-thirds or 70% of economic activity.
A measure of economic growth (GDP) showed a contracting or shrinking economy, rather than an expanding economy.
Why It Matters: Two consecutive quarters (a 3-month-period) of GDP commonly signals a recession. Before this drop, the U.S. had experienced the longest period of economic expansion in history.
The Job Market
More than 30M Americans have filed for unemployment in the last six week period.
Why It Matters: Jobs fuel spending, spending fuels the economy. One estimate shows 1 out of 5 workers impacted by COVID-19. While some may receive unemployment benefits, others may not and be excluded from these numbers.
Something To Consider
Economic data, in general, reflects the past – a snapshot in time.
By the time data shows a recession, America will have already been in it.
Likewise, a recovery won’t be noted until after it’s already underway.
April is the first full month the U.S. was under federal social distancing guidelines. A new jobs report will reveal the updated unemployment rate, considering April, on Friday, May 8th.
COVID-19 AND YOUR MONEY
How the federal gov’t is trying to help lessen the impact to your wallet as a record 3 million Americans file for unemployment.
“You may well see significant rises in unemployment and significant declines in economic activity, but there can also be a good rebound on the other side of that.”
Evictions and foreclosures for renters & homeowners suspended in some cases.
- Mortgages: 60-day moratorium on foreclosures and evictions for single family homeowners with federally-insured mortgages. Gov’t directed mortgage lenders to do the same – some have done so in states like CA.
- FYI: Many cities and counties have enacted temporary eviction bans.
- Federal taxes aren’t due until July 15.
- Treasury Dept. advises those able to do so to file their taxes by the “normal” due date of April 15 in order to speed up their refunds.
- FYI: State tax filing deadlines vary by state, but many states are extending.
We provided a resource on our source page for you to check the latest deadlines in your state.
- Small Business Owners: Businesses with 50 – 500 employees must provide limited family & paid-leave to employees affected by COVID-19, but they’ll get 100% back in tax credits, or payments.
- Self-Employed: Pres. Trump indicated Wednesday that independent contractors and the self-employed will be eligible for unemployment benefits. Details TBD.
- Federal student loans: Interest waived for at least 60 days. Borrowers may suspend payments for min. 2 months.
- Small business loans: Small business owners can apply for a low-interest federal economic disaster loan.
- The Federal Reserve also has emergency lending powers and can step in to temporarily replace lending powers in arenas where there’s no credit flowing (ex: car loans) if needed.
YOUR PAYCHECK? A third relief coronavirus response bill is being negotiated by congress. The exact details have yet to be approved by both the Senate & House, but it will reportedly include a provision for sending checks to Americans who earn below a certain income.
The markets, your money and talk of a worldwide “coronavirus” recession.
What to know.
Why it matters.
Stock prices have gone up since 2009.
The 11-year run of market gains (also known as a “bull market”) is the longest in American history.
America is near full-employment. The latest jobs report on Friday indicated 273,000 jobs added, 3.5% unemployment in February.
- Notable This Week: largest single day decline in stock prices since the 2008 financial crisis; stocks entered “bear market” territory.
- Why Stocks Dropped: Uncertainty, fear over the impact of COVID-19 on global growth, consumer habits.
- Bear market = stock prices fall more than 20%. This “down market” can last days, weeks, months, or years. A “bull market” references rising stock prices.
- Notable This Week: Largest decline in oil prices in more than 25 years.
- Why Prices Dropped: Oil fuels the global economy; slower economic growth due to COVID-19 fears *could* lead to lower demand & lower prices.
- ALSO: Saudi Arabia wanted to cut oil production along w/other oil producers to raise falling prices (less supply = higher prices); Russia disagreed. A price war has ensued, driving prices lower.
Why Oil Prices Matter:
“If these prices go on for too long, there will be a lot of bankruptcies. You need at least $40 a barrel to break even for production in the United States and most won’t be making money at those prices.”
“What we have now is really two epidemics. We have an epidemic of the coronavirus, but we also have an epidemic of fear based around a narrative that is not necessarily keeping up with scientific reality. And, this narrative has been quite striking. It’s a dangerous time for the stock market.”
“We are going to take care of and have been taking care of the American public and the American economy.”
“A global recession is more likely than not.”
Reminder: Recessions, or periods of when the economy contracts rather than grows, can vary in severity and length of time. Over the last 100 years, recessions ranged from several years during the Great Depression to a period of 6 months.
America has 7.3 million available jobs – the most job openings recorded in nearly 20 years.
Hotels & Restaurants
Whoa s Hiring Less:
Federal Gova t
Why It Matters:
- The trend of a tight labor market continues; a double-edged sword.
- Positive: Reflects a good economy. Businesses hire when they need & can afford help. A lack of fulfilled jobs may lead to higher pay for current workers.
- Negative: Job quality matters. Wages havena t risen dramatically (in step with out boom periods); economists wonder why.
a The labor market continues to heat up. But growth cannot continue for much longer if there is no one out there to work in the factories and shops and malls across America.a
The most recent data from the end of December 2018 shows there are currently more job openings in America (7.3M) than unemployed people (6.3M). Typically, the opposite is true - the unemployed outnumber job openings.
Hurt In The Heartland
From meat to milk and the vegetables in between, more American farmers filed for bankruptcy last year than during the financial crisis a decade ago.
a Ia ve been through several dips in 40 years. This one here is gonna kick my butt.a
- Oversupply of crops (at home & overseas) fuels lower prices.
- High Debt – Farmers currently carrying the highest debt in 4 decades (in part because of borrowing to cover several years of low crop prices).
- Trade: Tariffs (or taxes) on American grown crops exported to China or Mexico hurts farmers on top of the depressed prices.
a We thought 2019 would be the year things turned around. Then the trade dispute happened and that really put a damper on things.a
Why It Matters:
Your Kitchen Table: “…bankruptcies are climbing across swaths of the Midwest that produce much of the nationa s grain and meat.” (WSJ)
Your Tax Dollars: Pres. Trump created a $12B fund to help subsidize farmers impacted by trade disputes. Only a portion of the funds have been accessed.
The downward trend in prices is predicted to continue for U.S. farmers. U.S. Treasury Sec. Mnuchin is in China today, where he will continue trade talks this week ahead of the March 2nd deal deadline for the two sides to set new terms or continue the trade war.
As of this week, the IRS is now accepting your 2018 taxes!
While most Americans got a refund last year, averaging about $3,000, the same may not be true this year.
But it’s not all bad news.
What’s New This Year?
- The 2017 tax code overhaul was biggest change since 1986.
- Many benefited from tax reform (ex: lower rates), but deductions changed, causing confusion.
- If you didn’t update your paycheck withholdings, you may have higher take-home pay, but now owe Uncle Sam.
a We worry very much that there will be a perception that a My refund went down, Ia m in a worse economic position.’ When, in fact, the reality could be the opposite.a
On The Flip Side:
a For your average taxpayer ita s going to be a record high tax refund season. Much higher than they expected.a
Tax Prep Tips
- Its hard to do…but try to do your taxes earlier than later, to eliminate any surprises.
- Check with your tax preparer about whether or not your withholdings need updating.
- Folks who took a lot of itemized deductions or have a two-income household are “more likely than others” to see changes in their refunds” (WSJ).
Why It Matters:
- 154 million expected to file taxes (60% of U.S. adult population).
- Consumer spending is a major impact on the overall economy.
- Verdict is out on whether tax refund *itself* is an economic stimulus.
- Remember: you only get a refund if you OVERPAY your taxes. Ultimately the goal would be to get zero refund!
Despite the recent shutdown that impacted 7 out 8 IRS employees, refunds are expected to be "on time" (approx. 3 weeks from filing). If there's another shutdown, we'll be in uncharted territory again.
OIL’S MAGIC NUMBER
Not too high… not too low… what is the best price for oil?
As crude plummets 30% in 2 months, consumers cheer, but the industry worries.
The debate as the world’s largest energy producers meet.
Oil’s Slippery Slope
- What? Oil traded at 4-year high in October at $76/barrel and the talk at that time was that $100/barrel was next. Today, it’s trading below $50/barrel.
- Why? There’s too much oil. U.S. crude inventories have climbed 10-straight weeks to the highest level in a year, just as concerns grow over a global economic slowdown with less oil demand.
“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! …Thank you to Saudi Arabia, but leta s go lower!
What is the Perfect Price?
Goldman Sachs warns $50/barrel oil is not good for America, instead says a $65 to $70/barrel range is best for all.
“When you’re in that level it’s not too high & damaging the consumer, but at the same time, it creates a stable environment for the industry.”
Why It Matters
As of August, U.S. is now the world’s largest oil producer. Falling prices may weigh heavily on an industry that now represents a larger share of the U.S. economy.
While lower oil prices boost consumers, ultimately energy producers will be forced to cut back, laying off workers which may send prices ultimately spiking higher.
Organization of Petroleum Exporting Countries (OPEC) meets Dec. 6th. Its de facto leader Saudi Arabia is arguing for a cut in supplies to prevent a glut. But first, strategists will watch Friday's G20 meeting, including the Saudis, Russia, & U.S., for hints on what's next.
As more Americans say
“I don’t,” the nation’s largest wedding retailer, responsible for selling 1 out of every 3 bridal gowns, files for bankruptcy.
David’s Bridal Files for Bankruptcy
- Owes creditors nearly $1B.
- Filing for bankruptcy to restructure its loans with lenders, hopes to complete process by January.
- 300+ stores to remain open.
- Orders & appointments wona t be disrupted.
“Newer entrants feel fresh and contemporary. By comparison, David’s Bridal appears stuffy and old-fashioned.”
- Marriage rate has steadily declined since 2000.
- Fewer weddings = fewer brides.
- BUT those who do get married, pay more on average for a wedding dress (approx $1500).
- Bottom line:A David’s Bridal caters to lower price gowns so to make $ they need a high volume of weddings – that’s just not happening right now in America.
It's not just David's Bridal... Banana Republic, J. Crew, & Alfred Angelo have all closed down bridal shops in the past 2 years.A In business for 60 years, David's Bridal will have to figure out how to reach a modern bride at the right price point.
KEURIG FOR COCKTAILS
Could THIS gadget be the fix for slumping beer sales?
Anheuser-Busch hopes so.
NEW ON TAP
- Drinkworks Home Bar creates “bar-quality drinks at home.”
- For now, makes 15 different drinksA like a Moscow Mule, Cosmo, Sangria, White Russian & beer -A alcohol included in pod.
- Drinkmaker costs $299, cocktails $3.99/pod &A beers $2.25/pod.
- Unlike most of Keurig’s coffee pods, all alcohol pods are 100% recyclable.
- Changing tastes: In 15 years, beer fell from 56% to 46% of alcohol sales. Where’d that 10% go? 2% to wine, 8% to spirits.
- Experimenting:A Creative new drink options have wide appeal esp. with youngerA millennials eager to switch things up.
- But still drinking:A Americans are spending more on alcohol, and not because prices have risen.
Drinkworks system, a venture between Keurig Dr. Pepper & Anheuser-Busch, goes on sale first only in St. Louis (Anheuser-Busch's HQ) next Monday - though there are plans to expand to other markets soon.
And The Winner Is….
After a year-long search, promising a “full equal” to its current Seattle HQ, Amazon splits its second headquarters between *two* cities.
Backstory: Amazon’s Hunt
Required:A metro areaA with 1M population, int’l airport, mass transit, quality higher education, an educated workforce, & business-friendly environment.
Promised: a full equal to current Seattle campus, $5B construction investment & 50,000 jobs.
a … much less radical move than many imagined … rich places getting richer.a
Crystal City, VA
- Arlington area, 3 miles west of D.C., eager for new economic energy after 24K federal jobs moved out in the early 2000s.
- Known for its outdated, ’70-80s commercial buildings connected by underground tunnel with shops & restaurants.
- Concerns over steep housing prices, congested roads, & pricing out of lower-income residents.
Long Island City, NY
- NYC neighborhood, 3 miles east of Times Square, is anA old manufacturing area in Queens.
- Even before Amazon, it is one of the fastest-developing areasA with 9K+ new apartments & homes built in 8 years.
- Struggling to handle the growth with crowded schools and infrastructure issues like sewage backups with heavy rain.
Why it Matters
- 238 cities in U.S. & Canada shared taxpayer-funded research trying to woo Amazon.
- Giving Amazon an invaluable database & insight into what types of incentives communities are willing to offer as the tech giant expands building possible data and logistics centers, etc.
Two, winning cities will split the 50,000 jobs and $5B in investment evenly. Amazon also announced it will open a customer fulfillment center in Nashville, creating 5,000 jobs. The average salary for all 3, new locations? Over $150K, according to Amazon.
The gold standard for consumer lending, used by 90% of all lenders in America,A is testing a new way to calculate YOUR credit score.
What is a Credit Score?
Widely used FICO gives consumers a “credit score” so lenders know how risky it is to loan moneyA (i.e. credit card, car loan or mortgage).
- Based mostly on consumers’ payment histories.
- 300-850 range (higher # better.)
- Couple of points make a big difference: 740 is “excellent,” 680 is “subprime.”
New UltraFICO Score?
- Beginning next year, FICO plans to roll out *new* scoring option.
- Consumers can choose to share checking or savings account data.
- Avg. account balance, savings & overdraw history may boost scores for those with bad, little credit history.
- BUT it isA possible sharing this data could *worsen* your score.
UltraFICO Score *may* open up credit lines to millions even thoughA consumer loan (credit, car, mortgage) balances reachA record highs:
“Just because somebody will lend you money doesn’t mean you should take it.”
Something to Consider
FICO has tweaked its credit score formula several times since it began in 1989, but it takes time for lenders to adopt the new scoring system.
More than half of Americans (58%) with FICO scores have “good credit” with scores above 700 – a record high.
About 79M Americans have subprime credit scores, another 53M don't have enough data to generate a FICO score. Big Question: Does the rating system need fixing or has it protected lenders/consumers to help prevent another credit crisis?
Lottery fever is breaking out as two of the biggest jackpots top $1.4 billion dollars combined.
(… never mind theA 1 in 88 quadrillion odds)
Why Have A Lottery?
- In theory, a lottery raises money (to contribute in addition to taxes) for initiatives like education.
- A multi-state lottery like Powerball distributes a portion of the sales to participating states.
- Over the years, many have debated whether or not lottery moneyA significantly contributes to named projects.
Placing Your Bets?
What to Know:
- MEGA MILLIONS: Drawing Friday at 11pm ET for $970M jackpot (2nd largest lottery prize behindA $1.58B Powerball jackpot won in 2016.) Lump sum payout:A $513 million.
- POWER BALL: Drawing Saturday at 10:59pm ET for $430M jackpot. Lump sum payout: $248M.
History on Their Side?
- Lucky 6th Numbers:
#22 or #9 (Mega Ball)
- State with Most Winners:
New York (Mega Millions)
- You pick or let the machine pick?
Odds are the same.
Why the Monster Jackpots
Powerball & Mega Millions both changed their rules in recent years to increase the chances of winning smaller prizes, but make it more difficult to take home the jackpot.
After the change, odds of winning Powerball lowered, from 1 in 175M to 1 in 292M, analysis found. But the odds of a billion dollar jackpotA are 7.5 times more.
U.S. lottery ticket sales totaled more than $80 billion annually, in the most recent data. That's more than Americans spent on movies, video games, books, music and sports tickets combined. Good luck!