The Finance 202: The coronavirus crisis is leaving labor market scars that will take years to heal

Indeed, the stock market keeps whistling past the devastation from the pandemic. The S&P 500, the Dow Jones industrial average and the Nasdaq all closed at new highs on Wednesday, even as the pandemic notched its own grim records, hitting new peaks in daily deaths (3,406), cases (252,431) and hospitalizations (114,000). So far this year, the S&P 500 has climbed 15 percent, despite shedding a third of its value when the first wave of the pandemic struck last winter.

The market surge is just one way the affluent have padded their wealth — high-end home values, for another, are also soaring. Meanwhile, tens of millions of Americans at the bottom of the economic ladder are enduring mounting personal financial distress.

We have told this story before. But now, as lawmakers rush to finish a $900 billion aid package aimed at staving off a double-dip recession, the longer-term scars this year will leave on an economy already riven by growing inequality are becoming clearer.

Joe Brusuelas, chief economist for RSM, an accounting firm for midsize businesses, projects the economy will not reach full employment until 2025. It could take even longer for those in the bottom fifth of the income scale to see their wages start to rise at a meaningful clip. That phenomenon had only recently taken hold when the pandemic struck.

Illustrating the challenge, Brusuelas points to the so-called Beveridge curve, which describes the relationship between job openings and unemployment. Under normal circumstances, more job openings mean lower unemployment.

The crisis launched the curve rightward, suggesting a sudden, major mismatch between the huge number of those who had lost their jobs and the openings for them to fill. Either those unemployed workers lacked the skills for the available jobs or couldn’t relocate to take them.

The curve has marched inward over the course of the year, back toward the normal range. But the work of closing the remaining gap gets harder the longer it persists, as displaced workers spend more time out of work and skills atrophy.

“The sheer number of unemployed will still create a sluggish wage environment,” Brusuelas wrote in a note this week. And he tells me it will be felt differently by the “40 percent of households who have the skillsets to work in the Zoom economy, for whom things are going to be fine,” and the remainder, “the middle class and the poor, who are not going to feel the love of the recovery” for years.

A week before investors awoke to the coronavirus threat, he identified it out of his plane window on a flight landing in Seattle: Shipping activity had drawn to a near standstill in the city’s typically bustling port. The havoc the pandemic was wreaking in China at the time explained the slowdown — and it represented the leading edge of the economic destruction the virus would soon bring to the United States.

Over coffee in The Washington Post building on Feb. 26, Brusuelas made two more predictions that panned out in the months to come: The Federal Reserve would soon need to open emergency lending facilities to keep businesses solvent, and forecasts of a sharp rebound in economic activity with no serious harm done would prove too sunny.

Looking back, he says, he was surprised by the economy’s relative resiliency, exemplified by most consumers’ easy transition to buying groceries and other necessities online. “But we really need to look at the portion of the economy that’s not as resilient,” he says.

“If policymakers want to avoid the mistakes they made following the financial crisis, they need to expand the fiscal aid well beyond another $1 trillion,” likely doubling it early next year, he says, with a “significant portion of the aid going to state and local governments.” Otherwise, he said, the poor and middle class will pay the price.

PROGRAMMING NOTE: This is our last note of the year. We’ll be back in your inbox on Jan. 4. In the meantime, here’s wishing you and yours a safe and restful holiday. 

White House advisers had to talk him out of backing $2,000 checks: “Trump was in the middle of formally drafting his demand for the larger payments when White House officials told him that doing so could imperil delicate negotiations over the economic relief package, the officials said. Congressional Republicans have insisted that the relief bill remain less than $1 trillion, and it’s currently designed to cost around $900 billion. Larger stimulus checks could push the package’s total over $1 trillion,” Jeff Stein reports.

“The White House divisions underscore the internal Republican tensions over the next relief package and likely the president’s last major economic piece of legislation.”

Leaders say they’re close, but there’s still no deal: “Among the most vexing issues is whether to curb the powers of the Federal Reserve and how to structure a new round of stimulus checks. They are also clashing over aid for theaters and music venues and relief for cities and states, among other things,” Mike DeBonis, Jeff Stein and Seung Min Kim report.

“Negotiators were hoping to resolve all of their differences and pass matching bills in the House and Senate by Friday night to marry the stimulus bill with a must-pass government funding package. But the prospect of that appeared to slip away late Thursday. Lawmakers must pass at least a stopgap spending bill by Friday night to avoid a government shutdown Saturday.”

More on the Fed becoming a roadblock: “Republicans were still demanding limits to the Federal Reserve and Treasury Department’s emergency lending programs. Democrats say that such restrictions, pushed primarily by Sen. Patrick J. Toomey (R-Pa.), would constrain the ability of the incoming Biden administration to stabilize the economy during a protracted downturn.”

• Democrats fear this would tie Biden’s hands: “Toomey included language in a GOP-drafted coronavirus aid proposal that was blocked by Senate Democrats in September that would affirmatively prevent the Fed from pursuing any further lending past early January for facilities funded by the Cares Act. Republicans are pushing to include similar language in the pending bill, but Democrats are fiercely resisting the move — saying it will hamstring Biden and his nominee for treasury secretary, former Federal Reserve Board chair Janet L. Yellen, as they seek to guide the economic recovery.”
• Lawmakers are in touch with Fed Chair Jay Powell: “Sen. John Barasso (Wyo.), the third-highest ranking Republican senator, called language on the Fed facilities ‘critically important’ for GOP lawmakers. Lawmakers were consulting with Powell about the effect of the Toomey push.

Republicans are balking at even the hint of state aid: “Democratic lawmakers are seeking to include funding for the Federal Emergency Management Agency to give to states and cities in emergencies.” They say the measure would only cost $1 billion. 

• “Similarly, Democratic lawmakers are seeking to delay the Dec. 31 deadline that states and cities have to spend unused federal assistance before that funding expires and has to be returned. Republicans have been resistant to that change as well, aides said.”

Economists fear cutting out local aid is going to wreak havoc: “With most states required to balance their budgets, governments have turned to cutting jobs and other services rather than raising taxes on struggling households and businesses. The state and local government jobs shed since March — primarily in education — are a far higher toll than during the Great Recession, when cities and states laid off 800,000 workers from 2008 to 2013,” the New York Times’s Jim Tankersley and Emily Cochrane report.

• The CBO says the money would help a recovery: “Calculations from the nonpartisan Congressional Budget Office support the case for more aid, concluding that money for states and localities provided the most cost-effective economic boost of any of the provisions in the first wave of economic assistance this spring.”

The recovery continues sputtering, highlighting the stakes. “An estimated 885,000 people applied for unemployment aid for the first time last week — a second consecutive week of increased claims, and a high not seen since the end of the summer,” Eli Rosenberg writes. 

From Bloomberg’s Joe Weisenthal: 

• FDA pledges to move quickly on Moderna vaccine approval: “The Food and Drug Administration said Thursday night that it will “rapidly work toward” emergency authorization of Moderna’s coronavirus vaccine, just hours after agency advisers endorsed the shot,”  Laurie McGinley and Carolyn Y. Johnson report.
• California is the latest epicenter: “If California were a country, it would be among the world leaders in new coronavirus cases, ahead of India, Germany and Britain. And the state’s test positivity rate continues to climb, meaning the virus is spreading faster. The rate is now 11.5 percent, more than twice what experts consider high-risk,” Reis Thebault reports.
• Employers can require vaccinations, federal agency says: “For anyone with one of two key exceptions — a disability or a sincere religious belief that bars vaccinations — employers must provide ‘reasonable accommodation,’ if possible. But, in general, an employer can require the vaccine, the Equal Employment Opportunity Commission said,” Katie Shepherd reports.

• Risky loans secure private-equity payouts: “The payouts boost returns for private-equity firms but can load their companies’ balance sheets with heavy debt at a precarious moment. … The amount of issued debt tied to such payouts, including both loans and bonds, grew to more than $29 billion this year, up more than 25 percent from 2019, according to S&P Global Market Intelligence’s LCD. Of that, loan volumes have grown well over 40 percent while bonds have fallen,” the Wall Street Journal’s Brian Spegele and Laura Cooper report.
• Coca-Cola will cut 2,200 jobs worldwide amid restructuring: “The pandemic battered its revenue and raised costs for the beverage giant. About half of its sales typically comes from consumers drinking its beverages away from home. In the third quarter, its net sales slid 9 percent. Coke has responded to the crisis by expediting its plans to restructure its business and slim down its portfolio,” CNBC’s Amelia Lucas reports.

Traders continue to eye a stimulus deal: “The S&P 500 gained 0.6 percent to end the day at 3,722.48, and the tech-heavy Nasdaq Composite advanced 0.8 percent to 12,764.75. The Dow Jones industrial average climbed 148.83 points, or 0.5 percent, to 30,303.37. Both the S&P 500 and Nasdaq hit intraday and closing records. The Dow posted its highest-ever closing level,” CNBC’s Fred Imbert reports. 

“Real estate, materials and health care were the best-performing sectors in the S&P 500, rising more than 1 percent each. Johnson & Johnson rose 2.6 percent to lead the Dow higher.”

• DoorDash slips after its IPO is mocked: “Short-seller Citron Research described the food delivery company’s initial public offering as the ‘most ridiculous’ of the year and said the stock is worth a fraction of its current price. … DoorDash has gained 51 percent since its debut last week. It fell 2.4 percent to $154.21 on Thursday. DoorDash declined to comment,” Bloomberg News’s Jeran Wittenstein and Ellen Huet report.

Georgia runoffs will pose a big test for the markets: “Markets have reacted favorably to the current split Congress with a Democrat in the White House, trading on the view that the Senate majority would limit Democratic efforts to raise taxes and carry out some of the more progressive policies of the party. But if Democrats were to win both Georgia seats, the view is that Democrats could raise taxes but also pass a much larger stimulus package to help the economy,” CNBC’s Patti Domm reports.

There will still be prime perks for those who shell out the most: “Instead of financing fancy receptions, companies and other donors to next month’s pandemic-era inauguration are being asked to help pay for what is shaping up to be a mostly online show,” the WSJ’s Emily Glazer and John McCormick report.

“The Biden campaign fundraising team moved about a third of its staff to focus on inauguration fundraising … For instance, if an individual gives $500,000 or bundles $1 million for the inauguration, the person will be invited to virtual events with Biden and Vice President-elect Kamala Harris and their spouses, according to a document reviewed by the Journal.”

• Biden makes a pair of historic Cabinet picks: He chose Deb Haaland (D-N.M.) to serve as the first Native American Cabinet secretary and head the Interior Department. He will also name North Carolina environmental regulator Michael S. Regan to become the first Black man to head the Environmental Protection Agency. Brenda Mallory will also serve as the first Black chair of the White House Council on Environmental Quality, Juliet Eilperin, Dino Grandoni and Brady Dennis report.
• Bob Iger wants to be ambassador to China: “The Walt Disney Co. executive chairman has told people close to the incoming Biden administration that he would be interested in serving in the post,” the WSJ’s Erich Schwartzel, Ken Thomas and Emily Glazer report. He would be an unorthodox choice and “lawmakers on both sides of the aisle have criticized Disney’s business dealings in China …”
• Biden says cybersecurity will be “top priority” after Russian hack: “Biden’s pledge came as Trump has been silent on the hack, which exploited widely used Orion software from SolarWinds Corp,” Bloomberg News’s Emma Kinery reports.

The party appears to be headed for a fight over what to do: “Reps. Ayanna Pressley (D-Mass.), Ilhan Omar (D-MN.), Alma Adams (D-N.C.), and Maxine Waters (D-CA) are introducing a resolution … that pushes the incoming Biden administration to take action on student debt. The resolution doesn’t force the next administration to do anything, but calls on Biden to forgive up to $50,000 of federal debt for student borrowers,” Vox’s Emily Stewart reports.

“Biden has backed legislation to cancel $10,000 in federal student loan debt, but he’s coming under increasing pressure to go bigger and forgive up to $50,000.”

Sacklers deny responsibility for opioid crisis: “Testifying in public for the first time in decades, members of the family who led OxyContin maker Purdue Pharma apologized to victims of the national opioid epidemic but did not go as far as accepting personal responsibility for the health crisis,” Meryl Kornfield reports.

“David Sackler, who served on Purdue’s board from 2012 to 2018, and Kathe Sackler, a board member from 1990 to 2018 and a former vice president, faced heated questioning from the House Oversight Committee about how much they knew about the addictive nature of opioids when they encouraged sales of the company’s blockbuster drug OxyContin and what their financial gains were. Purdue chief executive Craig Landau also testified.”

• The family has been attacked in legal fights: “More than 3,000 cities, towns and other jurisdictions that are suing drug companies have blamed the Sackler family, in part, for the opioid epidemic following Purdue’s development of OxyContin in 1996. In federal court, the communities argue they were flooded with painkillers, fueling the opioid crisis that has killed more than 450,000 people in the United States in the past two decades.”

But the trading platform continues to face other threats: “The Securities and Exchange Commission fine stems from Robinhood’s decision to removed disclosures from its website that detailed how it made money,” Bloomberg News’s Robert Schmidt and Matt Robinson report. “The brokerage … hid from 2015 to late 2018 that its biggest source of revenue was funneling orders to Wall Street titans including Citadel Securities and Two Sigma Securities.”

• Problems keep popping up: “The SEC and the industry’s front-line brokerage regulator are pursuing a separate investigation into how Robinhood responded to trading outages that hit the firm in March as covid-19 fueled extreme market volatility, incidents that triggered a flood of customer complaints.”

Google hit with third antitrust suit since October: “Nearly 40 states filed a wide-ranging antitrust lawsuit against Google, alleging the tech giant manipulates its search results to give its own products and services greater rankings over rivals — preventing Web users from seeing the best options when they search the Web for options in shopping, dining, travel and more,” Tony Romm reports.

“They claim that Google has solidified its monopoly in search — capturing roughly 90 percent of all queries — through an array of anti-competitive tactics that have created a ‘moat around its kingdom.’ Chief among them are the special deals that Google signs to ensure it is the default option on many Web browsers, smartphones and newer connected devices such as smart televisions and speakers.”

• Fed Governor Lael Brainard gives a speech about climate change and financial regulation at the Center for American Progress
• Nike and Darden Restaurants are among the notable companies reporting their earnings