Federal Reserve officials think the economy has bottomed out.
A chorus of the Federal Reserve’s top officials said on Tuesday that the United States economy was probably past its pandemic-era low point, although they signaled that the recovery ahead was likely to be long and uncertain.
Jerome H. Powell, the Fed chair, and Lael Brainard, a governor at the Fed Board in Washington, said that the economy had probably entered its recovery phase, and John C. Williams, president of the Federal Reserve Bank of New York, said, “We’ve likely seen the low point.” But all three emphasized that the path ahead looked long and daunting.
“The economy is still far from healthy and a full recovery will likely take years to achieve,” Mr. Williams said, speaking at an Institute of International Finance event. “A strong economic recovery depends on effective and sustained containment of Covid-19.”
Ms. Brainard suggested that there might be reasons to worry as virus cases rebound across Southern and Western states.
“The economy seems to have bottomed out, and we’re seeing some encouraging signs of a recovery,” Ms. Brainard said on a panel at the Brookings Institution. “On the other hand, we’re seeing some resurgence of the virus. So right now, my focus is on steering through a very uncertain recovery.”
Mr. Powell, for his part, will say in testimony to the House Financial Services Committee that consumer spending is bouncing back as reopening gets underway, but a smooth road ahead is far from guaranteed.
“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” he is expected to say. “The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.” — Jeanna Smialek
C.D.C. director criticizes American Airlines for fully booking flights.
The director of the Centers for Disease Control and Prevention on Tuesday expressed “substantial disappointment” with a decision by American Airlines to start booking its flights to their capacity.
“I can say this is under critical review right now by us at C.D.C.,” the director, Robert Redfield, said at a Senate hearing in response to a question from Senator Bernie Sanders of Vermont. “We don’t think it’s the right message, as you have pointed out.”
It was not immediately clear what such a review would entail and whether it includes other airlines with similar policies. It was also not clear what the C.D.C. might do in response and whether it even had the power to compel airlines to leave some seats empty.
Dr. Redfield’s comments come amid a surge in coronavirus cases in states like Arizona, California, Florida and Texas that had been allowing more businesses to reopen and relaxing restrictions on gatherings. Some of those states have paused or reversed their reopening plans in recent days.
American said its decision would not put passengers at greater risk. “We are unwavering in our commitment to the safety and well-being of our customers and team members,” Ross Feinstein, an American spokesman, said in a statement. “We have multiple layers of protection in place for those who fly with us, including required face coverings, enhanced cleaning procedures, and a preflight Covid-19 symptom checklist.”
American had been limiting flights to about 85 percent capacity, enough to leave half the middle seats empty, but said last week that it would let customers buy up all the available seats on its flights starting Wednesday.
Other airlines have taken a similar approach. United Airlines had never limited the number of passengers on its flights. United and American have said that they will warn customers when they are on a fully booked flights and let them switch to a less-packed flight.
By comparison, Southwest Airlines and Delta Air Lines have said that they will continue to cap the number of passengers on their flights through September. Southwest, which does not assign seats, is limiting flights at a level that would allow each middle seat to remain empty, though it will allow passengers to sit where they want. Delta is capping main cabins at 60 percent and first class cabins at 50 percent, while also blocking middle seats. —Niraj Chokshi
Markets are failing to grasp the threats to global growth.
Markets have become too complacent as risks from the coronavirus pandemic threaten global prosperity, the Bank for International Settlements, which supports the world’s central banks, warned in its annual report.
In a nod toward the recent disconnect between financial markets and the economy, the group said high stock prices and the lower premium on corporate debt suggested a divergence from the reality of economic weakness.
“Financial markets may have become too complacent — given that we are still at an early stage of the crisis and its fallout,” Agustín Carstens, the group’s general manager, warned in a speech tied to the release. He pointed out that the path of the virus and its effects on businesses still posed risks.
“Importantly, the shock to solvency is still to be fully felt,” Mr. Carstens said, warning that banks, which have extended loans to companies and consumers, will find themselves on the hook as businesses crash, taking workers down with them. That situation, the group warned, could be “triggered by cliff effects as initial fiscal support runs out and payment moratoriums expire.”
Central banks responded rapidly as businesses and individuals scrambled to sell assets and raise cash, and the real-world crisis began to infect financial markets — making it hard for corporations to issue debt and difficult to trade even U.S. Treasury securities, which are usually highly liquid. Monetary policymakers bought huge sums of bonds and stepped into new markets as lenders of last resort, intent on staving off a full-fledged meltdown.
Investors were soothed, and they began buying stocks and debt again as they became confident that the Federal Reserve and its global counterparts stood ready to provide a backstop. Global stock indexes have rallied, and corporations have been issuing debt at a breakneck pace.
But now they might be overdoing it, the Bank for International Settlements and its leaders warned. — Jeanna Smialek
After a stumbling start three months ago, the U.S. government’s centerpiece relief program for small businesses is ending with money left over.
The Paycheck Protection Program is scheduled to wrap up on Tuesday after handing out $520 billion in loans meant to preserve workers’ jobs during the pandemic. But as new outbreaks spike across the country and force many states to rethink their plans to reopen businesses, the program is closing down with more than $130 billion still in its coffers.
“The fact that it was able to reach so far into the small-business sector is a major achievement, and those things are worth acknowledging, and celebrating,” said John Lettieri, the chief executive of the Economic Innovation Group, a think tank focused on entrepreneurship. “But we’re still in a public health crisis.”
The hastily constructed and frequently chaotic aid program, run by the Small Business Administration but carried out through banks, handed out money to nearly 5 million businesses nationwide, giving them low-interest loans to cover roughly two and a half months of their typical payroll costs. Those that use most of the money to pay employees can have their debt forgiven.
The program appears to have helped prevent the nation’s staggering job losses from growing worse. Hiring rebounded more than expected in May as companies in some of the hardest-hit industries, especially restaurants, restored millions of jobs by recalling laid-off workers and hiring new ones.
Lenders cited two main reasons there was money left over. First, most eligible companies that wanted a loan were ultimately able to obtain one. (The program limited each applicant to only one loan.) Also, the program’s complicated and shifting requirements dissuaded some qualified borrowers, who feared they would be unable to get their loan forgiven. — Stacey Cowley
Stocks fluctuate as worries persist over the outbreak.
Stocks on Wall Street inched higher, while shares in Europe were mixed on Tuesday as the coronavirus outbreak has continued to spread in the United States and has proved stubbornly persistent elsewhere.
The S&P 500 was up nearly 1 percent in early trading, after a 1.5 percent rally on Monday.
One standout on Tuesday was Britain’s FTSE 100 stock index. It was sharply lower after the country reported worse-than-expected revised economic data for the first three months of this year. Investors were awaiting more details from Boris Johnson, the British prime minister, on his plan to spend on public works and other projects to get the economy back on track.
Other major European markets were modestly higher. The muted opening occurred despite a strong day in the Asia-Pacific region, where markets in Japan, mainland China and Australia ended more than 1 percent higher.
Investors awaited developments as states like Florida and Arizona extended their outbreak containment steps and other efforts, signaling that the coronavirus could continue to hold back the United States, home of the world’s largest economy.
They were also watching tense relations between the United States and China, after Beijing imposed a new national security law on the Asian financial capital of Hong Kong without releasing the text or details. U.S. officials on Monday outlined new restrictions on selling technology to Hong Kong, citing Beijing’s growing meddling in the affairs of the semiautonomous territory.
Shell expects to write off up to $22 billion because of reduced demand for oil and gas.
Royal Dutch Shell said on Tuesday that it planned to write off up to $22 billion from the value of its oil and gas assets, another sign that energy companies are reducing the value of their main businesses as a result of the coronavirus pandemic. The write-downs come because Shell, Europe’s largest oil company, is lowering its forecasts for oil and gas prices.
Shell’s action follows a similar move by its European rival, BP, which said recently that it would write down as much as $17.5 billion. The effects of the pandemic on economic activity, as well as concerns about climate change, are pushing the major oil companies, especially in Europe, to reshape their businesses.
Shell said it now expected the price of Brent crude oil to average $35 a barrel this year and $40 a barrel in 2021 — down from a previous forecast of $60 a barrel for both years. Shell said it expected Brent prices to rise to $50 a barrel in 2022 and $60 in 2023. Shell also cut its forecast for natural gas and for profit margins earned from refining oil. On Tuesday, Brent crude was trading little over $41 a barrel.
Shell said that it expected the largest write-downs to come from the business unit called integrated gas, which includes large liquefied natural gas facilities. Shell has invested heavily in this business, notably in plants in Australia, on the expectation that there would be growing demand for natural gas for electric power generation because it results in lower carbon emissions than coal. — Stanley Reed
Green energy companies are powering through the pandemic.
The fallout from the coronavirus pandemic has many businesses reeling, and the oil and gas industry in particular has been rocked by plummeting prices.
But producers of clean energy are pushing hard to get their projects up and running. They want to start making money on their investments as soon as possible, and while demand for electricity has been reduced by the impact of the virus, renewable power tends to win out over polluting sources in electricity systems because of low costs and favorable regulatory rules.
Among the projects are the 2.5 billion pound ($3.1 billion) East Anglia One wind farm being installed off England’s east coast, in the North Sea, by Iberdrola, the Spanish utility. After additional safety measures for employees were adopted, work on the project continued through Britain’s lockdown, now all 102 turbines are installed.
The work reflects growing financial strength for many green-energy companies that were rocked by the financial crisis of 2008 and 2009. Denmark-based Vestas Wind Systems, a major maker of offshore wind turbines, was forced into closing or selling a dozen factories.
Now the companies have more money in the bank, their equipment is more efficient, and demand reflects the rising interest to reduce carbon emissions. Over the past several months Vestas has striven to keep its factories open to meet a record first-quarter order book of 34.1 billion euros for its giant electric power-generating windmills and services.
“We started out differently, saying ‘Let’s not use the excuse of Covid-19,’” said Henrik Andersen, the Vestas chief executive. — Stanley Reed
Uber has made a takeover offer to buy Postmates, the upstart delivery service, according to three people familiar with the matter, as the on-demand food delivery market consolidates and Uber looks for new ways to make money.
The two companies could reach a deal as early as Monday evening, according to the people, who spoke on the condition of anonymity because they were not authorized to do so publicly. The talks are still going on, the people cautioned, and any potential for a deal could fall apart.
Representatives of Uber and Postmates declined to comment.
Uber held merger talks this year with Grubhub, a food delivery competitor. But those talks fell apart after the two companies could not come to agreement on a price, two people familiar with the matter said. Grubhub was eventually bought by Just Eats, a European food delivery service, for $7.3 billion in June.
Shortly after the Grubhub deal fell through, Uber began to piece together a potential offer for Postmates, one of the few stand-alone American companies in food delivery.
Postmates also held sale talks with DoorDash and Grubhub over the past year, according to two people with knowledge of the situation, who declined to be identified because the talks were private. — Mike Isaac and Erin Griffith
Catch up: Here’s what else is happening.
Local union officials have asked General Motors to close its plant in Arlington, Texas, to protect workers until the surge in virus cases in the state subsidies. “The Centers for Disease Control has repeatedly said that the only true way to stop the spread of this virus is to stay home,” Local 276 of the United Automobile Workers unioin said in a statement. National union officials and G.M. said they were discussing the concerns raised by the local.
Income tax payments are due July 15, the Internal Revenue Service said Monday, underscoring the government’s intention to stick to its original extension from the usual April deadline. Filers can apply for automatic extensions to file until Sept. 15, but payments are still due this month.
Norwegian Air, the once-fast-growing low-cost carrier, said on Monday it had canceled orders with Boeing for 92 737 Max jets and five 787 Dreamliners, adding to mounting cancellations for the aerospace giant. Norwegian, which temporarily laid off 90 percent of its staff in March, also said it was seeking compensation for the losses it incurred from the grounding of the Max and from engine troubles associated with the Dreamliners.
Reporting was contributed by Jeanna Smialek, Mike Issac, Erin Griffith, Stacey Cowley, Emily Flitter, Niraj Chokshi, Stanley Reed, Carlos Tejada and Clifford Krauss.