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The United States economy is headed for a tumultuous autumn, with the threat of closed schools, renewed government lockdowns, empty stadiums and an uncertain amount of federal support for businesses and unemployed workers all clouding hopes for a rapid rebound from recession.
For months, the prevailing wisdom among investors, Trump administration officials and many economic forecasters was that after plunging into recession this spring, the country’s recovery would accelerate in late summer and take off in the fall as the virus receded, restrictions on commerce loosened, and consumers reverted to more normal spending patterns. Job gains in May and June fueled those rosy predictions.
But failure to suppress a resurgence of confirmed infections is threatening to choke the recovery and push the country back into a recessionary spiral — one that could inflict long-term damage on workers and businesses large and small, unless Congress reconsiders the scale of federal aid that may be required in the months to come.
The looming economic pain was evident on Tuesday as big companies forecast gloomy months ahead. Delta Air Lines said it was cutting back plans to add flights in August and beyond, citing flagging consumer demand. The nation’s biggest banks warned that they were setting aside billions of dollars to cover anticipated losses as customers fail to pay their mortgages and other loans in the months to come.
“The earlier-than-anticipated resumption in activity has been accompanied by a sharp increase in the virus spread in many areas,” Lael Brainard, a Federal Reserve governor, said on Tuesday. “Even if the virus spread flattens, the recovery is likely to face headwinds from diminished activity and costly adjustments in some sectors, along with impaired incomes among many consumers and businesses.”
European stocks were higher on Wednesday, after a mixed day in Asia, buoyed partly by hopes that progress is being made in the search for a vaccine for the coronavirus.
Markets in Frankfurt, Paris and London were up by more than 1 percent, and futures on Wall Street pointed to an upbeat open when trading starts later in the day.
In other markets, oil futures were trading higher on a day when major producers are meeting to consider easing restrictions on output. The production curbs were approved in April when the industry was facing a calamitous fall in oil demand, and any relaxing of the rules would signal stronger energy markets.
Elsewhere, U.S. 10-year Treasuries were flat, and gold was trading slightly lower.
On the vaccine front, there was positive news from the biotech company Moderna, based in Cambridge, Mass., which said an experimental drug provoked a positive immune response and appeared safe among the first 45 people who received it. It is the first coronavirus vaccine to be tested in humans, and Moderna’s shares were more than 14 percent higher in pre-market trading.
In Asia, Hong Kong’s Hang Seng ended the day unchanged, the Shanghai Composite lost 1.6 percent, South Korea’s Kospi gained 0.8 percent, and Japan’s Nikkei was 1.6 percent higher
The British luxury retailer Burberry plans to cut up to 500 jobs worldwide as it continues to grapple with the impact of the coronavirus on its business.
On Wednesday, Burberry said sales fell 45 percent to 257 million pounds ($324 million) in its first quarter, which ended June 27. Across Europe and the Middle East, sales plummeted 75 percent because of a steep decline in tourism. Sales fell 70 percent in the Americas and 10 percent in the Asia Pacific region — with double-digit growth, however, in mainland China.
Burberry’s chief executive, Marco Gobbetti, announced plans for “structural savings,” including staff redundancies. He said the job cuts would include 150 office roles in the London headquarters as the company sought savings “to reinvest in customer-facing activities.”
The additional £55 million in savings comes on top of £140 million of cost cuts already announced. Last month, Burberry said that its next live runway show would take place — without an audience — on Sept. 17.
The Trump administration, which mistakenly sent $1.4 billion of stimulus money to dead people, has begun canceling checks that were delivered to the deceased. The Internal Revenue Service said in an update on its website that such checks should still be returned to the federal government but that it was taking action to ensure they cannot be cashed. A Government Accountability Office report released last month found that about $1.4 billion of the $270 billion of direct stimulus payments went to the deceased.
Three of the nation’s biggest banks revealed that they had set aside billions of dollars to cover potential losses on loans, signaling that they do not expect consumers and corporations to be able to pay their debts in the coming months as the pandemic continues to gut employment and commerce. Collectively, JPMorgan Chase, Citigroup and Wells Fargo have put aside $25 billion during the second quarter, they said. As a result, their quarterly profits plunged. It was Wells Fargo’s first quarterly loss since 2008.
Lael Brainard, a Federal Reserve governor, warned that a second wave of coronavirus cases could imperil the economy and markets once again, even though financial conditions have calmed since the wild days of March and the labor market has begun to mend. “A broad second wave could reignite financial market volatility and market disruptions at a time of greater vulnerability,” Ms. Brainard said, speaking to the National Association for Business Economics. And in any case, “the strength of the recovery will depend importantly on the timing, magnitude and distribution of additional fiscal support.”