Unsanitized: Mass Layoffs Signal Choppy Transition for the Economy

Plus, a Congressional deal seems remote and more on school reopenings. This is The COVID-19 Daily Report for September 30, 2020.

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First Response

The final jobs report before the election comes out on Friday. But none of the layoffs from the airline industry that I mentioned yesterday will be part of it; they’re prohibited under the terms of the CARES Act until October 1. In fact, since the reference week for the September jobs report was in mid-September, none of the mass cuts that have been announced in the past few days will be reflected in it; we’ll only see the impact of them after the election.

For the airline industry that means “more than 30,000 jobs” cut; the expectation of upsized loans for United and American, the two companies doing the lion’s share of the layoffs, doesn’t seem to matter. For Disney it means 28,000 job losses, announced yesterday amid the continued closures and capacity limits at its theme parks. The 9,000 job cuts at Royal Dutch Shell reflects its global workforce, and has more to do with restructuring around renewables, but also the crashed demand for oil.

This is just the beginning. Leisure, travel, and hospitality industries have been limping along without doing mass layoffs, but the breaking point is being reached. With no major studio releases set until Thanksgiving, it’s a matter of time before we see mass layoffs and closures at movie theaters.

Eighteen retailers have filed for Chapter 11 in the first half of the year, and store closings in that period hit an all-time record. Eleven other retailers filed for bankruptcy just between July and mid-August (a 45-day span); over 10,000 storefronts are scheduled for closure and 25,000 are expected by year’s end. If anything that’s likely to worsen and reach down into the small business sector, as appropriate uncertainty from the public about congregating makes it impossible for them to hold on. Retail landlords are now reduced to begging for a share of e-commerce revenue, something with no basis contractually, really an attempted barter for pulling down rents.

Read all of our Unsanitized reports

The news isn’t all bad in the economy. Sectors like construction, a consequence of a homebuying boom in our K-shaped recovery, are doing well. People not spending on air travel and concerts are spending on home furnishing, and there’s been a minor manufacturing surge, helping payrolls bounce back. But the kind of mass layoffs have been announced are of the type you only see in a deep recession, when large companies know that they will not get back to the pre-crisis demand level for many years. And that can feed on itself.

The economy has been too unbalanced in the direction of consumer spending and retail sales in particular. This will be a painful shake-out to alter that balance. We have work that needs to be done—climate adaptation, green tech, care work—but no investment in it as of yet. So you’re only seeing the downside of the paradigm shift.

With this transition shrouded a bit with the return to work from the pandemic, we won’t see the true impact for a few months. After the election ends, a new set of politicians will have to face this difficult reality or suffer through permanent economic paralysis. They have tools to ease the transition. Will they be used?

Magic 8-Ball Says No Deal

I hasten to even give this much attention, but Nancy Pelosi and Steve Mnuchin are talking again. They are making a “late push” for a deal on coronavirus relief before Congress shuts down for the election (oh, and confirming a Supreme Court justice). I know Mnuchin wants more glorifying profiles in the New York Times Magazine, but his obstacle, as ever, is Donald Trump.

Agreeing to a deal would be an admission that Trump failed previously at restoring the economy through his own leadership. And Donald Trump doesn’t do admissions, especially around failure. He’s certainly willing to bribe the public with more Trump Checks, but I’m skeptical that he’d go back on his message.

So before you get to Mitch McConnell’s reluctance to this—as well as the complications of putting a spending bill in the middle of the Supreme Court melee—I don’t believe it’s possible to get Trump on board. And there are lots of outside conservative groups with ideological opposition to spending public money, and no key “get” for them like a corporate bailout. Wake me when there are more than just talks.

One hilarious side note: Pelosi’s bill offsets some spending by reversing CARES Act provisions that allow businesses to “carry-back” and “carry-forward” losses in 2020 and offset past and future taxable revenue. As we know, that’s what Trump did to pay next to nothing in taxes for years. Yet as recently as March this was a business as usual measure for economic “stimulus,” one that makes no sense at all unless you think that money will trickle down to workers and the economy. And Trump is an indicator that it doesn’t work at all.

Schools Update

Quick aside on yesterday’s discussion of the knotty decision to reopen schools: New York City reopened schools on a limited, partial basis yesterday, the same day that the city’s positive coronavirus testing rate reached its highest level in months. It defies reality to believe that none of the personnel going into schools this week have coronavirus, that none of them will pass it to others, and that those people won’t pass it to their families. The only question is whether that will have an impact on mortality and at what rate. The idea that we’re “failing students,” in a vacuum, fails to reckon with this.  

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