Wall Street registers first signs of concern over economic recovery — Jobless claims hit pandemic low — Q2 growth likely to be revised higher

From: POLITICO's Morning Money - Friday Aug 20,2021 12:01 pm

Aug 20, 2021

By Katy O'Donnell and Aubree Eliza Weaver

Presented by The Consumer Data Industry Association

Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services' morning newsletter, which is delivered to our s each morning at 6 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.

Quick Fix

Wall Street registers first signs of concern over economic recovery — Several banks and forecasters have downgraded their economic outlooks over the last week amid worsening news about the coronavirus, as the highly transmissible Delta variant threatens a return to pre-vaccine precautions. The uncertainty raises the stakes for Federal Reserve Chair Jerome Powell’s already heavily anticipated speech at the annual Jackson Hole conference next week.

Goldman Sachs this week slashed its third-quarter economic growth forecast from 9 percent to 5.5 percent -- “the impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” the bank’s economists wrote in a research note — but cut its growth forecast for the year only modestly, from 6.4 percent to 6 percent, on the theory that growth will rise in the fourth quarter “as virus fears hopefully diminish.”

Wells Fargo noted that new daily Covid case counts had reached their highest level since January when the bank cut its third-quarter growth forecast last week, from 8.8 percent to 6.8 percent. The Conference Board also pointed to the surge of Covid cases when it trimmed its forecast for the year from 6.6 percent to 6 percent.

The economy is “increasingly tied to how the Delta variant plays out,” Moody’s Analytics chief economist Mark Zandi wrote in the group’s weekly outlook note Thursday. “While it seems unlikely the variant would be so disruptive that it would undermine the recovery, there are mounting indications that the fast-spreading variant may be more of a headwind to economic growth.”

HAPPY FRIDAY — Ben White returns next week. Send tips to him at bwhite@politico.com or @morningmoneyben and to Aubree Eliza Weaver at aweaver@politico.com or @AubreeEWeaver.

A message from The Consumer Data Industry Association:

Credit reporting helps Americans achieve their financial goals and strengthens our economy. Credit reporting is always improving to better serve people and give more consumers access to the financial system. Our system is accurate, reliable and heavily regulated to ensure lenders have what they need to be safe and sound while responsibly finding new consumers. Through financial education, free credit reports and alternative data, we are building a more equitable and better financial system. Learn more.

Driving the Day

JOBLESS CLAIMS HIT PANDEMIC LOW — AP’s Paul Wiseman: “The number of people seeking unemployment benefits fell last week for a fourth straight time to a pandemic low, the latest sign that America’s job market is rebounding from the pandemic recession as employers boost hiring to meet a surge in consumer demand. The Labor Department reported Thursday that jobless claims fell by 29,000 to 348,000. The four-week average of claims, which smooths out week-to-week volatility, also fell — by 19,000, to just below 378,000, also a pandemic low.”

Q2 GROWTH LIKELY TO BE REVISED HIGHER — Reuters: “U.S. economic growth for the second quarter is likely to be revised higher following a recent raft of stronger than initially thought data covering that period, which reflected the economy's reopening amid improved public health. The Commerce Department's quarterly services survey, or QSS report, on Thursday added to a flow of data such as retail sales and inventories in suggesting that gross domestic product grew much faster than the 6.5 percent annualized rate reported by the government in its advance estimate last month.”

Mortgage delinquencies also dropped — Bloomberg’s Prashant Gopal: “Mortgage delinquency rates plunged in the second quarter to the lowest level since the pandemic began, as the improving economy helps distressed homeowners get out of trouble. The seasonally adjusted delinquency rate dropped to 5.47 percent of all loans outstanding, down from 8.22 percent a year earlier and the lowest since the first quarter of 2020, according to a survey by the Mortgage Bankers Association.”

BOND MARKET SIGNALS CONFIDENCE IN FED POLICY OUTLOOK — WSJ’s Sam Goldfarb: “A key bond-market signal suggests investors feel they have a firm grip on Federal Reserve policy, reducing the chances that the central bank’s Jackson Hole conference next week will break yields from their recent pattern. For nearly two months, the extra yield investors demand to hold the 30-year U.S. Treasury bond over the five-year note has been mostly hovering just below 1.2 percentage points. The closely watched differential — known on Wall Street as the 5-30 spread — dropped sharply from about 1.4 percentage points after the Fed’s June 15-16 policy meeting.”

G7 MINISTERS SPEAK AS BIDEN HANGS BACK — POLITICO Europe’s Esther Webber: “G7 foreign ministers agreed on the need for a joint approach to prevent a humanitarian crisis in Afghanistan even as the U.S. appeared reluctant to engage with allies in the wake of its withdrawal from the country. U.K. Foreign Secretary Dominic Raab chaired a video call with his counterparts from the grouping of the world’s wealthiest nations on Thursday, at which they resolved to cooperate in an effort to provide aid and prevent further loss of life … A U.K. government official claimed the U.S. had to be ‘bounced’ into agreeing to the call after largely ignoring allies’ attempts to discuss Afghanistan over the last few weeks led by France and the U.K., which currently holds the G7 presidency.”

Fly Around

INTRODUCING OTTAWA PLAYBOOK : Join the growing community of Politicos — from lawmakers and leaders to pollsters, staffers, strategists and lobbyists — working to shape Canada’s future. Every day, our reporting team pulls back the curtain to shed light on what’s really driving the agenda on Parliament Hill, the true players who are shaping politics and policy across Canada, and the impact it all has on the world. Don’t miss out on your daily look inside Canadian politics and power. Subscribe to Ottawa Playbook today.

TAKE A LISTEN — Economists are warning that failing to get women back to work would hurt the broader economy. POLITICO's Megan Cassella sits down with Victoria Guida to explain what's happening, in Victoria’s latest podcast episode.

CFTC’S QUINTENZ TO STEP DOWN — WSJ’s Paul Kiernan: “Democrats are set to gain control over the nation’s derivatives-market regulator after one of the two Republicans on the Commodity Futures Trading Commission departs at the end of this month. CFTC Commissioner Brian Quintenz, who was nominated in 2017 by then-President Donald Trump at the recommendation of Sen. Mitch McConnell (R., Ky.), said in an interview he plans to leave the agency Aug. 31. Though his five-year term expired in April 2020, he is legally eligible to remain at the regulator until the end of this year.”

REPUBLICAN SENATOR CALLS ON BIDEN TO REAPPOINT POWELL — Reuters’ Ann Saphir and Trevor Hunnicutt: “President Joe Biden should keep Jerome Powell at the helm of the Federal Reserve for another four years to build confidence in an improving economy that still faces significant risks, Senator Steve Daines said in a letter to the president on Thursday.

“‘Changing the top leadership at this sensitive time could foster uncertainty across the financial system and undermine our economic recovery,’ Daines, a Montana Republican, wrote. His letter was the first formal call for Powell's reappointment from a member of the Senate Banking Committee, which votes on U.S. central bank nominees before they are considered by the full Senate.

THE WORLD’S BIGGEST CRYPTO EXCHANGE STILL LACKS U.S. FOOTING — NYT’s Emily Flitter: “The quest for legitimacy in the United States is leading Binance.com, the world’s largest cryptocurrency exchange, to pursue an initial public offering of its American unit. But for a company founded on secrecy — as cryptocurrency firms typically are — the going could be slow and fitful.”

GOOGLE, APPLE SOUGHT TO WORK AS ‘ONE COMPANY,’ SUIT ALLEGES — Our Leah Nylen: “Google and Apple agreed to ‘work as if we are one company’ in the mobile market, and the search giant paid off phone companies starting in 2019 to keep them from installing alternative app stores on Android phones, according to newly released court documents. The allegations appear in Epic Games’ antItrust suit against Google, which was unsealed in its entirety Thursday following an order from a California federal court.””

HOW APPLE TAKES ON STATE LEGISLATURES — Our Emily Birnbaum: “When Apple wanted to kill off two bills in Georgia this year, it rushed lobbyists to the state legislature, threatened to abandon key economic projects and persuaded the state attorney general to push for an Apple-friendly amendment. Two months later, the bill that had appeared to have the most momentum stalled in the Georgia House Judiciary Committee. The committee chair did not bring the legislation to a vote during this year’s legislative session, effectively killing it in the lower chamber.”

ANOTHER CHOPPY DAY ON WALL STREET — AP’s Damian J. Troise and Alex Veiga: “Major indexes closed mixed on Wall Street Thursday after another choppy day of trading. The S&P 500 ended with a gain of just 0.1 percent after wobbling between gains and losses for much of the day. Even though most stocks in the S&P 500 fell, the benchmark index managed to rise thanks largely to gains in several big technology companies, like Microsoft. The Dow Jones Industrial Average slipped 0.2 percent and the Nasdaq rose 0.1 percent. Small-company stocks lost ground.”

A message from The Consumer Data Industry Association:

Credit reports play an important role in Americans’ lives by helping them achieve their financial goals and by protecting the economy. Our industry works across the financial ecosystem to make sure people have frequent, free access to their credit reports and are able to maintain their financial health as best as possible.

The credit reporting ecosystem is always innovating to bring more people into the financial system and to help lenders responsibly find new consumers. Our competitive system is highly regulated to make sure consumers are getting the service they need fairly. Working together we can expand financial equity by bringing new data into the system, helping millions of Americans access the financial system and gain greater access to credit. Learn more.

Be a Policy Pro. POLITICO Pro has a free policy resource center filled with our best practices on building relationships with state and federal representatives, demonstrating ROI, and influencing policy through digital storytelling. Read our free guides today .