Japan’s Economy Fell Into Recession In First Quarter Of 2020

The world’s third-largest economy after the U.S. and China shrank an annualized 3.4% in the January-March period, pushed down by the initial effects of the coronavirus pandemic. That followed a revised 7.3% contraction in the previous quarter that was triggered by an increase in the national sales tax. Two straight quarters of contraction is one definition of a recession.




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“The situation has become even more severe in April and May after a state of emergency was issued,” Economy Minister Yasutoshi Nishimura said Monday. “The economy is expected to shrink substantially for the time being.”

Prime Minister Shinzo Abe declared a national state of emergency in April to contain the spread of the coronavirus. Last week, he lifted it in 39 of 47 prefectures. It still applies in Tokyo and Osaka, but is expected to end nationwide in the next week or two.

Many stores and restaurants have closed during the pandemic, while tourism has virtually halted because most foreign visitors are barred from entering the country and Japanese people have been encouraged to avoid travel.

Economists are forecasting a contraction at an annualized pace of 20% or more in the current quarter.

Exports fell at an annual rate of 21.8% in the first quarter, reflecting supply-chain disruptions and lockdowns in China, one of Japan’s biggest markets. Private consumption and capital spending by companies also fell, but not as much.





Daiwa Securities economist Mari Iwashita said exports were likely to fall further with lockdowns continuing in some countries. She said imports might improve as China’s economy moves closer to normal operations and provides Japan with personal computers for people working at home and masks.

Société Générale economist Takuji Aida said that even after Japan’s state of emergency lifts, the pace of economic recovery may be slow because many people may see their income reduced or lose their jobs. “Households and companies are reaching their limits of their strength,” he said.

Mr. Nishimura, the economy minister, said the government planned to put together an additional spending package by about May 27, including further support for corporate financing and aid for students. In April, Parliament passed a measure with some $240 billion in spending, including cash payments of about $935 to every person in Japan.



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Banks Brace For A Recession

The large U.S. lenders are preparing for an economic downturn as millions remain out of work.

Big banks sent a clear message in first-quarter earnings Tuesday: This recession is going to be bad.

JPMorgan Chase & Co. and Wells Fargo & Co. set aside billions of additional dollars to get ready for a flood of customers to default on their loans as the coronavirus pandemic pummels the economy. That sunk the banks’ quarterly profits.

JPMorgan and Wells Fargo are the first big U.S. banks to report first-quarter results, and act as a bellwether for the broader economy. Neither bank has yet seen a wave of loans go bad, but they are preparing for it as the economy plunges further into a presumed recession and millions remain out of work.

Many Americans were already deep in debt before the pandemic, tapping credit cards, auto loans and student loans at record levels to cover a shortfall left by wages that remained flat for many years.

The banks for years rode all that consumer spending and borrowing to big profits. Now, they are preparing to struggle alongside their cash-strapped borrowers. Nearly 17 million Americans have sought unemployment benefits in the past three weeks. About two million homeowners are skipping their monthly mortgage payments, according to industry data.

“This is such a dramatic change of events,” said JPMorgan Chief Executive James Dimon, who returned to work a few weeks ago after emergency heart surgery. “There are no models that have ever done this.”

JPMorgan set aside an additional $6.8 billion in the quarter for potentially bad loans, largely in its consumer bank. That raised its total provision to $8.29 billion, more than the bank has had to take since 2010. But even that may not be enough, the bank warned.

The bank said the provision was based, in part, on the assumption that U.S. gross domestic product would fall an annualized 25% and unemployment would rise to more than 10% in the second quarter. But JPMorgan economists have recently amended their forecast to a 40% decline in GDP in the quarter and a 20% unemployment rate.



Wells Fargo said it set aside an additional roughly $3 billion in the quarter for potentially bad loans, both in the consumer and commercial divisions. That raised its total provision to $3.83 billion.

“We don’t know what the time frame is or how quickly the economy will recover,” said Wells Fargo CEO Charles Scharf. “What we do know is the contraction is real.”

Both banks have pledged to help troubled borrowers and small businesses by, for example, waiving late fees or allowing them to temporarily suspend their monthly payments. They have also taken a central role in disbursing government stimulus money to businesses. But that might not be enough for workers who could be out of a job and small businesses that could be shut down for many months.

Spending on credit cards dropped for both banks. JPMorgan said most customers kept up payments on credit cards through April 1, but that more customers have been late on those loans in the past two weeks. Wells Fargo said that consumers had already contacted Wells to defer more than a million payments, mostly on mortgages and auto loans.



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What’s more, banks and other lenders are starting to toughen their loan-approval standards, particularly for new customers. That means many people could find it hard to get credit just when they most need it.

Shares for both JPMorgan and Wells Fargo fell, with JPMorgan dropping about 3% and Wells Fargo losing about 4%.

JPMorgan earned $2.87 billion, down 69% from $9.18 billion a year earlier. The bank earned $0.78 per share, missing the $2.16 forecast by analysts polled by FactSet. JPMorgan revenue was down 3% to $28.25 billion. That fell short of the $29.55 billion analysts had predicted.

Wells Fargo earned $653 million, down 89% from $5.86 billion a year earlier. The bank earned 1 cent per share, missing analyst expectations of 38 cents. Wells Fargo revenue fell 18% to $17.72 billion. That missed analyst expectations of $19.4 billion.

Wells Fargo also said it took an impairment charge of $950 million on securities because of the economic and market conditions.

Some banking businesses did surge in the quarter. Corporate clients rushed to load up on cash, drawing down lines of credit from the banks and socking it away in deposit accounts. Both banks posted 6% loan growth, driven by corporate lending, and crossed $1 trillion in total loans for the first time.

“People got scared quickly and wanted to make sure they had liquidity,” Mr. Dimon said on a call with reporters.

The volatile stock market boosted JPMorgan’s trading revenues by 32%, with gains in both equities and fixed income. The Federal Reserve attempted to support the economy by twice cutting rates in the quarter, though that pinched the revenue that banks earn from interest.

Wells Fargo’s net interest income dropped 8% from a year ago. JPMorgan’s was flat, but the bank had to cut its full-year guidance.


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Financial Markets – Panic Selling Continues as Dow Tumbles Below 25,000

Panic selling continued in the U.S. stock market on Friday, putting the market on course for its biggest weekly loss since 2008 amid growing signs that the coronavirus outbreak will ultimately cause an economic shock in Western economies as well as in China and its Asian trading partners.

The Dow Jones Industrial Average opened with another loss of 627 points, or 2.6%, taking it below the 25,000 mark. By 10:33 AM ET (1533 GMT), the DJIA was down 4%, or 1,034 points.

The S&P 500 was down 3.4%, at its lowest since October 2019. The Nasdaq Composite, meanwhile, fell 2.7%.


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Overnight, another sharp jump in the number of confirmed Covid-19 cases in South Korea and Iran, coupled with new emergency virus containment measures in Germany, Switzerland and elsewhere, all contributed to keeping the mood negative. A better-than-expected monthly rise of 0.6% in U.S. personal income in January was of little consolation.

“The landscape remains very uncertain,” said Mark Dowding, chief investment officer of BlueBay Asset Management in a weekly note. “For now, there is a sense with the coronavirus that things will need to get worse before they can get better.”

He argued that the point of “maximum bearishness” could be another couple of weeks away.

“This could coincide with the moment that Covid19 is officially declared a pandemic by the World Health Organization,” something that could lay the groundwork for a coordinated response of policy stimulus, Dowding argued. Such hopes seem far away at the moment, with the U.S. and German governments both playing down the seriousness of the situation.



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The bond market is now betting heavily on the Federal Reserve riding to the rescue. The2-Year Treasury bond yield dipped below 1% overnight and then roared lower to 0.91% after St. Louis Fed President James Bullard indicated that the Fed, if not fiscal policy, would react to a global pandemic.

“Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time,” Bullard, who doesn’t vote on monetary policy this year, said Friday in prepared remarks to be delivered in Fort Smith, Arkansas.

Hot money continued to flood out of Tesla (NASDAQ:TSLA), which lost another 7.1%, taking its losses for the week to over 30%.

Beyond Meat (NASDAQ:BYND) suffered similar problems following a surprise quarterly loss after the bell Thursday, losing 17.6%. It’s now down 25% for the week.

Apple (NASDAQ:AAPL) was also the subject of some heavy profit-taking, falling 5.1% to its lowest since December. None of the companies mentioned released any news of note.

One stock emphatically bucking the trend was Zoom Video Communications (NASDAQ:ZM), the maker of software for video conference calls. Zoom Video stock has been flying as participants price in a boom in such calls as Covid-19 spawns a global outbreak of working from home and restrictions on business travel.

JPMorgan (NYSE:JPM), L’Oreal (PA:OREP) and Nestle (SIX:NESN) have all said this week they intend to limit staff travel as a result of the outbreak.



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Will Recession Strike In 2020?


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StockMarketNews.Today — Year-end is the traditional time to forecast the economy and ensure that your investment portfolio can handle future shocks. Habitual worrywarts—including some practitioners of the dismal science—see ominous signs that America’s record-breaking expansion will soon end. Meanwhile, most stock market pundits see recent strong consumer spending as a good omen, signifying that stocks and the economy will continue to rise. Let’s review the best indicators to make sense of the picture.

The Conference Board, a nonprofit for economic research, tracks 11 predictive measures of future economic activity in its Index of Leading Economic Indicators. The LEI purports to forecast the economy over the coming three to six months. The individual components include data on unemployment, the direction of the stock market, consumer and business sentiment, and manufacturing activity. Unfortunately, the LEI is somewhat unreliable as a forecaster and often misleading.

We examined the record of the LEI (and its components) over the eight recessions and nine sudden market declines of 15% or more since 1960. The good news is that the LEI and many of its components have had a near-perfect record in anticipating recessions. The most reliable indicators have been the shape of the yield curve, business and consumer confidence, durable-good purchases and housing starts, and the health of the labor market. These measures have also correctly signaled stock-market downturns. (The biggest exception is consumer spending, which has risen before nearly every past recessions, falling only after the recession starts.)

Yet despite the LEI’s fair record, there are good reasons to doubt that any economic statistic can reliably predict when a downturn will occur. Since 1958, even when the indicator was correct, the lead time between its turning negative and an economic slide has been as long as 18 months. Worse, there have been many false positives. Leading indicators have incorrectly forecast a downturn many more times than they correctly predicted recession or stock-market decline. In fact, the most accurate indicators have the highest incidence of false positive signals. A signal that often predicts recessions that don’t happen is more misleading than helpful. As the economist Paul Samuelson once quipped, “The stock market has predicted nine of the last five recessions.”

Today, the auguries are generally favorable. Stocks and the labor market have performed well, and the yield curve is sloping upward again. But business confidence has declined over the past three months through November, based on uncertainty about trade and global politics.

Our view is that the best course of action is to be agnostic about future economic activity and the direction of the stock market. We subscribe to the wisdom of John Kenneth Galbraith, who once said, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

If accurate forecasts of the economy and the stock market are impossible, how should investors assess their portfolios at year-end? There are three steps every investor should take, none of which require futile attempts to forecast the future.

First, ensure that their asset holdings are broadly diversified. Hold internationally diversified equities and real assets such as real estate that will benefit if growth continues or inflation accelerates. Also hold safe assets, such as fixed-income securities, that would balance the losses in a recession.

Second, maintain the balance of their portfolios to suit their retirement timeline and risk tolerance. If equity holdings increase so that the risk level of the portfolio is too high for comfort, for instance, it may make sense to sell off equities and reinvest in safer asset classes. Rebalancing always reduces risk and in volatile markets can increase returns.

Third, be sure to harvest tax losses and keep costs minimal. Losses should be realized on assets that have declined in price. It’s possible to deduct the loss on any asset sold even if one is reinvesting the proceeds in a different asset class for balance. Net losses, up to a certain amount, can be deducted from income taxes. Low- or zero-cost index funds should be your favorite investment vehicles, and portfolio management costs should be minimized. The greater the costs and fees you pay, the lower your returns. As John Bogle used to say, “You get what you don’t pay for.”




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Recession Signals Flashed by The Bond Market May Have Been Exaggerated …

Some investors and analysts are convinced that fears of an imminent upset may be overdone.

Long-term bonds have been on a tear in recent weeks with yields tumbling more rapidly than almost any other time in the past decade. But the recession signals flashed by these moves may have been exaggerated because of “forced buying” among some investors.

The strong rally in long bonds has made them among the best performing assets of any market in the world this year. They have also caused dreaded inversions of the U.S. yield curve in August: That is where 10-year yields fall below two-year yields, a reliable signal that recession is around the corner.

Some investors and analysts are convinced that fears of an imminent upset may be overdone. A lot of the recent fall in yields has been because some banks, asset managers, insurers and pension funds have had to gorge on long bonds or bond derivatives because market moves have hurt other positions they hold.

This activity is often called “forced buying” since the trades are dictated by pre-existing risk models and investment strategies. “There was a fundamental driver to this move-in yields and that continues to be validated by economic data and the Fed,” said Josh Younger, head of U.S. interest rates derivatives strategy at JPMorgan in New York. “But the signals provided by the rates markets are being amplified by this hedging activity.”

Less than half the fall in 10-year yields during August—the biggest monthly drop in percentage point terms since 2011—was down to fundamental economic reasons, according to Mr. Younger. He figures 10-year Treasury yields that are currently priced around 1.5% are about one-quarter of a percentage point below where they would be without this activity.

One giveaway that hedging activity has been important in recent market moves is that yields in swap markets, where hedging is done, have fallen faster than those on bonds, according to Mr. Younger.


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There are several factors driving investors into long-dated bonds. Falling rates and a wave of Americans refinancing home loans means mortgage-backed bonds get paid off quicker than expected. Institutions who owned those bonds—banks, mortgage real-estate investment trusts and fund managers—are pushed into buying longer-dated Treasurys or interest-rate swaps as the quickest and cheapest way to replace the disappearing income.

Buying also comes from pension funds and insurers that sell annuities. When yields fall, their liabilities often grow faster than their assets. That can increase the so-called “duration gap” in their books, which is the shortfall between what they are going to earn on their assets and what they owe to pensioners. To close the gap, these businesses need more long-term assets.

Bets on low volatility in the bond options and futures markets—a trade popular among so-called unconstrained bond funds—can also produce extreme demand for long dated bonds when volatility spikes.

These trades rely on volatility and yields remaining within a limited range. When yields break lower, as they have recently, investors need to rebuild their long-term exposure quickly and rush into government bonds or swap markets to do so, says James McAlevey, head of rates at Aviva Investors in London.

On Wall Street, these effects all have typically obscure sounding names: mortgage bond owners face “negative convexity,” the risk that the duration of portfolios, or the time it takes for an investor to be paid back through coupon payments, could grow or shrink rapidly. Those betting on low volatility can find themselves “short gamma,” which refers to the risk of market losses on short-dated options on longer-term bonds and interest rate swaps.

“The lower we go in long-term bond yields, the more demand starts to increase for certain products: gamma hedging, convexity hedging and closing duration gaps,” said Mr. McAlevey. “You end up with a market that is all buyers and no sellers.”

None of these types of activity kick off a market move, but they can help it gather pace, said Mr. McAlevey. Hedging activity linked to volatility strategies can also create forced sellers when yields start to rise. “Gamma hedging works both ways,” he said. “So a lot of what’s going on is just going to lead to higher volatility.”

The upshot is that without these flows, the U.S. yield curve wouldn’t have inverted and there would be much less fevered chatter about a coming recession.


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“The flattening of the [yield] curves has been exacerbated by these flows,” said Stefano Di Domizio, head of fixed-income strategy at Absolute Strategy Research.

To be sure, all this hedging activity might have helped yields in the U.S. and Europe to fall more quickly to a level where they will eventually deserve to be. “It’s the middle of August, it’s quiet, so moves get exaggerated,” says Helen Anthony, a portfolio manager at Janus Henderson. “We were expecting this to play out over much longer than just this month.”




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Easy Loans: Consumer-Lending Boom Sparks Fears Of Recession


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StockMarketNews.Today > …  More ordinary Russians have come to depend on easy loans to purchase goods, maintain a certain living standard or simply to survive…

As real disposable income for Russians continues to fall—it declined each year between 2013 and 2018—personal consumer lending has exploded, topping around $130 billion last year, up 46% compared with 2017, according to the Moscow-based United Credit Bureau, which tracks credit histories on 90 million Russian borrowers. Most of Russians’ debt is due to a surge in unsecured cash loans, the country’s central bank said.


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Interest rates on bank loans range from 12% to 19%, depending on the length of the loan, according to data from Russia’s central bank. But commercial or nonprofit lending institutions other than banks often gouge borrowers with interest rates that can hit more than 500%, according to local financial experts.

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Russian officials worry the borrowing boom could further undermine the country’s financial stability. Western sanctions on Moscow and low oil prices, on which the economy heavily depends, have dented Russia’s economy, weakened the ruble and compounded already sluggish growth. Nearly 13% of Russians live in poverty, according to government data.

Russian President Vladimir Putin warned in June that banks were giving out loans to people whose repayments amount to 40% of their wages, fueling a possible bubble. Maxim Oreshkin, the country’s economy minister, projected the bubble would burst and drag the country into recession if lending isn’t tamed by the Russian central bank. “Our estimate is that 2021 is the year when [the consumer-lending problem] will blow up,” he told the local Ekho Moskvy radio station in July.

Russians hold an average of nearly 290,000 rubles, or $4,600, in debt, according to United Credit Bureau. This is a meager sum compared with the U.S., where the average personal debt is roughly $38,000, excluding mortgages, according to Northwestern Mutual, a financial-services organization. But the average monthly Russian salary is around $670. About 44% of Russian households are indebted, according to the central bank, up from 34% two years ago. One in eight Russian borrowers spends more than 50% of their income on loan payments.

The “consumer-lending boom is negatively impacting especially the lives of those who earn a low level of income,” Mr. Oreskhin said in a Wall Street Journal interview. “It’s a big problem.”


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Elvira Nabiullina, Russia’s central-bank governor, disagrees that consumer lending is creating a bubble and insists the debt boom is under control. But beginning in October, the central bank will require credit institutions to calculate borrowers’ income and their debt burden before granting new loans—something many lenders don’t do now. The Economy Ministry is also weighing measures to support people who can’t pay their debt.

Some bank representatives said consumers sometimes lack financial literacy and need extra guidance, which they provide.

Defaulting after accepting unmanageable loans is pushing many Russians to file for bankruptcy under a new personal-bankruptcy law that came into force in 2015. The law covers those with a total debt of more than 500,000 rubles and more than three months of missed payments. In the first half of this year, 29,000 people filed for bankruptcy, 1.5 times higher than during the same period a year ago, according to the United Credit Bureau.




Extra: The Russian Central Bank Plans To Lower The Key Interest Rate In Small Steps

The central bank embarked on a monetary easing cycle last month, lowering the cost of lending amid sluggish economic growth and abating inflationary risks. Analysts expect further rate cuts but there is no consensus on their scale and timing.

At its last board meeting in June, the central bank considered holding the key rate and cutting it by 50 basis points but eventually trimmed it by 25 basis points to 7.50%, Nabiullina said.

“Other things being equal, we are trying to move in moderate steps for the economy to adapt to our new decisions,” she said in an interview with Reuters cleared for publication on Wednesday.


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Under its baseline scenario, the central bank, which aims to keep consumer inflation at its 4% target, plans to complete its monetary easing cycle by mid-2020, Nabiullina said.

Russia’s monetary policy will become neutral once the key rate reaches a range of 6% to 7%, she added. Expectations of further rate cuts have boosted demand for Russian OFZ treasury bonds this year. Rate cuts drive bonds’ yields down, which inversely send their prices higher.

Nabiullina said inflows of foreign funds into OFZ bonds have not caused the market to overheat, while volatility in capital flows do not constitute a risk because of Russia’s low state debt. Russia’s debt currently stands at less than 15% of gross domestic product (GDP).

“We have tools to mitigate the implications of spikes in volatility for financial markets and the economy,” she said.

RISK SCENARIO… In its latest monetary policy report published last month, the central bank added to its risk scenario a probability of a drop in prices for oil, Russia’s key export, to just $20 per barrel.

“In order to bring the risk scenario closer to real situations, we have priced in an option in which oil prices fall sharply for a short time before increasing to some extent and stabilizing,” Nabiullina said. Seeking to avoid such a scenario and prop up the price of crude, OPEC and its allies led by Russia agreed to extend oil output cuts until March 2020 on Tuesday.

“The main factor behind the oil prices drop in this scenario is the slowdown of the global economy,” she said, adding that such a scenario was unlikely.


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Asked about the trade war between China and the United States that has been fuelling concerns about the global economy for months and rattling emerging market currencies, Nabiullina said she did not expect the dispute to be resolved soon.

STRONGER ROUBLE… The Russian rouble could firm if the government proceeds with its plan to uncork the National Wealth Fund, now at around $60 billion, and start using it once it reaches 7% of GDP, a level it is expected to reach next year, Nabiullina said.

“This could lead, for example, to the rouble firming in a structural manner and to its stabilization at a new level,” Nabiullina said without elaborating on the rouble exchange rate. Nabiullina said the fund’s spending should be economically feasible, reiterating her call for the 7% threshold to be re-examined and possibly raised.


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BANKING SECTOR WATCH… The central bank has shut dozens of commercial banks in the past few years as part of a program to clean-up the banking sector, helping increase its sustainability.

Russian banks are on track to post a higher net profit this year than the 1.3 trillion rubles ($20.6 billion) they made in 2018, Nabiullina said. “We have largely solved the issue of laundering of illegal incomes through the banking system. But now we need to constantly be vigilant for this operation not to come back.”


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In addition to shutting smaller lenders, the central bank has bailed out a handful of major banks, including Otkritie, B&N and Promsvyazbank.

Nabiullina said the central bank now needs to prepare the rescued lenders to be sold on the market and to be converted into banks with a large free float of shares. ($1 = 63.2400 rubles)

40% of Americans say they still struggle to pay bills… This doesn’t look like the best economy ever…


 


In discussions with 30 Americans unable to pay all of their bills, a clear pattern emerged: Most were able to eke by until they faced an unexpected crisis such as a job loss, car trouble or storm damage.

The extra expense caused them to get behind on their bills, and they never fully rebounded. Economists fear such precarious financial situations put many Americans at risk if there is even a mild setback in the economy, potentially setting up the next recession to be worse than anything in recent history except the Great Recession.

“So many Americans are living paycheck to paycheck,” said Signe-Mary McKernan, vice president of the Center on Labor, Human Services and Population at the Urban Institute. “We are headed toward a political crisis, if not an economic one.”


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Their vulnerability is due to a confluence of factors. First, the average American family has yet to recover fully from the 2008 financial crisis, the Federal Reserve found, leaving half the nation with a diminished cushion to handle surprise expenses — or the next downturn.

The bottom half has less wealth today, after adjusting for inflation, than it did in 1989, according to Fed data through March of this year. While wage growth has accelerated in recent months, especially for the lowest-paid workers, families who have struggled for years have a ways to go to return to solid footing.

Half of U.S. jobs pay less than $18.58 an hour and more than a third pay less than $15, which makes it difficult to save or invest for a better future.

Trump and his team argue that a strong economy is lifting more and more Americans up financially, including blue-collar workers, the formerly incarcerated and minorities. In contrast, Democrats are calling for major expansions of government programs to address inequality. How to help the economically vulnerable is likely to be a key debate in the 2020 race.

“Just because folks on Wall Street think things are fine doesn’t mean most Americans feel like things are fine,” said Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. “When every day is a rainy day for millions of families, things are not fine.”

To get by, Americans have borrowed heavily in recent years. Total U.S. household debt is now $13.7 trillion, surpassing the 2008 peak in dollar terms, according to the Federal Reserve Bank of New York. The surge in debt this time around is for cars and college, not mortgages.


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Older and wealthier — and usually white — Americans typically take on debt to buy homes or make investments that are likely to make them richer in the years to come. Most in this category have recovered the wealth they lost in the Great Recession as home prices and stocks have soared.

In contrast, data from the Fed and the credit-score company Equifax show that families of color, Americans born after 1970 and households earning less than $60,000 are the least likely to have recovered the wealth they lost in the crisis. And they tend to carry heavy debt loads, often taking out loans for college, which they cannot get rid of in bankruptcy, or loans to pay bills, which can put them further behind.

The prevailing view among Wall Street investors and Washington policymakers is that there is little to worry about because student loans are backed by the government and delinquency rates for other kinds of debt are fairly low, meaning most people can make their monthly payments.

Credit quality is about as good as I’ve ever seen it,” said Mark Zandi, chief economist at Moody’s Analytics. “There is nothing that suggests inordinate stress on low-income households . . . certainly nothing compared to times past.”


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But Boshara, of the St. Louis Fed, pointed out that credit card and auto loan delinquencies have risen this year, the opposite of what Wall Street expected in good economic times.

Four in 10 Americans say they still struggle to pay their bills, despite the strong economy, according to a quarterly survey by UBS that has shown no improvement since 2014. And looking at how households are doing by class, race or age reveals a concerning picture.

A Reading Of The Economy From Morgan Stanley Is Signaling “June Gloom”


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A reading of the economy from Morgan Stanley is signaling “June gloom.”… Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm.


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“The decline shows a sharp deterioration in sentiment this month that was broad-based across sectors,′ economist Ellen Zentner said in a note to clients. “Fundamental indicators point to a broad softening of activity, but analysts did not widely attribute the weakening to trade policy.”


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Fears of a possible economic slowdown were raised last week after a much worse than expected jobs report. The economy added just 75,000 jobs in May, according to the Labor Department last Friday. A report on Thursday showed a spike in jobless claims last week. Manufacturing activity last month grew at the slowest pace in two years.

Worries about a trade deal getting passed between the U.S. and China weighed on stock markets in May. Perversely, that weak sentiment actually boosted stocks this month because traders are hoping the Federal Reserve will cut interest rates. But some investors are starting to worry the economy could fall into an outright recession.


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June’s conditions index reading showed notable declines in hiring, hiring plans, capex plans, and business conditions exceptions, Morgan Stanley said…


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The manufacturing subindex business conditions fell sharply to zero, “a decline that was likely exaggerated by the recent turn lower in oil prices, while marking the lowest level for the subindex on record,” Zentner said… The services subindex also fell to 18 from 35.

US Recession Fears Are Growing …


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America’s business leaders are growing more worried that the United States will enter a recession by the end of 2020. Their primary fear: protectionist trade policy.

That is the topline finding of a report released Monday by the National Association for Business Economics. The survey, based on responses by 53 economists, is a leading barometer of where the US business community thinks the economy is headed.

“Increased trade protectionism is considered the primary downwide risk to growth by a majority of the respondents,” Gregory Daco, chief US economist for Oxford Economics, said in a statement. The report found what it called a “surge” in recession fears among the economists. The report comes as the United States ratchets up its trade war with China and has gone after other major trading partners, including Mexico and India.


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The risk of recession happening soon remains low but will “rise rapidly” next year. The survey’s respondents said the risk of recession starting in 2019 is only 15% but 60% by the end of 2020. About a third of respondents forecast a recession will begin halfway through next year.



According to the survey, the median forecast for gross domestic product growth in the last quarter of 2020 was 1.9%. That would be a big drop from the most recent estimate of current US economic growth — 3.1% in the first three months of 2019.

The United States is probably somewhere in the last stages of an epic run of economic growth that began in 2009. Dramatic and coordinated responses by the Federal Reserve, Congress and the Obama administration helped pull the country up from the Great Recession.


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President Donald Trump, who took the reins of the US economy from Barack Obama in 2017, has aggressively tried to reorder the US position on global trade. He has picked prominent fights with China and Europe and has threatened tariffs on Mexico over illegal immigration and India over access to its markets.

Other notable findings from the National Association for Business Economics:

— 56% of respondents cited increasingly protectionist trade policy as the greatest risk to the US economy in 2019. Separately, 88% pointed to US trade policy, and retaliation by other nations, for why they lowered their GDP growth forecasts.

— 14% believe a “substantial” decline in the stock market, and 10% feel a slowdown in global growth, are the biggest risks to the US economy.

— Business spending will moderate this year and next after growing a strong 6.9% in 2018.

Japan’s Coincident Index Suggests Economy May Be In Recession


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Japan‘s coincident indicator index declined in March and the government cut its assessment of the economy, a sign it may already be in recession as the U.S.-China trade war and weak external demand hurt activity.

Worries about the economy have grown as Japan’s exports and factory output were hit by China’s economic slowdown and the escalating U.S.-China trade friction, which had disrupted global supply chains.


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The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales, fell a preliminary 0.9 of a point in March from the previous month, the Cabinet Office said on Monday.



In its view on the index, the government described the economy as “worsening”. That compared with its previous assessment for February when it described the economy at “a turning point towards a downgrade”.

The index for leading economic indicators is compiled using data such as job offers and consumer sentiment and is seen as a forward-looking gauge of the economy. It slipped 0.8 of a point from February.

Clouding the outlook are government plans to raise a sales tax to 10 percent from the current 8 percent in October unless a big shock on the scale of Lehman Brothers‘ collapse in 2008 hits the economy.

There is also speculation Prime Minister Shinzo Abe may postpone the sales tax hike as risks to demand grow, having already twice delayed it.


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There are concerns the sales tax increase will damage private consumption as it did so when Japan raised the tax to 8 percent from 5 percent in 2014.

Japan releases gross domestic product (GDP) data on May 20, which will give a clearer read on the state of the economy and whether the government will proceed with the tax hike as scheduled.

The economy likely contracted at an annualized 0.2 percent in January-March as corporate and consumer spending weakened, a Reuters poll showed.