Budget Deficit Hits Record $3.1 Trillion | #corporatesecurity |


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The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year, official figures showed on Friday, as the coronavirus pandemic fueled enormous government spending while tax receipts plunged as households and businesses struggled with economic shutdowns.

The shortfall underscores the long-term economic challenge facing the United States as it tries to emerge from the sharpest downturn since the Great Depression. Interest rates are low — meaning it costs less for the government to borrow money — but the ballooning deficit is already complicating policy choices as Republicans resist another large stimulus package, citing concerns about the U.S. debt burden.

The deficit — the gap between what the U.S. spends and what it earns through tax receipts and other revenue — was $2 trillion more than what the White House’s budget forecast in February. It was also three times as large as the $984 billion deficit in the 2019 fiscal year.

In a statement accompanying the annual budget report, Treasury Secretary Steven Mnuchin highlighted the extraordinary level of money that has been pumped into the economy this year to combat the virus and prop up the economy. Russell T. Vought, the director of the Office of Management and Budget, said that as the recovery continued, the fiscal picture would improve as companies hired back workers and people began spending more money.

The federal government spent $6.5 trillion in 2020, a large portion of which can be attributed to the $2.2 trillion relief legislation that Congress passed in March.

Credit…Andrew Spear for The New York Times

Eight million Americans have slipped into poverty since May, and there are 11 million fewer jobs than before the pandemic. And yet, for the fifth straight month, people continued to pull out their wallets and spend more on cars, sporting goods and clothing.

Consumer spending rose 1.9 percent in September, the Commerce Department said on Friday, more than twice the rate of increase that most economists had predicted. Retail sales have fully recovered to pre-pandemic levels and “jump started,” according to one economist, a “nascent economic recovery.”

“We thought we would see negative impacts on spending by now, but these are surprisingly strong sales gains,” said Scott Anderson, an economist at Bank of the West. “We thought catastrophic joblessness would weigh more on confidence, but it has risen.”

These seemingly contradictory trends — recovering consumer spending on the one hand and worsening poverty on the other — partly reflect the inequalities in the American economy that have existed for years, but have been amplified by the pandemic.

Millions of Americans have lost their jobs and are struggling to pay their rent and utilities bills, but millions of others continue to work remotely, enjoying rising stock market investments, strong home values and low interest rates that are making big purchases like a new car easier.

“It is a two-tiered world,” Beth Ann Bovino, chief U.S. economist at S&P Global said.

The spending power of lower-income Americans had been bolstered by the trillions of dollars of stimulus that the federal government has pumped into the economy, increasing household incomes. But economists have been warning for months that most of that money, which came in the form of checks this spring and $600 a week in additional unemployment benefits, has already been spent.

“Lower-income households don’t have the spending power that they once had,” Mr. Anderson said. “A lot of them, unfortunately, are getting lost in the shuffle, and it is partly what you are seeing in this data.”

Strong auto sales were the largest factor behind the spending increase in September. Vehicle sales rose 3.6 percent from August, as more Americans who are forsaking air travel during the pandemic have upgraded their automobiles, or bought a car for the first time. Gasoline sales also increased slightly, suggesting that more people were venturing out as schools, offices and businesses reopened.

There were other signs in the data that, even as cases of the coronavirus began to surge across the country last month, people’s shopping habits were returning to some level of normalcy.

Sales at clothing and department stores rose 11 percent, which some economists attributed to back-to-school spending, which typically happens earlier in the summer. Sales of health and beauty products, which seemed less necessary in the heart of the lockdowns this spring, increased 1.5 percent.

At grocery stores, which had experienced record sales and profits fueled by panic buying at the start of the pandemic, sales were mostly flat.

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Big hotel companies, desperate for relief as pandemic lockdowns keep travelers away, are going to new lengths in their quest for help: Instead of asking the Treasury and Federal Reserve to expand an emergency loan program so that they can gain access to it, they’re asking President Trump to do it for them.

The Fed is running a series of emergency loan programs in response to the pandemic recession, including one that supports bank lending to midsize businesses. The Fed’s loans are protected against credit losses by insurance money held by the Treasury, and Secretary Steven Mnuchin has substantial say over how much risk the programs take on.

Mr. Trump has basically no control over the programs, which the Fed designs and runs, because the central bank answers to Congress and not to the White House.

But Mr. Trump is Mr. Mnuchin’s boss, and so this week, chief executives from the big hotel chains, including Hyatt, Marriott and Hilton, made a plea directly to the president.

“We strongly urge you to use your executive authority to direct the Treasury to encourage the Federal Reserve to amend and expand the Main Street Lending Program,” they wrote in a letter dated Oct. 15.

The hotels are asking for an asset-based lending facility — one that ties loans to physical collateral like real estate, for instance — or more flexible standards around how indebted borrowers are allowed to be. They have pushed for such changes for months to little avail, making their case to the Fed and Treasury directly and to members of Congress.

While hoteliers have also asked for forms of help that would not require them to take on more debt, that request is not mentioned in the letter.

The Fed’s Main Street program has been tricky from the start. The central bank has never attempted to lend to small and midsize businesses before, and it took a long time to set up the program. As of Oct. 8, it held only $2.6 billion in loans — compared with about $600 billion in capacity.

The Fed has repeatedly said it would “evaluate” the possibility of an asset-based program, which lawmakers have also pushed for, but Mr. Mnuchin and Mr. Powell have said that setting up the type of relief the hospitality sector is hoping for would be difficult.

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The Coca-Cola Company is discontinuing Tab, its first diet soda brand that became a cultural icon in the 1970s and retains a small but loyal cult following to this day.

For years, rumors have circulated that the soda giant was planning to end the brand, which was introduced in 1963. The possibility of its demise had prompted Tab’s most devoted fans — who call themselves Tabaholics — to reach out to the company to complain and even sign petitions demanding that Coca-Cola keep Tab alive.

But this time, it’s really over: Tab is going away amid an effort by Coca-Cola to “retire select underperforming products” by the end of this year, the company announced on Friday.

Coca-Cola said that plans to streamline the company’s beverage brands were “underway well before the coronavirus outbreak,” but that supply chain disruptions and changing consumer behavior caused by the pandemic prompted the company to speed up its efforts.

Coca-Cola is just one of many major food, beverage and retail brands feeling the impact of the pandemic. Some fast food chains, including California Pizza Kitchen and Ruby Tuesday, have filed for bankruptcy during the crisis, along with retail brands including J. Crew, Men’s Wearhouse, and Lord & Taylor. Other companies have also taken creative approaches to marketing during the pandemic, with PepsiCo recently releasing a new beverage, Driftwell, to help people de-stress and unwind before bed.

Other outgoing products from Coca-Cola include Odwalla, Coca-Cola Life, Diet Coke Fiesty Cherry and Sprite Lymonade, as well as regional beverage brands such as Northern Neck Ginger Ale and Delaware Punch.

“It’s about continuing to follow the consumer and being very intentional in deciding which of our brands are most deserving of our investments and resources, and also taking the tough but important steps to identify those products that are losing relevance and therefore should exit the portfolio,” Cath Coetzer, global head of innovation and marketing operations for The Coca-Cola Company, said in a statement.

Tab was initially marketed to women with the message that the zero-calorie beverage would keep their waistlines trim. The brand reached its cultural height in the 1980s, when commercials featured bikini-clad women with a jingle proclaiming that Tab was “for beautiful people.” But in 1982, Coca-Cola introduced Diet Coke, and by 2011, only three million cases of Tab were produced, compared with 885 million cases of Diet Coke.

  • Stocks on Wall Street gave up their early gains on Friday and ended the day unchanged.

  • Shares were bolstered earlier by a report on retail sales that was stronger than expected, but the rally faded as large technology stocks like Amazon and Apple fell late in the day.

  • The Commerce Department said U.S. consumer spending increased for the fifth consecutive month in September. The 1.9 percent gain reported was stronger than economists had expected.

  • Boeing climbed after a European aviation regulator told Bloomberg News that he was satisfied with upgrades to the Boeing 737 Max, increasing the chances the plane could return to the region’s skies by the end of the year.

  • Pfizer gained after saying that it might file for approval for its Covid-19 vaccine in late November.

  • The British pound gyrated as Prime Minister Boris Johnson said his government would abandon Brexit talks and proceed without a trade deal on Jan. 1 unless there was a “fundamental change in approach” from the European Union side. Thursday had been Mr. Johnson’s deadline for striking a deal. E.U. negotiators are expected to come to London next week for more talks.

  • Shares in LVMH, the French luxury goods company, which owns Louis Vuitton and Givenchy, jumped after the company said sales in its fashion brands rebounded in the third quarter. Shares in Christian Dior, also controlled by LVMH, rose 8 percent. Shares in the British luxury brand Burberry climbed more than 3 percent.

  • Daimler, the German manufacturer of Mercedes-Benz, said its third-quarter performance had been better than expected with a pretax profit of 3.1 billion euros. The automaker’s shares rose.

  • U.S. industrial production declined in September by 0.6 percent, the Federal Reserve reported, another indicator of a faltering recovery. After surging in June and July, industrial output barely rose in August. Production of consumer goods fell 1.6 percent in September, including a decline of more than 4 percent in automotive output. Over all, manufacturing decreased by 0.3 percent and was 6.4 percent below the February level.

  • A British regulator said on Friday it had fined British Airways 20 million pounds, or $25.9 million, for lax security that led to a data breach in 2018, in which hackers stole data of more than 400,000 British Airways customers. The fine is much less than the £183 million originally suggested in 2019.

Credit…Jim Wilson/The New York Times

Facebook and Twitter limited or blocked the distribution of an unsubstantiated New York Post article about Hunter Biden, the son of the Democratic presidential nominee, Joseph R. Biden Jr.

Twitter has since changed the policy that it had used to block the article, saying on Thursday that it would allow similar content to be shared. But both companies drew a furious response and accusations of censorship from Republican lawmakers, including President Trump.

The New York Times’s tech reporters and columnists have been covering the developments as they unfold:

  • Twitter and Facebook’s actions offer a glimpse at how online conversations could go awry on Election Day. And Twitter’s bob-and-weave in particular underlined how the companies have little handle on how to consistently enforce what they will allow on their sites, Mike Isaac and Kate Conger write.

  • To many Democrats, the unsubstantiated article — which included a bizarre set of details involving a Delaware computer repair shop, the F.B.I. and Rudy Giuliani, the president’s personal lawyer — smelled suspiciously like the result of a hack-and-leak operation, The New York Times’s technology columnist Kevin Roose says.

  • YouTube has managed to avoid the controversy entirely, because it isn’t clear what — if anything — that platform is doing about the story, reports Daisuke Wakabayashi.

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The Federal Reserve, which set up a variety of programs to keep credit flowing in the midst of the pandemic recession, should stop making corporate bond purchases, the congressional commission tasked with overseeing the central bank’s emergency lending efforts said in a new report.

The program, which is backed with money from the Treasury Department, was set up to buy corporate bonds — first through exchange-traded funds and more recently as part of an index that it created. Through Oct. 8, the facility had bought $13.1 billion in funds and individual bonds, the report said.

The program has drawn criticism for making it easier for a broad array of companies to borrow money at very low rates, although doing so has helped many raise funds needed to weather the pandemic. Most of the benefit to corporations has come indirectly — as a result of the Fed’s presence as a backstop, not because of the purchases themselves — but critics have also said that the programs should have more strings attached.

Actual purchases in the program had already slowed to a trickle thanks to calm market conditions, but the commission said it “has concluded that the facility should stop making any purchases.”

The oversight committee, a group of two Democrats and two Republicans, also reported the results of a hearing on the Fed’s effort to buy state and local debt — a program that has seen limited use because of its relatively high interest rates and what borrowers call ungenerous terms.

The Republicans on the committee felt that the program had “achieved its purpose of restoring liquidity in the municipal bond market.”

But the Democrats felt that it should be more generous. They argued that it should reduce the interest rate charged so that the municipal program was “at least as generous with state and local governments as it is with borrowers participating in its other emergency lending programs.”

Credit…Michael Nagle for The New York Times

The Trump administration has failed to provide justification for why a struggling trucking company, YRC Worldwide, was entitled to a $700 million loan that came from a pot of money intended to help companies considered critical to national security, according to report released on Friday by the Congressional Oversight Commission.

YRC was the first firm to get a loan through a $17 billion program set up by Congress in March to help companies designated as critical to national security weather the pandemic. The loan, which was awarded in July, came after the Treasury Department said YRC qualified “based on a certification by the secretary of defense that YRC is critical to maintaining national security.”

The funding quickly drew scrutiny for a number of reasons, including YRC’s shaky financial position before the virus, its web of connections to the White House and the administration’s rationale that a trucking business shipping supplies to military bases is crucial to the nation’s safety. YRC lost more than $100 million in 2019 and was being sued by the Justice Department over claims it defrauded the federal government for a seven-year period.

In responses to the Congressional Oversight Commission, which was created to monitor how the stimulus funds are being spent, the Treasury Department and the Department of Defense shed little light on why YRC was approved for the loan.

The Treasury Department said YRC provided 68 percent of the Defense Department’s small-freight shipping and provided services to the Department of Homeland Security and the U.S. Customs and Border Protection agency. As to why that made it critical for national security, the Treasury deferred to the secretary of defense, Mark Esper, who is responsible for making that certification.

The Pentagon failed to provide additional information, which it promised to do in September, the commission said.

Brook DeWalt, a Department of Defense spokesman, declined to comment, saying the department would have to “take a look” at the report first.

Commission members had raised concerns that the company might have received a loan because of ties to the White House. YRC has financial backing from Apollo Global Management, a private equity firm with close ties to Trump administration officials.

Credit…Phillip Chin/Getty Images for Warner Brothers Television

Hollywood’s season of executive turnover continues.

Warner Bros. announced on Friday that Peter Roth, the head of its television studio for more than two decades, will step down early next year.

This is the latest high-level change for the industry, which has seen turnover at HBO Max, Netflix and NBCUniversal in the last two months.

Mr. Roth joined Warner Bros. in 1999, and the studio has made a significant number of hit shows while he’s been in charge, including “The Big Bang Theory,” “The West Wing,” “Gilmore Girls” and “Two and a Half Men.”

“Peter and I have been meeting for some time about this, and while there’s never a great moment to say goodbye, he felt that this was the right time to transition in a new leader for the group,” the Warner Media chief executive, Ann Sarnoff, said in a statement.

With Mr. Roth’s departure, speculation will turn to his replacement for what is one of the bigger jobs in the television industry. Channing Dungey, who abruptly departed her executive position at Netflix last week, has held discussions for a high-level position with Warner Bros., according to two people familiar with the talks.

“Working at Warner Bros. has been the greatest, most meaningful, most rewarding experience of my career,” Mr. Roth said in a statement.

Shares in Nikola, a start-up aiming to develop trucks powered by hydrogen and electricity, fell 16 percent on Friday after its chief executive suggested that a key partnership with General Motors might not come to fruition.

Nikola announced a deal with G.M. in September that calls for the automaker to provide fuel cells, battery packs and engineering assistance.

The companies are in talks over the final details of the agreement, but on Friday, Nikola’s chief executive, Mark Russell, said in an interview with Bloomberg that Nikola had a plan to go forward if negotiations faltered.

“We have the ability and we have a base plan of doing it ourselves,” he said. “If we have a partner, that just enables us to consider going faster and helps reduce risk.”

G.M. said it would provide an update “when appropriate or required.”

On the Nasdaq exchange, Nikola shares fell $3.75 to close at $19.55.

The G.M. deal terms called for the automaker to take an 11 percent stake in Nikola without a cash investment and for the deal to be finalized by Dec. 3. After spiking on the deal’s announcement, Nikola’s shares have fallen 60 percent.

Just days after the announcement, a small investment firm that has bet against Nikola stock issued a report alleging that the company was an “intricate fraud” and that its founder and executive chairman, Trevor Milton, had exaggerated its technology development. Mr. Milton later resigned.

Credit…Jeff Roberson/Associated Press

The 1.9 percent increase in retail sales in September was more than twice what most economists had predicted.

A few analysts said that the amount of the increase was proof that a broader economic recovery had taken hold, despite the high unemployment and business closures. Others say these gains may be fleeting.

It was the fifth straight month that retail sales had increased, and the spending patterns also show that even as virus cases grew across much of the country last month, people continued to venture out and spend more. Here are some highlights:

  • Strong auto sales were the largest factor in the spending increase. Low interest rates continued to encourage people to buy cars and trucks. Vehicle sales rose 3.6 percent from August, as more Americans who are forsaking air travel during the pandemic upgraded their cars or bought one for the first time. Gasoline sales also increased slightly, suggesting that more people were driving more as schools, offices and businesses reopened.

  • A roughly 11 percent increase in clothing and department stores sales was another driver of the overall spending rise. Some of that can be attributed to back-to-school spending, which typically happens early in the summer. Still, some economists were baffled by the strength in the department store business at a time when many Americans who are still employed are working remotely and have no need for new office attire.

  • Sales of health and beauty products, which seemed less necessary in the heart of the lockdowns this spring, increased 1.5 percent in September.

But some areas that were strong when pandemic-induced lockdowns forced Americans to remain in their homes showed signs of weakness.

Grocery sales surged at the start of the pandemic, causing panic among shoppers and record profits for food retailers. But things have normalized since then and sales at grocery stores were flat in September.

In a similar vein, electronic sales fell slightly, after recording big gains in the earlier months of the lockdowns when people were upgrading their home offices or buying new devices to entertain their stir-crazy children.

There was one major talking point this week for executives on earnings calls and in media appearances: the stalled negotiations over another pandemic stimulus bill.

  • “The medium to longer term is still highly uncertain in particular as it relates to future stimulus. And so we remain heavily weighted to our downside scenarios.” — Jennifer Piepszak, the chief financial officer of JPMorgan Chase

  • “The pace of job growth and the rebound in consumer spending have slowed, and the diminished pace of reopening and the end of some stimulus programs are presenting headwinds.” — Charles Scharf, Wells Fargo’s chief executive

  • “There is talk of another stimulus in terms of its impact. We’ve assumed that kind of a bit later, in terms of in the first quarter of 2021.” — Mark Mason, the chief financial officer of Citigroup

  • “For both sides, I think what they need to keep in mind is that there are Americans that need them, that don’t really care about politics, aren’t really tied up in this election and they just need some help.” — Doug McMillon, Walmart’s chief executive, on CNBC

  • “The consumer number in my view is going to be highly dependent on whether they provide more fiscal stimulus, which I think they absolutely need to do.” — William Demchak, the chief executive of PNC Financial Services



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