Pandemic’s Economic Impact Is Easing, but Aftershocks May Linger​​​

The pandemic’s grip on the economy appears to be loosening, the New York Times reported. Job growth and retail spending were strong in January, even as coronavirus cases hit a record. New York, Massachusetts and other states have begun to lift indoor mask mandates. California on Thursday unveiled a public health approach that will treat the coronavirus as a manageable long-term risk. Yet the economy remains far from normal. Patterns of work, socializing and spending, disrupted by the pandemic, have been slow to readjust. Prices are rising at their fastest pace in four decades, and there are signs that inflation is creeping into a broader range of products and services. In surveys, Americans report feeling gloomier about the economy now than at the height of the lockdowns and job losses in the first weeks of the crisis. In other words, it may no longer be that “the virus is the boss” — as Austan Goolsbee, a University of Chicago economist, has put it. But the changes that it set in motion have proved both more persistent and more pervasive than economists once expected. Some economists remain optimistic that the economy will normalize as the pandemic recedes, even if the process takes longer than initially expected. Goolsbee, who was chief economic adviser under President Barack Obama, was among those who argued early in the pandemic that the best way to revive the economy was to get the pandemic itself under control. Until that happened, he said, the recovery would be steered by the ebb and flow of case counts and hospital capacity, variants and countermeasures. He recently pointed to the relatively mild economic impact of the omicron wave as evidence that consumers were becoming more comfortable.

White House Lays Out Broad Changes to Address Supply-Chain Shortfalls​​​

The Biden administration today outlined dozens of measures the federal government can take to strengthen freight transportation and infrastructure following almost two years of supply-chain turmoil that has frustrated American businesses and helped fuel inflation, the Wall Street Journal reported. The recommendations from the U.S. Department of Transportation are included in one of seven reports published by government agencies today in response to an executive order President Biden signed in February 2021 to address supply-chain weaknesses, from shortfalls of critical components like semiconductors to port congestion that has delayed deliveries of billions of dollars’ worth of retail merchandise. The administration has sought to intervene to help resolve some of the bottlenecks, particularly at a Southern California port complex swamped by sea containers amid a long queue of vessels waiting to unload imports. The congestion across the country has worsened as ports, railroads, trucking companies and warehouses have struggled to handle a 20% increase in inbound trade flows. Bottlenecks have eased in some places in recent weeks, which logistics-sector officials say is possibly the result of a seasonal slowdown tied to the Lunar New Year holiday in Asia during which factory output subsides. The domestic supply chain remains fragile, executives at shipping companies say, with little sign that the import surge might wane before the second half of the year. (Subscription required.)

Analysis: Inflation Redirects Consumer Spending Toward Household Staples​​​

The annual rate of inflation in the U.S. rose 7.5 percent in January, the fastest pace since 1982. Widespread price growth, brought on by burgeoning consumer demand and broad supply constraints, is driving up the cost of living, with some of the largest monthly household expenses facing steep increases, MorningConsult.com reported. Robust employment and wage growth has supported spending growth to an extent, but financial vulnerability increased in January as U.S. adults reported a jump in lost income tied to the spread of the COVID-19 omicron variant. As affordability slips, inflation concerns are increasingly shaping consumers’ monthly spending allocations. Some of the sharpest price increases over the past year were in categories associated with car ownership and driving. Spending on gas increased 33 percent between January 2021 and January 2022, only slightly trailing the 40 percent jump in prices. Despite higher driving costs, consumers are showing little sign of opting for public transportation instead. Car ownership rates increased from 79 percent to 83 percent year over year in January, while spending on public transit dropped 8 percent over that same period. Higher spending on increasingly expensive staple goods and services is leaving less space in monthly budgets for other categories. The share of wallet allocated to discretionary purchases — including apparel, furniture and travel — has trended lower over the eight months since Morning Consult began collecting spending data on these categories.

Jobless Claims Fall to Lowest Level Since 1970​​​

New claims for unemployment insurance fell last week to their lowest point in 52 years, according to data released today by the Labor Department, The Hill reported. In the week ending Feb. 19, initial weekly claims for unemployment aid fell by 17,000 to 232,000, falling from a revised total of 249,000. Claims rose by 24,000 in the week ending Feb. 12, breaking a string of three consecutive declines. Jobless claims have remained largely near or below pre-pandemic levels since November, with U.S. businesses still desperate to fill millions of open jobs. Firms have hesitated to lay off employees amid a record ratio of open jobs to unemployed workers, though claims ticked up slightly as the omicron variant ripped through the U.S. Despite the blow of omicron and rising inflation, the U.S. job market has held strong since the end of 2021. The U.S. added an average of 541,000 each month since November and saw the unemployment rate hold even at 4 percent in January, just 0.5 percentage points above pre-pandemic levels.

Analysis: For Low-Income Parents, No Day Care Often Means No Pay​​​

The latest wave of coronavirus cases has disrupted even the best-laid child-care arrangements. But low-income parents have been hit disproportionately with a double whammy in recent weeks — losing both child care and income at much higher rates than their wealthier counterparts, according to The Washington Post’s analysis of census survey data. Day-care closures and other child-care disruptions increased sharply from December to January, as cases of the omicron variant peaked across the country, but they were most common in households that make less than $25,000 a year, data from the Census Household Pulse survey shows. In the first two weeks of January, 30 percent of households with children under 11 reported child-care disruptions in the past four weeks, up from 22 percent in December — as children got sick or quarantined after coronavirus exposure, or child-care centers shut down over outbreaks or lack of staff. When day care centers closed, lower-income families were more likely to resort to unpaid leave or to quit jobs altogether. That’s in contrast to higher-income families, who often made do by using paid vacation and sick leave, supervising their children while working or cutting back on work hours. Households making $50,000 or less a year were far more likely to experience a pay cut than those making $100,000 or more a year. Plus, only a third of the country’s lowest-paid workers had access to paid sick leave as of March 2021, compared with 95 percent of workers in the top 10 percent of wages, according to the Bureau of Labor Statistics.

Ukraine Invasion Has the Fed on Alert, but Not Changing Course​​​

Federal Reserve officials are turning a wary eye to Russia’s invasion of Ukraine, though several have signaled in recent days that geopolitical tensions are unlikely to keep them from pulling back their support for the U.S. economy at a time when the job market is booming and prices are climbing rapidly, the New York Times reported. Stock indexes are swooning, and the price of key commodities — including oil and gas — have risen sharply and could continue to rise as Russia, a major producer, responds to American and European sanctions. That makes the invasion a complicated risk for the Fed: On one hand, its fallout is likely to further push up price inflation, which is already running at its fastest pace in 40 years. On the other hand, it could weigh on growth if stock prices continue to plummet and nervous consumers in Europe and the U.S. pull back from spending. The magnitude of the potential economic hit is far from certain, and for now, central bank officials have signaled that they will remain on track to raise interest rates from near-zero in a series of increases starting next month, a policy path that will make borrowing money more expensive and cool down the economy. Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during a speech today that she still expects it “will be appropriate to move the funds rate up in March and follow with further increases in the coming months.” But she noted that the invasion could inform how quickly the Fed moves over a longer time frame. “The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the U.S. will also be a consideration in determining the appropriate pace at which to remove accommodation,” Mester said. Her comments were in line with those many of her colleagues have made this week, including on Thursday following the invasion: Central bankers are monitoring the situation, but with inflation rapid and likely to head higher yet, they are not preparing to cancel their plans to pull back economic support.

ASM Session Spotlight: Texas Two-Step of Tort Liability​​​

Over the past decade, companies burdened with significant asbestos and other tort liability have utilized the so-called “Texas Two-Step” strategy to separate those tort liabilities from core assets and resolve them through the chapter 11 bankruptcy process. A special session at ABI's Annual Spring Meeting, set for April 28-30 in Washington, D.C., will cover isolating liabilities to preserve ongoing value with mass torts and corporate side changes, and subsequent bankruptcy issues, including venue, ongoing operations, valuations and third-party releases. Featured speakers include Gregory M. Gordon of Jones Day (Dallas), Jeffrey R. Gleit of Sullivan & Worcester (New York), Bankruptcy Judge David R. Jones (S.D. Tex.; Houston) and Natasha Tsiouris of Davis Polk & Wardwell LLP (New York). Register today for this engaging session and many more!

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