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The U.S. economy struggled to shake off the last recession, with historically slow growth and a labor market that took more than six years to recover its earlier employment levels. A big part of the reason: state and local governments, which cut spending and fired workers amid widespread budget shortfalls, the New York Times reported. The same dynamic poses one of the biggest threats to America’s recovery from the pandemic downturn. State governments are again experiencing extreme budget problems as they pay out increasing sums to cover unemployment and health costs caused by the coronavirus crisis while revenues from sales taxes and corporate and personal income tax payments plummet. States could face a gap of at least $555 billion through the 2022 fiscal year, according to one estimate. Economists warn that the long-term risk coming from struggling states could prove even more damaging this time than the recession of 2007-9 unless Congress steps in. Yet providing more aid to state and local governments has become one of the biggest political battles in the fight over another pandemic rescue package. The Senate formally adjourned on Thursday until early September, all but ending any chance that an agreement could be reached soon. House members had already left Washington, D.C. President Trump and top Republicans, including Senate Majority Leader Mitch McConnell (R-Ky.), warn that providing more money to states could simply bail out fiscally irresponsible governments that did not manage their budgets and their public pension plans prudently in good times. Treasury Secretary Steven Mnuchin said Wednesday in a television interview that most states had not exhausted the $150 billion that was allocated in the relief bill passed in March, though analysts say much of that has already been earmarked for certain projects. Democrats insist that states need more money and have proposed as much as $1 trillion, saying it would support needed services and help the economy recover more quickly. While many governments entered the downturn with solid tax revenues and billions of dollars in their rainy-day funds, those coffers are quickly dwindling. Nearly all states are required to balance their budgets, meaning officials will need to plug shortfalls by tapping rainy-day funds, raising taxes or cutting costs, including jobs. That worries economists and Federal Reserve officials. Jerome H. Powell, the Fed chair, regularly warns that state job cuts could weigh on the economy’s ability to recover, and his colleagues warn of public-sector budget pain as one of the primary vulnerabilities ahead.

Efforts to root out scammers in the $670 billion Paycheck Protection Program and $374 billion Economic Injury Disaster Loan program are sweeping up legitimate borrowers, the Wall Street Journal reported. Business owners have had their loan funds frozen, often along with their personal bank accounts, after tripping alarms meant to prevent fraud. More than seven million loans have been made under both federal programs, which aim to blunt the economic impacts of business lockdowns and stay-at-home orders. The loans are either provided by or guaranteed by the government, and most are eligible for forgiveness under certain circumstances. A pot of money that big was always going to attract scammers. Lenders have reported to the government more than 5,000 instances of suspected fraud in the EIDL program. The PPP approved loans so quickly and lacked strong enough safeguards that there was a “significant risk” that some people likely got loans who shouldn’t have, the Government Accountability Office warned in June. The Justice Department has charged at least 50 people with fraudulently obtaining loans, including two who allegedly used the money to buy Lamborghinis. But the dragnet has also snared lawful companies. Nick Oberheiden, a Dallas-based lawyer, said he has heard from hundreds of small-business owners whose bank accounts were frozen after receiving government loans. Some were subsequently contacted by the Federal Bureau of Investigation or Secret Service, an arm of the Department of Homeland Security.

An overwhelming majority of economists surveyed this month by the Wall Street Journal said that the economic benefits of additional jobless benefits to help laid-off workers outweighed concern that the extra payments could deter people from going back to work. About 82 percent of economists in the Journal’s survey said that they agreed more with the idea that the extra cash boosted the economy than the idea that it held back the labor market’s recovery. Many of them said that the benefits should be extended to support the recovery. President Trump on Saturday signed an executive action to provide an extra $300 a week in federally funded jobless benefits, a short-term solution to keep some of the money flowing while Congress and the White House continue to negotiate over a larger stimulus package. Republicans and Democrats have been at odds over the size of the extra benefit. Democrats favor keeping the payments at an extra $600 a week, which were in place April through July as part of an earlier stimulus plan. Republicans favor a smaller figure, in part because many workers were receiving more in jobless benefits than they were earning in their prior jobs. Without an extension of benefits, “there will be an air pocket in the economy” in the third quarter, said Joe Brusuelas, chief economist at RSM US. Many economists said the extra payments both boosted spending and partly inhibited people from going back to work. But they indicated that the positive effect on the economy from the added spending was stronger than the negative consequences of keeping people out of the labor force.

Casual dining chains were already facing challenges before COVID-19, hurt by the rise of fast-casual competition and increased food costs. Now, several of the largest restaurant companies in the U.S. are struggling with capacity restrictions on indoor dining and attempting to lure customers with takeout in a bid to avoid financial disaster, USA Today reported. The owners of chains like Outback Steakhouse, Applebee’s and The Cheesecake Factory are on a newly updated list of national restaurants that are facing the highest likelihood of not paying back their debts. When companies default on loans, they are often forced to file for bankruptcy protection, close locations or occasionally liquidate. One chain, California Pizza Kitchen, has already filed for chapter 11 protection, with plans to close some locations. While the nation’s largest publicly traded restaurants face a less than 1 in 5 chance of defaulting in the next year, according to the new report by S&P Global Market Intelligence, they remain in perilous terrain. Analysts are particularly concerned about the coming winter, which will eliminate outdoor seating options for many restaurants, and the demise of the extra $600 in unemployment benefits that had been available for jobless Americans. Congress is debating whether to extend those benefits. “The odds that the largest publicly traded U.S. restaurants will default fell in recent months as states allowed businesses closed by the coronavirus pandemic to reopen,” S&P says in the new report. “But the ongoing financial hits from the virus and uncertainty over whether laid-off consumers will receive expanded unemployment benefits continue to pressure the industry as more companies enter bankruptcy.”

Commerce Department data released today showed that U.S. retail sales increased 1.2 percent from the prior month after an upwardly revised 8.4 percent gain in June, Bloomberg News reported. The total value of retail sales was above pre-pandemic levels, and July purchases were up 2.7 percent from a year earlier, indicating one major part of the economy has returned to near its previous trend. The slowdown, compared with June, reflected declines in sales of motor vehicles and building materials, along with weaker gains at restaurants and clothing stores. The report is in line with previous high-frequency data that suggested the economic rebound largely stalled in July. The so-called “control group” subset of sales, which excludes food services, car dealers, building-materials stores and gasoline stations -- and is sometimes seen as a better gauge of underlying trends -- rose 1.4 percent from the prior month, more than analysts projected. The retail sales report showed nine of 13 major categories rose, with the biggest increase coming at electronics and appliance stores. Such sales jumped 22.9 percent following a 37.6 percent gain in June.

Alaska's largest rural airline filed a motion in a Delaware bankruptcy court yesterday requesting approval to issue as much as a quarter of a million dollars to current and former employees as the company sells its assets, The Hill reported. RavnAir Group in a court filing justified the proposed bonuses by noting that sale of the company's assets is expected to bring in $55 million, far more than was previously expected, and pointed to the work the current and former executives had done to complete the sale. The company's current CEO, Dave Pflieger, is among those listed to receive bonus money, but it was unclear how much he could get. The airline wants to split $250,000 in proposed bonus money between Pflieger and other employees. If approved, the bonuses would come even as the executives have faced questions as to why some of the airline's larger aircraft were sold to a California-based company at a lower price than was being offered by some competitors.

Mark Frissora, the former chairman and chief executive officer of Hertz Global Holdings Inc., will return nearly $2 million in incentive-based compensation to settle a U.S. regulator’s claims that he played a key role in causing the now-bankrupt car-rental company to file inaccurate financial statements in 2013, Bloomberg News reported. Frissora pressured subordinates to “find money,” mainly by re-analyzing reserve accounts, as Hertz’s financial results fell short of forecasts in 2013, the Securities and Exchange Commission said in a statement Thursday. He also kept older cars in the company’s rental fleet longer to lower depreciation costs without disclosing the change to investors, the SEC said. Hertz reaffirmed earnings guidance in November 2013 despite internal projections that showed lower earnings per share figures, according to the SEC. The company then revised the results in 2014 and restated them in 2015, cutting previously reported pretax income by $235 million, the SEC said. Hertz agreed to pay $16 million to resolve SEC claims over the misstatements. Frissora, who agreed to settle without admitting or denying the SEC’s claims, will pay a $200,000 fine in addition to returning nearly $2 million in incentive-based pay. He left Hertz in September 2014 after investors pushed for his removal and went on to serve as president of Caesars Entertainment Corp. for four years through April 2019. Hertz, which filed for bankruptcy in May, said earlier this week that it is seeking debtor-in-possession financing. That came after the SEC raised questions about a plan to issue as much as $500 million of equity, forcing Hertz to terminate the offering after raising just $29 million from investors.

AMC Theatres, the nation’s largest movie theater chain, will reopen in the U.S. on Aug. 20 with retro ticket prices of 15 cents per movie, the Associated Press reported. AMC Entertainment, which owns the chain, said yesterday that it expects to open the doors to more than 100 cinemas — or about a sixth of its nationwide locations — on Aug. 20 with throwback pricing for a day. AMC theaters have reopened in numerous international countries but have remained shuttered in the U.S. since March. The chain touted the reopening as “Movies in 2020 at 1920 Prices.” After several false starts due to a summer rise in coronavirus cases throughout much of the U.S., widespread moviegoing is currently set to resume in late August. Regal Cinemas, the second largest chain, is to reopen some U.S. locations on Aug. 21.

Mexican carrier Aeromexico, which filed for chapter 11 protection in the United States at the end of June, said yesterday that it has lined up $1 billion in debtor-in-possession financing with Apollo Global Management Inc., Reuters reported. The DIP facility consists of two tranches and can only be used for certain expenses, including working capital expenses, general corporate purposes and restructuring costs. The DIP facility, still subject to bankruptcy court approval and other agreements, will provide Aeromexico with liquidity to meet its future obligations in a timely and orderly fashion, and to continue with operations during and after the restructuring process, the firm said.