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Three Federal Reserve policymakers said yesterday that a resurgence in coronavirus cases is slowing the economic recovery and the pandemic will continue to weigh on the U.S. economy and American life for longer than initially expected, Reuters reported. The U.S. economy began to grow in May and June after taking a monumental hit beginning in March. But growth stalled in July as infections spiked in some parts of the country, leading to fresh restrictions, U.S. central bankers said. “The issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting,” said Robert Kaplan, the Dallas Federal Reserve Bank president. The increase in infections has raised the downside risks to the economic outlook and suggests the reopening of the U.S. economy may be more protracted than many initially anticipated, said Cleveland Fed President Loretta Mester. While U.S. economic growth slowed in July, it could pick up in the third quarter and reach pre-pandemic levels by the end of next year, Federal Reserve Vice Chairman Richard Clarida said. “It will take some time, I believe, before we get back to the level of activity that we were in February before the pandemic hit,” Clarida said. Clarida said his personal forecast for the economy hasn’t changed because of the recent resurgence of the virus in the United States, since the economic momentum from May through early July was stronger than he expected. He also expects support from another fiscal package should even things out.

Small businesses that have filed for bankruptcy, or nearing that step, might get their own shot at a Small Business Administration Paycheck Protection Program loan under a stimulus provision being debated in Congress, the Washington Business Journal reported. The proposal, filed as part of broader stimulus measures last week by Sens. Marco Rubio (R-Fla.) and Susan Collins (R-Maine) would allow the SBA administrator to open the forgivable loan program to companies that are, or plan to be, in bankruptcy proceedings — a category of businesses that the SBA had initially shut out of the PPP. The bankruptcy court must agree to grant these businesses a PPP loan, which would then receive a “super priority” designation to ensure the SBA would be paid back for any unforgiven portions, according to the proposal. The move could open up the PPP to thousands or more companies mired in the bankruptcy process as the coronavirus pandemic drags on and local economies struggle to reopen. The CARES Act, which created the PPP when it was passed in late March, was silent on the issue of awarding loans to those in bankruptcy, said Eric Holland, a partner at law firm Reed Smith LLP. But SBA regulations for the program barred companies from getting a PPP loan while in bankruptcy, or even if they were planning to declare bankruptcy in the near future — and that put stress on business owners genuinely uncertain about their company’s future or fearful that they may eventually need to head down the bankruptcy path, Holland said. The SBA's prohibition was modeled after its traditional lending programs, one of several such rules it applied to the PPP that block certain businesses from participating, including chambers of commerce and adult-oriented businesses. That has made the SBA the target of a series of lawsuits, and Holland said courts have been split on whether companies in bankruptcy should be allowed to participate in the PPP. Read more.

In related news, a group of more than 170 trade associations is urging Congress to allow businesses to get tax deductions for expenses associated with loan forgiveness under the Paycheck Protection Program (PPP), The Hill reported. "As part of the next round of COVID19 relief, we request that Congress reaffirm its intent and restore the tax benefits it intended to give distressed Main Street businesses as part of the CARES Act," the groups wrote in a letter this week to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.). Groups that signed the letter include the American Farm Bureau Federation, American Institute of CPAs, the National Retail Federation and the National Association of Home Builders. Under the PPP, created by legislation President Trump signed in late March called the CARES Act, small businesses can get loans that are forgivable if the proceeds are used for payroll, rent, mortgage interest and utilities. The CARES Act specified that forgiveness of PPP loans is not taxable income. The IRS in April issued guidance stating that expenses are not deductible if payment of the expenses results in a PPP loan being forgiven. The guidance has been criticized by some key lawmakers on both sides of the aisle, who argue it goes against congressional intent. But Treasury Secretary Steven Mnuchin has defended the guidance, saying that businesses can't "double dip." The industry groups pushed back on the argument made by supporters of the IRS guidance. Read more. 

U.S. Treasury Secretary Steven Mnuchin said the White House and Democrats aim to strike a deal on virus-relief legislation by the end of the week — even though the two sides remain far apart on some key issues, Bloomberg News reported. “We’re not at the point of being close to a deal, but we did try to agree to set a timeline,” Mnuchin said after meeting yesterday with House Speaker Nancy Pelosi (D-Calif.) and Senate Democratic leader Chuck Schumer (D-N.Y.). “We’re going to try to reach an overall agreement, if we can get one, by the end of this week — so that legislation could then pass next week.” Pelosi said yesterday that she also hoped a deal could be reached this week, with legislation drafted and passed next week. “We have to have an agreement And we will have an agreement,” she said. Mnuchin and White House Chief of Staff Mark Meadows said that Republicans would agree to a moratorium on evictions through the end of the year, and made an offer on supplemental unemployment insurance, one of the main sticking points in the negotiations. Earlier in the day, many lawmakers said they were skeptical that a deal could be in hand by Friday. Even if that were achieved, a vote likely wouldn’t be taken by the House and Senate until next week, meaning there would be a gap in the unemployment payments, which ran out last Friday.

Department stores were once on the leading edge of retailing — big, exciting places to shop, where consumers could find everything from the latest toaster to an evening dress and matching shoes. Now, they are fighting for their lives, the Wall Street Journal reported. In May, J.C. Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc. filed for bankruptcy, adding to the list of chains that have shrunk or disappeared in recent years. Saving the department store — or at least salvaging it — isn’t impossible, but doing so will require a radical rethink of how stores operate and relate to shoppers, say veteran retail executives. It would be easy to blame the rise of fast fashion, off-price chains like T.J. Maxx, the internet and, most recently, the COVID-19 pandemic for the demise of department stores. But rivals in Europe and Japan are healthier, even with those factors in play. In the U.K., Harrods and Selfridges are renowned for their food halls, which provide a sensory experience not replicated online. In Japan, the department store Nihombashi Mitsukoshi has hosted exhibits where artisans make ceramics, weave fabrics and practice other traditional crafts, creating a sense of theater. “The U.S. players haven’t been able to replicate the same type of excitement and pizzazz,” said Craig Johnson, president of consulting firm Customer Growth Partners. “U.S. department stores are too stale and slow.” Former industry executives date the problems to the 1980s, when a series of mergers and overexpansion led to bloat. “The focus became more about how to take care of the corporate office, not the customer,” said Allen Questrom, the former CEO of Neiman Marcus, Barneys New York Inc., J.C. Penney and Federated Department Stores Inc., which later became Macy’s Inc.

A study from the Federal Reserve Bank of New York said that black small businesses have been harder hit by the COVID-19 pandemic than those owned by members of other racial groups, The Hill reported. "Black firms have been almost twice as likely to shutter as small firms overall," a brief by the bank's Assistant Vice President Claire Kramer Mills and senior analyst Jessica Battisto said. While small businesses are reeling across the board, the study noted, with a 22 percent drop in the number of small-business owners overall, Black business owners faced greater drops, with the Fed seeing 41 percent fewer of them. Thirty-two percent of Latinx-owned businesses have shuttered, followed by 26 percent of Asian-owned businesses. The drop in white business owners was 17 percent. Part of the reason is simply geography. Black communities tend to be more concentrated in cities, and cities have been harder hit by the virus than rural areas. "An under-appreciated point, underscored here, is the close ties between the health and economic effects of COVID-19 in specific communities: counties with the highest concentration of COVID-19 are also the areas with the highest concentration of Black businesses and networks," the authors wrote. But other factors played a part as well, included limited access to government relief programs such as the Paycheck Protection Program, and less access to finance and banking to begin with.

President Donald Trump said yesterday that he may take executive action to impose a moratorium on evictions and to enact a payroll tax holiday, with talks on a new virus-relief plan making slow progress in Congress, Bloomberg News reported. The White House is also exploring whether the president can act on his own to extend enhanced unemployment insurance payments that, like an eviction moratorium, were part of stimulus legislation enacted in March but now have expired. Later, Trump told reporters that he’s discussing suspending payroll taxes through an executive action. Trump spoke while Treasury Secretary Steven Mnuchin and Trump’s chief of staff, Mark Meadows, met at the Capitol with House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer. Both sides said after the two-hour meeting that they made some progress, and would convene again on today. “It was productive, we are moving down the track,” Pelosi said, adding that “we still have our differences.” The two sides are trying to close the gap between the $3.5 trillion Democratic plan passed by the House in May and the $1 trillion package of aid that Senate Republicans introduced last week.

The chairman of the Senate Banking Committee is calling on federal agencies to extend economic relief measures that Congress established in March, as lawmakers and the Trump administration struggle to reach a deal on the next round of aid, Politico reported. In a letter to housing and bank regulators, Senate Banking Chair Mike Crapo (R-Idaho) urged the officials to use their existing authority to continue eviction protections and looser lending rules — in effect doing an end run around Congress. "Although there are already early, encouraging signs that the U.S. economy is beginning to heal, federal financial regulators must remain diligent, and continue to provide relief in light of a pandemic and economic conditions that continue to evolve," he said in the letter sent Friday. Crapo sent the letter to leaders of the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., National Credit Union Administration, Department of Housing and Urban Development and the Federal Housing Finance Agency. The nature of the request suggests that Crapo believes that lawmakers might not be able to address the measures in the near future. The letter gives the agencies additional cover to take matters into their own hands. Eviction protections that Congress passed in March expired on July 24.

Every week seems to bring another round of retail bankruptcies. With conditions worsening, the numbers are likely to keep climbing, Bloomberg News reported. Over the weekend, Tailored Brands Inc. — the owner of Men’s Wearhouse and JoS. A. Bank — and department store Lord & Taylor filed for chapter 11. The Canadian unit of Chico’s FAS Inc. declared bankruptcy on July 31. The previous week, it was Ann Taylor and Lane Bryant parent Ascena Retail Group Inc. At least 25 major retailers have now filed for bankruptcy this year, with 10 of these coming over the last five weeks. The steady drumbeat of bankruptcies goes back to mid-March, when the lockdown of non-essential retailers began in an attempt to halt the spread of COVID-19. The U.S. economy has now largely reopened, but this hasn’t provided relief to the battered industry, which has taken on more leverage in the battle to survive. “The common denominator is debt,” said Simeon Siegel, an analyst at BMO Capital Markets. “At this point, now everyone has debt. Everyone took on massive amounts of liquidity.” With the U.S. seeing a resurgence of COVID-19, retailers are now flying blind into the year’s most vital shopping months. Companies have to juggle decisions on cost cutting, store closures and merchandise without having a clear picture of where consumer demand will be or how bad economic conditions will get. Apparel sales were down about 30 percent in June, even as overall U.S. retail sales have picked up this summer, according to Panjiva, the supply chain research unit of S&P Global Market Intelligence. As many as 25,000 stores are expected to close in the U.S. in 2020, mostly in shopping malls, according to Coresight Research. Department stores and fashion boutiques are seen as the most endangered.

The survival of J.C. Penney Co Inc hangs on whether the department store chain can reach a complex deal within days to sell itself to an alliance of retail mavens and distressed-debt investors, Reuters reported. The 118-year-old retailer blew through a Friday deadline from lenders to sort through bids that would take the company out of bankruptcy proceedings that were commenced in May after the pandemic forced it to temporarily close all its 846 stores. The Plano, Texas-based company, already facing concerns from U.S. Bankruptcy Judge David Jones that its restructuring is not moving fast enough, is racing to reach agreement on a sale that would carve the retailer into three pieces. The company is hoping to file court papers as soon as this week disclosing details of a deal, though the timing could slip. J.C. Penney has lost money for years, grappling with consumers shifting to online shopping and competition from discount retailers. It is among a cascade of retailers undone by the pandemic, including Brooks Brothers and Lucky Brand Dungarees, now attempting to withstand unprecedented economic turmoil and stay in business through bankruptcy sales. Some J.C. Penney vendors are demanding cash-on-delivery before shipping merchandise, the person familiar with the matter said, an onerous term for a retailer with strained finances accustomed to paying for goods later.