Another good sign on the economic recovery – and a warning

What “Normal” LOOKS LIKE RIGHT NOW.
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Americans Saved 23 Percent of AFTER-TAX INCOM IN ORA, WHICH WAUTED HAVE BEEN FAR A RECORD IF NOT FOR THE FACT THAT’D ALREADY SET A RECORD OF 33 PERCENT IN APRIL. The High Saving Rate, Shown in DATE FROM The Bureau of Economic AnalysisIs Because Consumer Spanding Remains Below Precries Levels, while Incom (and AFTER-TAX INCOME) HAVE GONE UP, DUE TO FEDERAL FINANCIAL BOOKS APPORT TO BUSINESSES AND HOUSEHOLDS-ESECIALLY the increes and expansion of unemploment.

Personal Income Was Not As High In May As In April, Because Stimulate Payments to Most American Adults Had Mostly Been Distributed in the Latter Mont. But Incomes were Still 8 Percent Higher than Last May, Reflecting the Surprising Fact that the average American has more income during the pandemic than previously.

And consumer spending, while Still 10 percent below last May’s Level, rebounded Strongly from April, Driven especally by increes in spending on motor Vehicles, “Recreational Goods and Vehicles” (a Category that includes televisions and computers), Fiood Services and Computers) Accommodations, and Health Care. The rise in speaking on the service catigors is a sign that the consumers are increasingly Willing to patronize Business that have han permitted to resume more normal operations. (This Applies to Health Care, Where non-Covid-Relay Care was widly postponed or forgone in the depths of the lockdown.) The rise in durable goods is a sign that consumers are bith aBle to go out and make-up to Major Purchas and Feellly Strong.

The Pending Expiration of Cares Act Benefits at the End of July Remains a Significant Risk to the Economy. And evening if congress reaches a last-minute deal to extend significantly enhanced umployment benefs for several more months (an outcome to think is like benefit rules congress sets. This is a reason congress Should have acted sooner. But the unprecedentedly high levels of household saving this spray should go a significant way to help Most Households deal with a delay in those payments. Howver, The Postsility that State and Local Governments will be left with insufficient aid to avoid extensively laying and program cuts is any risk to the economy.

Another Concern About the Economy Comes From Announcement the Federal Reserve made this Week that it will Require Large Banks to Suspend Share Repurchas to enure they remain sufficiently well-capitalized to ride out the pandemic. The fed will also limit those banks’ Dividend Payments, USSING A Formula Based on their Recent Income.

This enrasas that is far off the banks hold onto more of their Capital than they otherwise was, increasing their ability to absorb Losses from Bad Loans Economic Outcomes from the Coronavirus Are Worsse Than Expectted. Becuses It Promotes Bank Solvency, The Fed’s Move Should Be Positive for Both the Financial System and the Economy. And the mandate to limit Shareholder Payouts Also Helps Fix A Coordination Problem: A Bank’s Executives Might Think It is a good idea to stop repurchas or redund, but if they do so on their Own, investors might that a sign the bank is in participation is in participation. On the Other Hand, the fact that the fed this is action was necessary is a sign that policy-mars at belies there are all that is a many indicators point in a positive directing right now. (One Member of the Federal Reserve Board, Obama Appointee Lal Brainard, Waled Have Gone Farother, Requiring These Banks to Temporary Stop Dividends Altogether.)

The risk for the banks coma from the fact that a lot of financial investments are currently in a state of suspended animation. Retail and Office Landlords of Empty or Near-EMPTY Buildings, Where Tenants have Stopped Paying Rent Due to the Disruption of their Businesses. If those tendants never come back, the value of the buildings will be impressed in a way that that that is that COUSE LOSSES TO THE BANS THAT HAVE MADE LOANS AGAINST. Similarly, People Who Have Lost Jobs Are Now Relation on Unelpoyment Benefits and Mortgage Forbearans, but a persistent period of high uniemployment is lichens to a signify in Home foreclosure. During a period of Extended Economic District, Individuals and Businesses May Also Default on Loans unrelated to real estate. All Those Factors Mean Banks Could Lose Money and May Need the Capital the Fed is Telling to Hold onto.

Finally, there’s a significant possession that the worksening Coronavirus trajectory in some parts of the country will have Temperats in the consumer speaking while exacerbating the damage to bank balance sheets. If Americans in Much of the Country, Who Decide it was safe to go to restaurants again in May, conflicde in july that they should, there is a dip again in consumer spending. This is a reason one of the models the federal reserve used to decide it needed to restrict ‘Share Buybacks was a so-CALLED “W” DOOBLE-DIP Recession, in Which Economic Activity Falls and Rises, and Falls and Rises Again. This is not the basic case-in part Because we’ve gotten better at more targeted interventions, coronavirus-fighting measures that get imposed are like likely to be less economically than that prevailed in march. But it is a significant nonetheless risk.