Newsletter: Soaring Debt, Big Layoffs and a Booming Stock Market

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From Liberty Bonds to Coronavirus Bills

U.S. debt has reached its highest level compared to the size of the economy since World War II and is projected to exceed it next year, the result of a giant fiscal response to the coronavirus pandemic. The Congressional Budget Office said Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output, in the fiscal year that begins on Oct. 1. That would put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece, Kate Davidson reports.

The surge in borrowing so far isn’t creating angst among investors or hampering the U.S.’s ability to borrow more. Investors have gobbled up U.S. Treasury assets, drawn to their relative safety. Moreover, interest rates are expected to remain low, suggesting the government still has plenty of room to borrow.

WHAT TO WATCH TODAY

U.S. jobless claims are expected to fall to 950,000 in the week ended Aug. 29 from 1.006 million a week earlier. (8:30 a.m. ET)

The U.S. trade deficit for July is expected to widen to $58.6 billion from $50.7 billion a month earlier. (8:30 a.m. ET)

U.S. productivity for the second quarter is expected to rise at an annualized 8.1% pace, revised from an earlier estimate of +7.3%. (8:30 a.m. ET)

IHS Markit’s U.S. services index for August is expected to tick down to 54.7 from a preliminary reading of 54.8. (9:45 a.m. ET)

The Institute for Supply Management’s U.S. services index for August is expected to fall to 57.0 from 58.1 a month earlier. (10 a.m. ET)

Bank of England Gov. Andrew Bailey discusses cryptocurrencies and stablecoins at 10 a.m. ET.

Live Q&A: Atlanta Fed President Raphael Bostic joins WSJ chief economics correspondent Nick Timiraos for a conversation on the economy and the central bank’s response to the coronavirus pandemic at 12 p.m. ET. Watch live here.

Chicago Fed President Charles Evans speaks to the Lakeshore Chamber of Commerce at 12:30 p.m. ET.

TOP STORIES

Left a Good Job in the City

Applications for unemployment benefits are expected to have eased again last week, a possible sign of a slowly improving labor market—and the impact of a new measurement method. Weekly initial claims for jobless benefits had stabilized near 1 million in recent weeks, remaining well above the highest level record before this year. Thursday’s report, however, comes with some uncertainty because it will be calculated using a new methodology to adjust for seasonal factors. The latest calculations won’t change the overall narrative: The pandemic and related shutdowns caused layoffs to soar to levels never previously recorded in data back to the 1960s, and the figure is likely to remain at levels associated with recessions in the near term, Eric Morath reports.

The Labor Department release the next jobless claims report today at 8:30 a.m. ET.

Hiring is outpacing layoffs. Despite high levels of jobless claims, economists surveyed by The Wall Street Journal expect the August employment report to show 1.3 million new jobs were created in August, a historically big gain but still a slowdown from May, June and July—and not nearly enough to make up for March and April’s losses. The report is out Friday at 8:30 a.m. ET.

One employer doing plenty of hiring: the federal government. The Census Bureau added more than a quarter million temporary workers last month to help with the decennial census. That could distort the headline jobs count. But what the federal government gives, local government could take away: Delayed school openings and virtual learning mean fewer bus drivers, custodians and other educational workers are getting hired, potentially pushing local government hiring down.

United Airlines said it plans to cut 16,370 staff as part of efforts to halve its domestic workforce amid a pandemic-driven slump in passenger demand. Overall, U.S. airlines had already shed around 50,000 jobs this year through the end of June, and in recent weeks have detailed compulsory cuts—including 19,000 at American Airlines. Carriers have spent months trying to get passengers back onto planes after the pandemic nearly halted travel in the spring. Nevertheless, travel demand has stalled at around 30% of last year’s levels. Executives believe it will take years—and likely a vaccine—for it to fully rebound, Doug Cameron reports.

Morning Consult economist John Leer says survey data show the U.S. workforce is splitting into two groups: Those with a job, who are more and more confident they’ll keep it, and those who have been furloughed or fired and are increasingly worried they’ll get locked out of the labor force altogether. “The likelihood of laid-off and furloughed workers returning to their prior employers continues to fall, and given limitations in skills and training, it will become increasingly difficult for them to find work in new industries as they did in July and August,” Mr. Leer said.

Higher Ground

A broad rally in U.S. stocks Wednesday lifted the Dow Jones Industrial Average above 29000 for the first time since February and sent the S&P 500 and Nasdaq Composite to new records. Stocks have soared from their March lows with help from the Federal Reserve, which cut interest rates and moved to stabilize financial markets, and on hopes for a vaccine or treatment for the new coronavirus. Including Wednesday, the S&P 500 has closed higher in nine of the past 10 trading days, Anna Isaac and Karen Langley report.

WHAT ELSE WE’RE READING

Everyone talks about Sweden’s approach to Covid-19. Switzerland has carved out its own path as well. “Bern has signalled it is the economy that must be the priority in the months ahead. In a sign of the wealthy Alpine state’s bullishness, rules of social gatherings will under current plans be relaxed from October to allow groups of more than 1,000 to congregate. Ministers spent the week with representatives of the tourism and hospitality sector discussing how best to boost Switzerland’s important winter holiday season. … ‘There’s been a big shift in focus. What we’re seeing now in Switzerland is people getting used to the idea of living in a risk society. We’re asking: how do we live with this?’ ” the Financial Times’ Sam Jones reports.

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