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U.S. Jobless Claims Top 5.2 Million, Erasing Decade of Job Gains

ABI Bankruptcy Brief

April 16, 2020

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

U.S. Jobless Claims Top 5.2 Million, Erasing Decade of Job Gains

More than 5 million Americans filed for unemployment benefits last week, bringing the total in the month since the coronavirus pandemic throttled the U.S. economy to 22 million and effectively erasing a decade of job creation, Bloomberg News reported. Initial jobless claims of 5.25 million in the week ended April 11 followed 6.62 million the prior week, according to Labor Department figures today. The four-week sum compares with roughly 21.5 million jobs added during the expansion that began in mid-2009. The latest figures suggest an unemployment rate currently around at least 17% -- far above the 10% reached in the wake of the recession that ended in 2009 -- in a sign that the effects of shutdowns have spread well beyond an initial wave of restaurants, hotels and other businesses. Another reason for elevated claims is that Americans are getting through on outdated or overwhelmed systems after previously being stymied. Continuing claims, or the total number of Americans receiving unemployment benefits, jumped by 4.53 million to a record 12 million in the week ended April 4. Those figures are reported with a one-week lag.

Some Banks Keep Customers’ Stimulus Checks if Accounts Are Overdrawn

For some struggling Americans, the arrival of a deposit from the Treasury Department to help with basic expenses like rent and groceries during the coronavirus crisis was something to count on — until their financial institutions got in the way, the New York Times reported. The phenomenon is swiftly becoming a political issue, with Treasury Secretary Steven Mnuchin fielding calls from senators urging him to ensure that CARES Act relief money isn’t garnished. Banks are legally allowed to withhold funds that go into accounts that have negative balances, and no specific provision in the CARES Act, the $2 trillion relief package that authorized the stimulus payments, prevents banks from taking customers’ stimulus money to cover debts. The government checks are meant to cushion the pandemic’s financial blow to some of the hardest-hit Americans. Anyone who earns up to $75,000 in adjusted gross annual income and has a Social Security number will receive $1,200. Married couples who file joint tax returns will receive $2,400 if their adjusted gross income is under $150,000. The amount declines for those who make more. Several politicians are calling for banks to stop garnishing stimulus payments. On Wednesday, Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) implored the head of a bank trade group to tell its members to halt the practice. “For weeks, we have pressed the Treasury Department to exercise its authority and ensure that Americans receive the full amount of their stimulus payments,” the senators wrote in a letter to Rob Nichols, the chief executive of the American Bankers Association. “While Treasury has refused to follow congressional intent, that does not give banks license to steal the stimulus payments from their customers.” By contrast, the CARES Act specifically prohibits garnishing stimulus money for state or federal debts, except for court-mandated child support.



 

Despite Federal Ban, Landlords Are Still Moving to Evict People During the Pandemic

Landlords in at least four states have violated the eviction ban passed by Congress last month, a review of records shows, moving to throw more than 100 people out of their homes, ProPublica.org reported. In an effort to help renters amid the coronavirus pandemic and skyrocketing unemployment, the March 27 CARES Act banned eviction filings for all federally backed rental units nationwide, more than a quarter of the total. But ProPublica found building owners who are simply not following the law, with no apparent consequence, filing to evict tenants from properties in Georgia, Oklahoma, Texas and Florida. The scores of cases ProPublica found represent only a small slice of the true total because there’s no nationwide — or, in many cases, even statewide — database of eviction filings. Four landlords said they were reversing eviction filings after being contacted by ProPublica and informed the filings were illegal. National real estate trade groups, however, are already lobbying to limit the scope of the ban. The recent eviction filings underscore Congress’s failure to include an enforcement mechanism in the law, as well as the complexity of the ban, which only applies to certain categories of properties. “There’s nothing in the bill that seems to create a clear penalty for violating the new law,” said Dan Immergluck, an urban studies professor at Georgia State University in Atlanta. He added it’s not clear that landlords even know about the ban.


 

‘Pretty Catastrophic’ Month for Retailers, Now in a Race to Survive

Retail sales plunged in March, offering a grim snapshot of the coronavirus outbreak’s effect on consumer spending, as businesses shuttered from coast to coast and wary shoppers restricted their spending, the New York Times reported. Total sales, which include retail purchases in stores and online as well as money spent at bars and restaurants, fell 8.7 percent from the previous month, the Commerce Department said Wednesday. The decline was by far the largest in the nearly three decades the government has tracked the data. Even that bleak figure doesn’t capture the full impact of the sudden economic freeze on the retail industry. Most states didn’t shut down nonessential businesses until late March or early April, meaning data for the current month could be worse still. When demand does rebound, it might come too late for some retailers, many of which were struggling even before the pandemic because of changes in mall traffic and a long-term shift to online sales. “Pent-up demand is what drives recoveries, and the good news there is we will come out of this with some degree of pent-up demand,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. She added, however, that there are “a lot of caveats.” Apparel retailers, in particular, seem to be preparing for a substantial amount of destroyed demand. Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology, said she had spoken with retailers who were preparing for holiday sales to be 40 percent lower than last year.

Measures to Control Coronavirus Weigh on U.S. Homebuilding

U.S. homebuilding fell by the most in 36 years in March amid a broad decline in activity, offering further evidence that the economy is buckling under the weight of drastic measures to control the spread of the novel coronavirus, Reuters reported. Housing starts plunged 22.3% to a seasonally adjusted annual rate of 1.216 million units last month, the Commerce Department said on Thursday. That was the largest monthly decline in starts since March 1984. Data for February was revised downward to show homebuilding decreasing to a pace of 1.564 million units rather than the 1.599 million units previously reported. Homebuilding declined in all four regions last month.

Commentary: Rethinking the World Economy as We Know It

As the world economy is an infinitely complicated web of interconnections, it shows what is unnerving about the economic calamity accompanying the spread of the novel coronavirus. In the years ahead, we will learn what happens when that web is torn apart, when millions of those links are destroyed all at once, according to a commentary in the New York Times. And it opens the possibility of a global economy completely different from the one that has prevailed in recent decades. It would be foolish, amid such uncertainty, to make overly confident predictions about how the world economic order will look in five years, or even in five months, according to the commentary. But one lesson of these episodes of economic tumult is that those surprising ripple effects tend to result from longstanding unaddressed frailties. One obvious candidate is globalization, in which companies can move production wherever it’s most efficient, people can hop on a plane and go nearly anywhere, and money can flow to wherever it will be put to its highest use. The idea of a world economy with the United States at its center was already falling apart, between the rise of China and America’s own turn toward nationalism. “There will be a rethink of how much any country wants to be reliant on any other country,” said Elizabeth Economy, a senior fellow at the Council on Foreign Relations. “I don’t think fundamentally this is the end of globalization. But this does accelerate the type of thinking that has been going on in the Trump administration, that there are critical technologies, critical resources, reserve manufacturing capacity that we want here in the U.S. in case of crisis.” Even before the coronavirus hit, the limits of globalization were becoming clearer. Trade as a share of global GDP peaked in 2008 and has trended lower ever since. The election of President Trump and the onset of a trade war with China had already made multinational companies start to rethink their operations. “I think companies are actively talking about resilience,” said Susan Lund, a partner at McKinsey who studies global interconnectedness. “To what extent would companies be willing to sacrifice quarter-to-quarter efficiency for resilience over the long term, whether that’s natural disasters, the climate crisis, pandemics or other shocks?”

ABI's GlobalInsolvency Webpage Features Global Responses to Limit the Economic Impact of COVID-19 Pandemic

Learn about the ongoing measures being taken around the world to limit the economic impact of the COVID-19 pandemic. GlobalInsolvency members have compiled insights into fiscal, monetary & macro financial, health policy and global cooperation/international assistance measures undertaken to date. Click here to view the COVID-19 Global Response page.

abiLIVE Webinar on April 29 to Examine Trading in the Secondary Markets in the Current Environment

Amid the financial crisis due to the COVID-19 coronavirus, when is a trade (whether it is bank debt, bond debt or bankruptcy trade claim) a trade? When are they considered broken, despite industry standards and practices? Listen to a panel of experts explore the answers to these questions and more on an abiLIVE webinar hosted by ABI's Claim's Trading Committee on April 29. Register for FREE!
 

Replays Available for Recent abiLIVE Webinars on the CARES Act, SBRA, Consumer Relief and Preferences

ABI hosted a series of webinars last week looking at the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) and the Small Business Reorganization Act of 2019, which went into effect on Feb. 19. The programs featured expert speakers looking at how the laws created greater access to financial relief for consumers and small businesses seeking bankruptcy. Former House Speaker John A. Boehner joined a panel to examine tools to navigate the financial crisis related to COVID-19. Be sure to use your ABI member login on the http://cle.abi.org site to access the replay and materials.
 
"The Small Business Reorganization Act: How It Helps in Today’s Health & Economic Crisis"
Panelists: Bankruptcy Judge Madeleine C. Wanslee (D. Ariz., Phoenix), Robert J. Keach of Bernstein Shur (Portland, Maine) and Attorney Allan D. NewDelman (Phoenix), moderated by ABI Editor-at-Large Bill Rochelle.
Click here for the video and materials.
 
"Tools to Navigate the Financial Crisis Related to COVID-19"
Panelists: Former U.S. House Speaker John A. Boehner of  Squire Patton Boggs (Washington, D.C.), Karol Denniston of Squire Patton Boggs (San Francisco), Michael C. Eisenband of FTI Consulting (New York), Brian Kennedy of FTI Consulting (Washington, D.C.) and Ed J. Newberry of Squire Patton Boggs (Washington, D.C.), moderated by Stephen Lerner of Squire Patton Boggs (Cincinnati, Ohio).
Click here for the video and materials.
 
"The Consumer Provisions of the CARES ACT, and Local Court Responses to the Pandemic"
Speakers: Bankruptcy Judge Tracey N. Wise (E.D. Ky.; Lexington), Attorney Eric Goering (Cincinnati), Prof. Robert M. Lawless of the University of Illinois (Champaign, Ill.) and Reporter for the ABI Commission on Consumer Bankruptcy, and Michael J. McCormick of McCalla Raymer (Atlanta), moderated by David P. Leibowitz of Lakelaw (Chicago).
Click here for the video and materials.
 
"Preference Update: SBRA’s Due Diligence Requirement" 
Speakers: Timothy J. McKeon of Mintz Levin (Boston), Bankruptcy Judge Jerrold N. Poslusny (D. N.J.; Camden), Shane G. Ramsey of Nelson Mullins (Nashville, Tenn.) and Bethany J. Rubis of ASK LLP (Saint Paul, Minn.).
Click here for the video and materials.
 

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: CFPB Finalizes HMDA Rule that Gives Reg Relief to Banks

The move is part of an effort by CFPB Director Kathy Kraninger to help smaller lenders by significantly raising loan thresholds for collecting and reporting mortgage data, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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