U.S. Weekly Jobless Claims Fall; But a Record 32.9 Million on Unemployment Benefits

U.S. Weekly Jobless Claims Fall; But a Record 32.9 Million on Unemployment Benefits

ABI Bankruptcy Brief

July 9, 2020

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

U.S. Weekly Jobless Claims Fall; But a Record 32.9 Million on Unemployment Benefits

New applications for U.S. jobless benefits fell last week, but a record 32.9 million Americans were collecting unemployment checks in the third week of June, Reuters reported. Economists cautioned against reading too much into the drop in weekly jobless claims reported by the Labor Department on Thursday, noting that the period included the July 4 Independence Day. Claims data are volatile around holidays. Large parts of the country, including densely populated states like Florida, Texas and California, are dealing with record spikes of new COVID-19 cases, which have forced a scaling back or pausing of reopenings and sent some workers home again. Initial claims for state unemployment benefits dropped 99,000 to a seasonally adjusted 1.314 million for the week ended July 4. That was the 14th straight weekly decline. The number of people receiving benefits after an initial week of aid dipped 698,000 to 18.062 million in the week ending June 27. These so-called continued claims, which are reported with a one-week lag, topped out at a record 24.912 million in early May. There were 32.9 million people receiving unemployment checks under all programs in the third week of June, up 1.411 million from the middle of the month.

White House Expects New Round of Stimulus Funds to Individuals by End of July

Treasury Secretary Steven Mnuchin said today that the Trump administration is working with the Senate to pass a new bill for coronavirus-related economic aid by the end of July, as enhanced unemployment benefits near expiration, the Wall Street Journal reported. Mnuchin said the administration supports a second round of so-called economic impact payments to households, an extension of enhanced unemployment benefits for furloughed workers, and a “much, much more targeted” version of the Paycheck Protection Program of forgivable loans for small businesses. “As soon as the Senate gets back, we’re going to sit down on a bipartisan basis with the Republicans and the Democrats, and it will be our priority to make sure between the 20th and the end of the month that we pass the next legislation,” Mnuchin said. House Democrats in May passed a $3.5 trillion bill that would extend the $600 in extra weekly unemployment payments through December, send households more stimulus checks and provide $1 trillion to state and local governments whose revenues have been hit by the pandemic. Senate Republicans have postponed deliberations on the next round of stimulus until July 20, leaving little time to reach a consensus before the unemployment supplement expires. Republican leaders have expressed concern that enhanced jobless benefits discourage people from returning to work as the economy reopens. “We knew there was a problem with the enhanced unemployment in that [in] certain cases, people were paid more than they made in their jobs,” Mnuchin said, adding that he hoped to cap the next round of benefits at 100 percent of a worker’s original income. Weekly unemployment benefits normally average less than $400 a week. Mnuchin indicated that the next round of extra benefits might be aimed at workers in industries hardest hit by the coronavirus pandemic and resulting lockdowns. (Subscription required.)

Renters Face Financial Cliff Ahead; Limited Help Available

People who rent have largely been able to survive the initial months of the pandemic helped by unemployment and federal relief checks. But the extra $600 in unemployment benefits ceases at the end of July and local eviction moratoriums are expiring, the Associated Press reported. There is no agreement between the White House and Congress on a second federal relief package. More broadly, there are fewer supports in place for renters than for homeowners. And as a jump in virus cases in numerous states nationwide adds more uncertainty to the economy and job market, many who rent are facing a precarious future. “It’s an incredibly stressful situation for renters,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a nonprofit that works directly with consumers. “I don’t know what lies in the road ahead.” Renters already faced a dire situation before the pandemic hit, said Alexander Hermann, a researcher at the Harvard Joint Center for Housing Studies. The center reported in January that vacancy rates for rentals had hit the lowest level in decades, pushing up rent far faster than income. At last count, one in four renters spent more than half their income on housing. Then came the pandemic, which hit renters particularly hard financially. U.S. Census data shows about 19% of renters were late or deferred their rent payments in May. And about 31 percent of renters surveyed in June said they have little to no confidence they will be able to pay next month’s rent.

Service Sector in U.S. Shows Signs of Recovery

U.S. services industries showed signs of recovery in June as businesses took early steps to reopen following the easing of some of the coronavirus-related lockdowns, according to two surveys of purchasing managers released on Monday, the Wall Street Journal reported. But analysts warned those gains could be undone in July as a resurgence of cases in some states leads to another shutdown of businesses. Businesses in both surveys reported last month that demand had started to stabilize and that exports were starting to pick up. The pace of job cuts slowed with some companies starting to hire again. Prices rose, another sign of renewed demand. Survey respondents also said they were increasingly optimistic about the outlook, even though overall business confidence remains subdued. An index of service activity compiled by data firm IHS Markit registered 47.9 in June, up from 37.5 in May. The reading suggests that while economic activity in the U.S. services sector continues to contract, it is doing so at a slower pace. Readings of 50 or above are a sign of expansion while readings below 50 signal contractions. A separate index compiled by the Institute for Supply Management posted 57.1 in June, the first month-over-month expansion following two straight months of contraction. The service sector, especially the hospitality and accommodation industry, was hard-hit by the shutdowns this spring. Private service employers shed 17.4 million jobs in April before clawing back 2.5 million in May and another 4.3 million June, according to the Labor Department. (Subscription required.)

Consumer Borrowing in May Decreased for Third Consecutive Month Amid Pandemic

U.S. consumers reduced their borrowing for a third-straight month in May as the millions of jobs lost because of the coronavirus pandemic made households less eager to take on new debt, the Associated Press reported. The Federal Reserve reported yesterday that consumer borrowing declined by $18.3 billion in May, a drop of 5.3 percent. Borrowing had fallen 4.5 percent in March and then plunged 20.1 percent in April. That was the biggest one-month decline in percentage terms since the end of World War II. Borrowing by consumers in the category that covers credit card debt fell $24.3 billion in May after April's record $58.2 billion decline. Borrowing in the category that covers auto loans and student debt rose $6 billion, reversing part of a $12 billion decline in April. The Trump administration is forecasting a sharp rebound in the July-September quarter but private economists are worried that the resurgence of coronavirus cases in recent weeks in many areas may put the recovery at risk. It marked the first time in a decade that overall consumer borrowing has fallen for three straight months. The declines left total borrowing at a seasonally adjusted $4.11 trillion in May.

Commentary: Apollo’s Debt-Lawsuit Defeat to Reshape Wall Street Risk Models*

When Apollo Global Management Inc. and its allies sued struggling mattress maker Serta Simmons Bedding for giving an unfair advantage to creditors providing fresh cash, many on Wall Street snickered, according to a Bloomberg commentary. But when the private equity giant and partners including Angelo Gordon & Co. lost the lawsuit, the snickering stopped. The ruling could turn the Serta Simmons transaction into a playbook for restructuring debt that undermines a central tenet of credit markets and hands distressed borrowers a source of leverage over lenders, just as the pandemic sparks a surge in showdowns between the two sides, according to the commentary. If creditors can now be pushed down the repayment pecking order without notice and have no recourse to fight back, they will be forced to reassess risk — and potentially demand higher interest rates — when granting loans and buying certain kinds of bonds. The Serta Simmons deal was “particularly aggressive,” said Elisabeth de Fontenay, a professor at Duke University School of Law and a former corporate lawyer. “You could absolutely see it being a big problem for credit markets.”



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Fed’s $600 Billion Lending Program Will See More Interest if Economy Slumps, Official Says

The Federal Reserve’s $600 billion lending program for medium-size businesses hasn’t attracted much interest yet, but that is likely to change if the U.S. economy takes a turn for the worse amid rising coronavirus cases, said the official who runs the program, the Wall Street Journal reported. “The likelihood that we continue to have serious problems with the infections means that businesses are likely to be disrupted for a longer period of time,” said Eric Rosengren, president of the Federal Reserve Bank of Boston. “So there’s an insurance element against the pandemic, as well as meeting an immediate need of some borrowers.” The Main Street Lending Program aims to lend to companies contending with the economic fallout from the pandemic, but it has struggled to get off the ground since it was announced in April. Its rollout was held up by negotiations over terms, while bankers have expressed skepticism that many borrowers that need help will be eligible to access the loans. Of the five largest U.S. banks by assets, only Bank of America Corp. has indicated that it plans to make Main Street loans available to new customers. Three others — Wells Fargo & Co., Citigroup Inc. and U.S. Bancorp. — said they plan only to serve existing customers. JPMorgan Chase & Co. didn’t say whether it planned to lend to new customers through the program. Almost 11,000 federally insured banks and credit unions could be eligible. Rosengren said that 260 lenders have completed the registration process, while another 174 are still signing up. He acknowledged that it is “going to take some time for banks and borrowers to become familiar with the program” but that he fully expects demand to pick up. (Subscription required.)

Upcoming abiLIVE Webinars Look at Evolution of Consumer Bankruptcy Practice in the COVID-19 Era, Distressed Debt Market Trends and Evolving M&A Activity

Three upcoming abiLIVE webinars present experts looking at key issues to both consumer and business bankruptcy practice:

- Sponsored by ABI's Consumer Bankruptcy Committee, the "Evolution of Consumer Bankruptcy Practice in the COVID-19 Era" abiLIVE webinar on July 17 will look at what trends for consumer bankruptcy practice have emerged during the COVID-19 pandemic and what consumer practice will look like going forward. Featured speakers include John Crane of Robertson, Anschutz, Schneid & Crane LLC (Duluth, Ga.), Jenny L. Doling of J. Doling Law, PC (Palm Desert, CA) and Charissa Potts of Freedom Law PC (Eastpointe, Mich.) with chapter 13 trustee Margaret A. Burks (Cincinnati) serving as moderator. Register here for free.

- SRS Acquiom will sponsor a special abiLIVE roundtable on Distressed Debt Market Trends on July 21. The discussion on current trends will include how we got here, what we're seeing, and how today's market compares to other distressed times. Experts will also provide their viewpoints on how COVID-19 is turning lending markets upside-down, and provide tips on how best to respond to the challenging times. Speakers include Harrison Denman of White & Case LLP (New York), Thomas Finnigan, IV, of White Oak Financial, LLC (San Francisco), Samantha Good of Kirkland & Ellis LLP (San Francisco), Renee Kuhl of SRS Acquiom (Minneapolis), Eric McDonald of SRS Acquiom (New Orleans) and Paul St. Mauro Seaport Global Securities LLC (New York). Register here for free.

- Sponsored by Prosakuer, the "Evolving Landscape of Distressed M&A Activity" abiLIVE webinar on July 22 will highlight the current challenges facing insolvency professionals working on deals in the COVID-19 world and what to expect in the coming months. Featured speakers include Harold Bordwin of Keen-Summit (New York), Jeff Marwil of Proskauer (Chicago) and Rich Morgner of Jeffries (New York). Register here for free.

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