This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.
Cut Taxes or Increase Spending?
President Trump wants a payroll-tax cut in the next round of economic relief. The reaction from economists and lawmakers in both parties: nah. Mr. Trump’s basic argument—lower payroll taxes reduce the costs of hiring and retaining workers—is correct, economists say. But they add that there are more efficient ways to accomplish the same goals and warn that the coronavirus pandemic, not tax policy, is the main barrier to hiring and growth. “There’s just no scenario where the tens of millions who are on unemployment insurance right now would have jobs if it were a couple of percentage points cheaper to hire them,” said Jesse Rothstein, a professor at the University of California, Berkeley.
Much of a payroll-tax cut would go to people whose jobs and incomes aren’t in jeopardy because of the pandemic, and the policy wouldn’t directly help most unemployed Americans. Congress is considering other incentives for struggling employers and households such as a tax credit for hard-hit businesses and a second round of stimulus checks, Richard Rubin reports.
Podcast: Why a payroll tax cut is unpopular in Congress. Listen here.
WHAT TO WATCH TODAY
U.S. existing-home sales for June are expected to jump to an annual pace of 4.73 million from 3.91 million a month earlier. (10 a.m. ET)
TOP STORIES
Coronavirus Briefings Return
President Trump warned that the coronavirus pandemic in the U.S. is likely to worsen and urged Americans to wear masks. Speaking from the White House in his first coronavirus briefing in several months, Mr. Trump largely kept to scripted remarks, stressing the administration’s actions on testing and respirators, while urging Americans to take precautions, including asking young people to stay out of crowded bars and wear face coverings, Catherine Lucey and Andrew Restuccia report.
“Some areas of our country are doing very well. Others are doing less well. It will probably, unfortunately, get worse before it gets better.” —President Trump
Federal Reserve officials next week are set to deliberate how and when to roll out more support for a battered economy. New policy isn’t expected at the July 28-29 meeting, but deliberations could help finalize any plans that get rolled out in September or later this fall. Three items for discussion: 1.) Describing how long they plan to keep interest rates near zero. 2.) Whether to change the composition of their purchases of Treasurys and mortgage bonds toward longer-dated securities, as they did after the 2008 financial crisis. 3.) Concluding a yearlong review of the Fed’s long-run policy-setting strategy. Several officials have said they’ll be better able to decide the exact nature of their plans on the first two items once they get a clearer view of the economic outlook, which remains very uncertain, Nick Timiraos reports.
Ripple
Just when many owners of hotels in Florida, Texas, Arizona and California thought the worst of the pandemic was behind them, a surge of Covid-19 cases is spoiling any near-term recovery hopes. Demand in 12 of 13 Florida markets, gauged by the number of room nights purchased, weakened for the week that ended July 11 compared with the week that ended June 27, according to data firm STR. Overall demand was down 7.4% in Florida for the period. In Arizona, demand fell 9.9% and it was down in Texas, too, said the data firm, which compared the last week in June with the second week in July to exclude the effect of the July 4 weekend, Peter Grant reports.
Coca-Cola’s second-quarter sales fell 28% from a year earlier as out-of-home consumption—everything from restaurants to bars to movie theaters and sports stadiums—plummeted. But the beverage giant said it believes the biggest challenges of the pandemic are behind it. China, Southeast Asia and Western Europe have done a “pretty good job in managing the worst stages of the pandemic” and sales there should continue to improve, Coke’s finance chief, John Murphy, told the WSJ’s Jennifer Maloney. “Here in the U.S., we’re seeing a spike in a number of places but the degree of lockdown is not nearly what it was.”
United Airlines said it will trim more flying this quarter in response to stalling demand while cost-cutting efforts will reduce how much cash it burns moving into the fall. The Chicago-based airline on Tuesday reported a quarterly loss of about $1.6 billion and said it plans to fly 35% of its normal schedule in the three months through September, Doug Cameron reports.
The parent company of Men’s Wearhouse and Jos. A. Bank menswear stores said it is considering closing as many as 500 retail locations, or more than a third of its total, as it grapples with reduced demand during the Covid-19 pandemic. Tailored Brands also said it will lay off 20% of its corporate staff and reduce its supply-chain footprint, Matt Grossman reports.
Times Like These
China’s president pledged to keep strengthening the country’s domestic market while further opening it to foreign investors, signaling his willingness to bolster economic ties at a time of rising international tensions. Xi Jinping’s remarks come as confrontation has been increasing between Beijing and the West, as more countries follow the U.S. lead in limiting Chinese companies’ presence in their markets, Trefor Moss reports.
The U.S. ordered the abrupt closure of its consulate in Houston, a dramatic escalation in bilateral tensions that Beijing condemned as outrageous and unprecedented.
The U.S. added 11 Chinese companies to a trade blacklist, a move that entangles major brands and will likely further a reordering of supply chains that feed American consumers. U.S. authorities said the suppliers are linked to human-rights abuses of the Uighur minority group.
The rivalry between the U.S. and China is expanding to space. Both countries are preparing to send spacecraft to Mars. China’s first mission to another planet is set to blast off this week. The U.S. mission is due to launch July 30. The head-to-head Mars missions are the latest sign that China is ready to challenge the U.S. in space exploration, in recent decades an American preserve.
WHAT ELSE WE’RE READING
One unintended consequence of coronavirus-related lockdowns: a rise in domestic violence. “While lockdowns may be an effective way of controlling disease spread, they also come with costs. Our study highlights that the lockdowns also caused a ‘Shadow Pandemic’ in which violence against women increased at home and on online platforms. However, a silver lining is the temporary decrease in rape and sexual harassment, highlighting the heterogeneity of impacts of one policy on various outcomes related to violence against women,” UCLA’s Saravana Ravindran and Manisha Shah write in a working paper.
SIGN UP FOR OUR CALENDAR
Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.
