The Financial Fire Trucks of 2021

By John Mauldin

A Happy Thanksgiving weekend to all my US friends. This year was different for many of us—sometimes by choice, sometimes not. But there’s one bit of good news I think we can all share: The holiday season means 2020 is almost over. Soon, we’ll be able to turn the page.

Source: @my2cents_on via Twitter

Each year at this time, I find myself recalling 2007, which was (so far) the most eventful Thanksgiving of my life. I told the story in my letter at the time, and today I am sharing it again. Interestingly, the lesson I drew from that harrowing experience once again applies. Indeed, the financial firetrucks are once again gathering around the world.

Read this, then I’ll be back afterward with some closing thoughts.

A Thanksgiving Fire Drill

(Originally published here on November 30, 2007.)

Last Thursday, we sat down for a massive Thanksgiving dinner at my 21st floor apartment in Dallas. All seven kids, my 90-year-old mother, and an assortment of friends and relatives (about 15 of us) started to work on a 16-pound prime rib, 18-pound turkey, and massive amounts of potatoes, mushrooms, and lots more. Grace was said, the wine was poured, and we were feeling good about life.

And then about 15 minutes into the meal, the fire alarm went off, telling us to evacuate. This was annoying, as it seemed like we have had a false alarm at least once every few weeks in the past few months. 

So, we did what we have done in the past and ignored the alarm. After all, this is a modern structure (only 4 years old) with fire sprinklers everywhere. We assumed that someone had a grease fire in their kitchen that would quickly be put out.

But the alarm kept sounding quite loudly, which did tend to interrupt conversation. As my dining room table is near the floor-to-ceiling window, we tended to look out when we heard sirens. And sure enough, the fire truck pulled up alongside the building. 

"Good," we said, "they will get that grease fire under control." And we continued eating and drinking, although with a heightened sense of concern. 

Fires in apartment buildings are not to be taken too lightly. Especially if you are on the top floor. People do die from them.

And then a second and a third fire truck parked underneath the window. That was a tad disconcerting, but surely they were just making sure that there was adequate back-up. It was when the 8th truck pulled up within a few minutes that I began to get more than a tad concerned. They were pulling hoses and running around very quickly.

At that point, we started trying to figure out how to leave; but how do we get a 90-year-old fragile lady down 21 flights of stairs? 

We spent a moment pondering that, and then my youngest son came back into the apartment to report that he could smell smoke a few floors down in the stairwell. 

Well, that was not good. #2 son said to come to his window at the back of the apartment, where we looked out and could see a rather significant amount of smoke coming from the 2nd and 3rd floors. No, this was not good at all. No one was panicking, but we began to think about how to get us down the stairwell and soon.

And then I got a call from a friend who was late coming to dinner. "The fire marshal told me that you have to get out of there NOW!" All this in just a few short minutes, mind you.

So, we started to move to the stairs. Fortunately, there were two rather big, strong young men at dinner (one was my oldest son and the other was a boyfriend who was just back from a tour in the army, but both chiseled out of granite). After several attempts, we decided that taking mother down piggyback would be the best. The young men took turns carrying her.

At first, I still thought it was overkill, but as we got to the 16th floor the smoke in the staircase was very apparent. By the 12th floor it was hard to breathe, and at the 7th floor the smoke was too thick to go on. One of the kids opened the hall door and went and checked the next stairwell, which was freer of smoke. So we changed exits and got out to the street, smelling of smoke - but we were all safe.

It seems some idiot must have tossed a cigarette down the trash chute and started a fire in what is a rather large trash collection bin for hundreds of apartments on the bottom two floors. The fire should have been contained, but the concern was that if anyone had left a trash-chute door open, the fire could have easily spread to a higher-level floor.

And what about the modern fire sprinklers in the trash collection area - the ones I was relying on? They inexplicably did not go off in the trash bin, allowing the fire to blaze on garbage and grease, but the heat rising set off the sprinklers in the trash chutes on higher floors, causing a lot of smoke as the water fell onto the trash, with the smoke escaping into the stairwells.

But all was not lost. It seemed that three of us grabbed a bottle of wine as we left! ("Train up a child in the way he should go...") So, we sat outside and waited, sipping on a brilliant chardonnay and a full-bodied cabernet for an hour or so until the very professional firemen cleared the building of smoke and let us back up, where we finished dinner, with lots of stories to tell. And my middle daughter had her ten seconds of fame, as she made national news. 

It was more excitement than any previous Thanksgiving, and one we will talk about for years.

“As Long as It Takes”

All right, 2020 John here again. In that same 2007 letter, I went on to discuss some recent events. 

It’s a little eerie to read in hindsight, knowing now what would unfold over the next year. I observed what was going on in subprime mortgages and credit insurers, and concluded the Fed needed to cut rates.

I wrapped up the 2007 article with this:

Now, maybe this is all just a fire in the trash bin, started by a subprime mortgage market gone wild. Maybe the fire sprinklers will work. But it seems to be spreading. Did someone leave a trash chute open on one of the higher floors? The Fed needs to turn the fire hose onto the problem before it spreads any more. I think we see a 3% Fed funds rate sooner than most of us think.

Gentle reader, be careful as you exit the building, there might be more than smoke. And be sure and grab some wine on the way out. You might as well enjoy it while you wait to get back to dinner.

Ben Bernanke heard my plea (or someone’s) and dropped the Federal Funds Rate from 4.5% to effectively zero over the next year. Even so, 2008 almost brought the financial system to its knees.

Roll forward a dozen years and we are in a different but no less serious bind. Instead of crazy derivatives, a troublesome virus is afflicting the economy. 

The Fed acted quickly last March, cutting rates and launching a massive asset purchase program. Congress helped with a giant fiscal aid package. Together, these jolted the economy back to life.

The jolt wasn’t permanent, however. The patient is now wavering again, and this time, the fiscal part of the cure is not forthcoming, despite pleas from Fed chair Jerome Powell and many others that monetary policy has reached its limits.

Ah, but this word “limits” doesn’t really apply to central bankers. Particularly the central bank of the world’s largest economy and issuer of the global reserve currency. 

The Fed has constraints—some practical, some legal—but is highly creative in overcoming both.

Going back to my 2007 metaphor, the Fed has the world’s largest financial fire hose and will use it if the flames grow large enough. Powell repeated this quite clearly just last week. 

Speaking to a San Francisco business group on November 17, he said, “The Fed will stay here and be strongly committed to using all of our tools to support the recovery for as long as it takes until the job is well and truly done.”

That is not the usual equivocating Fedspeak. Powell promised to use all the Fed’s tools, for as long as it takes, until they are well and truly done. No mention of any limits.

Powell isn’t one to make promises he doesn’t plan to keep. So if the economy begins slipping into a double-dip recession, I believe he will open the spigot again. What the barrage will look like, I don’t know, but it is probably coming.

A quick note on all the angst surrounding Treasury Secretary Mnuchin taking back some of the Federal Reserve’s CARES Act funding. First, the Fed used a little bit in the beginning but much of that money was just sitting there. My sources say Mnuchin is looking for a way to make a deal with Democrats more palatable to Republican senators. 

Recovering unused Fed money gives him almost $500 billion to soften their frustration with the price tag. The Senate seems to want a number below $1 trillion. With the recovered money, they could pass a “new bill” for less than $1 trillion, while actually spending more.

Whoever you blame for the deadlock, the simple fact is a bill needs to pass soon. I believe there is a serious risk of a double-dip recession without some major unemployment funding. 

We have about reached the limits of jobs recovery absent a vaccine. 

That leaves us with a real-world unemployment rate higher than the Great Recession’s worst. Waiting until February to pass a stimulus bill simply tempts the recession gods to strike again.

I wish they would just get a bill done. Forget about waiting for the Georgia elections; if Democrats take the Senate, they can pass a bigger bill later. The US has done nowhere near what the largest developed world economies have done relative to their GDP. From Grant Williams’ latest letter:

Source: TTMYGH

Further, when you combine all the stimulus from around the world, it is a rather staggering amount in both size and variety. The Western European countries alone have provided 30 times more stimulus (in current dollars) than the Marshall plan after World War II.

Source: TTMYGH

Total global debt will be close to $300 trillion by the end of the first quarter 2021, and global GDP will have been decimated. Every major central bank, not just the Fed, has opened the monetary spigots. It is no wonder the market is levitating.

Unlike 2008, this crisis has an identifiable end point if the new vaccines work as well as expected and are distributed in the next few months. I worry more about the damage already done. Many of those lost jobs aren’t coming back. Millions of small businesses will never reopen. Other new businesses will open, but that will take time and probably an effective, widely distributed vaccine. 

Some property owners will never again collect the kind of rent they used to. 

All that adds up, and it will take a long time to repair and adjust to. And once we do, we’ll still have the preexisting debt and other problems.

But, this being the time when we give thanks, let’s also remember the good news. The pandemic’s death toll, while much too high, could have been far worse. The crash efforts to develop treatments and vaccines will likely bear other fruit as well.

I think we are going to see some amazing new biotechnologies come out of this massive push for a vaccine. This is going to pull a lot of new health and medical technology forward from the future.

Entrepreneurs are meeting business challenges with innovative ideas. We are all going to have to figure out how to reprice commercial real estate, how we think about education, how we travel for business and pleasure, and scores of other things. 

Change is happening swiftly and not always comfortably. Events that would have stretched over years seem to be happening all at once, which makes it a little unsettling.

But I firmly believe we’re going to get through this and find a better world on the other side. For that, we can all be thankful.

Open House

Before I go, let me remind you we are having a complimentary “Open House” this weekend for some of our most popular investment research services. You now have full access to all the current and archived editions of Jared Dillian's ETF 20/20, Robert Ross's Yield Shark, and Chris Wood's Healthy Returns. These are our three most popular publications, and I believe you’ll find them helpful.

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A Zoom Thanksgiving

Thanksgiving is my favorite holiday. When I was a child, my dad’s rather large extended family (he was the youngest of 10) would all be together, sharing food and meals, while we played and watched football. Most of the kids around the table were second cousins, as dad was almost 40 before he began his family. His father was born in 1859 in Palo Pinto County, Texas. 

Dad was the last child, born in 1910. I had aunts and uncles who were born in the 1880s and had already passed away before I was born in 1949. And they typically had large families as well. So, when Thanksgiving came around, the entire clan would gather. Big Thanksgiving meals were an ingrained tradition.

With seven kids in my family by the mid-1990s, plus extended family, I began to host large Thanksgiving Day gatherings. A Thanksgiving dinner with less than 50 people would have been a small one. And while everybody brought something, I generally went overboard cooking prime rib, mushrooms, and assorted vegetables, and baking cakes.

This year, most of my children will be in Tulsa, and we will visit via Zoom. I can’t tell you how much I will miss seeing them all and cooking for two days, at least for me. But it is the prudent thing to do, as I want to make sure I’m around for another 40 or 50 Thanksgivings

And I hope to be writing this letter to you for a very long time as well. One of the things I’m most thankful for is you and your gift of time and attention to my weekly musings. It has given me the ability to do what I enjoy and to actually make a living at it.

Someone asked me once about retiring. Why would I do that? If I retired, I would want to read, write, travel around the world, and talk to fun people over great meals. I would likely start a new business simply because I couldn’t help myself. Since I’m already doing that, why would I retire?

And with that, I will hit the send button, while reminding you to follow me on Twitter. I share a lot of useful financial and economic information, and a few ideas on hot button topics.

Shane and I both wish you a great week!

Your believing the future will be far better than we can imagine analyst,

John Mauldin
Co-Founder, Mauldin Economics

The fairytale of market liquidity

Repeated need for support from central banks at times of crisis highlights vulnerability of financial systems

John Dizard 

  Market crises are becoming more frequent, even though their effects on asset liquidity dissipate more quickly © AP

Market liquidity is the fairy gold of investors, trading desks and financial regulators. It is desirable, apparently essential to realising dreams of security, yet crumbles when attempts are made to grasp or even measure it. 

During periods of market stress, the ability to buy or sell assets without affecting their price becomes even more the stuff of a folk tale.

Customers and voters would be outraged if they knew the fragility of their power to turn investments into cash. But the evanescence of market liquidity is not a secret. 

There is now a very deep literature on the subject in central bank reports and financial economic journals.

As one very good 2019 study from the Banco de España puts it: “Market liquidity is not easy to measure. In fact, it is an unobservable variable that embodies several heterogeneous characteristics.”

Is cash on demand is an “unobservable variable”? This is not what the public wants to hear.

Their midnight worries push regulators into action. Esma, the pan-European securities regulator, issued a 21-page document in mid-July, “Guidelines on Liquidity Stress Testing in Ucits and AIFs”, which has applied to investment products sold in the EU since September 30. This had been carefully negotiated with the better informed and capitalised investment managers so as to be firm, but realistic, unyielding, yet flexible.

The problem is that market crises are becoming more frequent in recent years, even though their effects on asset liquidity dissipate more quickly. Each crisis requires a higher level of support from state treasuries and central banks, which in turn requires more issuance of “risk-free” assets. 

Fortunately, crisis-spawned regulations require the purchase of that same risk-free paper that can be turned into cash through repurchase agreements, or used as collateral for trading riskier assets.

Not quite a perpetual motion machine, this process requires careful oiling and maintenance, as well as dedicated people and resources. Because even the minimum liquidity management and related compliance staff are expensive, greater systemic fragility is increasing the market share of large asset managers.

Since the major asset managers cover the range of liquid fixed-income markets, as well as equities and alternative assets, a natural question would be whether they can, in effect, become their own markets by providing high-quality liquid assets to their portfolio managers to repo for cash or to meet collateral calls and redemptions, even to take advantage of crisis-created mispricings.

Vincent Mortier, deputy chief investment officer of Amundi, the €1.6tn French asset manager, says: “That is something we have explored, but so far we have always been acting as an agency, not as a principal. We are thinking maybe to be a principal, or directly to take on some repos. So far, all we have is a model, but it is something we are thinking about. Some [American] asset managers are doing that. It would be a game changer.”

Lending collateral from one group of customers to another would be cheaper and less tedious than putting bids on the screen or calling around the market, but it probably creates more political vulnerability.

In any event, as Mortier relates: “We had some discussions with the ECB but their first priority is to monitor the banks and not really the markets. To be fair our [liquidity] model was not ready then. We only developed it in June and did back-testing in July. It turned out that on a few really extreme days in March it was much better than other sources.”

By “other sources” Mortier means liquidity algos such as those on Bloomberg or Reuters. “Those do not take into account voice orders which are usually used for bigger trades or in crises. Especially for credit.”

The political problem here is that some of the most innovative and useful models to guide those voice traders are based on machine learning. That is very cool, as long as customers and regulators do not blame your gadget for an asset crash.

Then you might have to explain how a series of bid/ask spreads have so much less information than a set of ranked eigenvalues. Teaching math to people who have lost retirement savings is, I believe, even harder than sales. 


Could the vaccine help ailing emerging-market shares?

The American election and the news on the jab have renewed investors’ appetite for risk

An indian economic official once remarked to Buttonwood that his country’s economy does best when the rest of the world does well—but not too well. India’s exports benefit from global growth. But when the world economy gains too much momentum, interest rates and oil prices can rise uncomfortably high, hobbling a country that is a net importer of both capital and crude.

His observation came to mind as India’s stockmarket roared to a record high on November 10th, after news that a covid-19 vaccine developed by Pfizer and BioNTech was proving more effective than expected. It will be months before it becomes widely available even in the countries equipped to handle it. But the reproduction number of investors’ exuberance can be very high.

Another spur to India’s stockmarket—and to emerging-market equities more broadly—was America’s election. The result, when it emerged at last, removed one lingering source of uncertainty. That has made room in investors’ stomachs for other types of risk. The renewed appetite for edginess helped lift msci’s benchmark emerging-market equity index by over 6% from November 3rd to 9th. It is now up by more than half from its lowest point in March.

Though Wall Street has been setting records, the emerging-market index is still far from the all-time high it reached in 2007 or even its peak in 2018. Indeed over the past decade emerging-market shares have made little forward progress, albeit by the most nail-biting route possible. Big gains in 2012, 2016-17 and 2019 were offset by spectacular falls in the intervening years. Overall the index is just 3% higher than ten years ago.

That underperformance, however, leaves emerging-market stocks looking much better value than their rich-world counterparts. According to Oxford Economics, a consultancy, the ratio of price to earnings, adjusted for the cycle, for emerging markets lies in the bottom half of its historical distribution. America’s ratio, by contrast, is above the 98th percentile.

The valuation gap looks even more glaring when compared with immediate growth prospects. The gdp of emerging markets, weighted according to their stockmarket capitalisation, will shrink by less than 2% this year and grow by about 5% in 2021, according to forecasts by the Economist Intelligence Unit, a sister company of The Economist. 

America is doing better than most of the rich world, but even so its economy will still shrink by 4.6% in 2020 and grow by less than 4% in 2021. Some members of the msci’s index, such as China and Taiwan, have handled the pandemic well, allowing for an early return to growth. 

Others, such as India, have handled it badly. But precisely because their first attempts at lockdowns were so ineffective, they are unlikely to interrupt growth by trying another one.

These discrepancies have not gone unnoticed. Some strategists think that unloved emerging-market shares might benefit from the kind of “rotation” that in the past few days has propelled investors out of expensive “growth” stocks (such as tech) and into “value” stocks, the revenues of which are more closely tied to the state of the economy.

They also think that the most beleaguered emerging markets might benefit from a rotation within the rotation. John Lomax of hsbc, for example, recommends increasing holdings of countries like Brazil and South Africa (which are still heavily down on the year) at the expense of Asian ones, like Taiwan.

There may be a catch, though. Emerging-market assets may be priced like value stocks. But in another important respect—their sensitivity to bond yields—they more closely resemble growth stocks. When interest rates and bond yields rise, investors become less willing to bear risk or wait for future profits. That hurts growth stocks and emerging markets alike.

Consider the following scenario. The Pfizer vaccine is approved. But because it must be stored at Antarctic temperatures, it never reaches the emerging markets, such as India, that lack the cold chains needed to distribute it safely. The vaccine might therefore spur an uneven recovery, led by rich countries.

That rebound could put upward pressure on bond yields: the Pfizer news alone raised yields on ten-year American Treasuries to almost 1% on November 9th. And the tightening of global financial conditions could hurt emerging economies by more than the improvement in rich-world growth helps them. 

They could do badly, if the rest of the world does too well. 

Biden’s Dilemma

By: George Friedman

The election is over, and barring major fraud or error, Joe Biden will be the next president of the United States. He begins as a weak candidate. The country is divided virtually down the middle; almost half of the country voted against him. Animosity toward him will be similar to that faced by Donald Trump for the past four years.

Congress is deeply divided. The Senate may come in at a tie, with Vice President-elect Kamala Harris holding the deciding vote. In the House of Representatives, the Democrats’ majority shrunk to just 14 seats. 

During the Trump administration, they tended to vote with near unanimity. With a smaller majority they may not, given the emergence of a progressive wing of the party. 

With Trump gone, unanimity may be gone too. Once the euphoria of victory passes, Biden will have little room for maneuver.

Biden must create a strong foundation for his presidency quickly. When Barack Obama came to office, the dominant issue was the Iraq war. He immediately reached out to the Islamic world to redesign perceptions there, and though it had only limited effect in the Islamic world, it had substantial influence in the United States, which was weary after a decade of war in the region. It represented something new at a time when the old was seen by many as dysfunctional.

For Biden, there is no towering foreign policy issue. There are, of course, two towering domestic issues: the COVID-19 crisis and the economy. To some extent there is a tradeoff here, absent a viable vaccine. 

The more aggressive measures are used to fight the virus, the greater the stress on the economy. The more sensitive one is to the economy, the less obsessed one is with the disease. This is an imperfect view of the situation, but far from preposterous.

Trump regarded the virus as secondary to the economy. The reasonable approach is to take both equally seriously and find solutions for both – reasonable but difficult, when solutions for one impose costs on the other side. (Obviously, each president is expected to invent the impossible, and each president promises to do so.) 

A “blood, sweat, toil and tears” speech that galvanizes the country to sacrifice on both fronts won’t work. In fighting the virus, you are not asking the nation to do something extraordinarily difficult; you are asking it to not do ordinary things. In any case, Biden may have many virtues, but being Churchillian doesn’t seem to be one of them.

Biden’s promise to unite the country is unlikely enough, for he is trapped in his predecessor’s dilemma. Under present circumstances, Biden has limited economic options. And he is dealing with a disease about which he has no real expertise but for which he is expected to implement solutions. 

Some solutions will come from doctors who are insensitive to the economic consequences of their decisions. Others will come from the Fed and business, who expect the medical system to solve a problem that baffles it. 

Like Trump, he will have a menu of imperfect choices. Like Trump, he will pay the political price for whatever he chooses. Trump chose what he thought was politically expedient. He was wrong. But if he had chosen differently that would also have been wrong.

I have written about how the foreign policy of an era tends to follow from one president to another president. Obama’s presidency coincided with the winding down of the jihadist wars. For Obama there were three principles: withdrawing maximum forces from the Middle East, restructuring the U.S.-Chinese relationship, and preventing Russia from dominating Ukraine and other countries. 

Trump’s foreign policy was to continue to reduce the presence of U.S. forces in the Middle East while overseeing a new geopolitical system that binds Israel to the Arab world, heavily increasing pressure on China to change its economic policies, and modestly increasing U.S. presence in Poland and Romania to block Russia.

Biden will open with some easy moves such as rejoining the Paris Agreement. This requires that a country create plans for meeting the treaty’s goals, create plans for implementation, and implement them. For Biden, creating a plan he can get through Congress is tough; implementing it is tougher still. Many nations that signed the agreement have not implemented plans keeping with its obligations. But joining is easy and will look good to Biden’s fractious party.

He will also revive Atlantic relations by sounding reasonable at the endless meetings that achieve nothing. Aside from Poland and Romania – themselves an extension of the Russia issue – and the perennial issue of defense spending, Washington has few real issues with Europe.

What will matter to Biden will be what mattered to Obama and Trump: China and its economic relationship with the United States, along with protecting the Western Pacific from an unlikely Chinese foray; the continued withdrawal of troops from the Middle East and supporting the Israeli-Arab entente; and the continued attempts to limit Russian efforts at expansion through troop deployment and sanctions.

These are issues that represent continuity and importantly will not detract from the core domestic challenges Biden will grapple with. There are other issues, but shifting them requires dealing with allies who are deeply invested in them. For example, shifting policy on Iran is possible, but it would create huge tensions with Israel and the Sunni Arab world. Similarly, a shift in Korea policy would create problems with Japan and South Korea.

So the goal of the incoming Biden administration will be to focus on the issue that destroyed Trump: COVID-19 and the economy. To do that, it is necessary to limit or avoid foreign policy initiatives that might weaken Biden’s position in Congress and the country. This does not mean that U.S. diplomacy will not change. The myriad meetings will be attended, and a new tone, same as the old tone, will be struck.

This model, of course, depends on the actions of others. Jimmy Carter did not expect an uprising in Iran, and George H.W. Bush was not clear on the fall of the Soviet Union. His son did not expect his administration to be all about al-Qaida. 

The rest of the world can redefine what is important and what is not. Given the U.S. focus on domestic policy, the opportunity for other countries to take advantage of this preoccupation is potentially significant. 

So the reality is that for the moment, the initiative shifts out of the United States.

U.S. Unemployment Claims Remain Elevated in Latest Week

Initial claims for benefits slipped 19,000 to 787,000

By Kim Mackrael

A restaurant in Richardson, Texas, seeking workers in September. / PHOTO: LM OTERO/ASSOCIATED PRESS

New unemployment filings fell to 787,000 during a holiday week clouded with uncertainty around impending changes to benefit payments, the Labor Department said Thursday.

Early last week, Congress passed a $900 billion Covid-19 relief bill that will add a $300-a-week supplement for those receiving unemployment benefits and extend two pandemic-specific programs used by about 14 million people. 

But then President Trump said he was displeased with the bill, casting doubt on whether he would sign it into law. He ultimately did sign the measure on Sunday.

The level of claims has held above 800,000 in recent weeks, their highest level since the early fall and almost four times their pre-pandemic average. 

Still, they remain well below their peak of nearly seven million in late March, when a majority of states first issued stay-at-home orders to slow the spread of Covid-19.

The higher payments promised in the bill could have motivated some Americans to seek benefits last week, while the lack of clarity about whether the bill would become law may have persuaded other would-be applicants to wait. 

Unemployed workers aren’t required to file the week they are laid off, and not all applications are approved.

In addition to the uncertainty around the relief bill, weekly jobless claims figures can be volatile during holiday periods because of challenges with seasonal adjustment. 

A four-week moving average of initial jobless claims, which smooths out weekly variation, ticked higher in recent weeks, a sign of a loss of momentum in the labor market recovery.

Other data suggests the broader economic recovery may be slowing. 

Household spending declined 0.4% in November, its first retreat in seven months, and household income fell 1.1%, according to the Commerce Department. 

New and existing-home sales fell in November from the previous month.

Many economists think growth slowed in the final months of 2020 but anticipate a pickup in the economic recovery next year, as vaccines are distributed more widely and many households receive a second round of stimulus checks through the Covid-19 relief bill.

But the relief bill won’t be enough to keep some businesses and households afloat over the coming months, said Belinda Román, an economist who teaches economics at St. Mary’s University in San Antonio. 

The surge in recorded Covid-19 cases in many parts of the U.S. through the fall, coupled with the discovery of a new variant of the disease that appears to be more contagious, suggest this winter “is going to be more severe than what we thought,” she said.

Additional aid for small businesses, which was included in the relief bill, “is more like a Band-Aid,” Ms. Román said. 

“Maybe they’re able to apply for some money to pay some bills, but the more significant long-term damage is done.”

The new stimulus law increases unemployment assistance in every state by $300 a week through March 14 and extends two federal pandemic programs that otherwise would have paid out their final benefits in December.

One, called Pandemic Unemployment Assistance, provides benefits for the self-employed and others not normally eligible for jobless aid, while the other, Pandemic Emergency Unemployment Compensation, offers up to 13 weeks of additional payments for individuals who exhausted their regular state benefits. Both were extended until mid-March.

Many people continue to experience lengthy periods of unemployment. 

Continuing claims, a proxy for the number of people collecting unemployment benefits through regular state programs, held above five million in mid-December, according to the Labor Department. 

While that is down from a peak of 25.9 million in May, it is still about three times the pre-pandemic level.

An online survey conducted by the Harris Poll on behalf of staffing firm Express Employment Professionals found that 65% of jobless adults are getting more discouraged the longer they are out of work. 

On average, unemployed adults in the survey applied to 11 jobs over the prior month, but had only one interview, according to the survey taken during the second half of October and released in December.

John Trader said he moved into his younger brother’s home in Atlanta after losing his marketing job in July. 

He said he sent out hundreds of resumes and had interviews with about 10 companies before he got an offer on Dec. 18 with a software-development company.

The position doesn’t pay as well, but the 50-year-old Mr. Trader said he feels fortunate to be getting back to work.

“I can’t even describe how frustrating it has been,” Mr. Trader said of his job search. 

In one case, he said he participated in four interviews and spent 30 hours preparing a project to show a potential employer the kind of work he could do. 

He interviewed six times for another position only to be told the company had ultimately decided not to hire anyone.

The labor market recovery since the spring has been uneven across industries. 

Restaurants and retail stores in malls are down sharply from where they were last year, while others have grown beyond their pre-pandemic levels.

Mike Stanziola, senior vice president of IT operations for firstPRO Inc., a staffing agency in Philadelphia, said December marked his division’s best month this year, as more companies sought information-technology professionals for projects they previously had delayed because of the pandemic.

“Some folks are still hesitant to hire full time, but the work is backing up so they’re onboarding them as contractors,” Mr. Stanziola said. 

Confidence in full-time hiring is also beginning to grow, he said, but it remains a challenge to recruit tech professionals because job losses in that sector haven’t been as severe.

U.S. Economy Stumbles as the Coronavirus Spreads Widely

Claims for new unemployment benefits and other data suggest that the recent increase in infections is threatening the economic recovery.

By Ben Casselman

In Orchard Park, N.Y., near Buffalo, demonstrators on Monday protested business shutdowns ordered by Gov. Andrew M. Cuomo.Credit...Libby March for The New York Times

Layoffs are rising again and Americans’ incomes are falling, the latest signs that the one-two punch of a resurgent pandemic and waning government aid are undermining the U.S. economic recovery.

Applications for state jobless benefits rose for the second straight week last week, the Labor Department said Wednesday. 

Unemployment filings are up by more than 100,000 from the first week of November, when they hit their lowest level since last spring, the start of the pandemic.

Forecasters have been warning for weeks that the increase in coronavirus cases could have dire economic consequences as consumers pull back on spending and cities and states reimpose restrictions on businesses and social gatherings. 

But while job gains and other markers of progress have slowed since the summer, the recovery had proved surprisingly resilient.

Now cracks are beginning to appear. Jobless claims, not adjusted for seasonal patterns, jumped by 78,000 last week to nearly 828,000 — a big change following an increase of 18,000 the week before. 

It was the first time filings had risen for two straight weeks since early September, and the largest two-week increase since April. Measures of consumer confidence fell sharply in November, and real-time data from private sources show the labor market slowing further or going into reverse.

Any reversal would be disappointing after months of economic progress. But it would hardly be surprising given the new wave of lockdowns and business restrictions that made further layoffs all but inevitable. 

In recent weeks, Chicago has imposed a new stay-at-home order, Los Angeles County has suspended outdoor dining and Philadelphia has banned most indoor private gatherings. Several states have ended or restricted indoor dining. 

And even where officials have enacted no new rules, many consumers are likely to restrict their activity voluntarily to avoid contracting the virus.

“The most obvious culprit for rising claims is the surging pandemic,” said Daniel Zhao, senior economist for the career site Glassdoor. “It seems like it was only a matter of time before it started to show up in the economic data.”

The latest data is not universally bleak. The Commerce Department reported on Wednesday that orders for big-ticket goods like machinery, a measure of business confidence, rose in October. 

New home sales also jumped, as rock-bottom interest rates continue to lift the housing market. Households have $1 trillion more in savings than before the pandemic, money that could fuel consumer spending when vaccines become widely available and the threat of the virus fades. And the stock market, that highly imperfect barometer of the economy, has set new highs.

But for the people and industries most exposed, the outlook is bleak. In addition to the new round of business restrictions, a new wave of school closings could push parents — and particularly mothers — back out of the work force. A growing number of economists are forecasting a “double-dip” recession, in which economic activity contracts again early next year.

Unlike in the spring, families and businesses will have to weather the latest shutdowns largely on their own. Federal programs that provided trillions of dollars of support to small businesses and unemployed workers expired over the summer, and efforts to revive them have stalled in Congress. Many of the remaining programs run out at the end of the year.

A coronavirus testing site in Mandan, N.D., last week. Cases of the virus are rising around the country, imperiling economic recovery.Credit...Jenn Ackerman for The New York Times

Data released by the Commerce Department on Wednesday showed that personal income fell 0.7 percent in October as declines in government aid offset wage and salary gains. Consumer spending rose 0.5 percent, the smallest increase since the recovery began last spring.

“Part of the reason the recovery has done so well is because there was so much assistance for affected businesses and workers, and this is just really not the time to snatch defeat from the jaws of victory,” said Julia Pollak, a labor economist at ZipRecruiter. More aid, she said, was necessary to “prevent this temporary disruption from becoming permanent destruction.”

Democratic and Republican leaders have both said they want to pass a relief package before the end of the year. But the two sides remain far apart, and prospects for a quick deal appear dim.

Congressional aides and outside groups that have been monitoring the stimulus talks said this week that they did not expect rising unemployment claims to prompt Senate Republicans to agree to anything close to the $2 trillion package that Democrats have wanted for months.

Aides to President-elect Joseph R. Biden Jr. are planning for the possibility of another contraction in the economy and have called on lawmakers to approve a stimulus deal before his inauguration in January. 

A small group of House Democrats have pressured Speaker Nancy Pelosi to accept a smaller deal in order to reach a compromise with Senator Mitch McConnell of Kentucky, the majority leader.

The stakes are particularly high for the nearly 14 million Americans receiving unemployment benefits through a pair of emergency programs that are set to expire next month.

The data released Wednesday showed that in early November, roughly nine million people were enrolled in the Pandemic Unemployment Assistance program, which covers freelancers, self-employed workers and others who don’t qualify for regular state benefits. 

That program has been plagued by fraud and double-counting, and many economists believe the Labor Department’s count inflates the true total. Still, by any measure, there are millions of people enrolled in the program who will lose their benefits when it expires.

An additional 4.5 million people are receiving payments through the Pandemic Emergency Unemployment Compensation program, which adds 13 weeks of benefits to the 26 weeks available in most states. Enrollment in it has been rising rapidly as more people reach the end of their regular state benefits.

Some of those people will qualify for a separate federal extended benefits program that existed before the pandemic. But that program isn’t available in every state.

For workers, the timing could scarcely be worse.

Distributing food in New York City. The pandemic has created increased need for food donations as high unemployment persists.Credit...James Estrin/The New York Times

“We’re going to be in the heart of winter, virus cases are likely to be through the roof, and the holiday hiring season is over,” said AnnElizabeth Konkel, an economist at the career site Indeed. “It puts those who are potentially rolling off of those benefit programs in a really precarious situation.”

Adding to the risk: Federal rules to block evictions and allow borrowers to defer payments on home mortgages and student loans also expire at the end of the year. The Trump administration could choose to extend them, but if it doesn’t, families could lose their only source of income and lose the protections keeping them in their homes.

“It’s sort of like running into a giant brick wall,” said Elizabeth Pancotti, a policy researcher who co-wrote a recent report on the benefits cliff. “Not that there’s a good time for all these programs to end, but maybe all on the same day wasn’t a great idea.”

Jim Tankersley contributed reporting.

Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal.


Brain Scientists Explore the How of When

A new study offers the strongest evidence yet of “time cells” in the brain.

By Benedict Carey

Credit...Otto Steininger

Merriam-Webster’s defines a time warp as a “discontinuity, suspension or anomaly” in the otherwise normal passage of time; this year all three terms could apply. It seems like March happened 10 years ago; everyday may as well be Wednesday, and still, somehow, here come the holidays — fast, just like every year.

Some bard or novelist may yet come forth to help explain the paradoxes of pandemic time, both its Groundhog Days and the blurs of stress and fear for those on the front lines, or who had infectious people in their household. But brain science also has something to say about the relationship between perceived time and the Greenwich Mean variety, and why the two may slip out of sync.

In a new study, a research team based in Dallas reported the first strong evidence to date of so-called “time cells” in the human brain. The finding, posted by the journal PNAS, was not unexpected: In recent years, several research groups have isolated neurons in rodents that track time intervals. It’s where the scientists look for these cells, and how they identified them, that provide some insight into the subjective experiences of time.

“The first thing to say is that, strictly speaking, there is no such thing as ‘time cells’ in the brain,” said Gyorgy Buzsaki, a neuroscientist at New York University who was not involved in the new research. “There is no neural clock. What happens in the brain is neurons change in response to other neurons.”

He added, “Having said that, it’s a useful concept to talk about how this neural substrate represents the passage of what we call time.”

In the new study, a team led by Dr. Bradley Lega, a neurosurgeon at UT Southwestern Medical Center, analyzed the firing of cells in the medial temporal area, a region deep in the brain that is essential for memory formation and retrieval. It’s a natural place to look: Memories must be somehow “time-stamped” to retain some semblance of sequence, or chronological order.

The team took recordings from 27 people with epilepsy, who were being monitored for surgery; the monitoring requires a few weeks’ stay in the hospital, with electrodes implanted through the skull and into the brain, to get a reading on where seizures originate. And the medial temporal lobes, located about an inch in from the ears, are almost always monitored, as they are a common source of those seizures.

These patients played computer games that test thinking and memory, while researchers watched what happened to the firing patterns of cells. In this experiment, the subjects tried to memorize lists of words, presented one at a time, a second or so apart. The subjects then had 30 seconds to freely recall as many as they could.

The researchers found that certain neurons fired during a specific window of the free-recall period — from two to five seconds in, depending on the person. This firing was related only to time, not to anything else, such as the kinds of words being memorized and retrieved. 

And when those particular cells fired more precisely in a person’s temporal sweet spot, he or she did well on the recall, and remembered words in close to the order in which they were originally presented.

“These cells are encoding information related to time, and this information is clearly important for memory,” Dr. Lega said.

In effect, Dr. Lega said, the cells representing time fired to support an activity, in this case to track the passage of the 30-second interval. There is no constant rhythm or background beat; the time signal is conjured as needed. 

“There’s no internal metronome, or clock,” he said. The time cells are “firing to support what you’re doing.”

That is, time cells adjust to the demands being made on the brain, in real time, moment to moment. Another group of nearby neurons, called ramping cells, accelerates its firing as a task begins and decelerates or decays as the job winds down, marking off chunks of time. 

“As these cells are sensitive to contextual changes during experience, they could represent the slowly evolving nature of contextual information,” the authors write.

The coordinated activity of time cells and ramping cells, on its own, is far too basic to encompass the weirdness of pandemic time. This mechanism counts out time in seconds and minutes, not days and weeks. Our perception of those longer intervals seems to be shaped much more by the quantity and content of the memories that fill them, and by the emotions that help imprint them.

Starting in March, people had to absorb an enormous amount of news and information about the virus, the symptoms and various interventions, on top of work and child demands. But with stay-at-home orders, the context flattened. 

Each day looked a whole lot like the last, and the next, and the next. Like being lost at sea, we have floated in place while the earth turned underfoot.

Pandemic time, the subjective kind, will likely feel warped for a while — until we make landfall, however that comes to pass.