Axios Markets: Losing confidence in survival

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Axios Markets

By Dion Rabouin ·Sep 09, 2020

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🚨 Situational awareness: LVMH backed out of an $18.5 billion agreement to buy jeweler Tiffany & Co. Wednesday, citing U.S. tariffs on French products. (Axios)

🎙 "Do me wrong, honey, if you want to. You can do me wrong, honey, while I'm gone. But all I'm asking is for a little respect when I come home." - See who said it and why it matters at the bottom.

1 big thing: Small businesses are losing confidence in survival

Data: Goldman Sachs; Chart: Axios Visuals

Small businesses have largely exhausted their federal funding and are starting to lay off workers, with many worrying about having to shut their doors for good, according to a new survey from Goldman Sachs provided exclusively to Axios.

What's happening: Business still has not returned to normal six months after the coronavirus pandemic first appeared in the U.S. but small firms say the money they received from the Paycheck Protection Program has run dry.

88% of small business owners say they have used all of their PPP loan funding and 32% of loan recipients have already been forced to lay off employees or cut wages.
About 95% of the companies surveyed by Goldman said they had been approved for PPP funding.

The good news: The pandemic has not been as bad as many businesses feared and most are now up and running.

Nearly three-quarters of the businesses surveyed say they are fully open, up from just 39% in April and 53% in May.
And just 2% of businesses say they are temporarily closed, compared to 19% in April.
25% of businesses say that the pandemic has greatly hurt their finances, down from 33% in April.
21% say the pandemic has not hurt their personal finances, up from 14% in April.

The bad news: About a third of small businesses GS surveyed said they had already laid off workers and 36% say if no new funding comes from Congress soon, they will lay off workers or cut back hours.

Without additional government funds, 30% say they will exhaust all of their cash reserves by year-end.
16% say less than a quarter of their pre-COVID revenue has returned thus far.
The 65% of owners owners who believe their business will survive is the lowest in the survey thus far, down from 73% in July and 68% in April.

What we're hearing: Small business owners "have made their position clear — they need more legislative support and there is no time to waste," a Goldman spokesperson tells Axios.

The intrigue: The owners blame both sides of the aisle in Washington for the inaction on new relief measures.

When asked who is responsible, 53% blame both parties, while 18% blame congressional Democrats and 16% blame congressional Republicans.
Just 8% blame President Trump.

Between the lines: Data show Black-owned businesses face an even steeper climb.

43% say their business' cash reserves will be depleted by year-end if Congress does not act in September, compared to 30% of all respondents.
31% say less than a quarter of their pre-pandemic revenue has returned.

2. Catch up quick

AstraZeneca's COVID-19 vaccine trial has been put on pause after a participant in a U.K. trial suffered an unexplained illness. (Axios)

Apple countersued Fortnite creator Epic Games, seeking damages for breach of contract. (CNBC)

The U.S. budget deficit for August was $198 billion, according to the CBO, hitting $3 trillion in the first 11 months of fiscal year 2020. (The Hill)

Brent crude prices fell 5%, dropping below $40 for the first time since June, and WTI crude fell nearly 8%. (WSJ)

3. Bankruptcies highest since 2010, but trail Great Recession pace

Reproduced from S&P Global Market Intelligence; Chart: Axios Visuals

U.S. corporate bankruptcies have risen in 2020 — already reaching the highest number at this point in the year since 2010 — but the pace remains well behind what was seen during the Great Recession.

In fact, there have been fewer bankruptcies so far in 2020 than in 2006 and in 2005, according to data from S&P Global Market Intelligence.

Why it matters: The increased pace of bankruptcies has grabbed headlines in light of the coronavirus pandemic, but is quaint compared to what took place from 2007–2009.

By the numbers: A total of 470 companies have gone bankrupt as of Sept. 7.

However, there were 608 bankruptcies through Sept. 7, 2010.
1,108 bankruptcies by Sept. 7, 2006.
610 bankruptcies by Sept. 7, 2005.

There were 2,747 bankruptcies through Sept. 7 and 4,095 by year-end in 2007; 3,247 through Sept. 7 and 5,268 by year-end in 2008; and 4,025 through Sept. 7 and 4,988 by year-end in 2009.

Watch this space: The reduced number of bankruptcies is good for individual companies but is largely a result of the Fed flooding markets with liquidity and keeping U.S. interest rates at extremely low levels.

That is allowing inefficient companies to stay in business and weighing down overall U.S. productivity, many economists argue.

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4. There aren't enough jobs for America's unemployed

Data: Indeed; Chart: Naema Ahmed/Axios

Axios' Erica Pandey writes: The number of unemployed Americans vastly outnumbers the number of open jobs in every single state.

Why it matters: Even though we've come back from the worst unemployment numbers, the pandemic's economic toll keeps turning furloughs into job losses — and pushing millions of people out of the workforce entirely.

By the numbers: In every state, job postings are way down compared with 2019 levels, according to data from Indeed's Hiring Lab that was provided to Axios.

In several states with job-magnet cities — like New York, California, Illinois and Massachusetts — postings are down close to 30%. "This is more a big-city recession than a rural one," says Jed Kolko, Indeed's chief economist.
Some places, like West Virginia, Mississippi and Alabama, recovered but have started to dip again.

The outliers: The outlook in Hawaii and D.C., both of which rely on domestic and international tourism, is especially bleak, with job posts down 46% and 40%, respectively.

The big picture: "Historically, the U.S. has relied on mobility to solve these problems," says Mark Zandi, chief economist at Moody's Analytics.

"The problem with the pandemic is that it has hit every single community in the country. There's nowhere to go."

The bottom line: "We're gonna have a lot fewer jobs for a long time," Zandi says. "We'll get back, but it won't be next year or the year after. It'll likely be mid-decade."

5. Tesla has worst day ever, tech continues slide

Data: FactSet; Chart: Axios Visuals

Tesla's stock suffered the worst one-day loss on record as shares tumbled 21% Tuesday, after being left out of the S&P 500 by the committee that decides on new additions to the index.

The big picture: Shares are still up by nearly 300% year to date and have gained 527% over the past two years.

The company is worth more than the world's largest automakers, including Toyota and Volkswagen.

Between the lines: All of tech suffered for a third straight session, with the Nasdaq down 4.1% and the broader S&P 500 — around one-fifth of its market cap is made up of just five Big Tech companies — ended the day lower by 2.8%.

The Nasdaq is now up 20.8% year to date.
It was up 34.4% for the year at market open on Thursday.

6. Consumers increased borrowing in July but are still holding back

Total consumer borrowing rose in July, as Americans increased purchases of new vehicles and borrowed for college tuition for the second month in a row, the Fed's latest credit report shows

Outstanding consumer credit increased by $12.3 billion in July from the month before, a 3.6% increase. Credit rose at a revised 3.3% annual rate in June.

By the numbers: The use of credit has risen for the past two months after declining from March through May, and sinking by 6.6% in the second quarter, including a 30.8% fall in revolving credit, which follows credit cards and similar consumer credit lines.

Yes, but: Revolving credit continued to fall, down 0.4% in July after a 2.2% decline in June and a 27.9% decline in May, as consumers continued to hold back on credit spending.

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Thanks for reading!

Quote: "Do me wrong, honey, if you want to. You can do me wrong, honey, while I'm gone. But all I'm asking is for a little respect when I come home."

Why it matters: On Sept. 9, 1941, legendary singer and the greatest songwriter of all time, Otis Redding, was born. His career lasted just five years and he died in a plane crash at age 26, but he left an indelible mark on music.

Redding's "Sittin On the Dock of the Bay" and "Respect" are perhaps his best-known songs.
While some consider Aretha Franklin's "Respect" to be a cover of Redding's version, it's actually a response that was rewritten and reimagined by Franklin and her sisters.

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