U.S. Weekly Jobless Claims Remain High as Backlogs, Layoffs Linger

U.S. Weekly Jobless Claims Remain High as Backlogs, Layoffs Linger

ABI Bankruptcy Brief

May 21, 2020

ABI Bankruptcy Brief

U.S. Weekly Jobless Claims Remain High as Backlogs, Layoffs Linger

Millions more Americans filed for unemployment benefits last week as backlogs continue to be cleared and disruptions from the novel coronavirus unleash a second wave of layoffs, pointing to another month of staggering job losses in May, Reuters reported. Initial claims for state unemployment benefits totaled a seasonally adjusted 2.438 million for the week ended May 16, the Labor Department said yesterday. Data for the prior week was revised down to show 2.687 million claims filed instead of the previously reported 2.981 million. Connecticut said last week it had misreported its numbers. Last week’s claims data covered the week during which the government surveyed establishments for the non-farm payrolls portion of May’s employment report. The economy lost a record 20.5 million jobs in April, on top of the 881,000 shed in March.

Study: Many Jobs May Vanish Forever as Layoffs Mount

While the Labor Department has found that a large majority of laid-off workers expect their joblessness to be temporary, there is growing concern among economists that many of their jobs will never come back, the New York Times reported. “I hate to say it, but this is going to take longer and look grimmer than we thought,” Nicholas Bloom, an economist at Stanford University, said of the path to recovery. Bloom, a co-author of an analysis of the coronavirus epidemic’s effects on the labor market, estimates that 42 percent of recent layoffs will result in permanent job loss. “Firms intend to hire these people back,” Bloom said, referring to a recent survey of businesses done by the Federal Reserve Bank of Atlanta. “But we know from the past that these aspirations often don’t turn out to be true.” In this case, the economy that comes back is likely to look quite different from the one that closed. If social distancing rules become the new normal, causing thinner crowds in restaurants, theaters and stores, at sports arenas, and on airplanes, then fewer workers will be required. A household survey from the Census Bureau released Wednesday suggested that the pain was widespread: 47 percent of adults said they or a member of their household had lost employment income since mid-March. Nearly 40 percent expected the loss to continue over the next four weeks.

Mnuchin Sees 'Strong Likelihood' of Needing Another COVID-19 Relief Bill

Treasury Secretary Steven Mnuchin today said that there is a "strong likelihood" that another coronavirus relief bill will be needed, as more states start to reopen and the economy struggles to stabilize, The Hill reported. "I think there is a strong likelihood we will need another bill, but we just have $3 trillion we're pumping into the economy," Mnuchin said. "We're going to step back for a few weeks and think very clearly how we need to spend more money and if we need to do that," he added. His comments follow those of White House economic adviser Kevin Hassett, who said earlier this week that he thinks another coronavirus bill might not be necessary. On Capitol Hill, Republicans and Democrats are divided over how to tackle additional legislation. House Democrats last week passed a $3 trillion relief package, but Senate Republicans have said that the bill is dead on arrival in their chamber. Some GOP senators have indicated they want to move quickly on another measure, but Senate Majority Leader Mitch McConnell (R-Ky.) has signaled a desire to move more slowly in order to first evaluate what is and isn't working from previous relief bills that were signed into law.

In related news, Mitch McConnell promised House Republicans yesterday that the beefed-up unemployment benefits enacted earlier this spring "will not be in the next bill," Politico reported. The Senate majority leader told the House GOP minority in an afternoon phone call that he is comfortable waiting to see how the nearly $3 trillion in coronavirus spending previously approved plays out before moving forward on the next relief legislation. And he told them the ultimate end-product won't look anything like House Democrats' $3 trillion package passed last week. While McConnell conceded that more aid may be necessary in the coming weeks, he also repeated his insistence that liability reform be included in the next round of legislation to minimize lawsuits. In addition, he said the $600 weekly boost in unemployment benefits won't continue — a vow he hadn't previously made. McConnell warned against trial lawyer "vultures" ready to file lawsuits and said Republicans are "going to have to clean up the Democrats’ crazy policy that is paying people more to remain unemployed than they would earn if they went back to work," McConnell said.

In other related news, with unemployment skyrocketing — and some federal financial aid weeks away from running dry — millions of residents newly find themselves at risk of prolonged financial hardship, perhaps even staring down the prospect of homelessness, the Washington Post reported. Despite the U.S. government’s efforts to halt evictions and extend $3 trillion in aid, many say they fear falling behind on their rent or mortgage and lack the means to put off some of those payments until their bank accounts — and the broader economy — are in better shape. On Tuesday, President Trump told Republican senators he wanted to allow the enhanced unemployment benefits to expire in July. Without such aid, more than 1 million families in the New England region might have found their homes at risk, the Boston Fed previously found. In New England alone, roughly 380,000 area homeowners and renters are at risk of falling behind on about $540 million in payments each month, according to the Federal Reserve Bank of Boston, which found that the region is one of the hardest hit by the coronavirus pandemic.

Commentary: Why a Restructuring Strategy Is Needed to Save Jobs and Growth*

Governments have created massive lending programs to businesses to respond to this extraordinary economic crisis. Unfortunately, many of these businesses were highly indebted even before the virus, according to a commentary in the Financial Times by bankruptcy veterans Jay Alix and Richard Gitlin. Combining highly indebted businesses with a collapse in demand and supply chain disruption is a formula for economic stagnation. A shift in policy by governments is urgently required to invest in companies that can grow once debt is reduced to sensible levels and businesses are restructured to adapt to new market realities, according to Alix and Gitlin. Governments will need to invest growth capital, but only as part of a commercially sensible restructuring of both the balance sheet and the business. The development of an extraordinary government agency will probably be required to oversee the job, staffed primarily with restructuring professionals. It would work in concert with the bankruptcy system, harnessing its power to approve compromises and to eliminate contracts that are an impediment to a successful restructuring. In essence, debt reductions, debt-for-equity swaps and equity for new investments will be required. There would be much shared pain by shareholders and existing lenders, and new capital would have to be properly rewarded. Investors specialising in distressed assets would play a significant role in providing liquidity to lenders and would bring restructuring experience to the process. (Free registration required.)

*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.

More than 240 U.S. Energy Bankruptcies Forecast by 2021

A new report by Rystad Energy found that more than 240 U.S. oil and gas companies may be forced to file for bankruptcy protection over the next two years in response to low oil prices, the Houston Chronicle reported. Some 73 energy companies may have to file for chapter 11 protection this year with crude hovering at around $30 a barrel. If prices remain low, another 170 companies are expected to follow in 2021, according to Rystad Energy, a Norwegian energy research firm. If Rystad’s forecast holds true, the number of energy bankruptcies from the coronavirus-driven oil crash will eclipse the last bust, which claimed some 200 companies. Several energy companies have recently filed for bankruptcy, including Whiting Petroleum, Skylar Exploration, Diamond Offshore, Freedom Oil and Gas and Gavilan Resources. The coronavirus pandemic, which has forced businesses to temporarily close and consumers to stay home, has depressed the demand for oil and gas products, causing prices to plummet.


Coronavirus Widens Retail Divide, Leaving Macy’s and Victoria’s Secret Behind

The coronavirus pandemic is widening the divide between retailers that are drawing shoppers and those that are losing business, accelerating a split that had been playing out since before the health crisis forced some chains to temporarily close stores, the Wall Street Journal reported. Department stores and apparel retailers are feeling the most pain. Their stores were closed from mid-March through April, and while some buying shifted online, it wasn’t enough to offset the lost sales in physical locations. Macy’s Inc. today offered a glimpse of the damage wrought by the virus, saying that first-quarter sales fell by as much as 45 percent and that it expects to record a roughly $1 billion operating loss when it reports financial results on July 1. Victoria’s Secret parent L Brands Inc. said that quarterly sales fell 37 percent and that it would close about a quarter of the lingerie brand’s stores in North America. Kohl’s Corp. reported a 41 percent drop in sales for the spring quarter, while nearly $5 billion in sales disappeared at off-price retailer TJX Cos.


U.S. Existing Home Sales Post Largest Decline in Nearly 10 Years

U.S. home sales logged their biggest drop in nearly 10 years in April as the novel coronavirus pandemic upended the labor market and broader economy, undercutting demand for housing, Reuters reported. The National Association of Realtors said today that existing home sales plunged 17.8 percent to a seasonally adjusted annual rate of 4.33 million units last month. The percentage of decline was the largest since July 2010. Existing home sales, which make up about 90 percent of U.S. home sales, dropped 17.2 percent on a year-on-year basis in April. The report came on the heels of data on Tuesday showing a record collapse in homebuilding and permits in April.


Americans Are Cooking More Seafood, but Fishermen Are Struggling

The coronavirus crisis is hitting seafood businesses even harder than the meat industry, prompting fishermen and processors to overhaul their operations and look for new customers, the Wall Street Journal reported. U.S. supermarket shoppers are buying more fish and shellfish to prepare at home during quarantine, but business owners say the rise isn’t enough to offset the loss of sales to restaurants, where 70 percent of seafood is consumed, according to market-research firm Urner Barry. Captains across the country have docked vessels, and distributors have rerouted what fresh fish they can into freezers, sometimes destroying the rest. While nearly two-thirds of seafood eaten in the U.S. is consumed outside the home, sales of other proteins, including chicken, beef and pork, are more evenly split between grocery stores and restaurants. U.S. seafood sales at grocery stores totaled $1.4 billion for the four weeks ending on May 9, a 40 percent increase from a year earlier, according to Nielsen. The $2 trillion federal stimulus package included $300 million for the seafood industry, though companies and trade groups say the sum isn’t enough. A group of 15 distributors surveyed in April by the National Fisheries Institute said they expect to lose $1.7 billion, about 40 percent of their annual revenue, if current conditions last through year’s end.


Upcoming abiLIVE Webinar on May 28 to Examine the Health Care Industry in the Shadow of COVID-19

Sponsored by Getzler Henrich Management & Financial Consultants, the “Health Care in the Shadow of COVID-19: What Will the 'New Normal' Look Like?” webinar on May 28 features David Campbell of Getzler Henrich & Associates LLC (Chicago), Brian Fortune of Farragut Square Group (Washington, D.C.), Jeremy Johnson of Polsinelli (New York), Dan Polsky of Getzler Henrich & Associates LLC (New York) and Christopher A. Ward of Polsinelli (Wilmington, Del.). Register here.

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New on ABI’s Bankruptcy Blog Exchange: Coronavirus Could Force a Full-Blown Crisis in Credit-Scoring

Lawmakers are working to head off a wave of pandemic-related personal credit downgrades, but there are bigger problems with how credit risk is assessed that are harder to solve, 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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