Washington Insider-- Monday

Recession Pain Remains

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

VP Pence Talks Ethanol, Storm Damage in Iowa Visit

President Mike Pence was in Iowa on Thursday for the rollout of the “Farmers and Ranchers for Trump Coalition,” noting that biofuel policy is an area the administration has delivered. Pence said President Donald Trump had promised to expand ethanol markets and “that's just what we've done,” noting the expansion of the use of E15 year-round.

Biden campaign spokeswoman Kate Bedingfield said Pence came to Iowa “to change the narrative on the Trump administration's disastrous coronavirus response, and to distract from their record of double-crossing the ethanol industry and pursuing an erratic, costly trade policy that puts American workers on the losing side of the equation.”

Pence also mentioned the derecho storm in the stop. He pledged that help was coming, but did not mention any specific federal relief that may be headed Iowa's way.

“On behalf of the President of the United States and our administration I want Iowans to know we are with you. We are going to stay with you and we will work with your governor and your senators to make sure that we bring Iowa all the way back, bigger and stronger than ever before,” Pence said, to cheers. “I promise.”

USTR Nominee Clears Senate

The Senate Thursday by voice vote confirmed Michael Nemelka as a deputy U.S. Trade Representative and Alina Marshall and Christian Weiler as judges to the U.S. Tax Court.

Nemelka said during his confirmation hearing before the Senate Finance Committee that China's purchases of U.S. ag products would be picking up in the fourth quarter and also said that the U.S. could bring complaints under the U.S.-Mexico-Canada Agreement (USMCA) as soon as this fall.

This comes after USTR, USDA and the Commerce Department held the first of two public hearings on the imports of fresh produce into the U.S. Efforts to get more protections in USMCA from fresh produce imports failed, but the two hearings were set in part due to the lack of the provisions making it into the trade deal.

The second hearing will take place August 20.


Washington Insider: Recession Pain Remains

Bloomberg is reporting this week that economic pain is lingering behind U.S. retail sales recovery and that beneath the economic headlines, big shifts in sales composition are attracting attention. The analysis adds that further gains are threatened by stalemate over additional stimulus.

On the surface the rebound in U.S. retail sales is a “V-shaped recovery,” the report says. But the overall figure obscures lingering economic pain across many of America's business sectors.

Bloomberg notes that after a third straight monthly increase -- albeit a weaker gain than expected -- the total value of U.S. retail sales has rebounded above pre-pandemic levels. But the composition of spending looks substantially different than it did at the start of the year. Gains in online sales and at grocery stores mask the fact that certain sectors such as restaurants and bars and clothing outlets are far from fully recovered.

“Where we're buying now is “a bit different,” but we're actually at some pretty strong numbers now,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA. “Travel, eating out, sporting events, a lot of entertainment events -- all that is going to be struggling for quite some time.”

The figures highlight a rebound in consumer spending that will help the economy dig out from its worst quarterly performance since the 1940s, even if the pickup in activity fails to extend to all retailers. While receipts at restaurants, department stores and clothing merchants remain below year-ago levels -- and closures and job cuts have hit such establishments hard -- those categories account for about 15% of overall retail sales.

The outlook for overall consumer spending in coming months remains murky, though. The extra $600 in weekly jobless benefits that have propped up incomes and spending for millions of unemployed people in recent months expired at the end of July and lawmakers have been in a stalemate over another aid package.

A separate report Friday showed consumer sentiment remained weak in August, increasing slightly from July but little improved from April's pandemic low. In addition, total consumer outlays -- which include spending on goods and services -- have yet to recover fully.

The Commerce Department's report on Friday showed retail sales increased 1.2% from the prior month after an upwardly revised 8.4% gain in June. The monthly slowdown reflected declines at motor-vehicle dealers and building materials outlets, along with weaker gains at restaurants and clothing stores.

Nine of 13 major categories rose, with the biggest increase coming at electronics and appliance stores. Such sales jumped 22.9% following a 37.6% gain in June, likely reflecting changing consumer habits such as more Americans working and learning from home. Receipts at sporting goods and hobby stores fell 5% from the prior month, after June's 27.6% rise.

The S&P 500 stock index fluctuated between gains and losses on Friday, lingering near a record high.

“For consumer goods spending, the recovery is over -- spending levels are back to record highs,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note. But “keep in mind that for the overall economy, outlays on services are roughly twice as large as goods and the recovery in services has been slower.”

President Trump signed an executive action last week authorizing an additional $300-a-week federal top-up for those receiving at least $100 in other jobless benefits but it's not clear when jobless workers will begin to see those supplemental payments. He also allowed for a four-month deferral of payroll taxes, which would potentially give workers more spending power but there are questions over whether employers will go along and whether they'll have to pay it back later.

Most importantly, the U.S. has yet to get the virus under control, though the spread has ebbed slightly in the last couple of weeks. Several Federal Reserve officials have reiterated the virus' role in the economic recovery recently, including San Francisco Fed President Mary Daly, who said Wednesday, “the virus determines the pace of our recovery. That's the main message: uncertainty is before us.”

A separate report out Friday from the Federal Reserve showed total output at factories, mines and utilities rose 3% in July from the prior month, in line with projections, as a surge in motor vehicle production and unusually warm temperatures boosted the overall figure.

“The economy is showing some good resiliency despite the high numbers of COVID cases,” Michael Gapen, Barclays Plc's chief U.S. economist, told Bloomberg. “I think that can continue but I think it needs some additional federal support to do that.”

So, we will see. Pressure to increase anti-virus support is high and likely growing, but disagreements over details of such a package also have increased and the issue has become increasingly politicized -- a trend that is likely to intensify as the conventions heighten the drama in the coming days. Thus, the fight over economic assistance is increasingly important and should be watched closely as the economy struggles to rebound, Washington Insider believes.

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