Economy Bounces Back to Pre-Pandemic Levels – What’s News

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ANNMARIE FERTOLI: The US economy grew rapidly in the latest quarter, but there could be threats on the horizon.

Nell Henderson: This is an economic experience unlike any we’ve had before, both the shutting down of the economy and reopening it, and it’s just very hard to forecast things the way we have in the past and that includes inflation.

ANNMARIE FERTOLI: And shares of investor trading app Robinhood fall in it’s market debut. Plus, why some toys are getting pricier this holiday season. It’s Thursday, July 29th. I’m Annmarie Fertoli for the Wall Street Journal. This is the PM edition of What’s News, the top headlines and business stories that moved the world today.
We report exclusively that Chinese ride hailing giant Didi is weighing going private less than a month after it made its US public debut on the New York Stock Exchange, according to sources. Senior correspondent Jing Yang has more.

Jing Yang: Didi is considering going private mostly for two main objectives. The first is that it’ll placate Chinese authorities who have been cracking down on the company because the company went ahead with the IPO despite Chinese government’s concerns over data security. And then the second objective will be to compensate for investors who bought shares at the IPO and now are sitting on big losses.
And this is a highly unusual. The company has been listed on the New York Stock Exchange for just barely a month. To think about going private is just extraordinary.

ANNMARIE FERTOLI: China said earlier this month that it’s tightening rules for companies listing abroad.
Retail trading app Robinhood had its highly anticipated market debut today, but shares ended the day down, despite pricing its initial public offering on the low end of the scale. Shares were down 8.4%, closing at $34.82 cents. IPO reporter Corrie Driebusch.

Corrie Driebusch: Shortly after opening the stock started falling pretty precipitously, and at one point was down around 12%, and then came back a bit. So it wasn’t the ideal first day of trading for Robinhood. And it was actually a lot of what Robinhood and its underwriters were trying to avoid.
As we know Robinhood rose to popularity this year, it has been around for awhile, but extreme popularity with all the meme stock trading, and their whole pitch on the IPO was they want to democratize investing. And part of that was they were giving a big chunk of stock to individual investors.
Well, it doesn’t look great if individual investors are allowed to buy into an IPO but then the stock trades down and they lose money. So that’s a real difficulty and a challenge for Robinhood going forward if the stock continues to trade below it’s IPO price.

ANNMARIE FERTOLI: Amazon maintained its profit run in the latest quarter, but the e-commerce giant’s sales missed analyst expectations for the first time since the start of the pandemic. Amazon has benefited from a surge in online shopping and growth in cloud computing during the pandemic. Second quarter sales came in at just over $113 billion. Amazon’s quarterly profit was $7.8 billion.
President Biden is calling for state and local governments to pay every newly vaccinated American $100. The Treasury Department said the payments are intended to be an extra incentive to boost vaccination rates and could be funded by tapping a $350 billion pot for state and local governments included in the stimulus package passed earlier this year. The Biden administration is also calling on Congress to extend a federal moratorium on eviction of tenants that’s scheduled to expire on Saturday. According to a Census Bureau survey, more than 8 million adults were behind on their rent or mortgage as of early July. Meanwhile, many landlords have been squeezed because they’re on the hook for taxes, maintenance, and other bills. So far only 3 billion of the $47 billion in federal aid set aside to help landlords and tenants has been paid out.
Trevor Milton, the founder and one-time CEO of the electric truck startup Nikola has been charged with lying to investors about the company’s business. In an indictment made public today, Milton faces two counts of securities fraud and one count of wire fraud. Milton pleaded not guilty and was released on a $100 million bond. Nikola wasn’t charged and the company said Milton hasn’t been involved in operations since he resigned last September, but the indictment is another blow for the company, which was once worth more than Ford, but has struggled since questions about its technology and products surfaced last year.
And US gymnast Sunisa Lee is taking home Olympic gold after winning the coveted Olympic Women’s All-Around title today. The crown’s been held by the US since 2004. Lee had established herself as second best all-arounder in 2019 behind Simone Biles, whose stunning departure from the event left a door open for Lee.

Sunisa Lee: I know what I’m capable of and I knew that I had to hit the best routines of my life to get here. So I just stayed focused and I just tried not to think about winning a medal or anything like that, because either way I would have been proud of myself for competing here.

ANNMARIE FERTOLI: Lee is from Minnesota and is believed to be the first Mong American on an Olympics gymnastics team.
Coming up, making sense of mixed economic signals.
The US economy is now back to the size it was pre-pandemic. The Commerce Department says gross domestic product, which measures US goods and services grew at a six and a half percent annual rate in the second quarter. But could the Delta variant throw a wrench into the nation’s recovery? Joining me now with more is Wall Street Journal Economics Editor Nell Henderson. Hi Nell. Thanks for being here.

Nell Henderson: Oh, my pleasure. Thanks for having me.

ANNMARIE FERTOLI: So, Nell, let’s start with the latest GDP. The economy is now beyond its pre-pandemic level, but at the same time it fell short of economic forecasts. So what can the latest reading tell us about where we are right now?

Nell Henderson: Well, the message is the economy grew very rapidly in the second quarter, though not quite as fast as the most optimistic forecasts. GDP grew at a strong 6.5% annual rate. Most of that was driven by consumer spending and that was fueled by the big stimulus package passed in March, combined with rising vaccinations and business re-openings. Americans wanted to get out of the house and get on planes and go to restaurants, salons, the gym, to the doctor and the dentist. I know I did. Still, growth was a bit below expectations because American businesses couldn’t keep up with consumer demand. We’ve talked before about supply bottlenecks, like the chip shortage that’s restrained car production and sales. Shortages of shipping containers, trucks, and truckers mean stores don’t have all the goods on their shelves that they want right now. So business has made up for some of that gap by drawing down their inventories and consumers bought more stuff from abroad than we exported. Both of those things subtract from GDP growth. And then finally government spending fell after a variety of big stimulus efforts ended.

ANNMARIE FERTOLI: And what are the latest expectations for growth going forward?

Nell Henderson: The forecasts are for continued very strong growth though at a slower pace than in the second quarter. But we have to say the big wild card is the new Delta variant of COVID-19, which just injected a lot of uncertainty into the outlook. So we haven’t seen it hurt the economy so far, but obviously we’ve got to keep an eye on whether that changes.

ANNMARIE FERTOLI: Nell, this has been a big week for earnings and many companies have reported strong results. From what we’ve heard and seen so far what conclusions can we draw about how businesses are recovering?

Nell Henderson: Well, the earnings show us that even with all those supply problems, a lot of companies profited greatly from all that growth, and they expect to keep doing well in the months ahead. The companies doing well have included all of the big tech companies, the streaming entertainment companies, cable company Comcast, airplane maker Airbus, and of course Amazon is still doing great.

ANNMARIE FERTOLI: And how does this compare to how companies were doing at the height of the pandemic?

Nell Henderson: Well, the ones that took the biggest hits a year ago are seeing some of the biggest comebacks now. Which makes sense. So basically all the big service providers, including travel, entertainment, restaurants, they’re all doing as well as they can, to the extent they can keep up with the demand. Remember a year ago baseball stadiums were empty and now they’re full again. That’s great for sales of Coke, Pepsi, and beer, for example, all of which were down a year ago, and even in the first quarter of this year.

ANNMARIE FERTOLI: So you mentioned, of course, those supply constraints. And we are hearing some warnings from companies about them, especially when it comes to the global chip shortage. At the same time, consumer demand has been pretty strong. So where does that leave you us?

Nell Henderson: Yeah, the chip shortage is turning out to be a big problem. And it’s not just your care that’s a computer now, so is your phone and every electronic device you can buy. CEO’s had hoped the chip shortage might ease later this year, but now they’re saying it could go into next year and maybe the year after. Some airlines are saying they’re short of fuel, jet fuel, to serve some of the smaller markets they started flying to during the pandemic. Shortages of materials and labor are restraining home construction, which is worsening the shortage of homes. So all of those bottlenecks should work themselves out eventually, but they’re holding back the recovery for now and in some cases, it’s just kind of hard to tell how long it’s going to take to work those out. I cannot tell you how long it’s going to take to get enough chip factories operating to catch up with the demand. We’ve talked about labor shortages, we’re going to have to wait and see how long it takes people who dropped out of the labor force during the pandemic to come back. And maybe that’ll take a couple more months or maybe a couple of years.

ANNMARIE FERTOLI: Nell, it still seems like we are getting some mixed signals on the recovery right now.

Nell Henderson: I would say the recovery is continuing and likely to stay strong, with some continued restraints. One is the shortages I’ve mentioned. Just think about how much more growth in jobs we’d see, for example, if there was more home construction. That alone leads to more demand for all the stuff that goes into homes, the furniture, carpets, plumbing appliances, et cetera, not to mention actually home sales and the real estate business.
Another problem is inflation, which is still high due to these shortages and some other factors related to the economies re-opening, but that should fall back eventually as supply problems get resolved. The Fed, in fact, Fed Chairman Jerome Powell said yesterday, that’s still what the Fed is expecting. They expect that inflation will decline from its recent highs this year, and then keep declining into next year. And overwhelmingly most of the economists we’ve interviewed and surveyed agree, but Powell’s also said they could be wrong. This is an economic experience unlike any we’ve had before, both the shutting down of the economy, and reopening it, and it’s just very hard to forecast things the way we have in the past and that includes inflation.
Lastly, as I said, the Delta variant is a wild card. For now it’s primarily a terrible health problem for some people, but it could certainly hurt the recovery if, that’s if, it causes consumers to get scared and pull back again, hunker down the way we were before, if it causes workers to leave their jobs or governments to limit businesses again. Already, it’s caused some movie and TV production to be temporarily suspended. We’ve seen some companies start to re-think whether to bring employees back into the office in September, and that would hurt downtown businesses that are waiting for those workers to come back and order sandwiches and coffee.
That said each wave of the virus has hurt the economy less than the one before, as we’ve adapted. Think about it, a year ago, a lot of companies, businesses, restaurants, weren’t used to digital service, and now they all have it. A lot of consumers weren’t used to doing all their shopping and all their take out online, and now they’re doing it. So as we’ve adapted, each wave of the virus has had less economic effect, and we can hope that that continues. But as I said, it’s really kind of impossible to know.

ANNMARIE FERTOLI: That’s Wall Street Journal Economics Editor Nell Henderson. Nell, thank you so much for your time today.

Nell Henderson: Oh, my pleasure. Anytime.

ANNMARIE FERTOLI: And finally, those bottlenecks and supply chain challenges we mentioned earlier in the show are causing major shipping delays. That’s not just impacting what’s on the shelves right now. It could also make shopping for holiday gifts trickier and pricier. For example, toys are typically shipped from China in July. They reach the US in August and are on store shelves by October. But our reporter Omar Abdel-Baqui says toy makers are scrambling to meet those deadlines.

Omar Abdel-Baqui: I spoke with one toy maker who said that if he doesn’t have his supply on the water by August 15, he’s just going to leave it in China, warehouse it, and wait till later in the year to bring it and then sell it next year.
So there’s a serious question about whether there will be enough toys to sell this holiday season. Retailers say they’re working with shipping partners and some of the larger toy manufacturers to bring toys over so that they will have sufficient supply. But even the major players like Hasbro and Mattel say that they are raising prices on toys this year. And I’ve spoken with some toy makers who said, “If you see it now, buy it, because you may not find it later.”

ANNMARIE FERTOLI: And that’s What’s News for this Thursday afternoon. We’ll be back tomorrow morning. If you like our show, please rate and review us. I’m Annmarie Fertoli for the Wall Street Journal.