Daily Business Briefing
Aug. 11, 2021Updated
Aug. 11, 2021, 8:04 a.m. ET
Aug. 11, 2021, 8:04 a.m. ETCredit…David Zalubowski/Associated Press
Southwest Airlines no longer expects to turn a profit in the third quarter as a recent rise in coronavirus cases slows sales and drives an increase in cancellations.
In a securities filing on Wednesday, the company forecast revenue for the three months that end in September to be down 15 to 20 percent compared with the same period in 2019, a decline of three to four percentage points from its previous estimate.
The airline’s revised forecast represents a rapid turnaround from a few weeks ago, when Southwest and other major carriers said that business was booming and the highly contagious Delta variant of the virus was not yet affecting sales. In fact, Southwest said Wednesday that it was profitable again in July, but that it no longer expected to turn a profit for the current quarter, at least after excluding the effect of federal payroll aid to the industry.
Late last month, Scott Kirby, the chief executive of United Airlines, said that the Delta variant had not affected sales at all. “The most likely outcome is that the recovery in demand continues largely unabated,” he said on a call to discuss quarterly financial results with analysts and reporters.
After climbing for months, the number of people flying in the United States appears to have stagnated in recent weeks at about 80 percent of 2019 levels, according to Transportation Security Administration airport screening data. Still, more than 2.2 million people were screened on Aug. 1, the most relative to 2019 since the pandemic began. The rebound so far has mainly been driven by people traveling on vacations or visiting friends and family members.
Airlines had hoped that growing confidence in travel and a widespread return to offices in the fall would help to accelerate a recovery in business travel, which has lagged behind the leisure rebound. But the Delta variant has dashed those hopes as a growing number of companies delay their office reopenings. Share prices in Southwest and the other three large U.S. airlines were down 1 to 2 percent in premarket trading.
Read moreCredit…An Rong Xu for The New York Times
Consumer prices most likely climbed at a rapid clip in July, another month of unusually quick gains that could keep Federal Reserve officials uncomfortable and pose a political liability for the Biden White House.
The Bureau of Labor Statistics is set to release the Consumer Price Index at 8:30 a.m. on Wednesday. The inflation measure probably increased by 5.3 percent last month compared with a year earlier, and 0.5 percent from June, according to economists surveyed by Bloomberg.
It would represent a moderation in the pace of increase — the C.P.I. rose 5.4 percent in June from a year earlier, and 0.9 percent in June from May — but still a rapid yearly and monthly gain compared to what is typical.
Economists widely expected that price gains would pick up this year after slumping in 2020, but the extent of the jump has come as a surprise. Yearly price gains will almost surely moderate in the months ahead as a data quirk that’s been helping exaggerate them fades (more on that later).
Monthly gains are also expected to continue cooling off as businesses find ways to cope with short-term disruptions to supply chains, which have pushed used car prices sharply higher and led to a big part of the 2021 pop.
But the key question for the Fed, and the White House, is just how quickly that will happen. For the Fed, which is charged with keeping price gains low and steady over time, temporary price jumps are tolerable. But if consumer and business patterns change, price gains could stay persistently high, and that would be a problem. For the White House, climbing costs have become a political headache as Republicans use them to claim the Biden administration is mismanaging the economy.
Here’s what to know about Wednesday’s report.
The C.P.I. is not the Fed’s target measure. The central bank aims for 2 percent inflation on average over time, and it defines that goal using the Personal Consumption Expenditures index, which has also been up this year but not quite as sharply as the measure to be released on Wednesday. The C.P.I. is more timely and its data feeds into the Fed’s metric, though, which makes it very closely watched.
The increase is not all about that base. The so-called base effect played a big role in the gains earlier this year. Prices for airline tickets and restaurant meals dropped last year when the economy locked down, so when today’s prices are measured against those figures, the increase looks outsized.
But the base effect is now fading, because prices turned a corner after May 2020 as the economy reopened. This can vary a bit depending on how its calculated, but roughly 0.7 percentage point of the expected 5.3 percent gain in prices for July is likely attributed to the base effect. About 1 percentage point of the prior months’ gain, and 1.4 percent of May’s gain, can be attributed to the base effect.
The increase is about the pandemic. One thing the White House tends to point out is that much of the increase in prices has come from a few categories that are suffering from some unusual reopening-related quirks. For instance, used car prices have shot up as a chip shortage has delayed production of new cars. Analysts at TD Securities expect that trend to calm down starting with this month’s report.
Airfare and hotel prices have also climbed after slumping during the downturn, and are still getting back to normal.
The jump has not been all that broad. Although a few categories of goods and services are going wild, it is not the case that absolutely everything is becoming more expensive. The Federal Reserve Bank of Dallas publishes what is called a “trimmed mean” inflation measure that tosses out categories with the biggest increases or decreases each month. After eliminating outliers, that gauge shows that inflation is still running at about 2 percent.
People are watching to see whether measures of important, and persistent, inflation categories start to move up more concertedly. For instance, if housing-related costs take off as a home price crunch bleeds into rents, that could keep inflation higher.
Fast inflation will become a real problem if it lasts. “The question is more — what the inflation outlook is going to be into the next year, 2022, 2023,” Charles Evans, president of the Federal Reserve Bank of Chicago, said on a call with reporters on Tuesday.
Fed officials are watching wage increases and inflation expectations for a signal of whether the current burst of reopening-driven inflation will linger. If pay takes off on a sustained basis, employers may find that they need to charge more to cover their expenses. Likewise, if consumers and businesses start to expect rapid price increases, they may be more willing to accept higher prices, setting off a self-fulfilling prophesy.
For now, officials don’t expect that to happen.
“My best estimate is that this is something that will pass,” Jerome H. Powell, the Fed chair, said in a recent news conference. “It’s really a shock to the economy that will pass through.”
Ben Casselman contributed reporting.
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YouTube on Tuesday removed a video by Senator Rand Paul of Kentucky for the second time and suspended him from publishing for a week after he posted a video that disputed the effectiveness of wearing masks to limit the spread of the coronavirus.
A YouTube representative said the Republican senator’s claims in the three-minute video had violated the company’s policy on Covid-19 medical misinformation. The company policy bans videos that spread a wide variety of misinformation, including “claims that masks do not play a role in preventing the contraction or transmission of Covid-19.”
“We apply our policies consistently across the platform, regardless of speaker or political views, and we make exceptions for videos that have additional context such as countervailing views from local health authorities,” the representative said in a statement.
In the video, Mr. Paul says: “Most of the masks you get over the counter don’t work. They don’t prevent infection.” Later in the video, he adds, “Trying to shape human behavior isn’t the same as following the actual science, which tells us that cloth masks don’t work.”
In fact, masks do work, according to the near-unanimous recommendations of public health experts.
On Tuesday, Twitter suspended Representative Marjorie Taylor Greene, Republican of Georgia, for seven days after she posted that the Food and Drug Administration should not give the coronavirus vaccines full approval and that the vaccines were “failing.”
On Twitter, Mr. Paul called his suspension “a badge of honor” and blamed “left-wing cretins at YouTube,” while linking to an alternative site to watch the video.
The senator said in a statement that private companies had the right to bar him, but that YouTube’s decision was “a continuation of their commitment to act in lock step with the government.”
“I think this kind of censorship is very dangerous, incredibly anti-free speech and truly anti-progress of science, which involves skepticism and argumentation to arrive at the truth,” he said.
Last week, YouTube removed from his channel an eight-minute Newsmax interview in which the senator said that “there’s no value” in wearing masks. According to YouTube policy, the company issues a warning for a first offense, then the weeklong suspension is part of its “first strike” response to a second offense.
The strike will be removed from his account after 90 days if there are no more violations. A second-strike in the 90 days would result in a two-week suspension, and the account would be permanently banned after a third strike.
Read moreCredit…Tony Luong for The New York TimesCredit…Tony Luong for The New York Times
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Credit…Peter Powell/Pool Via Reuters
Instagram is rolling out new features on Wednesday to make racist material harder to view.
Among them, one will let users hide potentially harassing comments and messages from accounts that either don’t follow or recently followed them, Ryan Mac and Tariq Panja report for The New York Times.
The actions follow a more than two-year campaign by English soccer to pressure Facebook and other social media companies to rein in online hate speech against their players.
Soccer officials have since met numerous times with the platforms, sent an open letter calling for change and organized social media boycotts. Facebook’s employees have joined in, demanding that it to do more to stop the harassment.
“The unfortunate reality is that tackling racism on social media, much like tackling racism in society, is complex,” Karina Newton, Instagram’s global head of public policy, said in a statement. “We’ve made important strides, many of which have been driven by our discussions with groups being targeted with abuse, like the U.K. football community.”
But Facebook executives also privately acknowledge that racist speech against English soccer players is likely to continue. “No one thing will fix this challenge overnight,” Steve Hatch, Facebook’s director for Britain and Ireland, wrote last month in an internal note that The Times reviewed.
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Recovery in some of the world’s major economies appears to be slowing down as people spooked by the Delta variant spend less, travel less and dine out less, according to new report by the Organization for Economic Development and Cooperation, the research and policy group of the world’s richest countries.
In recent months, as vaccination rates increased globally, optimism that life appeared to be returning to normal helped spur consumer spending from Ohio to Paris to Beijing.
But that renewed sense of confidence may be ebbing amid news of breakout infections, lockdowns and other requirements. In countries like France and Italy, people now need health passes — paper or digital proof of being fully vaccinated, a recent negative test or recent Covid-19 recovery — to attend big concerts and to enter cinemas, museums and theaters.
The O.E.C.D., a Paris-based organization, looked at economic indicators including employment, retail sales, manufacturing output and wage growth in 38 member countries. It said the indicators suggested that growth in major economies like the United States and China may be slowing down, with similar signs of sputtering in Europe, including in Britain, France and Germany.
The group said that there might be higher than usual fluctuations in how economic recoveries are playing out because of persistent uncertainties, “despite the gradual lifting of Covid-19 containment measures in some countries and the progress of vaccination campaigns.”
The report also said that growth was slowing in Russia and Brazil, where the pandemic has buffeted society and industry. In Brazil, millions have gone hungry in recent months, with scenes of undernourished teenagers holding placards at traffic stops with the word hunger in large print.
China, a manufacturing powerhouse, has played a leading role in an upward global economic trend. But some economists say that its growth has started to level off in recent months and that the government’s tougher pandemic restrictions could undermine it.
There have been some cautiously encouraging signs, however. Since the pandemic recession bottomed out in the United States in the spring of 2020, the nation’s economic output has been resilient, with second-quarter output 0.8 percent higher than before coronavirus.
Coinbase, the cryptocurrency exchange, said on Tuesday that its quarterly revenue soared by more than 1,000 percent and profit skyrocketed nearly 4,900 percent from a year earlier, in its second earnings report as a publicly traded company. Revenue totaled $2.2 billion in the three months ending in June, up from $186 million a year ago. Profit was $1.6 billion, compared with $32 million a year earlier.
The Biden administration said on Tuesday that it had reached an agreement with Tridonex auto parts factories in Mexico to address accusations that workers had been harassed and fired for trying to organize with an independent union in place of a company-controlled union. Under the deal, Tridonex agreed to provide severance and back pay to workers who had been dismissed. It also agreed to a number of steps to help ensure workers’ collective bargaining rights. The case posed an early test of the labor protections in the United States-Mexico-Canada Agreement.