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Several States Begin Walking Back Reopening Plans Amid COVID-19 Surge


Just how much of a mess is the economy now? Big companies and banks are beginning to report their profits for the second quarter, which may offer us some clues. David Wessel is here with the big picture. He's director of the Hutchins Center at the Brookings Institution. David, good morning.

DAVID WESSEL, BYLINE: Good morning, Steve.

INSKEEP: I guess the big question here is what the progress, if that's the word, of the pandemic means for the economy.

WESSEL: Well, the economy is basically being held hostage by the coronavirus. And there was some hope that we might have what people called a sharp V-shaped recovery later this summer into the fall, but that depended on reducing the number of COVID cases. In a lot of places, that's just not what's happening. So, you know, we've seen these improving trends and all sorts of measures like the number of hours that are being worked at small businesses or the number of people that are going to restaurants, and those trends have been disrupted. They haven't turned the wrong way, but they're not getting better. So it's a little bit worrisome.

INSKEEP: Oh, sure, because restaurants are having to reclose in different places. So those are small businesses, which we can see on the streets. What about the bigger companies, like banks?

WESSEL: Yeah. So at this time of year, we begin to get the second-quarter reports from big companies, and yesterday we got the reports from three of the nation's biggest banks. And, frankly, there was nothing encouraging there. Now, there's a lot of details. JPMorgan's profits were down by more than 50%. Citibank's profits were down by more than 70%. But three banks - Citi, JPMorgan and Wells Fargo - together put aside $28 billion to cover loans to businesses and consumers who might not be able to pay them back. And that's on top of $19 billion that they set aside in the first quarter.

And one of the most interesting things is you get to hear the chief executives of the bank give - look over the horizon at what do they see. And the CEO of Citibank said that the pandemic has a grip on the economy that doesn't seem to loosen until vaccines are available. And at Wells Fargo, which lost money for the first time in more than a decade, CEO Charles Scharf said that, in the bank's view, the length and severity of the economic downturn has deteriorated considerably.


WESSEL: So that's not a good sign.

INSKEEP: Now, with that said, when you talk about banks setting aside billions of dollars to cover loans that aren't going to be paid back, that's worrisome. It's grim. But it also sounds kind of prudent on the part of the banks. Do they still have the resources to get through this?

WESSEL: Yes, I think they do. I think there's a lot of fear that we might be - repeat the Great Recession of a decade ago, when the banks had to be bailed out, and I don't think that's going to happen unless things get a whole lot worse. The banks entered this crisis substantially stronger, with much more capital to absorb losses, than they did the last time, partly because of the post-crisis reforms.

But Lael Brainard, who's a governor of the Federal Reserve, warned yesterday that some banks might have to pull back on lending if they face rising losses or weaker capital positions. And the Fed has come under some criticism, including from former Chair Janet Yellen, for letting the banks continue to pay dividends to their shareholders instead of holding on to the money as insurance against a worsening economy.

INSKEEP: If most of the news is grim, why has the stock market remained higher than it was when it drove in the spring?

WESSEL: Yeah, that's incredible. It's really hard to understand. I got three possible explanations. One, the stock market is just optimistic that we're about to find a treatment or a vaccine and things will get back to normal in the next six months ago. Another is that interest rates are so low around the world that there's simply nowhere else to put your money except the U.S. stock market, and that's driving things up. And the third option is the market is just nuts. So take your pick.

INSKEEP: (Laughter) An explanation for almost any news story anymore - people are nuts.

WESSEL: (Laughter) That's right.

INSKEEP: David, thank you very much.

WESSEL: You're welcome.

INSKEEP: David Wessel is director of the Hutchins Center at the Brookings Institution.