Daily Business Briefing
May 27, 2021Updated just nowCredit…Erin Scott for The New York Times
Treasury Secretary Janet L. Yellen warned on Thursday that her agency lacked sufficient resources to oversee an economic recovery that still has “a long road ahead” and called on Congress to provide her with more funds to oversee a sprawling set of relief programs.
In testimony before a House appropriations subcommittee, Ms. Yellen expressed confidence that the end of the pandemic recession was in sight, but said that the Treasury Department is facing an overwhelming task in disbursing hundreds of billions of dollars of relief money with the same budget that it had a decade ago. The Treasury Department has been central to the federal government’s response to the health crisis, funneling stimulus payments and aid to millions of Americans, states, cities and businesses.
“Our team has done valiant work implementing these programs with the resources at our disposal,” Ms. Yellen said in prepared remarks. “But we cannot continue to be good stewards of this recovery — and tackle the new bodies of work that Congress assigns to us in the years beyond — with a budget that was designed for 2010.”
The call for more funding comes as the Biden administration will formally propose a $6 trillion budget on Friday.
Ms. Yellen said that Treasury’s Domestic Finance, Economic Policy, and Tax Policy offices have all seen their budgets cut by about 20 percent since 2016, during the Trump administration. She noted that the Internal Revenue Service, which has seen its budget gutted in the last decade, has been responsible for making approximately $800 billion in stimulus payments in the last year and is now getting ready to start making monthly payments of the expanded child tax credit.
The White House’s preliminary budget, released in April, asked for $14.9 billion for the Treasury Department, including $13.2 billion for the I.R.S.
Making the case for beefing up the I.R.S., Ms. Yellen said that $7 trillion of government tax revenue is likely to fall through the cracks in the next decade because the agency lacks the staff to crack down on tax cheats.
Ms. Yellen is expected to face questions from lawmakers on the trajectory of the recovery, the threat of inflation and her remarks earlier this month that interest rates might need to rise as the economy recovers.
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Exxon Mobil was dealt a stunning loss at its annual shareholder meeting on Wednesday from an unlikely opponent: a small new activist investor focused on climate change, Engine No. 1. The hedge fund won at least two seats on the oil giant’s 12-member board. It may yet claim a third nominee when the counting is over.
For corporate America, the DealBook newsletter reports, the upset victory for Engine No. 1 and its allies is a clear sign that company boards and leaders need to pay attention to environmental, social and governance issues (known as E.S.G.) — or suffer rebukes.
Exxon was the first activist campaign for Engine No. 1, which was founded last year by an energy and tech investor, Chris James. Its head of active engagement is Charlie Penner, a veteran hedge fund executive who helped lead campaigns against companies like Apple while at Jana Partners.
Engine No. 1 began agitating against the oil giant in December, calling on the company to diversify away from fossil fuels and reduce its carbon emissions. But it began work on the campaign last March, courting large investors like public pension funds that held far larger stakes in Exxon, and thus had more sway. That’s how it parlayed a stake of just 0.02 percent into getting its preferred nominees on the company’s board.
Exxon’s shares rose 1.2 percent Wednesday.
The fund’s campaign was a bet on a confluence of events, according to two people with knowledge of the matter, including longstanding investor dissatisfaction with Exxon’s corporate governance and a growing appreciation on Wall Street for E.S.G.
That position appeared to be supported after the Exxon meeting. In a note explaining why it backed some of Engine No. 1’s board candidates, BlackRock — which owns nearly 7 percent of Exxon — said the company’s directors “need to further assess the company’s strategy and board expertise against the possibility that demand for fossil fuels may decline rapidly in the coming decades.”
Exxon had largely played down Engine No. 1’s concerns, and pressured the firm to drop its challenge after a much bigger hedge fund, D.E. Shaw, called off a campaign. But Engine No. 1 persisted, and also benefited from timing: It began its campaign while oil prices were still depressed by the pandemic. Had oil not rebounded in recent months, Engine No. 1 executives believed, all four of its proposed directors might have been elected, the people with knowledge of the matter said.
Read moreCredit…Tannen Maury/EPA, via Shutterstock
Big Oil was dealt a stunning defeat on Wednesday when shareholders of Exxon Mobil elected at least two board candidates nominated by activist investors who pledged to steer the company toward cleaner energy and away from oil and gas.
The success of the campaign, led by a tiny hedge fund against the nation’s largest oil company, could force the energy industry to confront climate change and embolden Wall Street investment firms that are prioritizing the issue, The New York Times’s Clifford Krauss and Peter Eavis report.
Engine No. 1, the hedge fund leading the campaign, was seeking to defeat four of the company’s 12 director candidates. Its victory is a sharp rebuke to Darren W. Woods, Exxon’s chairman and chief executive, and is the culmination of years of efforts by activists to force the oil giant to change its environmental policies and approach. Engine No. 1 and its allies had argued that Exxon’s stance on climate change and the oil and gas business was not just bad for the planet but that it would hurt the company’s profits in the future as governments required businesses to reduce and eventually eliminate emissions of greenhouse gases.
Gregory Goff, former chief executive of Andeavor, a refiner, and Kaisa Hietala, an environmental scientist and former executive at Neste, a Finnish energy company that produces biofuels, were the two nominees declared winners. The company said the final results would not be publicly available Wednesday, and an independent inspector will determine the timing of an announcement.
“This isn’t really about ideology, it’s about economics,” Chris James, founder of Engine No. 1, said. “And economics is what has driven the adoption of some of the alternative fuel sources versus fossil fuels. We want there to be an acceptance of change.”
“We welcome the new directors,” said Mr. Woods, the Exxon head. “While there is still more to do, we are proud of the progress we have made to reduce emissions and clear plans for further reductions.”
“This signals a new era for the role of corporations in climate change and a new era for corporate governance,” said Erik Gordon, a University of Michigan business professor.
Why it matters
The vote reveals the growing power of giant Wall Street firms that manage the 401(k)s and other investments of individuals and businesses to press chief executives to pursue environmental and social goals. Some of these firms are run by executives who say they see climate change as a major threat to the economy and the planet. The loss of at least two seats on its board will almost surely energize activists to pressure Exxon, other oil companies and businesses in various industries that they believe are not doing enough to address climate change.
Read moreCredit…Paulo Whitaker/Reuters
Boeing agreed to pay at least $17 million in a settlement with the Federal Aviation Administration over production oversights involving hundreds of planes.
The penalty stems from two production lapses, the F.A.A. said on Thursday. In one case, Boeing had installed equipment with unapproved sensors on 759 narrow-body 737 Max and 737 NG planes, the agency said. In the other, the manufacturer submitted 178 Max jets for certification when the aircraft potentially had parts that were not approved by regulators.
“Keeping the flying public safe is our primary responsibility,” the F.A.A. administrator, Steve Dickson, said in a statement.
The agreement comes as Boeing seeks to resolve other production issues with the Max and the larger 787 Dreamliner. Boeing resumed deliveries of the Dreamliner in March after addressing quality concerns with the plane.
The Max, which was grounded worldwide for 20 months after a pair of fatal crashes, was approved to fly again in November. Boeing asked airlines last month to stop flying some of the planes over electrical concerns, but it recently received approval for a fix that would resolve the issue.
The F.A.A. said that Boeing would pay the $17 million penalty within 30 days. The aerospace manufacturer also agreed to make certain changes to its procedures.
The changes include more closely overseeing suppliers and improving procedures to prevent installation of parts that do not conform with approved designs. Boeing could face up to $10.1 million in additional penalties if it fails to make the changes quickly enough.
“We take our responsibility to meet all regulatory requirements very seriously,” Boeing said in a statement. “These penalties stem from issues that were raised in 2019 and which we fully resolved in our production system and supply chain.”
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Australia’s travel ban may have no end in sight, with borders mostly closed until the middle of next year.
But about 180 lucky people got to take a Qantas Airways flight on Wednesday — to 43,000 feet above Sydney and back — to get what were possibly the best views of the “super blood moon.” (Tickets sold out in three minutes.)
The rare astronomical event of a supermoon and a total lunar eclipse happening at once meant that moon appeared bigger than usual while turning a blood red color against the night’s sky because of its position in the Earth’s shadow.
Airlines, hit hard by the slump in travel during the pandemic, have offered flights to nowhere over the past year, giving passengers a chance to get out to town without defying any travel restrictions.
After staying at home for months on end and having to cancel trips to Thailand three times because of the pandemic, Maruschka Loupis, a communications officer from Sydney, said that getting on a B787 Dreamliner flown by Qantas was a thrill. She and her husband decided to splurge on two business class tickets, costing 1,499 Australian dollars each, or about $1,200, for the chance to see the supermoon up close. Or, well, eight miles closer than from the ground.
The moon was so vivid that it reminded her of the kind of solar system modules that students brought to science class, said Ms. Loupis, 66. The Milky Way looked like spilled oatmeal strewn across the sky. “It was not something you see from the Earth like a normal person,” she said.
The Qantas pilots worked with an astronomer from the Commonwealth Scientific and Industrial Research Organization, Australia’s national science and research agency, to design a path that would offer passengers optimal views. As the flight climbed above clouds and atmosphere pollution, flight attendants served cosmic cocktails and Milky Way chocolate bars.
An unexpected treat was catching a glimpse of a shooting star, Ms. Loupis said. After getting through the pandemic, it was easy to know what to wish for: Good health for many years to come.
Read moreVideoThe House Committee on Financial Services hears testimony from executives of major banks including JPMorgan Chase & Company, Morgan Stanley, Bank of America and Wells Fargo.CreditCredit…Anna Moneymaker for The New York Times
The chief executives of the six biggest American lenders are testifying before the House Committee on Financial Services on Thursday, for the first time since 2019.
On Wednesday, the banking executives drew criticism from several senators during a hearing before Senate Banking Committee for not doing more to help small businesses and retail customers during the pandemic.
Credit…Mandel Ngan/Agence France-Presse — Getty Images
Facing a national decline in Covid-19 vaccination rates and an underwhelming response to vaccines in its own stores, the U.S. pharmacy chain CVS will offer a chance at money, vacations and a Super Bowl trip to persuade the unvaccinated to start going in for their shots.
CVS said in April that it could administer 25 million shots each month, but as of this week it had only administered about 17 million doses in total as mass vaccination sites ended up playing a bigger role in the nation’s early vaccination campaign.
The CVS incentives could not only help get more people vaccinated, but provide a boost to the company: The Medicare payment to administer each dose is $40.
Nationally, the average number of doses administered daily has slowed to 1.7 million, down from a peak of more than 3.3 million in April.
CVS said in a statement that in an effort to “provide a positive reminder of the activities that are possible once vaccinated,” it had joined with other companies to offer prizes to people who get a shot at one of its pharmacies.
Among the incentives: Weeklong Norwegian Cruises, $100 dates sponsored by the dating app Hinge and a trip to Super Bowl LVI next year.
CVS will give 125 people $500 and five people $5,000 to host family reunions.
People 18 and older who “received a vaccination or certify that they’ve registered to receive a vaccination from CVS Health” are eligible for the sweepstakes, which runs from June 1 to July 10, the statement said.
CVS isn’t the first to offer inducements to the unvaccinated. Ohio, Colorado and Oregon are offering residents a chance at $1 million for getting vaccinated, and Gov. Andrew M. Cuomo of New York on Wednesday said that residents ages 12 to 17 who get vaccinated would be entered to win a full-ride scholarship to a public university in the state. (Other incentives include free beer in New Jersey and $50 gift cards in Detroit for driving someone to a vaccination site.)
More than 165 million Americans have received at least one dose of a Covid-19 vaccine, according to the Centers for Disease Control and Prevention. Still, only 40 percent of the U.S. population has been fully vaccinated, leaving a significant portion of the country vulnerable to infection.
With the Memorial Day holiday looming, Dr. Rochelle P. Walensky, the C.D.C. director, warned unvaccinated Americans on Tuesday that they “remain at risk of infection” and should still take precautions like distancing and wearing a mask.
Stocks on Wall Street rose in early trading on Thursday as investors weighed fresh data on the economic recovery in the United States.
Claims for state unemployment benefits fell again last week, to a new pandemic low of 420,000. the Labor Department said. The Commerce Department also reported that orders for new equipment, a measure of business spending, rose in April.
The S&P 500 rose about 0.3 percent, inching closer to a record. The index ended trading on Wednesday just 0.9 percent short of the high it hit on May 7.
But stock trading has grown turbulent since then as investors worry about inflation and the risk that the Federal Reserve might cut back on its support for the economy.
The Fed has a dual mandate to keep inflation stable and reach full unemployment, and recent data has shown a sharp rise in prices. Policymakers say the increase is likely to be temporary, but they have been “talking about talking” about when the central bank will be ready to slow down its bond-buying program. The monetary stimulus has helped keep stock prices high.
That said, the strength of the labor market is being vigorously debated. In April, job gains slowed sharply and some employers have complained about struggling to fill vacancies even as millions of people remain unemployed.
Elsewhere in markets
The Stoxx Europe 600 rose 0.4 percent, creeping up for a sixth day and touching another record high.
West Texas Intermediate, the U.S. crude oil benchmark, dropped slightly to $66 a barrel.
Shares in Eli Lilly fell 1 percent after the drugmaker said in a regulatory filling that it had received a subpoena from the Department of Justice for documents concerning its manufacturing plant in Branchburg, N.J. Reuters has reported about accusations of irregularities in quality control at the plant, where Lilly makes a Covid-19 treatment.
Read moreCredit…Justin Lane/EPA, via Shutterstock
Initial claims for state jobless benefits fell last week, the Labor Department reported Thursday.
The weekly figure was 420,000, a decline of 34,000 from the previous week and the lowest weekly total since before the pandemic. New claims for Pandemic Unemployment Assistance, a federally funded program for jobless freelancers, gig workers and others who do not ordinarily qualify for state benefits, totaled 93,500, a slight decline from the prior week. The figures are not seasonally adjusted.
New state claims remain high by historical levels but are less than half the level recorded as recently as early January. The benefit filings, something of a proxy for layoffs, have receded as business return to fuller operations, particularly in hard-hit industries like leisure and hospitality.
More than 20 Republican-led states have said they will abandon federally funded emergency benefit programs in June or early July, saying the income is deterring recipients from seeking work as some employers complain of trouble filling jobs. Those programs include not only Pandemic Unemployment Assistance but also extended benefits for the long-term unemployed.
In a separate report, the government on Thursday issued its second reading for U.S. growth in the first three months of the year. It said that the economy expanded by 6.4 percent in the first quarter, the same rate as reported last month.
When Apple and Google collaborated last year on a smartphone-based system to track the spread of the coronavirus, the news was seen as a game changer. The software uses Bluetooth signals to detect app users who come into close contact. If a user later tests positive, the person can anonymously notify other app users whom the person may have crossed paths with in restaurants, on trains or elsewhere.
Soon countries around the world and some two dozen American states introduced virus apps based on the Apple-Google software. To date, the apps have been downloaded more than 90 million times, according to an analysis by Sensor Tower, an app research firm. Public health officials say the apps have provided modest but important benefits.
But Natasha Singer of The New York Times reports that some researchers say the two companies’ product and policy choices have limited the system’s usefulness, raising questions about the power of Big Tech to set global standards for public health tools.
Computer scientists have reported accuracy problems with the Bluetooth technology. Some of the app users have complained of failed notifications, and there has been little rigorous research on whether the apps’ potential to accurately alert people of virus exposures outweighs potential drawbacks — like falsely warning unexposed people or failing to detect users exposed to the virus.
“It is still an open question whether or not these apps are assisting in real contact tracing, are simply a distraction, or whether they might even cause problems,” Stephen Farrell and Doug Leith, computer science researchers at Trinity College in Dublin, wrote in a report in April on Ireland’s virus alert app.
Read moreCredit…Erin Schaff/The New York Times
In recent decades, the area in and around Pennsylvania’s Lehigh Valley has evolved from its agricultural and manufacturing roots to also become a health care and higher education hub.
Now there’s a new shift, The New York Times’s Michael Corkery reports.
Huge warehouses are sprouting up like mushrooms along local highways, on country roads and in farm fields. The boom is being driven, in large part, by the astonishing growth of Amazon and other e-commerce retailers and the area’s proximity to New York, the nation’s largest concentration of online shoppers, roughly 80 miles away.
But the warehouses are being built at such a dizzying pace that many residents worry the area’s landscape, quality of life and long-term economic well-being are at risk.
E-commerce is fueling job growth, but the work is physically taxing, does not pay as well as manufacturing and could eventually be phased out by automation. Yet the warehouses are leaving a permanent mark. There are proposals to widen local roads to accommodate the thousands of additional trucks ferrying goods from the hulking structures.
Developers are confident in the industry’s growth, however, particularly after the pandemic. Big warehouse companies like Prologis and Duke Realty are investing billions in local properties. Many of the warehouses are being built before tenants have signed up, making some wonder whether there is a bubble and if some of these giant buildings will ever be filled.
“People are calling it warehouse fatigue,” said Dr. Christopher R. Amato, a member of the regional planning commission. “It feels like we are just being inundated.”
But some, like David Jaindl, a third-generation farmer, said the concerns in the area about warehouses were unwarranted.
“They are certainly good for our area,” said Mr. Jaindl, who is developing land for several new warehouses. “They add a nice tax base and good employment.”
Manufacturing jobs in the Lehigh Valley pay, on average, $71,400 a year, compared with $46,700 working in a warehouse or driving a truck. The region is still home to large manufacturing plants that produce Crayola crayons and marshmallow Peeps candies.