July 2020 Beige Book: Improvement Laced With Uncertainty

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated: “Economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic“. The previous report stated: “Economic activity declined in all Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic“.

Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession and was late in seeing the Great Recession.

This report was prepared at the Federal Reserve Bank of Chicago based on information collected on or before July 6, 2020.

Economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic. Consumer spending picked up as many nonessential businesses were allowed to reopen. Retail sales rose in all Districts, led by a rebound in vehicle sales and sustained growth in the food and beverage and home improvement sectors. Leisure and hospitality spending improved, but was far below year-ago levels. Most Districts reported that manufacturing activity moved up, but from a very low level. Demand for professional and business services increased in most Districts, but was still weak. Transportation activity rose overall on higher truck and air cargo volumes. Construction remained subdued, but picked up in some Districts. Home sales increased moderately, but commercial real estate activity stayed at a low level. Financial conditions in the agriculture sector continued to be poor, while energy sector activity fell further because of limited demand and oversupply. Loan demand was flat outside of some Paycheck Protection Program (PPP) activity and increased residential mortgages. The PPP and loan deferrals by private lenders reportedly provided many firms with sufficient liquidity for the near term. Outlooks remained highly uncertain, as contacts grappled with how long the COVID-19 pandemic would continue and the magnitude of its economic implications.

Employment and Wages
Employment increased on net in almost all Districts as many businesses reopened or ramped up activity. Districts highlighted gains in the retail and leisure and hospitality sectors. However, payrolls in all Districts were well below pre-pandemic levels. Job turnover rates remained high, with contacts across Districts reporting new layoffs. Contacts in nearly every District noted difficulty in bringing back workers because of health and safety concerns, childcare needs, and generous unemployment insurance benefits. Many contacts who have been retaining workers with help from the PPP said that going forward, the strength of demand would determine whether they can avoid layoffs.

Prices
Prices were little changed overall. Contacts across Districts largely reported both input and selling prices were flat. When input prices did change, increases slightly outnumbered decreases. Contacts in several Districts reported that supply chain challenges were pushing up prices for health and safety equipment used to limit the spread of COVID-19. There were also reports of rising food and beverage prices, particularly for beef. When selling prices changed, decreases outnumbered increases, as contacts in several Districts cited weak demand and limited pricing power. One exception noted by multiple Districts was new and used vehicle prices, which were boosted by low inventories.

Highlights by Federal Reserve District
Boston
Economic activity generally improved since the last report, even as significant disruptions attributable to the pandemic continued. Some firms called back workers let go earlier in the spring, and a few engaged in net new hiring, while others began layoffs. Activity in the region’s residential and commercial real estate markets remained exceedingly slow. The outlook continues to be unusually uncertain.

New York
The regional economy has begun to rebound in recent weeks, though activity is still well below pre-pandemic levels and many sectors remain depressed. Businesses have called back some furloughed workers and there have been scattered reports of new hiring, but the labor market remains weak. Prices and wages have been mostly steady, on balance.

Philadelphia
Business activity expanded moderately during the current Beige Book period but remained far below levels attained prior to the onset of COVID-19. Firms faced several challenges for hiring, yet wages appear to be trending slightly lower. In contrast, prices are trending slightly higher, as the market and supply chain disruptions of a fitful economic restart have created various price spikes. Uncertainty has increased.

Cleveland
Activity picked up across a wide range of businesses as more of the economy reopened. However, business conditions remained weak overall. And while contacts expect activity to increase further in coming months, they remain concerned about the sustainability of the recovery if the spread of COVID-19 is not contained. This caution is partly reflected in continued weakness in capital spending and hiring plans.

Richmond
The Fifth District economy expanded as many segments of the economy were able to reopen, although economic activity has yet to return to pre-pandemic levels. Retail and leisure travel, in particular, benefited from eased restrictions. Employment rebounded somewhat but remained well below prior levels. Price growth accelerated moderately, mainly driven by supply chain disruptions and high demand for certain goods.

Atlanta
Economic conditions remained soft. Labor markets improved and nonlabor costs were muted. Overall, retail sales strengthened. Tourism activity resumed, though limited by capacity constraints. Residential real estate conditions improved, and commercial real estate activity was mixed. Manufacturing activity weakened. Banking conditions worsened.

Chicago
Economic activity increased strongly. Employment, consumer spending, and manufacturing increased substantially, while business spending and construction and real estate activity increased modestly. Wages edged up, prices declined slightly, and financial conditions deteriorated modestly. The pandemic continued to weigh on agriculture incomes.

St. Louis
Economic activity has rebounded sharply since during late May; however, overall conditions remain significantly depressed and the pace of recovery appears to have slowed since mid-June. In comparison with our previous report, the outlook among contacts is slightly more pessimistic while also much more uncertain.

Minneapolis
Ninth District economic activity was mixed across sectors since the previous report, after more dramatic contractions in recent reporting periods. Consumer spending and tourism improved—after significant previous declines—due to emergency federal stimulus and the gradual reopening of state economies in the District. Most other sectors saw continued decline overall, especially relative to normal activity levels.

Kansas City
Economic activity rebounded slightly in June, and contacts expected additional gains in the months ahead. Consumer spending increased modestly, including higher retail, auto, restaurant and tourism sales. Residential real estate also picked up, but commercial real estate conditions deteriorated further. Manufacturing activity expanded slightly, but the energy and agriculture sectors remained a drag on the regional economy.

Dallas
Economic activity in the Eleventh District rebounded, but was still well below pre-COVID levels. Manufacturing and service sector activity grew. While drilling activity fell to new lows and loan demand contracted further, sentiment among energy and finance contacts improved. New-home sales rose strongly. Employment held steady, according to contacts. Input costs increased and selling prices fell. Outlooks improved, but the upward trend in new COVID-19 cases has increased uncertainty.

San Francisco
Economic activity in the Twelfth District contracted modestly. Employment levels increased slightly. Prices remained generally flat. Sales of retail goods rose moderately, while consumer and business services activity contracted sharply. Activity in the manufacturing sector was mixed, and the agriculture sector remained weak. Residential construction activity picked up somewhat, while the commercial side was mixed. Lending activity ticked up.

Source

https://www.federalreserve.gov/monetarypolicy/beigebook202007.htm

Fed’s Words When Economy is entering a Recession

For the current recession which has not been announced yet:

• 04Mar2020 -“Economic activity expanded at a modest to moderate rate over the past several weeks”
• 15Apr2020 – “Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic”
• 27May2020 – “Economic activity declined in all Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic”

For the recession starting December 2007, here is the lead-up summary words from the Beige Books:

• 28Nov2007 – “expanding”
• 16Jan2008 – “increasing moderately”
• 05Mar2008 – “growth slowed”
• 16Apr2008 – “weakened”

For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:

• 17Jan2001 – “economic growth slowed”
• 07Mar2001 – “sluggish to modest economic growth”
• 02May2001 – “slow pace of economic activity”
• 13Jun2001 – “little changed or decelerating”
• 08Aug2001 – “slow growth or lateral movement”
• 19Sep2001 – “sluggish”
• 24Oct2001 – “weak economic activity”
• 28Nov2001 – “remained soft”
• 16Jan2002 – “remained weak”

Source: Federal Reserve

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