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The relaxation of business closures intended to slow the spread
of COVID-19 led to higher economic activity in most parts of the
country from late May through June according to the US Federal
Reserve's latest Beige Book report, containing anecdotal
information from regional business contacts. A resurgence in
COVID-19 cases, increased uncertainty, and the return of some
business restrictions in California and parts of the Western US
have resulted in slower gains in the West and Mountain West
regions. Pent-up demand for automobiles led to a sharp uptick in
auto sales in every region, but spending at retailers and
restaurants was strongest in the South and Midwest. Tourism in
Hawaii and in urban destinations such as New York and southern
California remained significantly depressed because of dramatically
lower international travel. Firms in all regions began to recall
furloughed workers, but concerns about worker safety and childcare
needs restrained hiring in retail and hospitality sectors in the
Northeast and South. The restarting of auto plants in the Midwest
and Great Lakes resulted in a sharp uptick in manufacturing hiring
and production activity. Construction activity resumed in many
areas, and homebuilders reported greater-than-expected demand in
the Great Lakes and South while home sales increased in
less-expensive areas of Idaho and eastern Washington.
Consumer spending rebounded across the country
as businesses began to reopen and people ventured out to spend in
person. Gains were relatively soft in New York and the rest of the
Northeast as business travel and urban-destination tourism remained
"moribund" and "inactive." Leisure travel to drivable beach and
mountain destinations boosted spending from the Northeast south to
Florida. With business and international air travel at minimal
levels, tourism spending in Hawaii was severely sluggish and
southern California retail suffered from a lack of foot traffic.
Auto sales were sharply up in most regions because of pent-up
demand. Boat, all-terrain vehicle (ATV), and recreational vehicle
(RV) sales boomed in the Midwest and Texas as consumers began to
look for ways to spend leisure time closer to home and away from
airports. Restaurants struggled with maintaining sales levels in
Missouri and Arkansas, while restaurants and bars in California and
other parts of the West faced the scaling-back of operations as
COVID-19 cases made a resurgence in late June.
Labor markets improved slightly in the
Northeast and around the Great Lakes, while employment rose quicker
in parts of the South and Midwest. Firms in every region began
rehiring previously furloughed workers to meet demand as businesses
reopened with the largest gains in the retail, leisure, and
restaurant sectors. Businesses in the West hired "a fraction" of
those laid off because of pandemic-related closures, while Hawaii
tourism firms expect to rehire one-tenth of their laid-off workers
in the next few months. Weak demand in the Great Lakes resulted in
limited employment growth, and mass layoff announcements in the
Dakotas and Minnesota rose in June. Energy-sector layoffs in North
Dakota became widespread. In the eastern half of the country, firms
noted that safety concerns, the need for childcare, and generous
unemployment benefits made recalling workers more difficult.
Companies that received Paycheck Protection Program loans indicated
that further layoffs will be necessary if demand from consumers
does not rematerialize at a quicker pace.
Manufacturing activity picked up strongly in
the Midwest and Great Lakes regions as automakers and their
suppliers restarted production. Production also rebounded in the
Northeast as food manufacturers saw strong demand for their
products. Aerospace-sector producers in the Northeast and Midwest
saw declines in their commercial businesses as the pandemic-induced
travel recession is expected to last until 2022, resulting in fewer
deliveries of new aircraft to airlines. Food and beverage
manufacturing bolstered activity in Texas and the Plains states.
Firms in the upper Midwest noted that new orders and activity
contracted as customers entered a "wait and see" mode. Uncertainty
about the future course of the COVID-19 pandemic increased in many
regions and is leading to sluggish gains. Continued declines in oil
and gas production in Texas depressed activity further.
Construction activity rose in Pennsylvania and
parts of the South and improved in Texas and areas along the West
Coast as residential real estate activity resumed. New homebuilding
was sluggish in the Northeast and resulted in "substantial" drops
in inventory in and around Massachusetts. Motivated by low mortgage
interest rates and the desire for more "elbow room," buyers in
Pennsylvania boosted home sales in suburban areas. Home
construction rose in the West with reports that many families have
begun moving away from high-cost metro areas to Idaho and eastern
Washington as firms transition to permanent remote work.
Construction was sluggish in the Midwest and Plains states while
demand for new homes greatly outstripped supply around the Great
Lakes with buyers encouraged by low mortgage rates.
Outlook
This month's Beige Book pointed to the beginnings of a recovery
from the initial business shutdowns meant to mitigate the spread of
COVID-19. While most regions saw large rebounds in retail,
restaurant, and tourism hiring as businesses began to reopen, an
upturn in new infections in late June and July compelled many
states in the South and West to pause their reopening plans. The
acceleration of the pandemic will result in slower consumer
spending and hiring in these states. The long-term duration of
social distancing measures will further delay a full recovery in
"socially dense" activities such as indoor dining, concerts, and
sporting events in all regions. States in the Northeast and Midwest
that had better initial success at slowing the spread of COVID-19
will see relatively stronger hiring and spending in the near term,
but raging outbreaks in other parts of the country will threaten
their recoveries.
Posted 21 July 2020 by James Kelly, Senior Economist, IHS Markit