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Most parts of the country saw "slight to modest" growth in
economic activity from late August to September according to the US
Federal Reserve's latest Beige Book report, containing anecdotal
information from regional business contacts. Consumer spending and
employment gains in the upper Midwest and Plains states lost some
momentum as a resurgence of COVID-19 cases and hospitalizations led
to continued low tourism levels in major metros and falling
restaurant spending in the Plains. Employment gains remained on a
slow, steady path in much of the country while leisure and
hospitality workforce growth in the West and Great Lakes regions
remained sluggish. Manufacturers began to see stronger gains in
production and new orders as demand picks back up, especially
because of a surge in homebuilding and renovation in the South and
West. The boom in residential construction encompassed much of the
Mountain West and South, but limited construction labor
availability and increasing materials costs meant supply of homes
could not meet demand.
Consumer spending growth was stagnant in the
upper Midwest and dipped slightly in the Plains states as COVID-19
caseloads and hospitalizations began to rise again. Strong summer
gains in auto sales and restaurant spending in these states failed
to continue into September. Low hotel occupancy in major metros of
the Midwest and no growth in air traffic have stalled the region's
recovery of consumer spending. In the Northeast, travel and tourism
continue to slowly pick back up, but the region's restaurants are
expecting sales declines as winter weather makes outdoor dining
unappealing and indoor dining capacity remains limited. Some
restaurants in Missouri and Illinois plan to temporarily close if
cold weather makes outdoor dining unprofitable. Areas with strong
home construction growth, including the Mountain West, South, and
Midwest, saw surges in demand for appliances and furniture, but
back-to-school clothing sales were generally weak. While the
recovery in tourism activity in the South makes limited headway,
Texas airlines note that business travel stays "nearly nonexistent"
and most convention and conference business has been postponed
until the second quarter of 2021.
Labor markets continued their slow expansion
across much of the country, but hiring was minimal in the upper
Midwest. Firms in Minnesota, Wisconsin, and surrounding areas,
especially those in the hospitality industry, began downsizing
their workforces in response to sluggish consumer demand.
Employment gains were stronger in Illinois and around the Great
Lakes, but labor-force availability constraints limited growth.
While businesses in the Great Lakes region noted that generous
unemployment benefits were making hiring workers difficult, health
concerns and difficulty juggling dependent care were cited more
frequently in all regions. Transportation firms and airlines in
Texas and the South began laying off workers as travel remains
depressed. Businesses in the Northeast continue to rehire leisure
and hospitality workers as COVID-19 restrictions are lifted, but
employment in entertainment and tourism firms in the West is
treading water at low levels.
Manufacturing activity made strong gains in the
Midwest and South, especially among metals producers in Missouri,
appliance and furniture manufacturers in the Carolinas and the
South, and food processors throughout the country. Manufacturers in
the Northeast also noted a pickup in activity. Firms in the region
with heavy exposure to military and government business indicate
that their "COVID slowdown was more or less over" as of September.
Pandemic-related supply-chain disruptions are still present in many
manufacturing sectors in most regions and are constraining growth.
Producers of heavy machinery intended for infrastructure projects
in the Great Lakes region sense uncertainty in their business
growth as state and local governments face sharp budget cuts in the
near term. Meanwhile, building materials businesses in the West and
South have seen a skyrocketing surge in demand as home construction
booms.
Construction activity was solid in Texas, the
South, and around the Great Lakes as homebuilders struggled to keep
up with demand for single-family homes. In Texas, shortages of
construction labor and very high lumber prices resulted in many
project delays despite sky-high buyer interest. Record-low home
inventories in many regions are expected to be a limit to real
estate activity for a while. Pennsylvania homebuilders and brokers
note that many buyers are acting out of a "pandemic-driven desire
for more space," while those in the Carolinas and South find many
homebuyers are looking for more land and more bedrooms to be used
for offices and homeschooling areas. Strong home construction
around the Great Lakes is expected to be stronger than usual this
fall as low mortgage interest rates encourage more buyers to
complete purchases.
Outlook
This month's Beige Book indicated a strengthening recovery among
manufacturers in the Midwest and South and strong homebuilding
activity in the Mountain West, Great Lakes, and South. Employment
gains and consumer spending growth continue to be influenced by the
course of the COVID-19 pandemic and consumers' reactions to rising
or falling prevalence of the virus in their community. While retail
stores, restaurants, and attractions are generally open for
business, subject to local capacity constraints and social
distancing guidelines, sharp rises in hospitalizations in the
Midwest and South during the winter months will limit consumer
spending and hiring, especially in leisure and hospitality
services. Winter weather also threatens the recovery of the
restaurant industry in the Midwest and Northeast if consumers do
not see outdoor dining as an appealing option. Homebuilders will
continue to confront labor-market and supply-chain disruptions as
demand for single-family homes stays elevated in the South, Great
Lakes, and Mountain West regions.
Posted 30 October 2020 by James Kelly, Senior Economist