Fed Report Splashes Cold Water on Those Hoping for Quick Recovery

By:
Chris Gaetano
Published Date:
May 28, 2020
The Federal Reserve's most recent report on the country's economic climate shows pain and devastation virtually everywhere, despite partial reopenings in certain areas.

The report finds distress in virtually every part of the economy, noting that overall activity declined in all districts, sharply in most, reflecting the damage wrought by the global pandemic. Consumer spending fell further, especially in leisure and hospitality, as did manufacturing activity, residential home sales, construction activity, agricultural conditions and energy activity. Further, the report highlighted the rising number of retail tenants deferring or missing payments. While car sales did improve slightly since the Fed's last report, it noted that they were still far lower than this time last year.

Wages were a mixed bag. The report said that some businesses are cutting pay as they deal with the pandemic's fallout, while others are implementing temporary wage increases for essential staff. Overall employment, though, is way down, echoing this week's unemployment report. The report also noted that prices in many areas are actually lowering in response to decreased demand for items such as fuel, steel, and clothing; on the other hand, prices are rising on groceries, which people are buying in huge amounts.

The report noted that, among all the Federal Reserve banks, few expect a strong, fast recovery and instead believe it could take years before the economy heals from the damage. This puts central bankers at odds with Wall Street traders, who have been driving up major stock indices on the hopes that the worst is over and the country will soon get back to normal. in addition, a recent poll of U.S. executives found that 74 percent are very or somewhat confident in the economy despite the global pandemic.

The New York regional economy was a microcosm of the national conditions. The New York Fed reported that the economy has once again contracted substantially, employment continued to decline, wages were mixed but mostly down, and businesses are facing growing price pressures on both the input and sales sides. In terms of its hope for a recovery, however, the New York Fed parted from most, saying that it is now less pessimistic about the near-term outlook than it was before, expecting modest improvement in manufacturing, construction, real estate and health services. This is despite factors like consumer spending continuing to fall, the tourism and travel industry continuing to see very little business, home sale and leasing activity remaining down, as well as downturns in commercial leasing and construction activity, and banks reporting rising delinquencies.

The grim report came out around the same time that the Commerce Department reported that its initial estimates to U.S. GDP loss was actually too low and revised the damage upwards from 4.8 to 5 percent in the first quarter, according to CNBC. It is the biggest decline since 2008, when GDP dropped by 8.4 percent at the end of the year. The current crisis, however, might blow well past that number once second-quarter figures come in, with Deutsche Bank and JPMorgan both anticipating a drop of 40 percent.

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