Most Businesses Pessimistic About Speed Of Economic Recovery, Fed Reports

TOPLINE

The Federal Reserve’s most recent report about the state of the economy—the Beige Book survey of economists, local business contacts and other experts—indicated that even though all 50 states are beginning to take their first steps toward reopening, most businesses are still pessimistic about the pace of economic recovery. 

KEY FACTS

“Economic activity declined in all districts—falling sharply in most,” the Fed said.

The central bank reported that health concerns among workers, limited childcare options and expanded unemployment benefits during the pandemic have made it more difficult to bring employees back to work. 

The CBO estimated last week that the jobless rate will stay above 15% through September (it was 14.7% in April), a level not seen since the Great Depression; that rate will eventually fall, but it will take a long time and the annual unemployment rate won’t dip below 10% until 2021.

The Fed also noted that while consumer spending has fallen across the board, the worst declines have come in the leisure and hospitality sectors. 

Auto sales are also down in general, though there are some exceptions (the Federal Reserve Bank of St. Louis, for example, reported that auto sales and hotel activity had ticked up by mid-May).

Manufacturing and construction activity fell, home sales plummeted, retail tenants missed their commercial rent payments, and agricultural conditions worsened, too. 

Big number

38 million. That’s how many Americans have filed for temporary unemployment benefits over the last nine weeks. 

Crucial quote

“Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery,” the Fed’s report says. 

Key background

A slew of emergency initiatives enacted by the Federal Reserve during the crisis—including rate cuts, lending programs and credit facilities—have the potential to inject a collective $6 trillion in cash into the financial system, CNBC estimates. Over the past three months, the Fed has cut rates twice, down to near-zero levels, slashed the reserve requirement for banks and begun buying up commercial paper (a form of short-term corporate debt). It’s also buying municipal bonds for the first time and taking its first steps into certain types of riskier corporate bonds, and it’s promised to buy an unlimited amount of government debt for the duration of the crisis. It launched two credit facilities for big companies and announced a massive lending program for small and medium-size businesses, though that program has yet to launch. 

Further reading

Demand For The Paycheck Protection Program Is Drying Up (Forbes)

Here’s What All The Latest Data Says About The Economy’s Prospects For Recovery (Forbes)

With Another $3 Trillion Stimulus Package On The Line, Here’s Everything The Government Has Done To Rescue The Economy So Far (Forbes)

Good News For Small Businesses: Congress Could Extend PPP Loan Forgiveness Period (Forbes)