Economy contracting sharply with coronavirus sweeping U.S., Fed says
The U.S. economy entered a defensive crouch as the coronavirus pandemic swept through the country, according to a report from the Federal Reserve.
“Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic,” the central bank said in its Beige Book survey released Wednesday in Washington, based on anecdotal information collected by the 12 regional reserve banks through April 6. “All districts reported highly uncertain outlooks among business contacts, with most expecting conditions to worsen in the next several months.”
Businesses across the country shuttered in March as officials in most states ordered people to shelter in place in an effort to contain the spread of the virus. As many as a quarter of firms in the Fed’s Philadelphia region said they had shut down. “No sector was spared,” the Philadelphia Fed said in the report.
The hardest hit industries were leisure and hospitality and retail outside of essential-goods purchases, the Fed said in its report prepared by the Boston branch. While food and medical products producers reported strong demand, they noted production and supply-chain difficulties.
All districts reported employment declines, with many saying they were widespread. Drastic isolation measures have led to millions of job losses and estimates of a second-quarter economic contraction of 25% on an annualized basis. None of the districts reported upward pressures on wages.
“Contacts in several Districts noted they were cutting employment via temporary layoffs and furloughs that they hoped to reverse once business activity resumes,” the Fed said. “The near-term outlook was for more job cuts in coming months.”
In response to the economic slowdown, the Fed has unleashed an unprecedented range of policy tools designed to support households and businesses and to ensure the flow of credit. It cut interest rates to almost zero in March, dramatically increased asset purchases and announced emergency programs to support as much as $2.3 trillion in loans.
A record drop in retail sales in March indicates the severe impact of the virus’s effect as lockdown steps were taken. Overall sales dropped a record 8.7% from the prior month, Commerce Department figures showed Wednesday. Manufacturing in New York state shrank in April at the fastest pace on record as the virus led to a drop in demand, separate data from the New York Fed showed.
Fed districts reported either slowing price growth, unchanged prices or modest to moderate declines in prices, the Fed said. In some areas, virus-related outsize demand did push prices higher.
“In contrast, supply chain disruptions and shifts in the composition of demand led to significant price increases for some essential services — such as freight — and some agricultural commodities and consumer goods,” the Fed said.
New York, the nation’s banking capital, said that some lenders are adopting more lenient policies on loan repayments, especially on residential mortgages.
The Fed’s policy-setting committee is scheduled to hold its next meeting April 28-29.
The coronavirus has infected 2 million people around the world and taken more than 128,000 lives. Cases in the U.S. top 600,000, dwarfing other nations, with outbreaks in major metropolitan areas like New York City, Seattle and Detroit killing thousands and shuttering American life in many regions.