Latest Beige Book paints blah-colored picture of economy, outlook

Reading the introductory paragraph of the Federal Reserve’s latest Beige Book, released Wednesday, is like perusing an after-contest report from a football game that went bad nearly all the way around.

The Beige Book (an informal snapshot of economic conditions based on input acquired from contacts of each of the Fed’s 12 districts as of May 18) states:

  • Reflecting disruptions associated with the COVID-19 pandemic, economic activity declined in all districts – falling sharply in most.
  • Consumer spending fell further as mandated closures of retail establishments remained largely in place.
  • Declines were especially severe in the leisure and hospitality sector, with very little activity at travel and tourism businesses.
  • Auto sales were substantially lower than a year ago – although several districts noted recent improvement.
  • Most districts reported sharp drops in manufacturing activity, and production was notably weak in auto, aerospace, and energy-related plants.
  • Residential home sales plunged due in part to fewer new listings and to restrictions on home showings in many areas.
  • Construction activity fell as new projects failed to materialize in many districts.
  • Commercial real estate contacts reported that a large number of retail tenants had deferred or missed rent payments.
  • Bankers reported strong demand for PPP loans.
  • Agricultural conditions worsened, with several districts reporting reduced production capacity at meat-processing plants due to closures and social distancing measures.
  • Energy activity plummeted as firms announced oil well closures, which led to historically low levels of active drilling rigs.

“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 report noted.

The Federal Reserve Bank of Cleveland was more direct: “Though many firms believe the worst declines have passed, few are expecting a strong recovery.”

Regarding banking and financial services, most of the Fed’s 12 districts reported weakened activity and uncertain outlooks.

“Banks indicated a sharp increase in delinquencies, primarily in mortgages, credit cards, and auto loans,” the St. Louis Fed reported. However, the bank said, banks do expect fewer delinquencies in the third quarter.

A highlight for banks: the incidence of Paycheck Protection Program (PPP) loans, which at least one Fed bank (San Francisco) cited as the reason for increased lending activity in the district.

Beige Book: May 27, 2020