Businesses across the US surveyed by the US Federal Reserve do not appear to share the optimism of US President Donald Trump’s administration about a rapid economic recovery starting this summer.
The Fed on Wednesday released a report that draws on business contacts from the central bank’s 12 regions and details the economic damage last month and this month, as measures to combat the spread of the COVID-19 pandemic took hold.
The report, known as the Beige Book, cited business contacts who were less sanguine about the economy’s outlook than the administration.
Trump has forecast “some great numbers” in the final three months of this year and a strong recovery next year.
“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 said.
Even with the assistance from the Fed and nearly US$3 trillion in support from the US Congress, the economy has absorbed a major blow, with unemployment last month jumping to 14.7 percent, the highest since the Great Depression in the 1930s.
The overall economy, as measured by GDP, shrank at an annual rate of 4.8 percent in the January-to-March quarter.
Economists have forecast that the second-quarter decline could be a record-breaking 40 percent.
In terms of getting laid-off workers back, the report said that the Fed’s business contacts cited a number of challenges, including “workers’ health concerns, limited access to childcare and generous unemployment benefits.”
Since the pandemic began, the central bank has cut its benchmark interest rate to a record low of nearly zero and pumped billions of US dollars into the financial system to ensure an uninterrupted flow of credit.
Consumer spending dropped sharply as mandated closures of many retail establishments remained in place, the Fed said, adding that auto sales were also down sharply from a year earlier.
The Fed’s report also pointed to sharp declines in US manufacturing, with output notably weak in autos, aerospace and energy-related manufacturing.
The Boston Federal Reserve Bank cited its hotel industry contacts as saying that hotel occupancy had last month fallen in excess of 80 percent in the greater Boston area, with a number of large conventions being canceled through early fall. As a result, more than 200,000 hotel room nights would be lost.
Employment has fallen significantly, with millions of laid-off workers filing for jobless benefits.
Layoffs would have been even more severe, but the US Small Business Administration’s Paycheck Protection Program helped many businesses to limit or avoid layoffs, the Fed said.
The Beige Book also said that energy activity has plummeted — producers have closed wells, leading to historically low levels of active drilling rigs as a global oil glut combined with the plunging demand for gasoline and jet fuel.
The report is to be used as a basis for discussion on the economy when the central bank’s policymaking committee meets on June 9 to 10 to decide its next moves on interest rates.
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