WASHINGTON–Economic activity has “contracted sharply and abruptly across all regions," according to the Federal Reserve’s latest Beige Book data, which finds no part of the U.S. spared from the damage of the coronavirus pandemic.
Separately, a new report from Goldman Sachs forecast the economy is headed for a state that is “four times worse” than what was seen during the financial crisis a little over a decade ago.
"The hardest-hit industries -- because of social distancing measures and mandated closures -- were leisure and hospitality, and retail aside from essential goods," the Beige Book analysis states. "All Districts reported highly uncertain outlooks among business contacts, with most expecting conditions to worsen in the next several months.”
As CUToday.info has reported, the Fed has joined with other government entities in unprecedented efforts to keep the economy afloat, with Fed Chair Jerome Powell stating liquidity made available will essentially be “limitless.”
All Districts Affected
According to the Beige Book data, each Fed districts reported extensive layoffs and delayed investments across multiple segments of the economy. . "No sector was spared," said the Philadelphia Fed. "Rapidly rising joblessness has not made hiring easier, as contagion fears and childcare needs keep workers at home. Prices tend to be falling, but the wage path is muddled, and firm outlooks are clouded by uncertainty."
The Fed banks expressed worries that even a rebound in consumer demand will be punctured by concerns over a return of the coronavirus later this year.
In response to the Beige Book report, NAFCU Chief Economist and VP-Research Curt Long said, “The Fed’s latest Beige Book confirms not only widespread impact on employment and economic activity, but also a sizable loss of confidence. This is likely to linger even after the economy reopens, particularly among the business sector, which will depress capital investment over the long term. The Fed’s banking contacts uniformly indicated that they had ratcheted up credit standards, while reported liquidity conditions were highly uneven.”
Global Economy to be ‘Four Times Worse’
Separately, anew forecast for the global economy suggests the effects of the coronavirus pandemic will likely be four times worse than the financial crisis and the U.S. will see its highest unemployment rate since World War II, according to Goldman Sachs.
Goldman’s forecast sees a second-quarter GDP decline of 11% from a year ago and 35% from the previous quarter on an annualized basis.
According to the New York Times, the Goldman analysis states that in the U.S. the headline unemployment rate should hit 15% “and even this understates the severity of the situation,” as many workers will be sidelined and not looking for jobs amid an anticipated reopening of the economy. That will accompany a GDP decline in the U.S. of 11% from a year ago and 34% on a quarterly basis, both numbers also considerably worse than anything seen during the financial crisis in 2008, the Times said of the Goldman forecast.
The stock market, however, has been more sanguine, with prices off their lows.
“The initial improvement [in outlook] was mostly policy-driven, but the greater optimism of the past week seems to be at least partly related to the virus itself,” Jan Hatzius, Goldman’s chief economist, said in a note, according to the Times. Hatzius added that “the number of new active cases looks to be peaking globally, projections of cumulative fatalities and peak healthcare usage are coming down, and even actual new hospitalizations in hard-hit New York City have fallen sharply.”
No Restart Date
The analysis does not offer a prediction for when the U.S. economy can restart following social distancing practices that have closed all industries deemed nonessential.
Hatzius said “business as usual” is unlikely until a vaccine is proven effective.
But Hatzius added, “It might be possible to bring back at least part of the lost output with a sharp increase in testing as well as more limited changes to business practices that lower the risk of infection.”
He pointed specifically to manufacturing and construction, specifically citing the auto industry, which he said could go from 25% capacity in April to 70% in May, the Times reported.