MNI INTERVIEW: Fed's Barkin Watches Death Rates, Stimulus Bill

By Jean Yung

     WASHINGTON (MNI) - The recent spike in coronavirus infections across the

U.S. south and west has sapped momentum from the economic rebound as consumers

respond with renewed caution, Federal Reserve Bank of Richmond chief Thomas

Barkin told MNI in an interview on Monday.

     "People are cautious," Barkin said. "Recovery is a confidence game.

Consumers are 68% of the economy and their confidence matters a lot. I thought

we were on a positive trajectory. The last couple weeks have at least shaken

some of that." 

     He's watching Congressional negotiations over another fiscal aid package

and whether elevated infection rates will lead to a spike in deaths over the

next month. New Covid-19 cases reached records over the weekend across the

country led by large states including California, Texas and Florida, though

those governors said they would only close businesses again as a last resort. 

     Credit card spending has flattened in the past two weeks, led by

restaurant, travel, entertainment and lodging expenditures, and "it's just not

clear at this point if that's temporary or a ceiling on the recovery rate," he

said. Businesses feel good about their ability to operate, but are nervous about

consumer demand. 

     Economic data so far have "come in as expected," and there is potential for

households to overlook the rise in Covid cases if the death rate holds steady,

Barkin said. 

     --COVID RATES

     "Case rates are high but death rates haven't yet crept up significantly.

We'll know more a month from now," said Barkin, who votes at Fed rate meetings

next year. 

     "With some stability on the health side, you can imagine spending starting

to come back and businesses starting to invest or restructure. Similarly if

there were another round of fiscal stimulus -- whether that went to individuals,

companies or governments -- you can imagine that would facilitate some

confidence." 

     A number of businesses in the Richmond Fed district spanning Virginia,

North Carolina and South Carolina, have called employees back to worksites. More

classic white collar firms that were looking to re-open after Labor Day are now

considering a further delay, Barkin said. 

     "Businesses have figured out how to operate without infections peaking. The

challenges are less from the workplace," and more from a lack of demand, he

said. 

     --REAL ESTATE OUTLOOK MIXED

     Barkin is also paying a lot of attention to commercial real estate for

signs of business and consumer confidence. 

     On the more consumer side, retail centers without a home improvement or

other essential big-box store are "struggling," and so are lodgings targeting

military and business travel, Barkin said. On the plus side, multi-family

property owners are reporting good rent collections and appear "to be holding up

really well," supported by stimulus payments. 

     The industrial sector of commercial real estate is "doing really well" he

said. 

     The commercial office segment is up in the air, Barkin said. If more people

work from home, then less office space may be needed, but employers may also

need more square footage to factor in social distancing rules. Most office

leases run for 10 to 15 years and "there's not a massive amount of supply to

come in," Barkin said. 

     "It's way too early to make a call on offices. You don't know what's going

to happen with the virus -- the range of outcomes is still incredibly wide." 

     --JOBS SHIFT

     Barkin has made a concerted effort to travel around his district ever since

Memorial Day. At that time he was sitting on the beach in South Carolina and

noticed a marked difference in behavior and attitude in the southern parts of

his district that re-opened earlier than northern ones. 

     The Richmond Fed's outreach team has also set an objective to speak to

consumer-oriented businesses. Small doctors' and lawyers' offices they've spoken

are doing fine while restaurants, retail and other personal services are scaling

back payrolls to survive. Most small businesses are glad they took advantage of

the Paycheck Protection Program loans and grants, but demand has not recovered. 

     "We were down over 20 million jobs and we're still down 15 million.

Disproportionally those are people in the hospitality and leisure sector," he

said. 

     "We will have a pretty significant population that need to find their way

to the next career," if Covid remains a lingering problem, he said. "I do worry

about the redeployment of those folks." 

     --FIRST FLIGHT

     Taking a flight again for the first time since the pandemic, Barkin said

all passengers were wearing masks and behaving courteously, which bodes well for

a return to some semblance of normalcy as the country recovers. The middle seats

were unoccupied.

     Walking last week in Harrisonburg, Va., Barkin saw that of five restaurants

around one street corner, two were still shuttered, one re-opened to fallen

demand, one was open for takeout only and the fifth was contemplating turning

the eatery into a bar. 

     "I talked to the guy who's cooking dinner. I do want to understand how

they're thinking about things. They have all got to reassess what they're

doing." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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