MNI INTERVIEW: Philly Fed Sees Recovery Stalled, Demand -20%

By Jean Yung

     WASHINGTON (MNI) - Philadelphia's tepid recovery has stalled out in recent

weeks, not long after the economy re-opened and new Covid-19 cases surged across

the U.S., economists at the region's Federal Reserve Bank told MNI.  

     The district's first-time jobless claims have settled in at double the

level around the Great Recession, and the share of firms reporting demand down

60% or worse has increased.

     "As long as the virus is loose and there's no vaccine we will continue to

see disruptions," Philadelphia Fed regional economist Paul Flora said in an

interview. "Most of the concerns about the uncertainty remain." 

     Philadelphia Fed President Patrick Harker has often remarked the

post-crisis recovery had been slow to reach many pockets of his district, which

comprises eastern Pennsylvania, southern New Jersey and Delaware. Philadelphia

remains the poorest of the nation's 10 largest cities while Camden, New Jersey,

was labeled the poorest town in America as recently as 2012.  

     Initial jobless claims for the region "haven't really budged" since early

June and are likely to take some time to drift lower, Flora said. Some firms

have recalled workers but many continue to issue layoffs. "I expect it to bounce

around a little bit at this level, short of having more shutdowns." 

     --BUDGET CUTS

     New claims under the Pandemic Unemployment Assistance program supporting

independent contractors and gig workers slowed at the end of May but have

started to grow again, he noted. 

     "State governments are going through a budget crisis and making cuts all

over," Flora said. That also hurts arts groups and cultural institutions that

rely on government grants. "There will be layoffs coming."  

     Firms reported demand bottoming out at around -45% in early April compared

to before the pandemic took hold, according to a weekly regional business

survey. While demand had been steadily improving, it only recovered to about

-20% as of early July and signs of further progress are less clear. 

     "Firms were starting to see positive effects on sales and general demand as

the region began to reopen, but it's been a bit choppy in recent weeks," Fed

bank economist Elif Sen said. "Firms are commenting on the added uncertainty in

the economy, especially with the spike in cases in other parts of the country,

but with more caution in our region too." 

     --FACTORIES

     Manufacturers have seen more improvement in demand, reporting that orders

were down just 11% relative to early in the year. Most factories are finding it

easier to socially distance, Sen said. 

     Service firms are still reporting sales down 23% with a growing number of

respondents stating their demand is still -60% or worse. "It makes sense

considering how the virus is affecting the economy. Consumer-facing business

have more points of contact," Sen said.

     In the most recent survey last week, 52% of businesses are still reporting

declines in demand.

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

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