MNI POLICY: Fed Sources Saw Empty NY Hotels, Texas Oil Rout

By Jean Yung

     WASHINGTON (MNI) - The Fed's Beige Book said Wednesday companies reported a

sharp falloff in activity, widespread job cuts and a pessimistic outlook through

early April as COVID-19 prompted mandatory closures. 

     Leisure, hospitality and most retail were hardest hit but many

manufacturers including automakers were also mostly shut down. Severe job cuts

were widespread across these industries, according to the summary of conditions

across 12 Fed districts through April 9. 

     Producers of food and medical products reported strong demand but faced

production delays and supply chain disruptions. Energy companies suffering from

record low prices and a decline in demand reduced investment and output, the Fed

said. 

     Real estate activity slowed, with the Boston Fed district reporting "a

near-total freeze in new office leasing activity, collapse of some sales in

progress, growing disturbances in credit markets, and steep declines in

construction activity." 

     "Economic activity contracted sharply and abruptly across all regions in

the United States as a result of the COVID-19 pandemic," the report said. "All

Districts reported highly uncertain outlooks among business contacts, with most

expecting conditions to worsen in the next several months." 

     --JOB CUTS

     Employment declined in all Fed districts, "steeply in many cases," and

firms saw more cuts in coming months, the Fed said. Most firms also cut salaries

and froze hiring. 

     In the St. Louis district, hotel and hospitality contacts reported laying

off 90% of staff, while specialty retailers, auto dealers and restaurants

reduced their workforce 50%-70%. 

     New York is perhaps hardest hit of American cities, and a tourism expert

noted "almost nobody is visiting the city." Hotel occupancy fell to 15% at the

end of the March from 72%. Many hotels have closed temporarily, while others

have repurposed some rooms as excess hospital space or isolated office space,

the Fed said. 

     Absent employees were another problem for firms facing high demand.

"Contagion fears and at-home child care needs have led some workers to stop

showing up for work; those concerns plus unemployment benefits are also keeping

workers from seeking other jobs," the Philadelphia Fed reported. 

     --PRICE PRESSURES WEAK

     Price growth slowed, flattened or even declined moderately across the

country, reflecting weaker demand, the report found. 

     Drilling activity fell sharply as crude oil prices collapsed. The Kansas

City district reported that prices weren't profitable for firms, and "if oil

prices remained below $40, respondents expected only 60-65 percent of firms to

remain solvent in the next year." Dallas Fed district firms said they are unable

to access capital through credit markets, prompting concerns about a sharp

increase in bankruptcies. 

     On the other hand, supply disruptions and shifts in demand led to

significant price increases for some essential services such as freight, farm

commodities and consumer goods, the Fed said. 

     "Some contacts described the COVID-19 pandemic as a potential 'perfect

storm' for an already struggling rural economy," the Minneapolis Fed said.

Farmers said they intended to plant more corn and soybean acres after as bad

weather last year affected harvests and prices have surged.  

     The Beige Book was prepared by the Boston Fed and comes two weeks ahead of

the next FOMC policy meeting in Washington. 

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

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