Beige Book

For use at 2:00 PM EDT

Wednesday

July 15, 2020

The Beige Book

Summary of Commentary on Current Economic Conditions

By Federal Reserve District

July 2020

Federal Reserve Districts

Minneapolis

Boston

Chicago

New York

Cleveland

Philadelphia

San Francisco

Kansas City

St. Louis

Richmond

Atlanta

Dallas

Alaska and Hawaii

are part of the

San Francisco District.

The System serves commonwealths and territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin

Islands; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands.

National Summary

Boston

1

A-1

First District

New York

B-1

Second District

Philadelphia

C-1

Third District

Cleveland

D-1

E-1

Fifth District

Atlanta

F-1

Sixth District

Chicago

G-1

Seventh District

St. Louis

H-1

Eighth District

Minneapolis

The Beige Book is a Federal Reserve System publication about current

economic conditions across the 12 Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety

of mostly qualitative information, gathered directly from District

sources.

The qualitative nature of the Beige Book creates an opportunity to

characterize dynamics and identify emerging trends in the economy

that may not be readily apparent in the available economic data. Because this information is collected from a wide range of business and

community contacts through a variety of formal and informal methods,

the Beige Book can complement other forms of regional information

gathering.

How is the information collected?

Fourth District

Richmond

What is The Beige Book?

Each Federal Reserve Bank gathers anecdotal information on current

economic conditions in its District through reports from Bank and

Branch directors, plus phone and in-person interviews with and online

questionnaires completed by businesses, community contacts, economists, market experts, and other sources.

How is the information used?

The anecdotal information collected in the Beige Book supplements the

data and analysis used by Federal Reserve economists and staff to

assess economic conditions in the Federal Reserve Districts. This

information enables comparison of economic conditions in different

parts of the country, which can be helpful for assessing the outlook for

the national economy. The Beige Book also serves as a regular summary of the Federal Reserve System’s efforts to listen to businesses

and community organizations.

I-1

Ninth District

Kansas City

J-1

Tenth District

Dallas

K-1

Eleventh District

San Francisco

Twelfth District

L-1

This report was prepared at the Federal Reserve Bank of Chicago

based on information collected on or before July 6, 2020. This document summarizes comments received from contacts outside the

Federal Reserve System and is not a commentary on the views of

Federal Reserve officials.

National Summary

The Beige Book ■ July 2020

Overall Economic Activity

Economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic. Consumer spending picked up as many nonessential businesses were allowed to reopen. Retail sales rose in

all Districts, led by a rebound in vehicle sales and sustained growth in the food and beverage and home improvement

sectors. Leisure and hospitality spending improved, but was far below year-ago levels. Most Districts reported that

manufacturing activity moved up, but from a very low level. Demand for professional and business services increased

in most Districts, but was still weak. Transportation activity rose overall on higher truck and air cargo volumes. Construction remained subdued, but picked up in some Districts. Home sales increased moderately, but commercial real

estate activity stayed at a low level. Financial conditions in the agriculture sector continued to be poor, while energy

sector activity fell further because of limited demand and oversupply. Loan demand was flat outside of some Paycheck

Protection Program (PPP) activity and increased residential mortgages. The PPP and loan deferrals by private lenders

reportedly provided many firms with sufficient liquidity for the near term. Outlooks remained highly uncertain, as contacts grappled with how long the COVID-19 pandemic would continue and the magnitude of its economic implications.

Employment and Wages

Employment increased on net in almost all Districts as many businesses reopened or ramped up activity. Districts

highlighted gains in the retail and leisure and hospitality sectors. However, payrolls in all Districts were well below prepandemic levels. Job turnover rates remained high, with contacts across Districts reporting new layoffs. Contacts in

nearly every District noted difficulty in bringing back workers because of health and safety concerns, childcare needs,

and generous unemployment insurance benefits. Many contacts who have been retaining workers with help from the

PPP said that going forward, the strength of demand would determine whether they can avoid layoffs.

Prices

Prices were little changed overall. Contacts across Districts largely reported both input and selling prices were flat.

When input prices did change, increases slightly outnumbered decreases. Contacts in several Districts reported that

supply chain challenges were pushing up prices for health and safety equipment used to limit the spread of COVID-19.

There were also reports of rising food and beverage prices, particularly for beef. When selling prices changed, decreases outnumbered increases, as contacts in several Districts cited weak demand and limited pricing power. One exception noted by multiple Districts was new and used vehicle prices, which were boosted by low inventories.

Highlights by Federal Reserve District

Boston

New York

Economic activity generally improved since the last

report, even as significant disruptions attributable to the

pandemic continued. Some firms called back workers let

go earlier in the spring, and a few engaged in net new

hiring, while others began layoffs. Activity in the region’s

residential and commercial real estate markets remained

exceedingly slow. The outlook continues to be unusually

uncertain.

The regional economy has begun to rebound in recent

weeks, though activity is still well below pre-pandemic

levels and many sectors remain depressed. Businesses

have called back some furloughed workers and there

have been scattered reports of new hiring, but the labor

market remains weak. Prices and wages have been

mostly steady, on balance.

1

National Summary

Philadelphia

St. Louis

Business activity expanded moderately during the current Beige Book period but remained far below levels

attained prior to the onset of COVID-19. Firms faced

several challenges for hiring, yet wages appear to be

trending slightly lower. In contrast, prices are trending

slightly higher, as the market and supply chain disruptions of a fitful economic restart have created various

price spikes. Uncertainty has increased.

Economic activity has rebounded sharply since during

late May; however, overall conditions remain significantly

depressed and the pace of recovery appears to have

slowed since mid-June. In comparison with our previous

report, the outlook among contacts is slightly more pessimistic while also much more uncertain.

Minneapolis

Ninth District economic activity was mixed across sectors since the previous report, after more dramatic contractions in recent reporting periods. Consumer spending

and tourism improved—after significant previous declines—due to emergency federal stimulus and the

gradual reopening of state economies in the District.

Most other sectors saw continued decline overall, especially relative to normal activity levels.

Cleveland

Activity picked up across a wide range of businesses as

more of the economy reopened. However, business

conditions remained weak overall. And while contacts

expect activity to increase further in coming months, they

remain concerned about the sustainability of the recovery if the spread of COVID-19 is not contained. This

caution is partly reflected in continued weakness in

capital spending and hiring plans.

Kansas City

Economic activity rebounded slightly in June, and contacts expected additional gains in the months ahead.

Consumer spending increased modestly, including higher retail, auto, restaurant and tourism sales. Residential

real estate also picked up, but commercial real estate

conditions deteriorated further. Manufacturing activity

expanded slightly, but the energy and agriculture sectors

remained a drag on the regional economy.

Richmond

The Fifth District economy expanded as many segments

of the economy were able to reopen, although economic

activity has yet to return to pre-pandemic levels. Retail

and leisure travel, in particular, benefited from eased

restrictions. Employment rebounded somewhat but

remained well below prior levels. Price growth accelerated moderately, mainly driven by supply chain disruptions

and high demand for certain goods.

Dallas

Economic conditions remained soft. Labor markets

improved and nonlabor costs were muted. Overall, retail

sales strengthened. Tourism activity resumed, though

limited by capacity constraints. Residential real estate

conditions improved, and commercial real estate activity

was mixed. Manufacturing activity weakened. Banking

conditions worsened.

Economic activity in the Eleventh District rebounded, but

was still well below pre-COVID levels. Manufacturing

and service sector activity grew. While drilling activity fell

to new lows and loan demand contracted further, sentiment among energy and finance contacts improved.

New-home sales rose strongly. Employment held steady,

according to contacts. Input costs increased and selling

prices fell. Outlooks improved, but the upward trend in

new COVID-19 cases has increased uncertainty.

Chicago

San Francisco

Economic activity increased strongly. Employment,

consumer spending, and manufacturing increased substantially, while business spending and construction and

real estate activity increased modestly. Wages edged

up, prices declined slightly, and financial conditions

deteriorated modestly. The pandemic continued to weigh

on agriculture incomes.

Economic activity in the Twelfth District contracted modestly. Employment levels increased slightly. Prices remained generally flat. Sales of retail goods rose moderately, while consumer and business services activity

contracted sharply. Activity in the manufacturing sector

was mixed, and the agriculture sector remained weak.

Residential construction activity picked up somewhat,

while the commercial side was mixed. Lending activity

ticked up.

Atlanta

2

Federal Reserve Bank of

Boston

The Beige Book ■ July 2020

Summary of Economic Activity

Economic activity picked up somewhat in the second half of May and June, according to First District business contacts,

but largely remained well below year-earlier levels. Retailers reported increased sales in June, with some online purchases exceeding June 2019. Tourism contacts cited much-improved summer bookings in coastal areas compared with

cancellations in April and May. Manufacturing results were mixed, but most reported rising revenues. Software and

information technology services firms said their businesses were holding steady, with declines in new orders but continuing strength from existing customers. Commercial and residential real estate markets in the region continued to report

that activity had paused. Considerable uncertainty characterized respondents’ outlooks, as was the case in the May

report.

Employment and Wages

Retail and Tourism

Employment changes were mixed across firms and sectors. One retailer brought back all corporate staff full time

on July 1 and plans to bring about 1,800 furloughed

warehouse and store employees back to work in August.

An online retailer is hiring more workers, particularly

customer service, to meet increased demand. Employment among manufacturers was mixed, with some firms

hiring many workers and others engaging in layoffs and

furloughs. An aerospace manufacturer laid off 7 percent

of its workforce and cut salaries for all employees including senior executives. A toy maker furloughed salespeople and complained that production workers had not returned because of generous UI benefits. Responding

software and IT services firms said they have continued

to pay employees fully, partly funded by declines in

operating expenses due to travel cutbacks. Headcount

was down since last quarter at two software firms that

froze hiring. By contrast, one IT firm continued to hire

and said other layoffs in tech made it possible for them

to bring on new highly skilled workers.

Retail respondents continued to report major disruptions

related to COVID-19 shut-downs but, despite the challenges, sales have improved since April. One contact reported increasing strength week-to-week in June, with

women’s clothing and outdoor equipment leading sales

growth. An online retailer similarly reported increased

revenue and continued growth in first-time users. They

noted sustained year-over-year increases in sales of

home office supplies and, more recently, higher sales of

large home appliances, which previously were not a

major source of revenue. One retailer whose sales dramatically increased in March and slumped in April and

May reported June results at nearly the same level as

June 2019. One contacted retailer noted looting and

vandalism from the protests in early June at several

stores.

Travel industry contacts reported improved bookings of

hotel stays and short-term rental properties. In one

coastal area, hotel bookings have nearly returned to

2019 levels for July and August. Restaurants in these

areas continue to report difficulties adjusting to distancing restrictions, but each successive weekend has resulted in more customers. Air travel, however, remains

severely impacted by the pandemic; total air passengers

in Boston in June were down more than 85 percent from

the same time last year, an improvement from April

(down over 97 percent). Cruise traffic has been halted

until September.

Prices

Prices continued to receive little mention. Manufacturing

contacts cited a benign pricing environment with no one

reporting significant positive or negative pricing pressure

either among their suppliers or in their end-markets.

Similarly, most software and IT services contacts reported no current plans to change pricing.

A-1

Federal Reserve Bank of Boston

Manufacturing and Related Services

and June rents, except for retail tenants who were hit

hardest by the pandemic. Warehouses, grocery stores,

and pharmacies were among the few robust leasing

sectors. Across the region’s markets, investment sales

activity was slow to nonexistent. All contacts expressed

substantial concern about uncertainty.

Experiences varied widely across the eight manufacturing firms contacted this cycle. A frozen fish producer and

a maker of cardboard boxes reported very strong demand and sales; the box company said that sales growth

slowed in June but was still strong. A toy company said

that business had slowed significantly since April, partly

because the cessation of movie production hit their

media tie-ins, and partly because of production difficulties. An aerospace company said that while defense

sales remained strong, commercial aviation declined.

Idle planes mean no demand for aftermarket parts; in

addition, build rates for new planes are falling because

the travel recession is expected to last until 2022 and

consequently airlines do not want to take delivery of new

planes. A manufacturer and retailer of furniture which

closed in March has reopened and hired back most of its

employees after securing PPP funding and seeing demand pick up. A travel industry contact reported that

goods trade through Boston’s port fell in May, with exports down 40 percent and imports down 9 percent from

the prior year.

In the Boston area, few leasing transactions have occurred. Vacancies increased in the Boston office market

while the industrial leasing market was also quiet, except

for warehouse leasing. In the Hartford area, there was

little leasing activity; renewals represented the only office

leasing market transactions. Hartford’s industrial leasing

market for buildings over 25,000 square feet was relatively active, but the market for smaller buildings was

quiet. In the Providence area, leasing picked up slightly

in recent weeks, but most transactions were timesensitive deals. The pandemic has worsened the historically quiet industrial leasing market in Providence, and

contacts expected the availability rate to rise significantly

in the near future.

Residential Real Estate

Residential real estate markets in the First District remained slow through May as a result of the COVID-19

pandemic. (All areas reported year-over-year changes

from May 2019 to May 2020. Connecticut data were

unavailable.) For both single family homes and condos,

all reporting areas experienced double-digit decreases in

closed sales compared to a year ago. Many contacts

indicated they viewed this as a temporary pause in activity, saying people had delayed, rather than cancelled,

their plans to buy or sell. Contacts across the region said

they anticipate a busy summer as local economies begin

to reopen and people who put their plans on hold because of the pandemic enter the market. However, they

also expressed concern that further spread of the virus

may cause market activity to slow again.

The outlook was somewhat mixed. Most respondents

said they expected business to improve over the rest of

the year, but the toy maker said they would make significant staff cuts if sales did not improve by August.

Software and Information Technology Services

Activity at software and IT services firms in the First

District remained mostly stable throughout the most

recent quarter. All firms reported significant declines in

new bookings, but steady revenue from existing customers. The majority of firms expected to see flat to 2 percent revenue growth, with another firm anticipating low

double-digit growth year-over-year attributable to a cloud

-based software acquisition finalized earlier this year.

Multiple firms noted that what recent demand they have

seen, has mostly been for cloud-based product lines.

Residential markets continued to favor sellers. Inventory

dropped substantially in all reporting areas for both single family homes and condos. At the same time, median

sales prices increased in all areas except for Vermont

and condo markets in Boston and Massachusetts. The

New Hampshire representative noted “Buyers have been

quicker to return to the housing market in force than

sellers.” Eagerness among buyers to take advantage of

exceptionally low mortgage rates is likely contributing to

this dynamic. ■

Respondents were split in terms of optimism, with most

remaining concerned regarding the U.S. economy. One

medical technology contact noted that their elevated uncertainty may linger through the end of the year as hospitals remain focused on the pandemic. Contacts that reported being more optimistic than last quarter generally

cited increased demand for cloud-based services and increased certainty regarding remote operations.

Commercial Real Estate

Commercial real estate activity in the First District has

remained on pause because of COVID-19. Most contacts reported an increase in sublease availability in the

office leasing market. Most tenants were able to pay May

For more information about District economic conditions visit:

www.bostonfed.org/regional-economy

A-2

Federal Reserve Bank of

New York

The Beige Book Ŷ July 2020

Summary of Economic Activity

The Second District economy rebounded moderately in the latest reporting period, following a steep contraction, as the

spread of the virus subsided and businesses began to reopen. Employment came off its lows across most industry

sectors, while wages were steady, on balance. Input prices rose modestly, but selling prices were flat to down slightly

overall. Activity showed signs of rebounding in most industry sectors, with the strongest bounce-backs seen in retail,

wholesale trade, and manufacturing. Leisure & hospitality businesses also reported some improvement. Business contacts have grown considerably more optimistic about the near-term outlook, though many businesses expressed concern about PPP loans running out or not being forgiven. Consumer spending has been mixed, but, on balance, has

rebounded substantially—especially for vehicles. In contrast, tourism and travel have remained depressed. Home sales

and residential leasing activity have been sluggish, though some areas have seen a nascent pickup in June, as restrictions were eased. Commercial leasing and construction activity remained weak. Finally, banks reported increased

demand for mortgages, mostly tighter credit standards, steady delinquency rates, and ongoing widespread leniency on

existing loans.

Wages have generally been steady in recent weeks.

One employment agency noted that wages have risen

for lower-paid workers, whereas many businesses have

cut salaries for managers and other highly-paid workers.

Looking ahead, businesses generally expect wages to

rise, on balance, though not in the business services,

information, or leisure & hospitality sectors.

Employment and Wages

The labor market has improved slightly, as businesses

have begun to recall workers and some have added new

workers. Most pandemic-related layoffs are still considered to be temporary, though one employment agency in

upstate New York noted that some previously furloughed

workers have more recently been laid off permanently.

That agency along with another in New York City noted

that hiring has remained sluggish. A number of contacts

at firms providing various business and office services

have reduced staffing levels, hours, and salaries. On

balance, though, business contacts indicate that their

staffing levels have rebounded at least moderately from

the lows seen during the spring.

Prices

Business contacts reported that input costs were up

modestly, on balance, while selling prices were flat to

down slightly. A sizable number noted mostly modest

costs related to installing and maintaining safety protocols. The most widespread cost pressures were reported

by education & health and leisure & hospitality firms.

Trends in selling prices varied widely across sectors.

Contacts in professional & business services, leisure &

hospitality, and financial services noted fairly widespread

price cuts, while those in other sectors noted stable

selling prices. Notably, retail and leisure & hospitality

firms generally expected to raise prices in the months

ahead.

Some businesses have noted ongoing challenges in

both bringing back furloughed workers and hiring new

ones. Among the factors deterring workers are child care

needs, safety concerns, and the generosity of unemployment benefits under the CARES Act.

Looking ahead, business contacts in most industries

plan to increase staffing levels, on balance, in the

months ahead. However, the information and professional & business service sectors, which had relatively mild

layoffs, did not plan to expand staff overall.

Consumer Spending

Retailers reported that sales remained soft in May but

many noted a pickup in June, as restrictions on non-

B-1

Federal Reserve Bank of New York

essential stores began to ease. While shifts to online

sales and curbside pickup have boosted business, overall sales have remained well below pre-pandemic levels.

One upstate New York mall noted that many of its stores

have remained closed due to tighter restrictions on

stores without exterior entrances. Retailers expected

sales to continue to improve gradually in the months

ahead.

upstate New York showing strength. In New York City,

closings were down more than 50 percent from a year

earlier, while new contract signings were down roughly

75 percent. However, a local real estate authority noted

a nascent surge in activity in late June—as restrictions

were lifted—and expected Q3 to be quite active due to

pent up demand and increased supply. The City’s residential rental market has weakened due to a combination of very little new leasing and a number of tenants

not renewing. Both prices and rents appear to be down

from pre-pandemic levels, though there is some uncertainty due to low volume.

Vehicle sales have rebounded fairly sharply in May and

June, according to dealers in upstate New York, though

they remained somewhat below comparable 2019 levels.

Contacts expressed concern that lean inventories of both

new and used vehicles may constrain sales through the

summer.

In other parts of the District, however, there have been

signs of strengthening housing demand—particularly in

the market for second homes. Activity across much of

New York State picked up substantially when restrictions

were lifted in early June, and demand appears to have

exceeded supply driving higher prices and bidding wars

across parts of the region.

Manufacturing and Distribution

Manufacturing and wholesale trade activity have picked

up modestly, while transportation & warehousing business has remained weak. New York State and New

Jersey lifted restrictions on manufacturing and distribution businesses earlier than for most other sectors.

Commercial real estate markets across the District remain weak, with availability rates rising, rents flat or

declining, and leasing activity very sluggish. Many retail

tenants have continued to fall behind on rent—

particularly in malls, where restrictions have stayed in

place. Still, real estate contacts remained somewhat

optimistic, on balance, about the near term outlook.

Looking ahead, manufacturers and wholesalers expressed increased optimism, while transportation &

warehousing contacts were modestly optimistic. Capital

spending plans of manufacturers have picked up a bit,

but service firms have scaled back plans substantially.

Services

New construction activity has remained quite sluggish,

though many ongoing construction projects have begun

to start up again, as restrictions have been eased.

Service industry contacts reported some pickup in business but noted that activity has remained well below prepandemic levels. Contacts in leisure & hospitality and

transportation—the hardest hit sectors during the pandemic—have noted scattered signs of improvement,

though safety concerns have inhibited demand. Moreover, capacity and other restrictions on restaurants and

retail consumer services have limited capacity. Tourism

has remained moribund, with hotels and airlines continuing to see business at well under half of capacity.

Banking and Finance

Contacts in the finance sector generally noted continued

weak business but have grown somewhat more optimistic in their expectations for the months ahead. Small to

medium-sized banks in the District reported higher demand for residential and commercial mortgages, lower

demand for commercial & industrial loans, and unchanged demand for consumer loans. Refinancing activity has also increased. Bankers reported easing credit

standards on consumer loans, but widespread tightening

in credit standards across other categories. Spreads

reportedly narrowed on all loan categories except commercial mortgages. Delinquency rates generally remained stable, and lenders reported more lenient policies for delinquent accounts across all categories. Ŷ

Health and education service providers report ongoing

weakness in business and were not generally optimistic

about the near-term outlook. Activity has also remained

depressed in the information and professional & business services sectors, as many business customers

have cut back on such services. There is widespread

concern about when such business will rebound.

Real Estate and Construction

Home sales markets across the District have been

mixed, with New York City’s sales and rental markets

sluggish but some markets in less urban areas and in

For more information about District economic conditions visit:

www.newyorkfed.org/regionalǦeconomy

B-2

Federal Reserve Bank of

Philadelphia

The Beige Book ■ July 2020

Summary of Economic Activity

Third District business activity expanded moderately during the current Beige Book period but remained far below levels

observed prior to the onset of the COVID-19 pandemic. Business operations resumed or increased, as lower COVID-19

caseloads prompted states to phase out stay-at-home orders and mandated closures. As firms recalled some of their

workforce, net employment also grew moderately; however, firms continued to issue permanent layoffs as well. More

firms have noted salary reductions than increases. Meanwhile, contacts noted difficulties attracting workers despite high

unemployment rates. Prices edged higher, as a fitful economic restart generated spotty price spikes. Modestly positive

expectations for growth over the next six months have broadened among firms; however, uncertainty remains high, as

contacts cite the duration of the pandemic and the depth of the ensuing recession as key unknowns.

Employment and Wages

fits than their nonmanufacturing counterparts. In the

Philadelphia metro area, contacts noted reluctance from

their transit-dependent workers to return to work or end

telecommuting.

As firms reopened and recalled workers, overall employment rebounded moderately. However, these net gains

masked a small, steady stream of permanent layoffs. By

mid-June, a modest percentage of firms reported that

employment had declined over the month. Since then,

an average of 11 percent of the firms in our weekly surveys reported that they had recalled furloughed workers

in the prior week; 19 percent had hired new workers –

sometimes to replace those who would not return to

work. Meanwhile about 6 percent of the firms reported

that they had furloughed workers, and another 4 percent

reported that they had laid off workers permanently.

Wages appeared to trend slightly downward. In midJune, the percentage of nonmanufacturing firms reporting lower wage and benefit costs was slightly higher than

the percentage reporting higher costs. To trim expenses,

more firms noted cutting salaries (with or without cutting

hours). Most firms ended or were phasing out pay premiums to attract and retain frontline workers. Staffing firms

noted that the lowest wage rates were holding steady, or

rising slightly, but observed that clients, especially in

parts of Pennsylvania, were still shifting their firm’s wage

structure toward a market-driven minimum that is about

double the state minimum wage.

Staffing firms reported that activity was increasing but

remained off pre-pandemic levels – sometimes as much

as 40 percent. Despite elevated unemployment rates,

firms often described the labor market as tight. By late

June, almost half of the firms in our weekly survey reported that they faced no impediments to hiring workers.

However, the remainder did note challenges.

Prices

On balance, more contacts reported higher prices rather

than lower during the period, except for prices received

by nonmanufacturers. However, well over half of all firms

noted no change in prices.

Among nonmanufacturing firms, an equal 30 percent

share of the contacts noted fear of infection, childcare

needs, and expanded unemployment insurance (UI)

benefits, respectively, as impediments. According to

manufacturers, their workers tended to be less concerned about the virus but more attracted to the UI bene-

Rising prices were most often described as spotty, rather

than general. Firms noted price spikes for disparate

items, such as ground beef and food service containers.

Contacts cited disruptions in the market’s normal supply

C-1

Federal Reserve Bank of Philadelphia

and demand relationships, plus supply chain disruptions,

including transport logistics, as factors.

offset by moderate declines in home equity lines and

other consumer loans. Credit card volumes also fell

moderately.

Manufacturing

Banking contacts noted generally increased optimism

among their clients – that Paycheck Protection Program

loans, loan deferrals, and other assistance had supported many businesses well. However, one banker cautioned against a false sense of security. Most bankers

noted that the third and fourth quarters will tell, as deferrals run out and businesses must begin to meet their

loan obligations. As of late May, 16 percent of the firms

in our weekly survey indicated that they were very concerned about maintaining solvency; 22 percent were

somewhat concerned.

Manufacturers reported a modest rebound in activity

during the current period. At mid-June, over 40 percent

of the firms reported increases in shipments and in new

orders, while about 20 percent reported declines. When

asked to estimate their total production changes, the

median firm response was 25–30 percent lower for the

second quarter compared with the first quarter of the

year.

In our weekly survey, manufacturing firms began the

period with sales and new orders of about 30 percent

below what had been anticipated pre-pandemic. At the

end of June, firms reported estimated demand about 18

percent below expectations.

Real Estate and Construction

Homebuilders reported steadily improving traffic and

sales that reached a moderate pace of growth. Contacts

cited various contributing factors, including low interest

rates, a desire for more elbow room, pent-up demand

from prior months, and a lack of the usual competition

from May/June weddings and graduations.

Consumer Spending

On balance, nonauto retail sales rebounded moderately.

However, the gains were distributed unevenly among

retailers and restaurants. Some businesses have closed

and some survivors have been picking up the market

share the former leaves behind, but nearly all survivors

report working harder to maintain a profit margin.

Existing home sales may have increased slightly. Although year-over-year sales in May were down sharply,

pending contracts had improved. Real estate contacts

reported that early estimates of June sales were stronger, but that recent gains may reflect pent-up demand

from months during the shutdown.

Sales of new and used cars rebounded moderately

during the period. Some Pennsylvania dealers noted

record sales for June but acknowledged that some of

those sales may reflect pent-up demand.

Philadelphia’s commercial real estate construction grew

modestly from low levels as more projects restarted. An

engineering firm noted that many municipal projects

have been shelved, as tax revenues and tolls have fallen. Commercial leasing activity continued to decline

modestly, as firms are taking more time to reassess their

space needs. Some firms will extend leases when possible to afford more time to understand the changes

wrought by the COVID-19 pandemic on demand for their

products, their workforce efficiency, and telecommuting’s

long-term potential. Demand for retail space is in sharper

decline. ■

Tourism has rebounded sharply in beach areas and

mountain resorts for businesses that are permitted to

reopen. Business travel and urban destinations remain

largely inactive. Overall, activity remains more than 50

percent below prior-year levels.

Nonfinancial Services

On balance, nonmanufacturers reported a moderate

rebound in activity, but the activity remains well below

pre-pandemic expectations. In our weekly survey, reported demand of nonmanufacturing firms had already improved from an early-April low of 48 percent below prepandemic expectations to 30 percent below at mid-May.

By the end of June, firms reported estimated demand

was 22 percent below expectations.

Financial Services

The volume of bank lending held steady over the period

in contrast to the same period in 2019, in which loan

volumes grew moderately. Commercial and industrial

loans, residential mortgages, and auto loans grew moderately during the period, and commercial real estate

lending grew modestly. However, these gains were

For more information about District economic conditions visit:

www.philadelphiafed.org/research-and-data/regionaleconomy

C-2

Federal Reserve Bank of

Cleveland

The Beige Book ■ July 2020

Summary of Economic Activity

After declining sharply in March and April, the Fourth District economy expanded in recent weeks as some firms resumed business operations. Contacts across most industry segments reported a rebound in activity during the early

phases of reopening, although many suggested that the pace of improvement slowed as the reopening progressed.

Most were also careful to point out that demand remained well below pre-pandemic levels despite the recent gains.

Looking forward, contacts generally expected activity to pick up further in coming months. However, some questioned

the sustainability of the pace of recovery amid a spike in new COVID cases across the country along with weak new

orders and declining backlogs in some key industries. That uncertainty likely contributed to softness in capital spending

and hiring plans. More than 40 percent of contacts cut capital spending plans since the last report, while less than 10

percent planned to spend more. Contacts across a wide array of industries indicated they were bringing idled workers

back only slowly, and are unlikely to rehire all of them in the near term. Wages, nonlabor costs, and selling prices were

generally flat-to-down.

Employment and Wages

Prices

Labor demand remained soft across most industry segments even as more of the District’s economy came

back on line. Half of contacts reported that staffing levels

had not changed over the past two months, while the

share reporting staff reductions was slightly larger than

the share that reporting staff additions. Firms indicated

that weak demand for their goods and services was the

primary factor constraining hiring, but contacts also

suggested that hiring was inhibited by workers’ persistent fears of contracting the virus, a lack of child care,

and generous unemployment insurance benefits.

Nonlabor input costs were flat to down since the last

report. Manufacturers reported that prices for important

inputs such as steel and petroleum-related products

were mostly flat to down in recent weeks amid weak

global demand and excess inventories, while freight

haulers indicated that lower fuel prices had offset higher

insurance costs. Contacts generally expected nonlabor

costs to move higher in coming months as the economic

recovery proceeds. With weak demand and little upward

pressure on wages and other input costs, selling prices

were mostly flat-to-down as well. Contacts in retail,

transportation, and professional and business services

were more likely to report increases in selling prices than

those in manufacturing and construction. Still, the price

increases were not material and often reversed declines

recorded in previous periods.

Wages remained mostly flat as nearly three-quarters of

contacts reported no change in the past two months.

Many firms instituted formal pay freezes at the onset of

the pandemic, while others temporarily put off merit

increases until they were more confident in the sustainability of the recovery. More firms reportedly cut worker

pay since the last report (particularly for higher salaried

employees) and asked workers to take unpaid leave.

Where wage increases were noted, contacts indicated

that they were due to increased overtime and bonuses or

COVID-related “hazard” pay.

Consumer Spending

Retail spending increased for most contacts since the

previous report, although it was still below the prepandemic level. Automotive and apparel contacts generally indicated that demand had increased more than

expected early in the reopening, and one tourism contact

noted that hotel room bookings edged up as youth sports

activity resumed. Some restaurants found success by

D-1

Federal Reserve Bank of Cleveland

continuing to focus on carryout and delivery even as dine

-in restrictions were eased. However, some retailers

have experienced very little recovery since the initial

shutdown, and rising COVID cases have forced restaurants in a few areas to curb operations again. Overall,

contacts are cautiously optimistic that consumer spending will continue to recover in coming months.

larly small businesses, come under financial strain.

Financial Services

Bankers reported that overall activity was slowly returning to normal in recent weeks. Contacts suggested that

demand for business loans, particularly Paycheck Protection Program (PPP) loans, slowed substantially after

large increases in March and April. One large regional

bank reported that customers who had drawn down

existing credit lines and revolving loans had begun to

pay those loans back more quickly than anticipated.

Deposit levels remained elevated as clients held on to

cash from preemptive line-of-credit drawdowns, disbursements of PPP loans, and government stimulus

checks. Most contacts reported that delinquency rates

remained relatively low, but several expressed concern

that delinquencies may increase when PPP funds run

out and government-provided assistance diminishes.

Demand for purchase mortgages increased as stay-athome orders were eased, and mortgage refinancing

activity remained high.

Manufacturing

Manufacturing conditions improved modestly since the

last report. Contacts indicated that manufacturing output

reached its trough in mid-April and has been increasing

since then. Firms that experienced an uptick in demand

attributed this increase to more of their customers resuming operations, particularly in the District’s auto

industry. Despite the general improvement, demand

remained below pre-pandemic levels overall and was

particularly weak in the District’s aerospace sector.

Moreover, several contacts indicated that new orders

were uneven and failed to keep pace with shipments,

leading to shrinking backlogs. Nearly two-thirds of contacts expected demand to increase in the coming

months, yet more than half suggested that they had

decreased planned capital expenditures in order to preserve cash.

Professional and Business Services

Activity in professional and business services increased

at a modest pace since the previous report, although it

remained muted compared to a year earlier. As businesses continued to reopen, demand for payroll and

other administrative services was returning, as was

demand for marketing services. Technology companies

that focus on work from home solutions have also seen

an increase in demand as businesses prepare for possible future disruptions. Optimism increased significantly

among contacts in the technology industry, as businesses will likely require many third party services in order to

thrive in the “new normal” work environment.

Real Estate and Construction

Overall construction activity stabilized since our last

report. However, conditions varied widely under the

surface and contacts expressed concerns about the

sustainability of the industry’s recovery. Homebuilders

reported stronger-than-expected new-home sales in May

and June as buyers returned to the market as social

distancing restrictions were eased. In addition, low mortgage interest rates encouraged undecided buyers to “get

off the fence.” Residential realtors suggested that demand for existing properties was robust as well, but a

shortage of listings constrained sales. Both builders and

realtors expected demand for single-family properties to

remain firm in the near term, but several worried that

conditions could change in the fall if high unemployment

persists.

Freight

The vast majority of transportation contacts reported an

increase in freight demand in recent weeks. This pickup

coincides with a resumption of manufacturing activity in

the District as well as continued gains in shipments from

grocers. One contact said that demand from grocers was

40 percent higher than prior to the pandemic, which

offset weaker demand from some other sectors. By

contrast, a few haulers were forced to accept below-cost

shipments to maintain cash flow. Looking forward, twothirds of transportation contacts expected demand to

increase in coming months. At the same time, many

were concerned about the potential for a second wave of

COVID-related shutdowns which may disrupt shipments

later in the summer and into the fall. ■

Nonresidential construction rebounded as delayed projects in some areas were restarted. However, several

nonresidential builders indicated that there were few new

projects entering the pipeline and that backlogs were

being worked down, raising concerns that activity may

weaken in the fall. Meanwhile, nonresidential real estate

activity remained weak. Commercial realtors reported

that overall demand for space was flat to down as softness in office and retail more than offset some strength

in light industrial. Landlords continued to express concerns about cash flow as more of their tenants, particu-

For more information about District economic conditions visit:

clevelandfed.org/region

D-2

Federal Reserve Bank of

Richmond

The Beige Book ■ July 2020

Summary of Economic Activity

The Fifth District economy grew compared to our prior report, although economic activity generally remained well below

pre-COVID-19 levels. Manufacturers experienced a slight uptick in new orders but shipments of finished goods were

little changed. Ports reported modest declines in both imports and exports. Trucking companies, on the other hand,

indicated a modest increase in demand as the reopening of stores and restaurants spurred new shipments. Retail shopping picked up modestly as more stores were able to reopen, but sales remained below year-ago levels. Leisure travel

and tourism activity increased moderately, particularly at drivable locations. Business travel, in contrast, remained depressed. Residential home sales increased despite a low inventory of existing homes. Commercial real estate leasing

rose modestly, overall, due to strong demand for industrial space. Bankers reported a slight increase in lending, predominately loans for home purchases and mortgage refinancing. On balance, demand for nonfinancial services declined

moderately. Employment rose moderately in recent weeks as many firms called back previously furloughed or laid-off

workers; however, total employment remained well below pre-pandemic levels. Price growth increased modestly, overall. Prices for some goods, like personal protection equipment, rose sharply due to supply chain disruptions and high

demand.

Employment and Wages

fairly steady, and new orders increased slightly. However, lost revenue forced some manufacturers to cut budgets and discretionary spending as well as cancel capital

spending projects. Customers who were unable to pay

for products created additional stress for manufacturers.

Payroll Protection Program (PPP) loans allowed some

companies to remain solvent. One firm that contracts

with government agencies expressed concerns about

government budget changes in the wake of the virus.

Some firms were able to offset losses, by shifting production to COVID-related goods such as medical supplies or sneeze guards.

Since our previous report, employment increased as

firms across a wide variety of industries reported calling

some of their previously separated employees back to

work, hiring new workers, and posting for vacant positions. Despite the rise in employment in recent weeks,

total employment remained considerably below prepandemic levels. Several contacts noted challenges

bringing workers back, including fear of contracting

COVID-19 at work, inability to find childcare, or their

ability to make more money on unemployment. While

most firms reported no changes to wages or salaries, a

few said that they cut hourly wages to reduce costs.

Ports and Transportation

Prices

Fifth District ports experienced modest declines in shipping volumes in both exports and imports in recent

weeks. On the import side, declines were seen in home

furnishings, autos, and engine parts, while apparel and

medical supplies showed some strengthening. Port

contacts attributed some of the weakness in exports to

supply chain disruptions. One port lost business as large

retailers closed, eliminating distribution centers. Ports

saw some canceled calls, although not as many as in the

last few months. An airport operator said cargo flights

had increased to partially offset the decline in cargo

space from the reduction in passenger flights.

On balance, price growth picked up modestly in recent

weeks. According to our most recent surveys, manufacturers reported a slight increase in both prices paid and

prices received while services sector firms reported a

moderate increase in both price measures. One service

firm noted that supply chain disruptions and high demand for personal protection equipment led to a substantial increase in prices for those goods.

Manufacturing

Manufacturing conditions in the Fifth District were little

changed since our previous report. Shipments were

E-1

Federal Reserve Bank of Richmond

Trucking companies in the Fifth District reported a moderate increase in demand since our last report. Contacts

noted increased shipments of retail goods and wine as

stores and restaurants reopened. Shipments of food,

cleaning supplies, and home-improvement goods remained strong. Some businesses reported lingering

softness as shipments were still below last year. However, one company had more freight than it could haul and

looked to expand its fleet, while others continued capital

expansion plans in order to be well-positioned upon full

recovery. Spot market activity picked up, and most

customers who had temporarily shut down reopened.

they had originally planned. New construction continued,

but starts were delayed due to the remote work and

distancing policies of local agencies.

Commercial real estate leasing increased modestly but

remained soft compared to pre-pandemic levels. Rental

rates were somewhat lower, but contacts said buyers

were not getting the low prices they expected. Retail

remained weak as some stores and restaurants closed

permanently. Office leasing was modest, and several

tenants asked for short-term lease renewals in order to

allow them to re-evaluate their use of and need for office

space. Industrial leasing remained strong, and one broker expected a continued rise in industrial leasing to

allow companies to hold more inventory. Multifamily

leasing was somewhat soft, and some landlords increased concessions to attract tenants.

Retail, Travel, and Tourism

Retailers reported that business picked up modestly in

recent weeks as more stores were able to reopen, but

demand remained below the level of a year ago. Several

companies struggled as supply chain disruptions led to

low inventories. In particular, automobile dealers reported that manufacturer shutdowns led to low inventories of

new cars, which boosted sales of used cars. In addition,

the supply of used cars increased as rental companies

closed and corporations sold their excess fleet vehicles.

Some retailers also experienced soft demand, and one

store expressed concerns that closures of nearby restaurants would hurt business. However, others, such as

grocers, hardware stores, and consumer appliance and

electronics stores, had strong sales, and some faced

higher demand than they could meet.

Banking and Finance

Overall, loan activity picked up slightly for this period.

Respondents reported higher residential mortgage

growth and strong demand for mortgage refinancing. On

balance, conventional commercial lending declined

moderately, although demand improved slightly in Fifth

District states that reopened earlier. Auto lending remained below year-ago levels. Deposit growth continued

to be strong, despite lower rates on interest-bearing

accounts, driven mainly by proceeds from federal aid

disbursements. Delinquency rates remained low, but a

few financial institutions reported being more cautious in

terms of their underwriting in light of the pandemic.

Travel and tourism improved moderately since our last

report but were soft compared to last year. Hotels and

vacation rentals in some areas reported high occupancy, spurred by leisure travel, particularly in the drivable

market. However, business travel remained low, and

event venues were hit by lack of conventions, which

they anticipated would hurt business for some time.

Meanwhile, restaurants continued to struggle as they

operated at reduced capacity, and some shut down

because of virus spikes or fear of vandalism. Attractions,

theaters, and performing arts groups struggled as many

remained closed and those that opened had soft demand.

Nonfinancial Services

Real Estate and Construction

Nonfinancial services firms reported moderate declines

in demand and revenues in recent weeks. Several contacts who engaged in business to business services,

such as consulting, employee training, and marketing,

said that their clients have reduced spending as a result

of their own revenue declines. A few others said that

revenue was down because they could not attend conventions and events, which typically generate new business for them. Lastly, an executive from a firm that provides services to federal government agencies expressed concerns that budget cuts would result in reduced demand in 2021 after current contracts expired. ■

Fifth District home sales increased modestly since our

last report. Realtors said business picked up after some

softness in recent months. Contacts reported that demand exceeded supply, partially because listings were

low, as people were still reluctant to show their homes.

Days on the market decreased, and low interest rates

boosted sales. Realtors noted particularly strong demand for lower priced homes, but low listings caused

some customers to shop in higher price ranges than

For more information about District economic conditions visit:

www.richmondfed.org/research/data_analysis

E-2

Federal Reserve Bank of

Atlanta

The Beige Book ■ July 2020

Summary of Economic Activity

On balance, economic activity in the Sixth District remained weak from mid-May through June. Labor markets improved

somewhat as businesses in parts of the region reopened. Nonlabor costs remained subdued. Reports from retailers

noted strong consumer demand and increased sales of automobiles. Tourism contacts reported that attractions and

hotels had begun to reopen, but revenues and employment levels were expected to be constrained by mandated capacity limits. Demand for residential real estate strengthened and inventory levels fell resulting in upward pressure on home

prices. Commercial real estate market conditions were mixed. Manufacturing activity declined, and reports on new

orders were mixed. Financial institutions reported a deterioration in conditions as COVID-19 impacted some firms’ credit. Overall commercial loan growth was slow and consumer lending remained soft.

Employment and Wages

Prices

Labor conditions improved modestly since the previous

report. Some firms reported slowly recalling workers and

increasing hours as demand increased, while others

remained in a holding pattern. Many of those bringing

employees back indicated staffing was not back to prepandemic levels. While some employers reported taking

measures to cut less productive processes and employees, others were able to acquire more skilled and productive staff due to greater talent availability. Although

some remote workers returned to the office, many firms

indicated success with remote arrangements and noted

they will continue this stance for the near term and possibly beyond. Some employers remained committed to

maintaining employment levels and plan to reduce

hours, wages, and possibly benefits to maintain those

levels; however, most indicated that demand will determine staffing levels in the second half of the year. As the

support from the Paycheck Protection Program winds

down, many employers indicated that they will be forced

to lay off workers should business remain weak.

Contacts continued to note muted input costs and little to

no pricing power. Though many described rising costs

associated with sanitation practices and Personal Protective Equipment used to protect employees and clients

from COVID-19, most reported an inability to pass along

these additional costs. The Atlanta Fed’s Business Inflation Expectations survey showed year-over-year unit

costs remained steady, on average, at 1.2 percent in

June. Year-ahead expectations increased somewhat to

1.7 percent.

Consumer Spending and Tourism

Retailers reported healthy demand as many stores reopened. While some noted that there was still uncertainty

clouding their outlook, expectations are for sales and

margins to improve over the remainder of the year. Auto

dealers reported increased sales activity since the last

report.

Tourism and hospitality contacts noted that they have

begun to reopen hotels and attractions in accordance to

recommended guidelines. However, business capacity

will be constrained by social distancing requirements

which will continue to negatively impact both revenue

and employment.

Contacts continued to report wage and salary cuts,

except at the low-end of the pay scale and among essential workers. Reports on the disincentive to work from

receiving unemployment insurance benefits were mixed.

Construction and Real Estate

District housing market conditions improved significantly

over the reporting period. Pent-up demand and low

F-1

Federal Reserve Bank of Atlanta

interest rates accelerated home sales. In many markets,

home inventories contracted significantly, creating strong

upward pressure on home prices. Despite low interest

rates, affordability remained a concern as median home

prices continued to reach new highs in several markets.

The limited supply of existing homes increased demand

for new homes. 30-day delinquencies rose sharply,

especially in South Florida markets, despite a surge in

forbearances.

Banking and Finance

Conditions at financial institutions deteriorated over the

reporting period due to credit issues related to the

COVID-19 pandemic. Provisions for loan loss reserves

increased significantly for most institutions, in preparation for increased charge-offs once forbearance periods

end, exerting downward pressure on earnings. Additionally, lower short-term interest rates further compressed

net interest rate margins. Loan growth remained muted

with most centered on approvals of new loans under the

Paycheck Protection Program. Except for first lien residential mortgages, consumer loan growth was flat partly

due to tightening credit standards. Liquidity remained

healthy as deposit levels increased.

Commercial real estate (CRE) contacts reported continued challenges associated with the effects of the COVID

-19 pandemic. Hard hit sectors like retail and hospitality

reported some stabilization as local economies reopened; lower-price point hotel brands saw improvements

in occupancies and values from record lows in May

through early June. Multifamily owners reported minor

softening in occupancies and were offering greater concessions to minimize lease turnovers. There were growing reports of tenants and borrowers seeking relief.

Investment activity was muted compared with preCOVID-19 levels. Contacts reported that capital was

readily available at banks; however, underwriting criteria

tightened for the financing of operating CRE projects,

and originations continued at a subpar pace. Contacts

reported that high-quality asset values declined marginally, and hospitality and retail sector assets declined at a

more accelerated pace since the beginning of the pandemic.

Energy

Energy industry contacts continued to report weak demand, oversupply, and constrained global storage capacity for crude oil, liquefied natural gas, and refined

products such as distillates. Oil and gas producers noted

that they expect U.S. oil production to take one to two

years to return to pre-COVID-19 levels. Fuel distributors

reported little to no demand from municipalities, transit

authorities, school systems, and airlines, while demand

from food wholesalers and grocers remained solid. Utilities in the region indicated that reductions in demand

were not as large as anticipated in the first quarter. While

utilities contacts noted that planned capital investments

will continue through 2021, other energy sectors reported delayed or cancelled projects, cuts to budgets, and

layoffs, some permanent, over the same period.

Manufacturing

Manufacturing contacts indicated that overall business

activity decelerated, but at a somewhat slower pace than

the previous report. While most firms reported decreases

in new orders and production levels, a modest rise in

new orders was noted by a few contacts. Purchasing

managers suggested that supplier delivery times were

getting longer as some supply chain disruptions continued. Contacts also cited a decline in finished inventory

levels. Expectations for future production levels declined,

with only one-fifth of contacts expecting higher production levels over the next six months.

Agriculture

Agricultural conditions remained weak. Mostly droughtfree conditions prevailed. On a month-over-month basis,

June’s production forecast for Florida's orange crop was

down from the previous month and last year, while Florida’s grapefruit production forecast was down from the

previous month but remained ahead of last year. The

USDA reported that in May, year-over-year prices paid to

farmers were up for rice, soybeans, and eggs but down

for corn, cotton, cattle, broilers, and milk. On a monthover-month basis, prices increased for cotton, rice, cattle, and broilers but decreased for corn, soybeans, eggs,

and milk. ■

Transportation

Transportation activity was largely unchanged since the

previous report. Class I railroads saw slight improvements in volumes; however, total rail traffic remained

substantially weak. Short-line railroads noted declines in

shipments of autos and increases in aggregates and

building materials. Ports experienced a significant reduction in auto imports and container traffic was down.

Inland barge companies cited modest improvements in

demand, but movements of energy products were soft as

refineries continued to operate below capacity.

For more information about District economic conditions visit:

www.frbatlanta.org/economy-matters/regional-economics

F-2

Federal Reserve Bank of

Chicago

The Beige Book ■ July 2020

Summary of Economic Activity

Economic activity in the Seventh District increased strongly in late May and June, but remained well below its prepandemic level. Contacts expected further growth in activity in the coming months, but most did not expect a full recovery until at least the second half of 2021. Employment, consumer spending, and manufacturing increased substantially,

while business spending and construction and real estate activity increased modestly. Wages edged up, prices declined

slightly, and financial conditions deteriorated modestly. The pandemic continued to weigh on agriculture incomes.

Employment and Wages

Consumer Spending

Employment increased substantially from a very low

level over the reporting period, with gains spread widely

across industries. Many contacts who received a

Paycheck Protection Program (PPP) loan continued to

indicate that the program was helping them avoid layoffs.

A number of contacts said that their ability to retain

workers after the PPP money ran out depended heavily

on future demand. Manufacturers facing slowdowns

reported further use of downtime to carry out maintenance or do productivity enhancing projects. Some auto

dealers reported selling a large number of vehicles while

employing far fewer workers. Several contacts again

commented that generous unemployment benefits were

making it difficult to bring payrolls back to desired levels.

Wages edged up across skill levels. Benefits costs also

ticked up.

Consumer spending increased substantially as many

establishments were permitted to reopen. The rebound

generally exceeded contacts’ expectations. Nonauto

retailers saw gains in all sectors. Contacts noted that the

home improvement, home furnishings, food and beverage, and sporting goods sectors continued to be strong.

Apparel was selling, but only with very generous promotions. Vehicle sales moved up sharply, and dealerships’

service departments continued to work through backlogs

that had built up while stay-at-home orders were in

place. Contacts reported large increases in boat and RV

sales. Most contacts in the leisure and hospitality sector

were open, but sales remained well below precoronavirus levels. For example, casinos in Iowa were

allowed to reopen at 50 percent capacity, a level that

reportedly matched demand. In contrast, movie theaters

in most of Michigan were required to stay closed. Contacts expressed great uncertainty about the path of

consumer spending over the rest of the year, especially

for the holiday season.

Prices

Prices declined slightly overall in late May and June,

though contacts expected modest increases over the

next 12 months. Retail prices decreased modestly on

balance. There were noticeable declines for apparel, but

food and beverage prices rose, particularly for beef.

Producer prices edged down. Input prices were largely

unchanged, with the exception of shipping costs, which

increased modestly.

Business Spending

Business spending increased modestly in late May and

June. Retail inventories were generally above desired

levels, particularly for apparel, though there were reports

of low inventories of light trucks, boats, and RVs. A

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Federal Reserve Bank of Chicago

number of manufacturers said that inventories were

higher than desired. Capital expenditures increased

slightly, but many contacts continued to say they had

pulled back on spending plans for the year. Contacts

again indicated they were making major changes in work

environments to protect employees against the coronavirus, but noted cost offsets from lower travel and entertainment spending. Freight transportation increased

modestly, but remained at a low level. Commercial and

industrial energy consumption increased moderately,

with the largest growth in manufacturing.

Banking and Finance

Financial conditions deteriorated modestly during the

reporting period. Participants in the equity and bond

markets reported little change in prices on net, but volatility remained elevated. Business loan demand decreased moderately as activity related to the PPP

slowed. Many contacts reported large increases in businesses’ cash deposits. Contacts said there was some

interest in the Federal Reserve’s Main Street Lending

Program, but that many businesses had access to

cheaper credit elsewhere. Business loan quality deteriorated moderately, particularly in the leisure and hospitality, commercial real estate, and health care sectors.

Contacts noted that deferrals and the PPP had helped

prevent delinquencies for many clients. One contact said

that most clients appeared to have sufficient liquidity to

make it into the fall. Business loan standards again

tightened moderately. Consumer loan demand decreased modestly, though demand for mortgage refinancing remained strong. Loan quality again deteriorated slightly. Contacts noted that delinquencies were

limited because they were granting deferrals. One contact said that roughly half of their deferrals had been to

households that may struggle to resume loan payments

once the current 60 to 90 day deferral period was over.

Consumer loan standards tightened modestly.

Construction and Real Estate

Construction and real estate activity increased modestly

on balance over the reporting period, but remained subdued. Residential construction decreased slightly. One

contact reported a pullback in speculative single-family

construction. Residential real estate activity increased

moderately from a very low level, with gains concentrated in the starter home segment. Contacts continued to

report that low inventories were supporting prices. Nonresidential construction decreased slightly on net, with

much of the activity representing work on projects in

progress before the pandemic. Commercial real estate

activity was little changed and the market remains highly

distressed. Industrial properties had the highest percentage of on time rent payments, while many tenants in the

retail, restaurant, and hospitality sectors had asked for

forbearance through at least the end of the summer.

Retail and restaurant store closures were reportedly

accelerating. Rents moved down, while vacancies and

sublease space increased.

Agriculture

The COVID-19 pandemic continued to weigh on agriculture incomes. That said, farm incomes received a boost

from some commodity price increases and CARES Act

payments. Corn and soybean prices moved up after a

USDA report that the number of corn acres planted was

smaller than expected. Following a smooth planting

season, corn and soybean crops were off to an excellent

start. Specialty crops were also in decent shape. Meat

production rebounded to levels near that of a year ago

as packing plants reopened and began running extra

shifts. Nevertheless, contacts reported a large backlog of

hogs to slaughter. Cattle and hog prices fell and were

below year ago levels. Milk prices at the farm gate

stayed below last year’s levels in spite of some upward

movement in dairy prices. Cheese demand surged,

pushing prices to high levels. Ethanol margins widened,

but some facilities remained closed and others were

operating below full capacity. Demand for sites to locate

renewable energy assets, recreational ground, and rural

housing helped keep farmland values mostly stable. ■

Manufacturing

Manufacturing production increased strongly in late May

and June, but remained well below where it was before

the pandemic began. Auto production increased very

sharply from a very low level as both assemblers and

suppliers reopened. However, some contacts in the

industry were concerned that the rising number of

COVID-19 cases in parts of the US could result in new

plant shutdowns. Steel production increased moderately,

led by increased demand from the auto and oil and gas

industries. Demand for heavy machinery picked up, but

remained weak. Orders from specialty metals manufacturers increased moderately on balance, with reports of

steady demand from the defense sector and increases

from the medical and food manufacturing sectors. Manufacturers of building materials reported a moderate increase in shipments.

For more information about District economic conditions visit:

www.chicagofed.org/cfsbc

G-2

Federal Reserve Bank of

St. Louis

The Beige Book ■ July 2020

Summary of Economic Activity

Economic activity has rebounded sharply since late May; however, overall conditions remain significantly depressed and

the pace of recovery appears to have slowed since mid-June. Contacts reported reopening and bringing back furloughed workers, but the pace has been uneven across firms and sectors. General retailers, auto dealers, and hospitality contacts report increases in business activity, while manufacturing contacts reported little change. Homes sales increased sharply while construction activity was mixed. In comparison with our previous report, the outlook among contacts is slightly more pessimistic while also much more uncertain.

levels. Other firms have reported cutting nonwage benefits, such as matching 401K contributions, to control

costs. One contact emphasized a systemic lack of

“normal” raises and bonuses.

Employment and Wages

Employment continued to increase at a robust pace.

However, the pace of recovery has slowed through the

reporting period and the level of economic activity remains depressed. Businesses have begun to reopen and

bring back furloughed workers, but recovery has been

uneven across firms and sectors. Small businesses have

been slow to recover; one staffing contact reported small

firms were “decimated,” estimating that 5% of their small

clients had filed for bankruptcy and expecting up to 25%

to do so by the end of the year. Businesses that support

other businesses, such as wholesalers and intermediategoods manufacturers, have also been slow to recall

workers in the face of weak demand. Some firms reported difficulty hiring back low-wage workers, attributing it to

continued health concerns and unemployment benefits.

Other firms, especially larger ones, have increasingly

laid off workers as they reassessed how long the recovery will take and whether they should downsize permanently.

Prices

Prices have increased slightly since the previous report.

The majority of contacts reported little to no change in

input prices. However, many manufacturing and

healthcare contacts reported somewhat higher input

prices. Contacts reported robust growth in some commodity prices, such as coal, lumber, and shredded

scrap; however, most prices remain lower than one year

ago. Prices for crops have decreased moderately since

the previous report. Some crop prices have risen robustly, but others such as those for wheat have decreased

significantly. Although the price of corn has increased

moderately since the previous report, the price has decreased significantly year-over-year. This has been

largely triggered by lower demand for ethanol. The trucking industry has increased prices for services slightly

since the previous report.

Reports on wage growth have been mixed. Some firms

have increased wages for low-wage workers to entice

them to return to work and forgo unemployment benefits;

however, other contacts reported reducing hazard pay. A

payroll contact reported that half his clients who had

previously cut wages had returned them to pre-March

Consumer Spending

Consumer spending activity remains far below typical

levels, though general retailers, auto dealers, and hospitality contacts reported increases in business activity

H-1

Federal Reserve Bank of St. Louis

since our previous report. Seasonally adjusted credit and

debit card spending in most District states increased

from the end of May to mid-June. Most general retailers

indicate that activity in May has exceeded low expectations and they had reported an optimistic outlook prior to

the recent surge in new coronavirus cases. Many restaurants continue to struggle under modified business models, and some indicate that they may not be able to stay

open much longer if business conditions do not improve.

Auto dealers reported strong sales in June, with some

firms reporting year-over-year increases. St. Louis-area

hotel contacts reported that occupancy has increased

since the beginning of May but remains significantly

depressed. Hospitality contacts do not expect business

to return to typical levels until 2022.

year. Home showings in early June were up relative to

one year ago across most states in the District. Inventory

levels remained very low throughout the District, and

contacts reported increased competition for available

listings, with sales exceeding the asking price. A contact

in St. Louis reported an increase in in-person showings

and closings. A contact in Memphis noted that some

businesses were downsizing their office real estate as

they moved toward permanent remote-work arrangements. Construction activity was mixed in late May and

early June as businesses reported either no change or a

decrease in weekly operating revenue in June relative to

prior weeks. A contact in St. Louis reported a slowdown

in invoice payments from customers, suspecting that

customers were looking for ways to conserve cash.

Manufacturing

Banking and Finance

Manufacturing activity is little changed since our previous

report. Survey-based indices showed slight improvement

in overall manufacturing activity in Arkansas and Missouri from May to June. New orders and production

increased modestly in both states, the first signs of

growth since February. Contacts in steel and printing

industries reported no change to production because of

limited demand; both are still producing at about twothirds capacity. One contact reported extending planned

shutdowns past the Fourth of July, resulting in the furloughing of some workers; another contact reported

having recently laid off a few workers.

Reports from District banks indicate a strong increase in

demand for banking services. Demand for commercial

and industrial loans has increased sharply, while residential real estate and consumer loan volumes modestly

increased. Low interest rates spurred many customers to

refinance mortgages, providing new fee income to bankers. In addition to mortgage closings, PPP loans and

other incentives have provided additional liquidity. However, banking contacts have expressed concerns about

profitability due to the expectation of a longer-term lowrate environment and higher delinquency rates. As a

result, many bankers have reduced deposit rates to

offset margins.

Nonfinancial Services

Agriculture and Natural Resources

Activity in the services sector has improved since the

previous report. Job vacancies decreased uniformly

across the District in nonfinancial services firms by approximately 10 percent year-over-year. Staffing contacts

reported that professional service sector positions have

increased halfway to pre-pandemic levels and very few

contractors have been laid-off in recent weeks. A hospital contact reported volumes for inpatient services has

increased faster than anticipated. Reports from contacts

at airports in the District noted steady recoveries. Passenger traffic has more than doubled since our previous

report. However, levels compared with last year remain

severely depressed. Contacts reported that cargo traffic

remains steady and is only down in some airports by

only 1.5 percent compared with last year. Trucking contacts noted small increases in revenue due to price and

hauling increases.

District agriculture conditions remain unchanged relative

to the previous reporting period. Between the end of May

and end of June, the percentages of corn and soybeans

rated fair or better increased modestly, while the percentages of cotton and rice decreased modestly. The

percentages of corn, rice, and soybeans rated fair or

better are significantly above their values a year ago,

while the percentage of cotton rated fair or better slightly

decreased. Agriculture contacts have indicated that, in

the past month, agribusinesses have not experienced

significant shortages or slowdowns in demand and have

remained open due to their essential status. However,

there is some concern that additional financing may be

necessary to bridge gaps in cash flows if the overall

economic slowdown is prolonged. ■

Real Estate and Construction

Residential real estate activity has sharply increased

since the previous report. Pending home sales in early

June improved from their lows in April, and some contacts reported new sales above levels relative to last

For more information about District economic conditions, visit:

https://research.stlouisfed.org/regecon/

H-2

Federal Reserve Bank of

Minneapolis

The Beige Book ■ July 2020

Summary of Economic Activity

Ninth District economic activity was mixed since the previous report, with declines in most sectors, despite some improvements due to emergency federal stimulus and gradual reopening of state economies in the District. Employment

rose from very contracted levels, wage pressures were flat, and price pressures remained minimal. The District economy saw growth in consumer spending and tourism, but decline in services, construction and real estate, manufacturing,

energy, and mining; agricultural conditions remained poor.

Employment and Wages

publicly with employees.

Employment rose since the last report, but from very

contracted levels, and labor markets remained volatile.

Solid employment gains were seen in May, and a variety

of sources suggested a continuation in June. The lifting

of pandemic-related restrictions on many businesses

allowed increased hiring and callbacks of laid-off workers

in many sectors. Ad hoc polls in June by the Minneapolis

Fed showed that slightly more firms were hiring than

those that were cutting staff. A staffing contact in North

Dakota said job orders have been “much better” since

hitting lows in April. Volatility remains in the labor market,

however. Announcements of temporary and permanent

mass layoffs rose notably in June in Minnesota and

Wisconsin after slowing significantly in May. Initial

unemployment claims fell in June across the District

compared with April and May levels, but remained

significantly elevated. Monthly job postings plummeted

across the District in May, but there was some evidence

of stabilizing in June. Numerous sources noted that

seasonal hiring over the summer would remain well

below normal levels. A contact in the Bakken region of

North Dakota reported that energy-related firms “would

not try to save their employees” as they had during the

downturn in oil prices five years ago, and that wide-scale

layoffs had begun “and will continue at a fairly expedited

rate.” A workforce contact in northern Minnesota said

that some businesses expected somewhat higher

permanent layoffs than they were communicating

Wage pressures were flat overall since the last report.

Ad hoc polls by the Minneapolis Fed found that a

majority of employers have made no changes in wages

since the onset of the pandemic; slightly more reported

wage decreases than those reporting increases. Faced

with budget deficits, some local governments have

reportedly instituted furloughs or negotiated wage cuts,

or both. However, some firms that have enjoyed strong

demand during the pandemic have increased wages. A

discount retailer raised its starting wage from $13 to $15

an hour, and a second discount retailer gave its

Minnesota employees a $5 million bonus for working

through the pandemic—the third such bonus in as many

months. A major health care provider in Minnesota also

ended furloughs and pay cuts to most workers after

demand rebounded faster than anticipated.

Prices

Price pressures remained minimal. The majority of

respondents to a recent poll of Ninth District firms in a

diverse mix of sectors reported no change in prices

charged for their products and services in the second

quarter of 2020 relative to a year earlier; of the

remainder, more reported decreases in prices than

increases. Contacts reported slightly more pressure on

input prices. Manufacturing contacts generally reported

flat or decreased input prices, with the significant

exception of personal protective equipment, which

I-1

Federal Reserve Bank of Minneapolis

remained in tight supply. Retail fuel prices in District

states have climbed appreciably since the previous

report, though they remain below their prepandemic

levels. Prices received by farmers in May were mixed.

levels of new projects out for bid. Recent permit activity

showed signs of slowing, particularly in the city of

Minneapolis, though not everywhere. Numerous sources

also said more firms were competing for available work.

Residential construction fell modestly overall, due mostly

to a sizable drop in single-family permits in MinneapolisSt. Paul; increases were seen in St. Cloud, Minn.,

Bismarck, N.D., and Rapid City, S.D.

Consumer Spending

Consumer spending improved since the last report,

boosted by recent federal stimulus and the reopening of

many businesses closed by the pandemic. But overall

levels remained depressed. Numerous sources reported

that consumer-facing businesses (e.g., retail,

restaurants, and bars) were seeing increased traffic

compared with May. But most were still well below

normal seasonal activity, and even below restricted

capacities. A Minnesota mall said it was seeing about

one-quarter of its normal shopper activity in June.

Tourism contacts in Minnesota and Montana confirmed

that the majority of large events booked for the second

half of the year have been canceled; one contact called it

a “rolling cascade.” June traffic across the Mackinac

Bridge into Michigan’s Upper Peninsula was down 18

percent over a year earlier, an improvement over May

crossings, which plummeted by 37 percent.

Commercial real estate fell moderately since the last

report. Office space was under pressure given the

slower economy and delayed return of remote workers to

central business districts. Traditional retail space

remained under tremendous strain. A major retailer

closed six locations across the District. A Minnesota mall

reported that many tenants were still closed in late June.

Those that were open “are really struggling, nowhere

near break-even,” and leases for virtually all tenants had

been altered or renegotiated. Residential real estate was

down across the District, according to the most recent

(May) sales data available at deadline. Most regions saw

double-digit declines in closed home sales compared

with last year, with many reaching 20 to 30 percent.

Manufacturing

Motor vehicle sales were strong. A dealership with

multiple locations in the western part of the District saw

sales growth of 15 percent or more in May and June.

Sales of recreational vehicles were also healthy. Data on

motor vehicle sales taxes and title registrations showed

similar upticks in Minnesota and Wisconsin. Passenger

screenings in June at the eight largest District airports

roughly doubled over the previous month, but remained

75 percent below last year. Airport contacts said that

leisure travel was returning faster than business travel.

Manufacturing activity contracted slightly since the last

report. An index of manufacturing conditions indicated

decreased activity in June compared with a month earlier

in Minnesota; the index for North Dakota and South

Dakota rebounded to a slightly expansionary level. Some

contacts reported strong demand in the plastics sector

and supporting industries due to the need for personal

protective equipment. However, numerous other

contacts reported a marked slowdown in new orders as

customers remained in “wait-and-see” mode. “Our order

books have never had fewer future demand orders,”

noted a custom manufacturer, who added that its

existing demand was “nearly immediate.”

Services

Professional services firms reported decreased activity

since the last report. Contacts in advertising and

marketing reported that clients had curtailed spending as

they sought to hold on to cash. Vendors providing

displays, food, or logistics services to support

convention, exhibition, and entertainment events

continued to report a severe contraction in demand.

Contacts in trucking and logistics reported steady

business overall, with variation depending on customer

base.

Agriculture, Energy, and Natural Resources

District agricultural conditions remained poor. Producers

reported that disruptions in trade with China were

creating “headwinds” in grain markets. Recent declines

in milk prices dealt a blow to already suffering dairy

producers. In contrast, the majority of the District’s corn

and soybean crops were in good or excellent condition

as of late June. Oil and gas activity continued to decline

even as crude prices rebounded somewhat. The number

of active drilling rigs in the District as of late June was

down sharply again from the previous reporting period.

Multiple District iron ore production facilities remained

shuttered as demand for steel was low. ■

Construction and Real Estate

Commercial construction was down moderately overall.

The value of May construction starts across District

states rose compared with April, but was notably down

from 2019. The number of active projects was also

trending modestly lower through the end of June.

Minnesota construction contacts reported flat or falling

I-2

Federal Reserve Bank of

Kansas City

The Beige Book ■ July 2020

Summary of Economic Activity

After a sharp contraction in previous months, Tenth District economic activity rebounded slightly in June. Expectations

also improved, and contacts in most sectors anticipated higher levels of activity in the months ahead. Consumer spending

increased modestly, with stronger retail, restaurant, auto, and tourism sales. Manufacturing activity expanded slightly,

driven by gains at non-durable goods plants. Sales also picked up in the transportation and wholesale trade sectors,

although transportation activity remained well below year-ago levels. Professional and high-tech services contacts continued to report lower sales, and additional declines were anticipated in the months ahead. Residential real estate activity

increased moderately as home sales, prices and construction activity rose. However, commercial real estate activity

dropped further. Energy activity also continued to decline, and contacts expected oil prices to remain below the price

needed to substantially increase drilling for more than a year. The agriculture sector remained weak, but all meat-packing

plants were operational by late June. District employment started to recover, with the most significant gains in the retail,

restaurant and tourism sectors. Despite recent improvement, employment still remained well below year-ago levels in

several sectors. Wages rose modestly, and prices increased across most District sectors.

Employment and Wages

to decline in the transportation industry, but input prices

rose moderately. Raw materials prices edged up in the

manufacturing sector, while the prices of finished products rose slightly.

District employment started to recover in June after

declining in the previous two survey periods. The most

significant gains occurred in the retail, restaurant, and

tourism sectors, with retail employment approaching

year-ago levels. However, several industries reported

employment levels that were still sharply below a year

ago including transportation, tourism, restaurants and

durable-goods manufacturing. Overall, employment was

anticipated to increase slightly in the months ahead, but

expectations were varied across industries.

Consumer Spending

Consumer spending picked up modestly since the last

survey period after plummeting in previous months.

Sales increased for auto, restaurants, tourism, and retailers as many businesses reopened to consumers. Despite improved auto, restaurant and tourism sales, activity remained well below year-ago levels. However, retail

activity was up from a year ago, driven by higher sales at

grocery stores and building and garden supplies retailers. Health services sales continued to contract, but at a

slower rate compared with previous months. A majority

of firms reported receiving loans from the SBA PPP

program, and most contacts indicated that these loans

helped prevent layoffs and cover costs related to the

pandemic. Expectations for all consumer spending sectors rose considerably after historically low expectations

a few months ago.

Labor shortages were not an issue for the majority of

respondents, but some contacts reported shortages for

truck drivers, skilled technicians, and restaurant workers.

Wages rose slightly, and modest gains were expected in

the coming months.

Prices

Input and selling prices rose in June, and modest price

increases were expected in both the services and manufacturing sectors in the months ahead. Retail contacts

noted moderate growth in both input and selling prices

and expected additional increases going forward. Both

input and selling prices rose sharply in the restaurant

sector and similar price growth was anticipated in the

next few months. Construction supply respondents noted

a modest rise in selling prices. Selling prices continued

Manufacturing and Other Business Activity

Manufacturing activity expanded slightly in June after

steep decreases for three straight months. The increase

in activity was driven by an uptick at non-durable goods

factories, including sharply higher production at food and

J-1

Federal Reserve Bank of Kansas City

beverage manufacturing plants. Activity at durable goods

factories, especially for primary and fabricated metals,

continued to decline, but at a slower pace than in previous months. Production and new orders increased slightly but remained well below year-ago levels. Over 75

percent of factory contacts reported applying for the SBA

PPP program, and most indicated that those loans prevented some layoffs and furloughs. Expectations for

future activity increased, though capital expenditures

plans and expectations for new orders for export remained subdued.

ries. Loan quality decreased slightly compared to a year

ago, but a sharp deterioration was expected over the

next six months. Deposit levels rose at a strong pace,

with deposits from stimulus checks and the SBA PPP

program playing a large role.

Energy

District energy activity collapsed further in June, with

sharp drops in revenues, profits and employment. The

number of active oil and gas rigs in the District also

continued to decline as firms shut-in additional wells to

ease production levels. The oversupply of oil combined

with weaker demand due to the global pandemic continued to curb regional oil production and well-head prices.

Contacts expected oil and gas prices to rise modestly in

the months ahead, but prices were expected to remain

below the level needed for a substantial increase in

drilling for more than a year. Additional deterioration was

anticipated in the energy sector, although the pace of

declines was expected to moderate. Despite weak conditions, over two-thirds of energy contacts reported that

they could survive for more than a year if current revenue levels persisted.

Outside of manufacturing, sales increased in the transportation and wholesale trade sectors. Wholesale trade

sales were near year-ago levels, but transportation sales

remained significantly below year-ago levels. Sales

dipped further at professional and high-tech services

firms, and were below levels a year ago. Contacts in the

transportation and professional and high-tech services

sectors anticipated fewer sales and capital expenditures

in the months ahead. By contrast, expectations among

wholesale trade contracts rebounded, with contacts

expecting significantly higher sales moving forward.

Agriculture

Real Estate and Construction

The Tenth District farm economy remained weak despite

some signs of stabilization in markets for key agricultural

commodities. By late June, all U.S. meat packing plants

were operational, but COVID-19 continued to impede

supply chain functions. Capacity utilization and meat

production at packing plants increased slightly since

May, but appeared to remain limited somewhat by modified operations. Alongside production constraints, demand for meat was expected to decrease in 2020 as a

result of broader economic weaknesses, putting additional downward pressure on cattle and hog prices.

Ethanol production rebounded slightly in June, but remained about 20 percent lower than a year ago and

continued to weigh on corn prices. District contacts

reported that farm borrower liquidity weakened considerably alongside lower commodity prices, but government

aid programs could provide a moderate degree of support to agricultural credit conditions. ■

Residential real estate activity expanded moderately in

June, while commercial real estate activity declined

modestly. Residential sales increased moderately as

stay-at-home orders were lifted, and contacts were optimistic about strong sales in the months to come. Inventories fell further, and were sharply below year-ago levels. Home prices increased moderately and were expected to increase further as sales strengthen and inventories remain low. Residential construction activity rose

modestly and construction supply firms noted a slight

increase in sales, with one contact noting a surge in

sales for deck supplies. Commercial real estate conditions deteriorated further as vacancy rates increased

significantly, while absorption, sales, and prices declined. Many contacts noted that access to credit had

become more difficult in recent months, and one respondent reported that retail leasing was particularly

challenging.

Banking

Banking contacts reported a slight decrease in overall

loan demand in recent weeks including a slight decrease

in consumer loan demand, a modest decrease in commercial real estate loan demand, and a moderate decrease in commercial and industrial loan demand. However, the demand for residential real estate loans increased sharply since the last survey. Bankers reported

that credit standards tightened across all loan catego-

For more information about District economic conditions visit:

www.KansasCityFed.org/Research/RegionalEconomy

J-2

Federal Reserve Bank of

Dallas

The Beige Book Ŷ July 2020

Summary of Economic Activity

The Eleventh District economy regained its footing following unprecedented declines in the previous two reporting periods. Activity in the manufacturing and service sectors began rebounding, as did retail spending. However, the level of

output and demand remained below pre-COVID levels. Loan volumes contracted at a modest pace, and drilling activity

fell to new lows. Activity in the housing market expanded, with new home sales outperforming activity in the existinghome market. Employment stabilized, according to contacts, but overall labor market conditions remained weak. Wages

were flat to slightly up. While input costs rose modestly, selling prices generally dipped further. Outlooks improved, but a

weak economy, depressed activity in the energy sector, the resurgence of COVID-19 infections, and a pause in the

reopening of the district economy were causing concern among contacts.

prices for new and used vehicles arising from inventory

shortages. New home prices rose slightly, and homebuilders noted getting only modest relief from contractors

and suppliers on pricing. Airline ticket prices held steady

or dipped. Staffing firms reported no change in bill rates,

while some oilfield services firms said prices were down

10-15 percent vs. earlier in the year.

Employment and Wages

Most contacts reported holding employment steady.

Manufacturing and service sector employment was flat,

with scattered reports of hiring, while energy contracted.

Forty-three percent of respondents to a June Dallas Fed

survey of 400 Texas manufacturing and services firms

indicated reduced employment levels due to COVID-19

and, among this group, 26 percent said it would take

more than a year to get back to pre-COVID headcounts

and 19 percent said they do not ever expect employment

to get back to pre-COVID levels. Also, many contacts

cited challenges in bringing workers back given rising

infection rates, quarantined employees, and confirmed

positive COVID-19 cases among staff.

Manufacturing

Output growth rebounded in June following steep declines in the previous three months. Durables and nondurables increased, led by strength in transportation

equipment, food, printing, and construction-related manufacturing. Declines in the oil and gas industry remained

a significant headwind among those experiencing sustained weakness. Refiners and chemical manufacturers

noted modest improvements in utilization rates, though

margins were still depressed. Chemical firms said demand for PPE and disinfectant products remained robust, but resin and basic chemical demand was soft.

Manufacturing outlooks improved, though the recent

spike in COVID-19 cases and a weak economy weighed

on business sentiment.

Wages were flat to slightly up; however, airlines and

energy firms among others noted pay cuts and/or freezes. Companies looking to hire along with staffing firms

noted difficulty recruiting due to lack of applicants and/or

high unemployment insurance benefits.

Prices

Input costs rose at a modest pace, in part due to supplychain issues, rising freight costs, and precautions being

taken by firms to protect staff and customers from exposure to COVID-19. Selling prices were flat to down due

to weak demand, though there were reports of increased

Retail Sales

Retail sales rebounded sharply in June, albeit from depressed levels. A majority of respondents noted an in-

K-1

Federal Reserve Bank of Dallas

crease in sales activity, though reports regarding the

pace of growth were mixed. Auto dealers cited a pickup

in demand, with reports of strength in all-terrain vehicle

(ATV) sales. Inventories dropped further, particularly for

auto dealers, which some contacts attributed to supplychain issues. Outlooks were optimistic but contingent

upon a stabilization of COVID-19 cases.

and/or smaller-sized deals. Industrial demand remained

solid.

Financial Services

Loan demand fell, though at a more moderate pace than

in the previous reporting period. Volumes weakened

further for all loan types except for residential real estate,

which rose sharply. Loan pricing continued its marked

decline, and credit standards tightened further. Loan

performance eroded noticeably, and majority of respondents expected further deterioration. Nearly 19 percent of

banks observed an increase in draws on existing commercial credit lines due to COVID-19, down from 37

percent from six weeks ago. On average, bankers said

roughly 15 percent of their total loans were currently in

deferral. Expectations regarding general business conditions improved, and the outlook for future loan demand

turned positive for the first time since March.

Nonfinancial Services

Service sector activity rose modestly in June, following a

period of declining demand from March through May.

Performance was mixed across industries, with those

experiencing sluggish activity citing weakness in the oil

and gas sector, continued operational restrictions, and

weak demand. Health care firms saw a strong pickup in

demand. Some professional and technical services firms

said they were benefitting from strength in the residential

real estate market. Activity in the leisure and hospitality

sector rebounded but remained well below last year’s

levels. Airline passenger demand grew modestly during

the reporting period; however, it remained markedly

lower compared to year-ago levels. Domestic demand

was driven by leisure travel, and overseas travel remained limited. Demand for staffing services was flat to

down during the reporting period. Outlooks were mixed

and generally uncertain due to the resurgence of COVID

-19, and concern about future consumer demand trends.

Energy

Eleventh District drilling activity eroded further but

showed signs of stabilizing by the end of the reporting

period. Meanwhile, well completion activity stabilized and

logged modest weekly gains. Though overall oilfield

activity remained depressed, sentiment has improved

due to a pickup in oil prices, and a majority of firms expect to restart shut-in wells by September. The recent

increase in COVID-19 cases and hospitalizations was

causing some concern among contacts. Most contacts

don’t expect U.S. crude oil production to return to preCOVID levels until at least mid-2021.

Construction and Real Estate

Activity in the housing market improved markedly. Existing-home sales fell in May partly due to a lack of inventory, but picked up in June. Showings were up as well,

indicating increased buyer interest. New-home sales

strengthened, with several contacts noting a record

month in May and continued solid activity in June. Contacts said record-low mortgage rates were driving sales,

with the pace of sales higher in the low- to mid-price

range. After a temporary pause, new development activity was picking back up, and contacts noted evaluating

new lot/land deals and/or moving forward with planned

acquisitions. Outlooks have improved significantly, but

there was lingering concern about the demand impact in

the fall of a weak labor market, the upcoming election,

and virus flare ups.

Agriculture

Soil moisture conditions remained favorable across most

of the district, except for the Texas Panhandle area

where there was drought. Wheat remained a bright spot

with production up from last year, though prices were

lower. While overall crop conditions were favorable,

lower-than-profitable prices were leading agricultural

producers to rely on government support payments to

supplement farm income. On the livestock side, meat

packers were adjusting to the new operating environment and have ramped production back up. Dairy prices

rose as the industry made a concerted effort to curb

production in response to lower restaurant demand. Ŷ

Multifamily contacts said leasing activity weakened in

early to mid-spring due to COVID-19, but has improved

since then. Rents were flat to down, and concessions

have increased. Apartment rent collections continued to

outperform expectations, but the upcoming expiration of

federal unemployment benefits was a downside risk to

the outlook. Office leasing remained sluggish, though it

did improve slightly compared to the previous reporting

period. Activity was concentrated in short-term renewals

For more information about District economic conditions visit:

www.dallasfed.org/research/texas

K-2

Federal Reserve Bank of

San Francisco

The Beige Book ■ July 2020

Summary of Economic Activity

Economic activity in the Twelfth District contracted modestly on balance during the reporting period of mid-May through

June. Employment levels increased slightly, as rehiring activity proceeded cautiously. Wages were generally stable, as

were prices. Sales of retail goods rose moderately, while activity for providers of consumer and business services continued to contract sharply. Manufacturing activity was mixed, and conditions in the agriculture sector remained weak.

Conditions in residential real estate improved moderately, while the commercial market was mixed. Lending activity

ticked up.

Employment and Wages

period as businesses generally took a cautious approach

to potential price changes. A few observed slightly higher

prices at restaurants, perhaps to account for the cost of

new cleaning and safety supplies and supply constraints

for certain foods. Some restaurants limited price changes in an attempt to retain customers. Building materials’

prices ticked up with construction projects restarting or

continuing in several regions and residential permitting

rising in some areas. Electricity and fuel prices were

unchanged on balance. Selling prices for most crops fell,

as supply outstripped demand, especially from foreign

markets. A credit union in California suspended most

fees on consumer accounts. Hoteliers and airline operators decreased some prices for tourist destinations.

Employment levels increased slightly, as reopening and

rehiring activity proceeded cautiously after the prior

months’ surge in layoffs and furloughs. Most companies

that reduced employment in the wake of the COVID-19

outbreak added only a fraction of previously separated

workers to their payrolls, while others that did not lay off

or furlough workers scaled back hiring plans going forward. IT and business services companies noted continued hiring, albeit at a slightly slower pace. Building material producers reported a tick up in payrolls in response

to growing demand from the construction sector. In Los

Angeles, restaurants increased employment modestly,

but anticipated having to reinstate furloughs due to a

reversal in the reopening process. Entertainment streaming services increased employment slightly, while unemployment in film and television production in Southern

California remained historically elevated. Over the next

several months, tourism industry employers in Hawaii

expect to recall only about 10 to 15 percent of the workers who were laid off or furloughed in March and April.

Some contacts reported generous unemployment compensation limited the pace of hiring.

Retail Trade and Services

Retail sales rose moderately, as restrictions on nonessential businesses eased in the early part of the reporting period. Contacts observed a broad reversal in the

negative growth trajectory of retail activity, with foot

traffic to brick-and-mortar establishments picking up.

However, in several areas, a late June resurgence in

COVID-19 cases slowed or reversed the reopening

process, jeopardizing further recovery in consumer

spending. In the Mountain West, retail sales beat expectations in June and auto dealers saw strong demand

over the past two months. However, auto dealers anticipated a falloff in sales over the next several months as

vehicle inventories reached rock-bottom levels and were

not expected to recover until the fourth quarter. Sales of

wood products at home improvement stores in the Pacific Northwest increased solidly. An Arizona big box retailer reported lower in-store sales and ample inventory.

Steep declines in tourist arrivals in Hawaii and Southern

California have severely limited foot traffic to stores

Wages were broadly stable. While contacts noted modestly to moderately falling wages for some lower-skilled

jobs and rising salaries for in-demand jobs in IT and

finance, most reported stable compensation. A few

contacts cited firms’ tendency to try to ride out the initial

shock of a downturn before adjusting wages and other

business costs. However, some firms have suspended

or postponed bonuses and merit increases in response

to deteriorating business conditions.

Prices

Most contacts reported stable prices over the reporting

L-1

Federal Reserve Bank of San Francisco

dependent on visitors’ spending during summer months.

Contacts in the Pacific Northwest and Mountain West

reported continued weakness in domestic wholesale

distributors’ and restaurants’ demand for grains and

potatoes. On the other hand, fruit and vegetable growers

in California noted moderately higher demand from

domestic grocery stores. On the export side, the strong

dollar and continued tepid foreign demand due to the

COVID-19 outbreak limited export sales for growers

across the District. For example, California nut exports

fell further after planned holiday celebrations around the

summer solstice in China were cancelled.

Activity in consumer and business services contracted

sharply. In the Los Angeles area, most restaurants operated at a loss or remained closed entirely. Moreover,

restaurants that were operating maintained narrow inventories in case shelter-in-place restrictions were reimposed, a decision that weakened sales at restaurant

suppliers. Hawaii hotel occupancy rates continued to run

at a tiny fraction of normal levels, while a Southern California hotel owner reported a moderate improvement in

room bookings to a level still significantly below prior

years. A provider of business advisory services in California reported that many client firms curtailed spending

on nonessential business services and declined to extend some contracts, suggesting a weak consensus

business outlook. Domestic visitor levels ticked up in

some Mountain West national parks, yet the absence of

international travelers more than offset this positive

development, leaving revenues depressed on a yearover-year basis. Electricity usage fell slightly on balance,

as higher residential demand only partially offset lower

industrial demand. In the entertainment sector, film and

television production was still frozen while media subscription services saw a further tick-up in sales.

Real Estate and Construction

Residential construction activity increased moderately. In

most areas, contacts reported solid permitting and building activity. In Seattle, residential permits were slightly

higher than in the same period last year, and a Northern

California contact noted that permitting activity was

picking up, reflecting a return to construction after some

stoppages in March and April. Overall, home sales

picked up noticeably while inventories declined, putting

some upward pressure on home prices. In Oregon, a

large backlog of homeowners wanting to list their home

for sale indicated that inventory in some areas may rise

in coming months. In Idaho and Eastern Washington,

observers saw early evidence of buyers moving from

higher-cost coastal markets after starting permanent

teleworking. A Northern California contact reported that a

number of renters were unable to pay rent, while some

homeowners were delinquent on mortgage payments.

Manufacturing

Manufacturing activity was mixed but remained tepid in

general. Where demand warranted firms’ returning to full

capacity, their ability to do so depended largely on how

readily they could adapt to social-distancing regulations,

a factor that varied significantly from business to business. A steel producer in Oregon reported that funds

from the Paycheck Protection Program helped them stay

afloat over the reporting period but that work orders were

still a fraction of their pre-COVID-19 level. On the other

hand, a building product manufacturer saw an encouraging increase in production and sales but attributed some

of the jump to making up for April’s very weak activity

rather than improved market conditions. Elsewhere, a

renewable energy equipment manufacturer noted a

modest rebound in capacity utilization as supply chains

passing through China and Mexico reopened. Spotty

availability of input materials generally posed an additional challenge for some manufacturers attempting to

move toward more normal operations.

Activity in the commercial real estate market was mixed.

Contacts in the Mountain West and California noted that

some commercial projects that paused due to virus

concerns have restarted. Office occupancy was generally stable in this region. However, the outlook for office

occupancy and new office construction in District cities is

highly uncertain, with some predicting a steep decline in

occupancy and a freeze in new construction. Demand for

warehouse space picked up in Northern California.

Financial Institutions

Overall lending activity ticked up, with contacts noting

home mortgage refinancing and PPP loans as key drivers. Bankers reported that households capitalized on

lower interest rates and PPP loans helped businesses

maintain solvency and solid credit standing. Fiscal support to households supported their credit standing too.

However, a fin-tech firm in San Francisco saw a marked

decline in the overall credit quality of its small business

customers. A few contacts continued to express concern

about the ambiguity of certain PPP forgiveness terms.

Liquidity conditions were solid across the District, and

the supply of deposits increased modestly. ■

Agriculture and Resource-Related Industries

Agriculture sector activity remained weak on balance

over the reporting period. While yields were generally

solid for most crops, including wheat, potatoes, and fruit,

domestic sales were mixed and foreign sales poor. This

combination of strong crop yields and subdued demand

further deteriorated profit margins for many growers.

L-2