Beige Book Darkens As 4 Of 12 District Sees "Little Or No Growth", Optimism Wanes On New Lockdowns

While superficially the Fed's latest Beige Book, which was based on data collected before Nov 20, toed the "modest recovery" party line with most of the Fed 12 district characterizing economic expansion as the trite "modest or moderate", it certainly had a dark shadow as four districts described "little or no growth", while five narratives noted that activity remained below pre-pandemic levels for at least some sectors.

Worse, Philadelphia and three of the four Midwestern Districts observed that activity began to slow in early November as COVID-19 cases surged. This deterioration, however, was offset by reports which indicated higher-than-average growth of manufacturing, distribution and logistics, homebuilding, and existing home sales, "although not without disruptions."

Continuing the trend of pain in CRE, districts also reported "some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors." As a result, an increase in delinquencies in 2021 is more widely anticipated. And while most districts reported that firms' outlooks remained positive, optimism has waned - many contacts cited concerns over the recent pandemic wave, mandated restrictions (recent and prospective), and the looming expiration dates for unemployment benefits and for moratoriums on evictions and foreclosures.

Focusing on employment, the data was modestly good as nearly all Districts reported that employment rose, but for most, the pace was slow, at best, and the recovery remained incomplete. Those firms that were hiring continued to report difficulties in attracting and retaining workers, while the sharp rise in COVID-19 cases had precipitated more school and plant closings and renewed fears of infection, which have further aggravated labor supply problems, including absenteeism and attrition. Providing for childcare and virtual schooling needs was widely cited as a significant and growing issue for the workforce, especially for women—prompting some firms to extend greater accommodations for flexible work schedules. In several Districts, firms feared that employment levels would fall over the winter before recovering further. Despite hiring difficulties, firms in most Districts reported that wages grew at a slight or modest pace overall. However, many noted greater pressure to raise rates for low-skilled workers, especially in outlying areas. Staffing firms described greater placement success with competitive rates, and one firm instituted a minimum wage rate for its industrial clients.

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