Economies in Middle America are still struggling as result of the COVID-19 pandemic, according to a recent report from the Federal Reserve Bank.
In the July 2020 issue of “The Beige Book,” the institution summarized the levels of economic activity present throughout the United States. The Federal Reserve Bank of St. Louis, which oversees a swath of the middle section of the county that includes Arkansas, reports that, while economic activity has risen since the early months of the pandemic, conditions “remain significantly depressed.”
Several sectors have shown substantial improvement as shown in the report. Real estate has rebounded, even exceeding numbers from the same time last year in some states. Federal Reserve contacts have stated that there has been increased competition for home listings with higher sales prices reported.
Banks and other financial service providers have also shown increased activity in July. One of the primary drivers of this increase has been low interest rates, which has prompted individuals to refinance mortgages. There has also been more demand for loans – both commercial and industrial loans have substantially increased while residential real estate and consumer loans have “modestly increased.”
Both the agriculture and manufacturing sectors reportedly experienced little change from June to July. Agricultural contacts have expressed concern that there may be cash flow issues if the pandemic and economic slowdown drags on.
The hardest hit sectors of the economic, according to the report, are small businesses and support businesses, such as wholesalers and intermediate-goods manufacturers. One Federal Reserve contact said that small businesses in the region had been “decimated” and that as many as 25 percent of their clients could be facing bankruptcy by the end of 2020.
An issue companies – both big and small – have faced is cost management. There have been companies that have increased wages to offset the appeal of continued unemployment benefits. However, some companies have taken to cutting “nonwage benefits,” according to the Federal Reserve report, to balance costs. These benefits include match retirement contributions and delaying standard raises and bonuses.
Perhaps the most dramatic economic impact of the pandemic has been the decline in consumer spending, which the report notes is “far below typical levels.” Credit and debit card spending in the St. Louis district did increase from May to mid-June, and there has been an increase in the hospitality sector compared to the early pandemic period.
“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,” the report reads.
This has already been seen in Arkansas with numerous restaurants and other culinary businesses closing as a result of difficult economic circumstances. In recent weeks, notable Arkansas restaurants have either closed permanently or have opted to temporarily close in response to COVID-19 infections or to assess financial situations.
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