Fed’s Beige Book shows modest U.S. recovery as job growth slows

U.S. economic activity increased modestly at the end of 2020 while hiring slowed amid resurgent infections and new restrictions, even as vaccinations got underway, the Federal Reserve said.

“Some districts noted declines in retail sales and demand for leisure and hospitality services, largely owing to the recent surge in Covid-19 cases and stricter containment measures,” according to the Beige Book based on information collected by the Fed’s 12 regional banks through Jan. 4.

“Although the prospect of Covid-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions,” the Fed said in the survey, released Wednesday in Washington.

New coronavirus infections surged at the end of 2020 and into the new year. Coupled with the start of winter, people engaged in less activity. The report showed regional differences in economic performance, with some reporting an increase in activity and others little change. Two districts saw declines.

Consumer spending declined in the New York region, and labor-market weakness was concentrated in services amid rising infections, increased restrictions, and cold weather. Philadelphia saw virus-related work disruptions and curtailed holiday spending by consumers, while employment appeared to edge down.

The Cleveland district’s economy lost some momentum as the pandemic curbed demand for goods and services and saw labor availability issues disrupt supplies. Respondents were encouraged about vaccines, but surging cases left them less optimistic about the near-term demand outlook than before.

The San Francisco district, by far the largest economy among Fed regions, saw job cuts in tourism and food services in response to the recent virus surge and related restrictions, though demand for labor in the technology and health care industries remained solid.

The report covers a period that saw the start of widespread vaccinations, but with just a tiny portion of the population inoculated so far, the impacts on the economy aren’t yet visible.

Several Fed officials have said broad vaccination will boost the economy in the second half of the year. Dallas Fed President Robert Kaplan expects 5% growth in 2021, boosted by inoculations, and Boston’s Eric Rosengren said Wednesday that widespread vaccination could underpin a significant pickup in consumption. Atlanta’s Raphael Bostic has said distribution has started slowly and further delays would be a setback to the hoped-for strong recovery.

Manufacturing improvement

Manufacturing continued to recover across almost all regions, the report showed, as the pandemic economy bolstered spending on goods rather than services. Most districts saw a continued shift to online shopping, from brick-and-mortar retail, during the holiday season.

Although employment rose in a majority of the districts, the pace slowed and more districts reported a drop in jobs, especially in the leisure and hospitality sector.

The U.S. economy lost 140,000 jobs in December in the first payrolls decline in eight months, Labor Department figures show. The drop was driven by losses at restaurants and bars amid renewed restrictions in some parts of the country to help stem soaring virus infection rates.

Companies in most districts reported modest wage gains. Some employers boosted benefits including bonuses and flexible work arrangements in a bid to limit turnover.

Nearly all districts reported “modest” price increases. Raw-material costs, including those for building construction, increased further as demand for residential housing remained strong.