Coronavirus Continues to Act as a Dampener on U.S. Economic Growth, as per Federal Reserve’s Latest Beige Book Report
The U.S. Federal Reserve believes that the coronavirus outbreak will continue to exert a near-term dampening force on the American economy.
The financial impact assessment of the coronavirus constituted the crux of the Fed’s March ‘Beige Book’ report – formally known as the Summary of Commentary on Current Economic Conditions. In preparing this report, the Federal Reserve frequently surveys businesses around the country. The latest analysis of the economy pertains to the period that commences from the end of January through much of February 2020.
The report’s preliminary paragraphs include the following observation:
“There were indications that the coronavirus was negatively impacting travel and tourism in the U.S. Manufacturing activity expanded in most parts of the country; however, some supply chain delays were reported as a result of the coronavirus and several Districts said that producers feared further disruptions in the coming weeks.”
“Outlooks for the near-term were mostly for modest growth with the coronavirus and the upcoming presidential election cited as potential risks.”
A recurring theme in the analyses by regional Federal Reserve offices was the weakening of U.S. import prices and manufacturing supply chain disruptions emanating from China. For example, the Federal Reserve Bank of Philadelphia noted that:
“Despite the growth and bullish expectations, several firms cautioned that the emerging coronavirus may disrupt supply chains in the near future. Two firms have already reported delays in receiving needed production inputs. Inquiries and orders to source parts domestically were increasing because of tariff uncertainty and are continuing because of the coronavirus. However, contacts explain that it can take three months to get a part into production, and longer for testing and redesign.”
Similarly, the Federal Reserve Bank of Chicago noted that:
“Heavy machinery demand decreased overall, as a slowdown in demand in China—apparently due to the coronavirus—more than offset robust demand in the US.”
As a refresher, the Federal Reserve cut its benchmark interest rate – the Fed Funds rate – by 50bp on Tuesday. The unorthodox step, announced through an unscheduled press release, caught the broader market off guard, as evidenced by the yield on the U.S. 10-year Treasuries plunging below 1 percent for the first time in history on Tuesday. The move constituted Federal Reserve’s first emergency rate cut since 2008 – at the apex of the financial crisis – and highlighted its concern about the escalating financial costs associated with the coronavirus epidemic.
The Federal Reserve Chair Jerome Powell said in an impromptu press conference on Tuesday that:
“[the effects of the virus on the U.S. economy] are at a very early stage but you are hearing concerns from people, for example in the travel business or the hotel business...that’s one of the reasons why we’ve come to the view it would be appropriate for us to move to support the economy.”
We have been covering the worsening financial impact of the coronavirus outbreak along with its unfortunate death toll for a while now. The crisis began in January 2020 when China started placing millions of people under a lockdown and shuttered factories in order to curb the spread of the virus. These mandatory quarantines and termination of transportation links between key Chinese manufacturing hubs have wreaked havoc on the global manufacturing and tech industry as supply chains ruptured and demand collapsed. Even though the epidemic appears to be stabilizing in China, its tentacles have spread to other parts of the globe.
As depicted in the infographic above, the coronavirus epidemic has, so far, claimed 3,214 lives and infected at least 94.261 people throughout the globe. South Korea has confirmed an additional 293 coronavirus cases, bringing the national total to 5,612, according to the country's Central Disaster Relief Headquarters. A total of 32 patients in the country have unfortunately died from the coronavirus. In Italy, 107 people have died from the virus, as per the country’s Civil Protection Agency.