Fed Beige Book Paints An Ugly Picture For Mid-Atlantic Region

No Sector Spared In Monthly Economic Report

Keith Griffin

April 15, 2020

Third Federal Reserve Bank District map

No sector has been spared by the COVID-19 pandemic, according to the latest Federal Reserve monthly Beige Book report. The Feds added that the wage path is unclear. Some firms offered hardship pay, while others imposed salary cuts.

The report said from March 19 through March 24, the three states ordered all nonessential businesses to close; by April 1, statewide stay-at-home orders were in place. As of March 29, over two-thirds of the firms reported that their new orders (or sales) had fallen in excess of 5 percent – one-fifth in excess of 30 percent – and one-fourth had shut down. Declines varied by sector; none were spared. Manufacturers were more likely to be essential and operating, but some closed after employees tested positive.

Financial Services

By March 25, reports from financial firms were starting to show signs of financial stress among firms and households. Volumes of credit card debt and of auto loans began falling after March 11. In contrast, over the same two weeks, volumes grew rapidly for two lending categories in which firms and households are able to draw down on or request extensions of existing lines of credit: commercial and industrial loans and home equity lines.

Commercial real estate lending and home mortgages did not appear to be impacted yet. Bankers and brokers indicated that most deals that were already scheduled were completed. However, contacts expect fewer deals to be brought to the table going forward.

Banking contacts were busy negotiating loan modifications and loan deferrals, while deciphering new Small Business Administration rules and other programs available in the Coronavirus Aid, Relief, and Economic Security Act recovery package, as fast as the regulations were being written. The bankers stated that liquidity was not a problem but would be a concern if the shutdown dragged on.

Real Estate and Construction

Homebuilders were sidelined in Pennsylvania, but construction continued in Delaware and New Jersey. Nevertheless, projects were slowed by supply disruptions, transactions that were complicated by disrupted local government services, and a reluctant workforce facing contagion fears. Buyers have not canceled existing contracts, but new orders are nonexistent.

Real estate firms also noted extra hurdles with title work and inspections required to close transactions. However, most scheduled closings were finalized. Showings and sales have dropped off considerably in Pennsylvania despite switching to virtual showings. Contacts note that activity has held up in Delaware.

Philadelphia's commercial real estate construction fell 70 percent by the end of March – some contractors have no projects. After initially being shut down in Pennsylvania, commercial construction was allowed an exemption. Unfortunately, worker attendance is less than 50 percent on some projects. On the commercial leasing side, tenants are seeking lower rents, whether they need it or not. As with residential construction, deals already in the works have been finalized, but fewer new projects are coming forward now.

Click the link for more information about district economic conditions.

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