Fed Says U.S. Economy Held Up Amid First Signs of Virus Impact
Bloomberg – The U.S. economy expanded at a modest to moderate rate in the first weeks of the year, according to a Federal Reserve survey taken just as the virus outbreak was beginning to impact some businesses and unnerve financial markets.
“There were indications that the coronavirus was negatively impacting travel and tourism,” according to the report released Wednesday in Washington, based on anecdotal information collected by the 12 regional reserve banks through Feb. 24.
The Beige Book report said manufacturing activity expanded, but “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.”
Employment grew “at a slight to moderate pace,” with hiring constrained by a tight labor market. Selling prices rose modestly.
“Some firms, particularly manufacturers, were optimistic that the phase one trade deal with China would reduce goods prices, but some still struggled with tariffs and were concerned about how the coronavirus might affect prices,” the report said.
The report was released a day after the Fed slashed interest rates by 50 basis points in its first emergency cut since the 2008 financial crisis to guard against the impact of the virus.
Contacts in the Chicago region said the virus outbreak “has had little effect to date,” while those in Philadelphia and Dallas said that it had introduced new uncertainty. Richmond reported several ports saw an increase in “blank sailings,” or shippers cancelling ports of call, “particularly from China.”
Compiled by the Richmond Fed, the report said companies had a near-term outlook for continued modest growth “with the coronavirus and the upcoming presidential election cited as potential risks.”
Policy makers are scheduled to hold their next meeting March 17-18 in Washington. Based on pricing in futures contracts, investors expect at least one additional quarter-point reduction in the benchmark rate at that gathering.
The virus claimed more American lives this week as an outbreak around Seattle spread, and fears grew that a widespread contagion could cause significant, albeit transitory, damage to the world’s largest economy by disrupting businesses and consumer spending.
The Labor Department’s payrolls report Friday is forecast to show the pace of gains in nonfarm jobs eased to a still-robust level in February. The unemployment rate is forecast to hold near a half-century low as wages continue steady gains.