“We”™re still in a very deep recession,” John Williams, president of the Federal Reserve Bank of New York, said during a Dec. 2 briefing on the economic situation in the 2nd Federal Reserve District.
The district covers downstate New York, Fairfield County in Connecticut, northern New Jersey, Puerto Rico and the Virgin Islands.
NY Fed analysts presented data during the briefing, in which the Business Journal participated, showing that the New York downstate region and Fairfield County have seen a substantial economic recovery from the worst impacts so far of Covid-19 — although business activity, employment and consumer spending generally are still below pre-pandemic levels, and there are new signs of economic weakening.
“This has been the most extraordinary economic crisis of our lifetimes. First and foremost it”™s obviously a public health crisis but it has had dramatic effects on our economy,” Williams said. “We have been also seeing in recent data some signs of slowing in the basic growth partially due to, we think, a second wave of Covid cases in the U.S. and obviously throughout the United States but in the region as well.”
Williams said that while previous federal government aid packages served to put a lot of money into peoples”™ pocketbooks, the expiration of aid programs along with an increase in cases could be a double whammy for 2021.
“I think people lose track of how enormous the increase in support for families and unemployed people was from the CARES Act,” Williams said. ”It was a significant amount of money. It did cause the savings rate to skyrocket and the microdata we”™ve seen — of course we don”™t have a picture of every single family on that — but the microdata we do have suggests that a lot of families were able to save part of that and that”™s helped to keep them able to pay bills and continue to spend.
“That doesn”™t go on forever,” he added, “but I think that”™s one of the reasons we continue to see reasonable consumer spending and other indicators.”
NY Fed researchers presented data showing that the economic recovery is flattening out. They reported that job losses among lower-wage workers and people of color have been particularly consequential.
Data showed increased commercial real estate vacancies in the region during November. In Westchester and Fairfield, the office vacancy rate stood at about 11% compared, with less than 7% in upstate New York and just under 10% in Manhattan. The November retail space vacancy rate in Westchester and Fairfield was a bit below 5%, according to the Fed, just a fraction higher than in upstate New York and Manhattan.
A survey conducted by the NY Fed during November showed that employment at 42% of manufacturing firms was at or above the levels achieved before the pandemic hit, while 22% said they expected employment to get back to where it was within a year and 36% said it either would take them more than a year or they might never return to pre-pandemic employment levels.
Service firms also were surveyed; 30% reported they were back or above their pre-Covid employment levels, while 25% said they expected a return to the old employment levels within a year and 45% said it would take more than a year — if it happens at all.
Williams said a new federal stimulus package is needed, but he did not take a position on the latest $900 billion package being negotiated on Capitol Hill. He emphasized that small businesses especially need help.
The analysts from the NY Fed noted that state and local governments throughout the region are under severe fiscal stress due to a combination of sizable revenue losses and increased demands for spending to fight the pandemic.
“One of the big question marks as we move forward about the economic recovery is how big the effects will be from this very large wave of Covid cases, along with the expiration or diminishment of fiscal support,” Williams said.
“What is its effect on a household”™s ability to be able to spend, small businesses”™ ability to continue to hold together through the pandemic, and other challenges that we”™ll be facing for many months?” he asked. “When vaccines become widely available to people, how quickly can that happen and how does that change the economic landscape?”
In a document prepared for the briefing, the NY Fed”™s analysts said that the region still is struggling to make up the ground that was lost. “The pace of recovery was already slowing in the region before the most recent surge in coronavirus cases and we are now seeing signs of renewed weakening as we enter winter,” the analysts said.
