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U.S. 2020 Economic Conditions and Commentary Considering COVID-19 and Continuing Economic Developments: Part Five

Sep 28, 2020

Where We Are – September 2020 Observations

This is part five of a series of posts focusing on year-to-date economic conditions in light of the impact of the COVID-19 pandemic. Read part onepart two, part three, part four , part six and part seven.

3. Federal Reserve Bank of Chicago

Summary of Economic Activity

Economic activity in the Seventh District again increased strongly in July and early August, but the pace of growth was slower than the prior reporting period and activity remained well below its pre-pandemic level. Contacts expected further growth in the coming months, but most did not expect a full recovery until at least the second half of 2021. Employment and manufacturing increased strongly; consumer spending and construction and real estate increased moderately; and business spending increased slightly. Wages increased slightly and prices rose modestly. Financial conditions also improved modestly. The pandemic continued to weigh on agricultural incomes.

Employment and Wages

Employment overall increased strongly during the reporting period, though a large number of contacts made little or no change to their staffing levels. One said that the Paycheck Protection Program (PPP) had allowed his firm to retain workers during the depths of the downturn and was sparing them the difficulty of searching for workers now that activity was picking up. A number of contacts in manufacturing reported they were maintaining higher employment levels than usual because of elevated rates of absenteeism as workers with a positive COVID test or potential exposure had to quarantine. Several contacts again commented that generous unemployment benefits had made it difficult to bring payrolls back to desired levels, especially at the entry level. Wages increased slightly across skill levels. Benefits costs also moved up some.


Prices rose modestly in July and early August, and contacts expected a similar-sized increase over the next 12 months. Consumer prices increased moderately on balance, led by higher vehicle prices. Food and beverage prices fell a bit overall. Producer prices increased slightly. Input costs were up modestly, driven by rising raw materials and shipping costs.

Consumer Spending

Consumer spending increased moderately over the reporting period, and sales in many sectors returned to near their pre-pandemic levels. Non-auto retail spending increased moderately. Contacts reported robust gains in electronics (particularly for items that support e-learning) and sporting goods, but disappointing sales of apparel and other traditional back-to-school items as many schools were opting for virtual learning this fall. Sales leveled off in the grocery and home improvement sectors but remained well above year-ago levels. Vehicle sales fell slightly from strong levels in the previous reporting period. Dealers said that low inventories of some light truck models were holding back sales but supporting higher prices and profitability. Boats and RV sales continued to be strong. Contacts in the leisure and hospitality sector reported large increases in volumes, especially at hotels and restaurants, but activity remained well below its pre-pandemic level.

Business Spending

Business spending increased slightly in July and early August. Many retailers continued to struggle with inventory positions: One contact noted that nonessential retailers were being "careful on inventory" and did not want to over-order, while others reported low inventories of light trucks, boats, RVs, and many grocery items. Overall, manufacturers said inventories were somewhat higher than comfortable, and a number continued to report minor supply chain problems. Capital expenditures were little changed, and many contacts said they had paused expansion plans for the year. Freight transportation increased modestly, but remained at a low level. Commercial and industrial energy consumption increased modestly, with higher reported usage by small commercial establishments.

Construction and Real Estate

Construction and real estate activity increased moderately on balance over the reporting period. Residential construction grew modestly, with increases in single-family suburban building. In contrast, residential real estate activity increased substantially, with gains in most segments. Contacts noted that low interest rates were supporting demand. Many contacts said that demand for larger living spaces had increased since the pandemic began. Prices rose modestly, driven by low inventories of single-family homes. Nonresidential construction increased on net, but activity remained slow. One contact said that financing challenges and weak demand were making it difficult for smaller construction firms to land nonresidential jobs and that larger firms were exploring taking on smaller projects. Commercial real estate activity decreased moderately, as demand for retail and office space fell. Sublease space for those segments increased moderately. Demand for industrial space remained solid. Rents fell modestly overall. Sales of commercial properties were slow and prices fell modestly. Some contacts said they were waiting for prices to fall further before making purchases, and one contact said that the gap between what buyers were willing to pay and what sellers were willing to accept was unusually large.


Manufacturing production increased strongly in July and early August, but remained below where it was before the pandemic began. Auto production again grew sharply, though the pace of growth was slower than the previous reporting period. Steel production increased moderately, led by increased demand from the auto and construction industries. Heavy machinery manufacturers reported a slight decline in orders because of lower demand from the mining and energy sectors. Sales at specialty metals manufacturers increased modestly due to growth in demand from the auto, medical, and food manufacturing sectors. Demand for heavy trucks increased, but remained at low levels. Manufacturers of building materials reported a modest increase in shipments.

Banking and Finance

Financial conditions improved modestly on balance over the reporting period. Participants in the equity and bond markets reported better conditions, though volatility remained elevated. Business loan demand decreased moderately. Contacts noted that many businesses were flush with cash because of the Paycheck Protection Program (PPP) but were holding back on new capital purchases. Business loan quality deteriorated moderately, with declines concentrated in leisure and hospitality, retail, commercial real estate, and health care. Contacts said that payment deferrals and the PPP continued to help prevent delinquencies for many clients. Standards again tightened modestly. Consumer loan demand increased modestly, led by strong home purchase and refinancing activity. Loan quality improved slightly while standards tightened slightly. Contacts noted that deferrals were limiting delinquencies in the consumer sector as well. Contacts continued to report high levels of deposits for both businesses and households.


The agriculture sector continued to deal with lost income due to COVID-19 related factors, though CARES Act payments provided some support. In addition, a derecho windstorm caused damage to crops (especially corn), storage facilities, and livestock facilities in a number of areas within the District. Parts of the District were also experiencing drought. Still, contacts expected the corn and soybean harvests to be near record levels for the District as a whole. Corn prices were little changed at levels below where they were a year ago, while soybean prices rose and were above year-ago levels. Beef and pork production was catching up from pandemic-related reductions, and the backlog of cattle and hogs ready for slaughter fell. One contact reported that a gap in the supply of hogs was forming due to earlier euthanizations of many baby pigs. Cattle and hog prices rose, but not above year-ago prices. Beef and cheese prices moved lower as supplies normalized.

4.  Federal Reserve Bank of Dallas

Summary of Economic Activity

Increasing COVID-19 infections in the Eleventh District have disrupted the budding economic recovery in some sectors and is the biggest risk to the near-term outlook. While manufacturing activity continued to expand and loan volumes increased in the financial sector, service sector activity declined overall in July but resumed its nascent recovery in August. Retail sales fell steeply in July but stabilized somewhat in August. Energy activity remained depressed. Activity in the housing market was a bright spot, with home sales rising sharply. Employment remained fairly stable, according to contacts. Input costs rose modestly while selling prices were flat to down. Outlooks were increasingly uncertain, with numerous contacts expressing concern over surging COVID-19 cases and the resulting disruption to business.

Employment and Wages

Most contacts reported steady employment, though there were some reports of either layoffs or increased headcounts. Employment declines were centered in the energy industry and parts of the service sector. Manufacturing jobs recovered somewhat as more firms noted net hiring than net layoffs for the first time since January. Jobs grew in health care and professional and business services, while contacts more often noted employment declines in retail, leisure and hospitality, and transportation services. Energy contacts said more layoffs are coming, but that the worst is likely past.

Wage growth accelerated slightly in August; however, airlines and energy firms among others noted pay freezes and/or cuts.


Input costs rose at a moderate pace, except in oilfield services where costs were down 10%-20% versus early-2020 contracts. Fuel costs have crept up and lumber prices have doubled since earlier in the year. Selling prices were largely flat.


Manufacturing activity continued to recover, expanding moderately in July and August. Growth was led by high tech and construction materials manufacturing, while food manufactures noted a deceleration from previous months. Refiners noted that consumption of motor fuels had improved, but profit margins remained depressed. Manufacturing was still below normal levels, according to nearly three-fourths of contacts. They reported that July revenues were off by more than 30% from a typical July, on average.

Outlooks remained positive, and most manufacturers expect increased demand and production six months from now.

Retail Sales

Retail sales fell steeply in July but stabilized somewhat in August. Wholesalers also noted declines, though not as pronounced. Auto dealers said sales were constrained by short inventories due to factory shutdowns or bottlenecks. One contact noted that they were not expecting normal new-vehicle inventory until September or October.

Just over three-quarters of retailers said July revenues were below normal, by about 22% on average. More than half of retailers said supply chain disruptions were restraining revenues, in addition to weak demand. Expectations for future activity declined substantially, and uncertainty rose sharply.

Nonfinancial Services

Service sector activity declined overall in July after a short-lived expansion in June, but modest growth resumed in August. Face-to-face contact industries, such as leisure and hospitality, suffered as new COVID-19 cases rose sharply in Texas in July. However, while hotels have been hit hard, the single-family vacation rental market has been very strong. Airlines continued to struggle, with demand down 75% from a year ago according to multiple contacts, who also noted that business travel is virtually nonexistent. Colleges and universities across the district face logistical and financial challenges as they shift their fall semesters to a partially virtual environment with limited on-site learning and experience reduced enrollment. Some industries, like professional services, were less affected by COVID-19 trends and saw increased revenues in both July and August. Staffing contacts noted demand was stable recently but down year over year.

Roughly three-quarters of contacts said July revenues were below normal, by just over 30% on average. This magnitude of the shortfall was higher for leisure and hospitality firms, who said July revenues were off %, on average.

Outlooks worsened in July but improved in August, though uncertainty continued to climb, particularly regarding COVID-19 and the presidential election. When asked how likely it is that their business will permanently shut down within the next 12 months, 90% of contacts said it is not likely. Among leisure and hospitality firms, though, more than a quarter say it is at least somewhat likely their business will not survive to next July.

Construction and Real Estate

Activity in the housing market was a bright spot. Existing-home sales climbed sharply in July and remained solid in early August. Home builders continued to note widespread strength in sales. Contacts said record-low mortgage rates were driving sales, and inventories remained very tight for both resale and new homes. Builders noted strong sales have enabled them to raise prices. New development was active, and outlooks were optimistic.

Apartment leasing improved further in July, but rents were flat to down compared to year-ago levels and concessions have increased, particularly in areas where there is a lot of new product. Office leasing activity was modest and sublease space has increased. Industrial demand remained solid.

Financial Services

Loan volume increased over the past six weeks, driven by a sharp rise in residential real estate lending. Commercial real estate lending stabilized after falling over the prior three periods, while commercial and industrial and consumer loan volumes continued to decline. Loan pricing fell further, and credit standards and terms continued to tighten. Another significant increase was seen in loan nonperformance, and nearly three-quarters of bankers expect further increases in loan defaults. Contacts report that 11% of loan volumes are currently on payment deferral due to COVID-19, on average, down slightly from the prior period. Requests for loan modifications were most prevalent among businesses in hospitality and food services as well as real estate and rental and leasing.

Outlooks were more pessimistic, with expectations for future loan demand turning slightly negative. Also, bankers voiced concern over the uncertainty about the PPP forgiveness process and that it could become arduous.


The Eleventh District rig count continued to erode over the reporting period, though well completion activity ticked up. Contacts continued to express a grim outlook. The recent increase in COVID-19 trends in parts of the U.S. and elsewhere is putting downward pressure on expectations for oil prices and fuel consumption. Contacts said it is unlikely that oil prices will reach above $50 per barrel anytime soon, which is roughly the average price at which Eleventh District firms need to profitably drill new wells.


Soil moisture conditions deteriorated across the western part of the district, where drought conditions intensified. Grain harvesting progressed and yields were fairly normal, though prices remained unprofitably low. Cotton prices inched higher over the past six weeks as demand exceeded expectations, though prices were still below break-even levels without government price supports. Cattle and dairy prices trended higher.

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Timothy Speiss

Timothy Speiss is a Tax Partner in the Private Client Services Group and Vice President of EisnerAmper Wealth Planning LLC. He chairs our Asia Practice and is a member of the firm’s community service group, EisnerAmper Cares.

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