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

Oct 1, 2020

Where We Are – September 2020 Observations

This is part seven 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 twopart three, part four, part five, and part six.

6.  Federal Reserve Bank of San Francisco

Summary of Economic Activity

Economic activity in the Twelfth District expanded slightly on balance during the reporting period of July through mid-August. Employment levels increased marginally, but hiring was curtailed by firms' cost-containing efforts. Wages were generally stable, as was price inflation. Sales of retail goods rose slightly, while conditions in the consumer and business services sectors remained precarious. Manufacturing activity increased modestly. Weak conditions persisted in the agriculture sector. Residential real estate activity increased at a brisk pace, while activity in the commercial market picked up a bit. Lending activity ticked up further.

Employment and Wages

Employment levels increased marginally on net, but many employers curtailed hiring efforts to control costs in the challenging economic environment. Some metal and wood manufacturing facilities returned to operating full-time and added workers due to increased demand. A large transportation and logistics services provider increased entry-level job recruiting but froze manager searches. Most health care and financial services providers noted restrictions on new hiring and overall flat employment levels, though a payment-processing firm in the Pacific Northwest reported actively hiring for several positions. Restaurants increased staffing modestly over the reporting period, but the tourism and entertainment industries noted persistently low employment levels. Some manufacturers expressed difficulties in finding skilled labor. Contacts in the agriculture sector also noted dwindling availability of immigrant workers, reducing the supply of unskilled labor. A few employers reported increased use of flexible schedules, or in some cases absenteeism, due to concerns about COVID-19 exposure, child care, or schooling alternatives.


remained flat overall. Most employers reported unchanged wages over the reporting period, partially due to cost containment efforts and uncertainty. In California and Oregon, wages at the bottom of the distribution saw a slight increase due to the implementation of new minimum wage regulations in July. Building materials manufacturers in California and the Pacific Northwest reported reinstating cost-of-living wage adjustments, retracting previous wage cuts, or offering widespread wage increases due to a brisk increase in demand. Conversely, some retailers eliminated hazard pay bonuses for their employees.


Inflation remained stable over the reporting period, on balance. Increased demand for logistics and transportation services resulted in additional surcharges designed to offset the cost of volume increases and greater dispersion of routes. Similarly, prices for metal products and building supplies strengthened on the back of recent additional demand. Food prices continued to climb at grocery stores, but prices declined slightly at restaurants and retail stores in an attempt to spur business. Some financial and business services providers either reduced or eliminated some types of fees because of lower demand. Contacts in other sectors such as health care, utilities, and machine supplies and repairs reported little to no changes in prices.

Retail Trade and Services

Retail sales rose slightly over the past six weeks, following a large bump in May and June when restrictions on nonessential businesses initially eased. Foot traffic to brick-and-mortar establishments decreased only slightly from end-of-June levels, while growth in e-commerce remained robust. Demand for do-it-yourself home materials soared, and sales of some specialty goods, for example bicycles and pet products, were on par with those from a year ago. Auto dealers reported continued high demand and lean inventories for both new and used vehicles, especially light trucks and SUVs. Retailers in some other sectors, such as apparel, mentioned reduced sales, operating hours, and capacity utilization, attributing the cutbacks to increases in COVID-19 cases and adherence to social-distancing guidelines.

Conditions in the consumer and business services sectors remained precarious. Sales remained strong in select markets, including logistics and delivery services, meeting technologies, and tax preparations. However, the bulk of food service, travel, and hospitality providers continued to operate at a fraction of their capacities and saw the bump in sales in late spring reversed during the current reporting period. Restaurants that have been able to continue operations reported weak sales, reduced seating, and dire prospects for the immediate future. Some have adapted by exclusively offering take-out service and operating straight from their kitchens. Air travel remained subdued with one airport in Southern California welcoming only 9% of its typical pre-pandemic monthly level for domestic passengers and virtually no international arrivals. Hoteliers in Southern California, Washington, and Hawaii reported lower booking volumes and occupancy rates, though those in Southern California performed somewhat better compared with the rest of the District. Demand for non-urgent legal services, elective health procedures, and live event-based entertainment remained soft, as clients socially distanced and postponed discretionary expenditures.


Manufacturing activity increased modestly over the reporting period, but remains considerably below pre-pandemic levels. Demand for recycled metals and finished steel products strengthened as auto production and construction continued to pick up, though capacity utilization rates remained at about three-quarters of their year-ago levels. Building materials manufacturers have also benefited from increased construction activity, with a wood product manufacturer in the Pacific Northwest reporting many sawmills returning to normal working hours or even overtime. Energy usage by manufacturers across the District also rebounded, while a renewable energy equipment producer in California mentioned pent-up demand for its domestic output. Some manufacturers reported more challenging conditions depending on industry, raw material availability, and severity of supply chain disruptions.

Agriculture and Resource-Related Industries

Conditions in the agriculture sector remained weak overall. Yields and quality of grain, fruit, and nut crops were high. In the Mountain West, bumper wheat crops contributed to already bulging inventories from previous harvests. General production and distribution were constrained by COVID-19-related supply chain disruptions and additional expenses incurred to adhere to social-distancing guidelines at farms and processing centers. Domestic demand remained mixed overall, but sales of grapes, apples, and cherries to grocery stores and lumber to retailers and contractors increased notably over the reporting period. Export demand was weak, with producers in California and the Pacific Northwest highlighting poor sales to Asian markets across a variety of products, including nuts and lumber.

Real Estate and Construction

Residential construction activity increased at a brisk pace, supported by the low interest rate environment. Contacts reported increased demand for new single and multifamily homes in most areas, which helped boost permit issuance across the District. Existing inventories remained low, and prices climbed further as many buyers placed competing bids on desired homes. Workers continued to seek opportunities to move away from major metropolitan areas as some jobs become more conducive to teleworking. In the Mountain West and Pacific Northwest, homebuilders reported having trouble keeping up with demand, and pointed to the increasing costs of building materials and supply chain disruptions as their main constraints. Some parts of California saw less building activity and delayed permit issuance, as many local government offices remained closed.

Activity in the commercial real estate market picked up slightly, on net. Demand for new office space and hotel rooms remained soft, diverting construction into other commercial sectors. Existing commercial projects resumed, and new demand for industrial and warehouse space kept permitting high relative to pandemic-induced lows. A contact in Utah reported large investments in commercial properties including an airport, a convention venue, and an office tower.

Financial Institutions

Overall lending activity ticked up further. Contacts noted a shift in loan demand toward home mortgages, auto loans, and standard commercial loans as PPP activity wound down. Bankers reported that new and refinanced mortgages drove the bulk of business over the reporting period, as households took advantage of low interest rates. Loans to agricultural businesses were weak, but demand from builders was robust. Bankers highlighted solid liquidity conditions and strong capital positions as well as double-digit increases for deposits in some areas. Some contacts noted a decline in lending standards, which reduced credit quality and could increase delinquencies in the coming months. A contact in Arizona reported limited service hours due to COVID-19-related precautions, delaying deliveries of financial services.


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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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