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Business activity across Arkansas continues to deteriorate though the state is dodging the swift declines that ripped the economy when the coronavirus pandemic began in mid-March, according to a new economic report from the Federal Reserve.

"The rate at which things have worsened has slowed," said Charles Gascony, a Fed economist who covers Arkansas. "The pace of improvement looked a little bit better in Little Rock, in Northwest Arkansas and in many parts of the state. It seemed that things bottomed out in March and we've moved into some improvements."

The Federal Reserve Bank of St. Louis issued an updated economic report Wednesday for the region that includes all of Arkansas and parts of six other states: Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Key metro areas are Louisville, Ky., Memphis and St. Louis.

The Fed's Beige Book report measured economic activity in the Fed's 12 regions from mid-April through May 18. All business sectors are experiencing declines with owners remaining pessimistic about a quick recovery, the report said.

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Half of the companies in the St. Louis region reported being closed, with about 33% of those projecting to reopen in the next three week. About 25% said they would take up to 10 weeks to reopen.

Across the region, employment and wages continue to fall, consumer spending is down to historic lows and banks are grappling with the fallout. "Banks indicated a sharp increase in delinquencies, primarily in mortgages, credit cards and auto loans; but they expect fewer delinquencies in the third quarter," the report said.

There is some glimmer of improvement seeping through the pandemic, with hotels, restaurants and retailers starting to bounce back after hitting bottom.

Hotels, for example, dropped to a near-zero occupancy rate by early April. "That is now starting to move up into the 10[%]-11% range, and sometimes a little bit higher," Gascon said.

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The novel Paycheck Protection Program has helped buoy small businesses though the long-term effect is not clear, according to Gascon. "The challenge at this point is to know what demand is going to look like when the loan is forgiven and if they're going to be able to retain workers," he said.

Likewise, he noted the economic devastation created by the coronavirus is hard to gauge because of the important business and economic relationships that have been disrupted.

For example, businesses have several variables to consider as they reopen: the ability of employees to return to work; the availability of parts and materials; the readiness of shipping and distribution channels; and the demand for products, among others. Most companies will move slowly as they evaluate their options, Gascon said.

"It will be a few months before we get a full picture of how all sectors are going to operate," he added. "As they start to reopen, they'll probably only be at 20% or 30% of capacity and they'll pause to evaluate how much further they can go. With all the interconnections, nothing is going to happen very quickly."

In Arkansas, "business owners indicate that next steps for easing back into normal operations are still staggered and varied," the Fed reported. "Some owners expressed concerns over a false sense of security in reopening, given how much uncertainty there is about future conditions."

The overall outlook in Arkansas was pessimistic, the Fed reported. About 67% of those contacted for the Beige Book expect regional economic conditions during the remainder of 2020 to be worse than in 2019.

Business on 05/29/2020

Print Headline: Fed notes state's economic stamina


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