Fed Exec Sees Bounce, Economists Say Not Yet

A Federal Reserve bank president said he thought the U.S. economy is at its lowest point in the downturn and is on the way to turning around.

Meanwhile, a review by Fed economists of more than 2,500 first-quarter earnings calls found that companies are more anxious than they were in the depths of the 2008 crash.

The economists also pointed out that companies maintained that level of anxiety for two months after the mid-September crash and did not return to a pre-crash level for a year.

But Federal Reserve Bank of Richmond President Thomas Barkin said he was confident the bounce of recovery has already started, despite lagging indicators, according to The Wall Street Journal.

“The real issue here is, what’s the rate of recovery,” Barkin told The Journal. “We’ll obviously have a difficult second quarter, I think we’ll obviously have some bounce in the third in the fourth quarter. And the question is just how high and how fast.”

The Fed economists’ review of calls showed how sudden and fast the plummet occurred. “We find little evidence of financing concerns between January and March 2020,” according to the report by Andrew Y. Chen and Jie Yang.

The examination focused on terms used and the share of firms drawing down on credit lines (17%), cutting equity payout 27%), or cutting investment (42%), up from the usual 2%, 4% and 10%.

“For comparison, during the peak of the 2008-2009 financial crises these numbers peaked at 7, 11, and 25 percent,” according to the report. “The dramatic increase in the share of firms taking these actions indicates that financing concerns amid the COVID-19 outbreak are even more severe than they were in 2008.“

The economists predicted that the financial concerns will continue.

“Data for COVID-19 is still incoming, but the data from 2008 suggest that concerns will continue into at least May,” the report said. “Financial concerns began to rise in September 2008, and remained high into November. Indeed, [data show] that financial concerns did not return to normal until 2009 Q4, 12 months after the 2008 crisis began.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@innfeedback.com.

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