Economist: Outlook remains uncertain

Phil Castle, The Business Times

Nicholas Sly
David Rodziewicz

While business activity has stabilized in the midst of the coronavirus pandemic, the economic outlooks for the state, region and nation remain uncertain, according to an economist and executive with the Federal Reserve.

The outlooks will vary depending on the effects of the pandemic and could include declines in consumption and employment, said Nicholas Sly, assistant vice president and Denver branch executive of the Federal Reserve Bank of Kansas City. Inflation should remain subdued, with the possible exception of higher prices for some foods and household appliances, Sly said.

The energy industry also faces an uncertain future in the aftermath of declining fuel demand and lower prices triggered by the coronavirus pandemic, according to David Rodziewicz, a commodity specialist with the Federal Reserve Bank of Kansas City.

Sly and Rodziewicz detailed their outlooks during an online forum hosted by the Federal Reserve Bank of Kansas City. The Federal Reserve and its network of 12 banks oversees monetary policy, maintains payment services and regulates banking operations. The Federal Reserve also conducts research and shares information about economic indicators and trends. The Kansas City bank serves Colorado and all or parts of six other states.

Sly said many indicators changed dramatically after the onset of the pandemic in the United States. The national unemployment rate climbed in a matter of months from its lowest level in 50 years to record highs.

Business activity subsequently stabilized, although below pre-pandemic levels, he said.

Retail spending has rebounded to near the levels before the pandemic hit, Sly said.

Delinquency rates for payments on auto loans, credit cards and mortgages have remained low, he said. That could reflect consumers using their stimulus checks to make those payments.

The Federal Reserve implemented what Sly said was a suite of actions in response to the pandemic by lowering a key short-term interest rate, encouraging bank lending and supporting the flow of credit.

Still, there have been pronounced declines for the service sector, including hotels, restaurants and arts and entertainment venues. In Colorado, the declines could pose problems for tourism and hospitality, especially in mountain towns and ski resorts, he said.

Looking ahead, business and economic conditions likely will change with the ebb and flow of the pandemic, Sly said. There’s disagreement among forecasters about the outlook, making uncertainty another variable.

There are a number of risks, he said, including higher unemployment rates that inflict lasting economic damage. Declining labor demand could lower labor participation. A decrease in on-the-job training and loss of workplace skills could slow a rebound should hiring activity pick up.

Inflation should remain subdued and under the 2 percent target rate set by the Federal Reserve, Sly said. Prices could accelerate faster for some goods, though, including meats and household appliances.

Rodziewicz said the energy sector experienced an historic demand shock that resulted in lower prices as well as financial stress that’s led to consolidations and bankruptcies. While there’s been some recovery, demand is projected to remain below 2019 levels until perhaps 2022, he said.

Oil and natural gas drilling rig counts have dropped in the United States and Colorado,  as has employment in the sector.

The future will depend on what happens with the pandemic, how soon a vaccine is developed and whether or not people resume travel, he said.