The outlook: A third of the U.S. central bank’s 12 districts reported flat or declining activity over November and December as COVID-19 spread across the country, according to the latest Federal Reserve Beige Book survey released Wednesday. The majority of districts said activity increased only modestly.

What happened: According to the report, the Philadelphia and Cleveland districts reported declining activity, while activity was flat in St. Louis and Kansas City.

Some districts reported declining retail sales, an unusual development for the end of year holiday season. Car sales were weaker. However, there was a pickup in activity in the energy sector for the first time since the onset of the pandemic.

A growing number of Fed districts reported a drop in employment levels over the last two months of 2020.

Inflation seemed to be bubbling, with almost all districts reporting modest prices increases, and businesses said they were able to pass some of these costs to consumers.

Big picture: Economists think economic conditions are going to get worse before they get better. The prospect of wider vaccinations against COVID-19 have raised expectations for a further economic recovery after June. The next two quarters could be challenging.

Market reaction: Stocks were higher Wednesday as the House moved to impeach President Donald Trump for the second time. The Dow Jones Industrial Average DJIA, +0.09% was up 41 points in mid-afternoon trading.

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