The COVID-19 pandemic has devastated the U.S. economy the past two months, and social-distancing guidelines have made recovery more difficult. The plunge in economic activity since mid-March has triggered job losses in excess of 20 million, and the unemployment rate will likely soon exceed 20%.

Economic conditions have weakened “moderately slower” in the Federal Reserve’s Eighth District, which includes Memphis, according to the latest Beige Book released Wednesday, May 27.

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Banks indicated a sharp increase in delinquencies, primarily in mortgages, credit cards and auto loans, but they expect fewer delinquencies in the third quarter.

“One of the things to look at among the different districts is not just how well they describe things, but what they put into their summaries,” Jim Vogel, executive vice president at FHN Financial Capital Markets, said. “That sometimes captures regional differences and gives a pretty good picture of what’s happening in a district.”

Banks in the district reported the pipeline for Paycheck Protection Program (PPP) loans is now manageable. Demand for most consumer loans declined moderately, with the exception of credit cards loans, which modestly increased.

“We think of May as, ‘Oh good, we get to reopen,’ and we think of April as the worst month, but I think the Beige Book indicates that we might have a longer hangover from the worst of the lockdown carryover longer than people anticipate. Within (the 8th district of) St. Louis, that was described as a moderate weakening from April,” Vogel said.

Around half of reporting companies are closed temporarily, and of those, one-third expect to reopen in the next three weeks.

As for consumer spending and reopening the economy, “a furniture retailer expects to reopen in the coming weeks and expects that demand will pick up in the next month,” the Beige Book noted. “A jeweler does not expect demand to pick up for another two months or longer and may not reopen. Hospitality contacts continue to report low or no activity throughout April. Tourism venues expect to remain closed for the next two months or longer.”

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The most affected industries include leisure and hospitality, retail trade and health and education.

Kevin Kliesen, St. Louis Fed business economist and research officer, discussed the Memphis regional economy before and after the onset of the COVID-19 pandemic at a virtual breakfast Friday, May 22.

The pace of recovery will depend on “the extent and speed that restrictions are lifted and the willingness of individuals to resume ‘normal life,’ ” Kliesen said.

The longer the restrictions persist — particularly in large metropolitan areas — the greater the possibility is for long-term economic “scarring,” he said.

Results from a new survey from the St. Louis Federal Reserve show that almost 40% of households earning less than $40,000 per year experienced at least one job loss in March, versus 19% of households earning between $40,000 and $100,000 and 13% of those earning more than $100,000.

Labor markets have continued to decline sharply over the reporting period, according to the Beige Book, although the pace of decline has slowed considerably, with some companies attributing employment stability to PPP funding.

Roughly one-third of those who had lost a job or had their hours cut said they couldn’t cover their expenses for the month.

“Small firms are less prepared to continue operating in the current environment before showing signs of distress,” Kliesen said. “Small firms are more concerned about maintaining cash flow and solvency and taking on excessive debt compared with large firms.”

Kliesen estimates about 40% of employees are able to work remotely, accounting for differences in total employment. Job losses are lower at firms with a larger share of remote workers; a similar trend prevails for hours and wages.

“Business optimism and economic activity should improve as social-distancing mandates ease; however, the return to normal will probably be slow without widespread testing or a vaccine,” he added.