How quickly consumers start spending will determine how quickly the economy recovers from a coronavirus-induced recession, New York’s top banker said Thursday.
John C. Williams, president of the Federal Reserve Bank of New York, said 70% of economic activity, on Long Island and across the country, depends on consumer spending. And as businesses reopen, consumers have been cautious in opening their wallets.
“The biggest question mark is how is the consumer going to behave, how long will it take for people to want to take advantage of the tourism and other things that are really vital to this region’s economy,” he said during a virtual town hall organized by Stony Brook University’s College of Business.
“On the consumer side, the behavior is to kind of hold back…People are being gradual in going back to businesses so far,” he said.
The Stony Brook event was part of Williams’ two-day virtual tour of Long Island. He's made similar trips to other areas that the New York Fed covers, including upstate, northern New Jersey, Fairfield County, Connecticut, and Puerto Rico. The Long Island visit featured meetings with the Long Island Association business group, the Long Island Housing Partnership and both county executives.
Williams came to the New York Fed in June 2018 after leading the Federal Reserve Bank of San Francisco. He has been a member of the interest-rate-setting Federal Open Market Committee since 2011. He earned a doctorate in economics at Stanford University.
In the Stony Brook event, Williams predicted manufacturing and construction would quickly recover from the coronavirus slump in the metropolitan area, while health care and retail would take longer because they depend on consumers feeling safe. He said financial services, attorneys and professional services haven’t been significantly impacted because the services can largely be provided via the internet.
Asked about ballooning federal debt because of the stimulus packages, Williams said, “the deficits created by the actions of Congress are exactly what the federal government should be doing…They are limiting the damage to people and to the economy. I don’t see any problems right now in terms of the deficits,” he told moderator David Calone, a Setauket venture capitalist.
Williams said he still expects the U.S. economy to pick up in the second half of 2020, though it won’t return to pre-pandemic activity for some time.
He also said he is concerned that cash-strapped state and local governments will lay off employees and suspend services as they did in the 2007-09 recession. If the state and municipal cuts again come “right as the economy is starting to pick up, that becomes a drag on the economic expansion,” he said.