Federal Reserve Bank of Cleveland: http://www.clevelandfed.org

The CPI rose 4.9 percent (annualized rate) in November, largely on a sizeable jump in energy prices (up 62.7 percent). However, the core CPI was virtually unchanged, rising just 0.4 percent, following a 2.2 percent increase in October. The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends—the median CPI and 16 percent trimmed-mean CPI—remained soft in November, increasing a slight 0.2 percent and 1.4 percent, respectively. Over the past three months, the median CPI is up a mere 0.6 percent, while the trimmed-mean measure has risen 1.5 percent. Read more

12.08.2009

Supply and Demand Shocks in Residential Mortgages

Jian Cai and Kent Cherny

The current financial crisis was triggered by severe deteriorations in the U.S. real estate market and sharp increases in mortgage delinquencies and foreclosures, especially among adjustable-rate mortgages issued to subprime borrowers. As a result of the unprecedentedly adverse consequences of the crisis, lenders have reversed the practice of making highly risky mortgage loans and now require that credit standards be followed more strictly. This shift has led to a contraction in supply of residential mortgages. In the meantime, the decline in housing prices also discouraged quality buyers from entering the market, causing a shrinkage of demand. Now that the economy may be stepping out of the recession, the residential mortgage market may also begin to recover. Read more

12.08.2009

The Employment Situation

Beth Mowry

Nonfarm payrolls beat expectations in November, falling just 11,000, the smallest loss in nearly two years. Strong upward revisions trimmed September and October’s losses, leaving their respective declines at 139,000 and 111,000. November’s improvement was shared by most major sectors, in the form of fewer losses or larger gains over the month. For the most part, net job losses have slowed since January. Read more

12.07.2009

Fourth District Employment Conditions, October 2009

The District’s unemployment rate jumped 0.7 percentage point to 10.7 percent for the month of October. Read more

12.04.2009

Ohio’s Economic Momentum

In recent remarks, Federal Reserve Bank Chairman Ben Bernanke has stated that “from a technical perspective, the recession is very likely over at this point.” The data that lead him to that conclusion are unfortunately not produced at the state level, so it’s not possible to tell what they would show about the degree of recovery in individual states. But another source can give us an idea, the Federal Reserve Bank of Philadelphia’s state coincident indexes, which measure real-time changes in state economic activity. Read more

12.01.2009

Measures of Economic Slack, Cost Pressure, and Inflation

In its November 2009 statement, the Federal Open Market Committee appears to consider the level of resource utilization in the economy an important determinant of future inflation. A look at the historical relationship between inflation and two commonly used indicators of economic slack, the output gap and the unemployment rate, makes a good case for the view that slack and inflation are related. Current levels of those and other indicators of resource utilization all suggest a good degree of slack in the economy and contained cost pressures. Read more

11.25.2009

Economic Projections from the November FOMC Meeting

The FOMC’s economic projections were released in conjunction with the minutes of its November meeting. The Committee?s central tendency for economic growth is now for the economy to contract on a year-over-year basis in 2009 between -0.4 percent and -0.1 percent, a dramatic improvement when compared to the central tendency reported after the June FOMC meeting. Estimates for PCE inflation for 2009 were broadly similar to those in June, and unemployment is expected to average between 9.8 percent and 10.3 percent in the fourth quarter of this year. Read more

11.25.2009

Real GDP: Third-Quarter 2009 Second Estimate

John Lindner

Third-quarter GDP was revised down in the second estimate, as the annualized growth rate dropped from 3.5 to 2.7 percent, which was close to consensus expectations. The Blue Chip consensus forecast for 2009 real GDP growth improved again, despite the expected downward revisions to the third-quarter estimate. Released alongside the GDP revision was the preliminary estimate of third-quarter profits. Read more

11.25.2009

Renminbi-Dollar Peg Once Again

China gains a competitive advantage not from its peg with the dollar, but from its ability to offset the impact of foreign financial inflows on its price level. Appreciating this distinction is crucial for understanding Chinese exchange-rate policies. Read more

11.25.2009

The Yield Curve, November 2009

Since last month, the yield curve has shifted a bit downward and flattened slightly, with long rates dropping a bit faster than short rates. Since last month, the three-month rate has fallen to 0.04 percent (for the week ending November 20). At that rate, $100 invested for a year would earn 4 cents. This is down from October’s already very low 0.07 percent and September’s 0.11 percent. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.6 percent rate over the next year. This is down from last month’s prediction. Read more

11.24.2009

October Price Statistics

The CPI rose at an annualized rate of 2.0 percent in September, following an energy-price-induced 5.5 percent jump in August, and is now up 2.5 percent over the past three months. The BLS release states that the overall increase was “broad based” among components and tempered by a 1.2 percent decrease in food prices (their sixth decrease in the past eight months). Read more

11.06.2009

The Employment Situation, October 2009

Nonfarm payrolls fell by 190,000 jobs in October, coming in slightly below expectations. The economy has shed a net total of 7.3 million jobs since December 2007, but losses have gradually slowed in recent months, with the average decline falling from 428,000 in the second quarter to 225,000 in the third quarter. Surprising, however, was the jump in the unemployment rate from 9.8 to 10.2 percent, a 26-year high. Read more

11.05.2009

Inflation and Inflation Expectations

Timothy Bianco and Andrea Pescatori

Inflation expectations play a crucial role in monetary policy making. Not only do they tell policymakers something about the real expected cost of borrowing and hence the viability of investment plans, they also help policymakers gauge the public?s perception of the central bank’s commitment to maintaining a low and stable rate of inflation. Especially in the current policy environment, where the Fed has been forced by events to take unconventional actions, it is more important than ever to make sure that long-run inflation expectations are well anchored and that the policy message is well understood by the public. Read more

11.04.2009

The High-Yield Corporate Bond Spread and Economic Activity

Timothy Bianco and Mehmet Pasaogullari

Measures of the external finance premium—the difference between the cost of external funds and the opportunity cost of internal funds—may contain valuable information about future economic activity. The high-yield corporate bond spread is probably a good measure of this premium. There is a theoretical underpinning for this connection, and empirically, the high-yield spread seems a good predictor of future economic activity. A simple empirical model of GDP and the high-yield spread predicts that real GDP will grow 2.8 percent in 2010. Read more

11.02.2009

Real GDP: Third-Quarter 2009 Advance Estimate

John Lindner

GDP rose at an annualized rate of 3.5 percent in the third quarter, somewhat higher than consensus expectations and pulling the four-quarter GDP growth rate up from −3.8 percent to −2.3 percent. The third quarter’s increase was driven in large part by a 3.4 percent jump in personal consumption expenditures, the largest quarterly gain in this component since the first quarter of 2007. One of the most noticeable pieces of this third-quarter advanced estimate is the return to growth of both imports and exports. Exports grew to over $128 billion, reaching their highest mark of this year, likely influenced by a modest dollar depreciation during the third quarter. Read more

10.30.2009

Do Shipping Volumes Signal an End of the Recession?

Paul W Bauer and Caroline Herrell

The advance estimate of 3.5 percent for GDP growth in the third quarter of 2009 is welcome news, and it suggests that the longest recession since the Great Depression and the deepest since the 1950s is likely to have ended at some point around the middle of the year. This isn’t to say that the widespread pain experienced by households and firms is over, just that the economy has at least stopped contracting and is starting to grow. Economic observers try to glean evidence of turning points from data series that come out more frequently and with less of a lag than GDP and employment estimates. Transportation data are good candidates, as many series are published monthly, relatively soon after the close of the month. Equally important for this purpose is the fact that they should be highly correlated with economic activity. Read more

10.30.2009

Fourth District Employment Conditions, September 2009

The District’s unemployment rate fell 0.1 percentage point to 10.0 percent for the month of September. The drop in the District unemployment rate most likely does not indicate an improving labor market, as the drop stems mostly from a shrinking labor force (−1.5 percent since this time last year). During recessions, workers leave the labor force because they become discouraged and stop looking for work, effectively shrinking the base from which the unemployment rate is calculated. Read more

10.27.2009

Purchasing Power Parity and the Dollar

In terms of purchasing power parity, the dollar seems a tad undervalued these days, but that does not mean it will soon appreciate. Exchange rates can deviate from their purchasing-power-party levels for long periods. What’s more, the necessary adjustment can come through prices, not exchange rates. Read more

10.23.2009

The Yield Curve, October 2009

Since last month, the yield curve has shifted a bit downward and steepened slightly, with short rates dropping a bit faster than long rates. Calculations based on the yield curve suggest real GDP will grow at about a 2.3 percent rate over the next year and that the expected chance of the economy being in a recession next October stands at 3.9 percent. Read more

10.20.2009

September Price Statistics

Reading the headline inflation forecasts from the most recent Blue Chip survey is much like the reading the story of Goldilocks and the Three Bears. The average of the bottom 10 forecasts has inflation running “much too cold”—below 1.0 percent by the end of 2010. At the other end, the average of the top 10 has it rising above 3.0 percent by the fourth quarter of 2010—some might call that “too hot.” However, the overall average hits 2.0 percent by the end of next year, which some might argue is “just right.” Read more

10.07.2009

Alternative Measures of the Unemployment Rate

The official unemployment rate is one of the most widely reported and closely watched labor statistics, and while it provides insight into the degree to which labor resources are used in the economy, no single statistic can capture all forms of labor market difficulties. The BLS publishes alternative measures of unemployment, which range from less to more inclusive. These alternatives have important implications for the course of the recovery. Read more

10.06.2009

The Availability and Profitability of Credit Cards

Kent Cherny and Ozgur Emre Ergungor

Interest rates on credit cards, which can serve as a barometer for the broader risk profile of consumers as well as the availability of credit to them, have increased over the past two years. Credit card funding costs are improving after policy intervention into the ABS market, but concerns about credit risk, as well as supply and demand factors, will potentially alter the volume and pricing of credit cards in the near term. Read more

10.06.2009

The Effects of “Cash for Clunkers” on the Auto Industry

As of October 1, the “Cash for Clunkers” program has processed 670,557 reimbursements totaling $2.8 billion dollars. The program has received rave reviews in the media for its short-term success, but the open question is whether short-term successes facilitate long-term growth. Will the program jump start the restructured auto industry or will it result in mere transitory demand shifts, “stealing” from future consumption? Read more

10.06.2009

The Employment Situation, September 2009

Nonfarm payroll losses picked up pace in September, falling by a larger-than-expected 263,000 jobs after a loss of 201,000 in August. Read more

10.05.2009

Real GDP: Second-Quarter 2009 Final Estimate

John Lindner

Instead of falling at an annualized rate of −1.0 percent as reported in the second estimate, GDP now is estimated to have fallen only − 0.7 percent. Over 80 percent of respondents to the Blue Chip survey predict that the unemployment rate will not fall back below 7 percent until the second half of 2012. A historical pattern, referred to as Okun?s law, posits that there is an inverse relationship between changes in the unemployment rate and GDP growth, with year-over-year GDP growth moving twice as fast as the change in the unemployment rate. Read more

10.01.2009

Fourth District Employment Condtions, August 2009

The District’s unemployment rate increased 0.1 percentage point to 10.2 percent for the month of August. Since this time last year, the Fourth District and the national unemployment rates have each increased 3.5 percentage points. Read more

09.29.2009

With the Dollar Depreciating, Can Inflation Be Far Behind?

Unfortunately for forecasting buffs, other factors besides monetary spurts affect dollar exchange rates, and these things muddy the ability of exchange-rate changes to forecast future inflation patterns. All and all, exchange rates do contain useful information for predicting inflation, but forecasting inflation simply with an exchange rate is a little like eating dinner with only a knife. Read more

09.28.2009

August Price Statistics

The CPI jumped up 5.5 percent, while the 12-month growth rate in the series is down 1.5 percent. The core CPI (excluding food and energy prices) rose 0.8 percent in August. Also, there were a couple rather curious price moves during the month. Read more

09.28.2009

The Supplemental Financing Program

Joseph G Haubrich and John Lindner

The winding down of the Treasury’s Supplemental Financing Program has some worried about the consequences for excess reserves on the Fed’s balance sheet and, by extension, inflation down the road. While the reduction in the SFP will increase reserves, the growth in the monetary base that results is just a shifting of funds between Federal Reserve accounts. Based upon the current state of the economy, the growth will likely go unrealized. Read more

09.23.2009

Pittsburgh’s Labor Market Performance over the Recession

For two days, the leaders of the world’s 20 largest economies will meet to discuss potential reforms to the global economic system. Where will this international meeting take place, you ask? London? New York? Tokyo? All wrong. None other than the Fourth District’s own Pittsburgh, Pennsylvania. And the city’ recent history provides its own story of economic reform. Read more

09.23.2009

The Policy Statement: A Slowdown of Asset Purchases

John B Carlson and John Lindner

Today, the Fed announced that it would change the timing but not the quantity limit of agency mortgage-backed securities and agency debt. Read more

09.23.2009

The Yield Curve, September 2009

Since last month, the yield curve has steepened slightly, with long rates edging up as short rates edged down. Read more

09.09.2009

The Employment Situation, August 2009

Beth Mowry

The unemployment rate climbed 0.3 percentage point to 9.7 percent in August as the number of unemployed persons jumped up 466,000. A less volatile measure of labor market stress is the employment-to-population ratio, which reached its lowest level since 1984, 59.2 percent. Although the labor market has come a long way since 741,000 payrolls were cut in January, the August cuts were still large by historical standards. Read more

09.03.2009

Fourth District Employment Conditions, July 2009

The District’s unemployment rate fell 0.1 percentage point to 10.1 percent for the month of July. An alternative measure of labor market conditions is the U-6 rate, which serves as an estimate for labor underutilization. Read more

09.01.2009

The Incidence and Duration of Unemployment over the Business Cycle

Kyle Fee and Murat Tasci

The unemployment rate provides information on the number of people who are unemployed as a fraction of the labor force at any given point in time, but when it rises, it doesn’t tell us much about why. We can’t tell by looking at the rate whether people who are unemployed are staying unemployed longer or whether more workers have lost their jobs. To understand how much each of these factors contributes to a rise in the unemployment rate, we looked at inflows into unemployment (job separation rate) and outflows from the unemployment pool (job finding rate) for all postwar recessions. Read more

08.31.2009

Recent Forecasts of Government Debt

The 2009 federal budget deficit is now anticipated to be 11.2 percent of GDP, by far the largest value of the postwar period. Forecasts for the longer horizon are even more alarming, with the deficit expected to be consistently around 4 percent of GDP over the next decade. Congressional Budget Office forecasts tell a similar story. Read more

08.31.2009

The Changing Composition of the Fed?s Balance Sheet

John B Carlson and John Lindner

Since the onset of the crisis, the Fed has created and employed a new set of tools that involve the acquisition of financial assets and thus expand the asset side of the balance sheet. Lending to financial institutions predominated in the early months after the crisis began, but large-scale asset purchases will be the bigger story going forward. Read more

08.28.2009

Real GDP: Second-Quarter 2009 Revised Estimate

John Lindner and Brent Meyer

Real GDP was virtually unchanged in the latest revision of the second-quarter estimate, falling at an annualized rate of −1.0 percent. While the headline number was unchanged, there were some interesting moves in the components. In related news, results from two special questions on the Blue Chip survey of professional economists lend support to the view that this recovery will be slower than postwar trends would suggest. Read more

08.27.2009

Borrow Less, Owe More: The U.S. Net International Investment Position

Since 1986, foreigners have held more claims against U.S. residents than U.S. residents have held against the rest of the world, or—as economists like to say—the United States has had a negative net international investment position. Read more

08.27.2009

The Yield Curve, August 2009

Since last month, the yield curve has flattened slightly, with long rates dropping a bit more than short rates, which barely changed. The expected chance of the economy being in a recession next August stands at 2.6 percent, up from July’s very low 1.8 percent and June’s 0.8 percent. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 2.3 percent rate over the next year. Read more

08.24.2009

Bank Lending, Capital, Booms, and Busts

Timothy Bianco and Joseph G Haubrich

The current crisis has brought a lot of attention to the sometimes obscure role that bank capital plays in lending levels. One concern is that bank capital, which is intended to serve as a buffer against losses, tends instead to accentuate booms and busts. We check for a procyclical pattern in a variety of measures of capital. Read more

08.21.2009

July Price Statistics

The CPI was virtually unchanged in July, rising at an annualized rate of only 0.1 percent, as slight decreases in food and energy components were roughly balanced out by a 1.1 percent increase in the core CPI.

08.11.2009

Bank Exposure to Commercial Real Estate

Kent Cherny and Yuliya Demyanyk

As rising home foreclosures and delinquencies continue to undermine a financial and economic recovery, an increasing amount of attention is being paid to another corner of the property market: commercial real estate. Read more

08.10.2009

Private Nonresidential Construction Investment

Timothy Dunne and Kyle Fee

During the current recession, investment in residential structures and investment in private nonresidential structures have experienced markedly different paths. The sharp fall in residential investment led the economy into recession, while private nonresidential investment held up relatively well until the last two quarters. Read more

08.10.2009

Real GDP: Second-Quarter 2009 Advance Estimate and Comprehensive Benchmark Revision

Real GDP decreased at an annualized rate of 1.0 percent in the second quarter,beating expectations. Due to the comprehensive revision, year-over-year growth in real GDP fell to −3.9 percent through the second quarter, a post-World War II low. The comprehensive revision incorporated methodological changes, which, along with data revisions, resulted in some very interesting developments. Read more

08.10.2009

The Employment Situation, July 2009

Alex Bluebond and Murat Tasci

The decline in nonfarm payroll employment slowed to 247,000 in July, and the unemployment rate unexpectedly ticked down by 0.1 percentage point to 9.4 percent in July. However, that number may be misrepresenting true labor market slack, as 442,000 people exited the workforce. Read more

08.03.2009

Fourth District Employment Conditions, June 2009

The District’s unemployment rate fell 0.1 percentage point to 10.2 percent in June, reflecting decreases in the number of people unemployed (-1.1 percent), the number of people employed (-0.3 percent), and the size of the labor force (-0.1 percent). Read more

08.03.2009

The Yield Curve, July 2009

Since last month, the yield curve has flattened slightly, with long rates dropping while short rates stayed essentially unchanged. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 2.6 percent rate over the next year. The probability of the economy being in a recession next July, based on yield curve calculations, stands at a low 1.8 percent. Read more

07.30.2009

Implementing Long-Term Security Purchases

Timothy Bianco, John Lindner and Andrea Pescatori

During slowdowns in economic activity and periods of inflation, the optimal response is to lower the real rate. Traditionally, the Federal Reserve achieved this by reducing the target fed funds rate. In general (but with notable exceptions), this reduction has an effect also on yields of longer maturity, which can be thought of as a combination of current and future expected short-term rates, thus stimulating the economy. However, when short-term rates are close to zero the traditional tool is no longer feasible. Read more

07.30.2009

Productivity in the Recession and Going Forward

In contrast to previous postwar recessions that tended to see sharply lower labor productivity growth, if not outright declines, the 2001 and the current recessions have had relatively strong labor productivity growth. Read more

07.30.2009

Signs of a Thaw?

The global nature of our current economic problems suggests that few countries will find trade an outlet for their economic troubles. Moreover, the risks to the outlook still remain more heavily weighted toward the downside than the upside. Read more

07.22.2009

June Price Statistics

The CPI jumped up 9.3 percent, almost entirely because of a large spike in motor fuel (up 569 percent at an annualized rate), accounting for over 80 percent of the overall increase in the CPI. However, even with this month’s jump, the CPI is down 1.4 percent over the past year. Read more

07.15.2009

Economic Projections from the June FOMC Meeting

The FOMC’s economic projections were released in conjunction with the minutes of its June meeting. Data available to FOMC participants on June 23-24 showed some signs of stabilization after two quarters of substantial decreases. Read more

07.14.2009

Inflation Expectations and Monetary Policy

Charles T Carlstrom and Kyle Fee

Over the month of June, the yield curve has continued to rise, which some see as evidence of higher inflation in the future. Based on our calculations of inflation-protected Treasury securities, we don’t think so. After adjusting TIPS estimates of future inflation for a liquidity bias, we find that longer-term inflation expectations did not decline during the crisis and have not crept up significantly since then. Read more

07.08.2009

Fourth District Employment Conditions, May 2009

With the national unemployment rate up to 9.5 percent in June, the District’s unemployment rate jumped 0.6 percentage point to 10.3 percent for the month of May. Read more

07.03.2009

Consumer Credit Markets

Timothy Bianco and Ozgur Emre Ergungor

Signs so far suggest that Fed programs designed to revive consumer credit markets are having a positive impact. The market for consumer asset-backed securities (ABS), which effectively shut down in September 2008, has returned to pre-crisis levels after the Fed lent $25 billion to investors against their ABS portfolios. With the Fed’s purchase of mortgage-backed securities (MBS) and Treasury bonds, Treasury yields as well as the spread between Fannie Mae MBS and Treasury securities have declined in recent months. Read more

07.03.2009

Real GDP: First-Quarter 2009 Final Estimate

The final estimate for real GDP growth in the first quarter of 2009 came in at −5.5 percent, 0.2 percentage point above the preliminary estimate and 0.6 percentage point higher than the advance estimate. A downward revision to real imports (which adds to real GDP growth) was the largest change from the previous estimate, adding 0.5 percentage point to real GDP growth. Read more

07.03.2009

The Employment Situation, June 2009

The decline in nonfarm payroll employment picked up pace again in June, as losses were a greater-than-expected 467,000. Cumulative employment losses in this recession now total 6.5 million, setting total employment back to its level in 2000.Payroll losses in June were broadly spread across goods-producing industries (223,000) and service-providing industries (244,000). The unemployment rate crept up from 9.4 to 9.5 percent. Read more

07.01.2009

Gross Domestic Product Growth across States

The Bureau of Economic Analysis recently released its annual report documenting patterns of gross domestic product growth across states. Real GDP growth slowed in 38 states in 2008, which included the Fourth District’s dismal numbers. Read more

06.30.2009

A Global Fiscal Crisis?

The financial crisis and accompanying recession have had a severe impact on government budgets, raising the specter of huge government debt burdens down the road. Large government debt burdens are not just a fiscal problem. They can become a monetary problem, too. Read more

06.30.2009

The Yield Curve, June 2009

Since last month, the yield curve has become noticeably steeper, with long rates rising dramatically. The difference between short and long rates, the slope of the yield curve, has achieved some notoriety as a simple forecaster of economic growth. Read more

06.25.2009

May Price Statistics

The CPI rose at an annualized rate of 1.2 percent in May, rebounding somewhat after two consecutive overall decreases. Still, its 12-month growth rate slipped even further into the red, falling from −0.7 percent in April to −1.3 percent in May. Read more

06.09.2009

Fourth District Employment Conditions, April 2009

The District’s unemployment rate increased 0.4 percentage point to 9.7 percent for the month of April, 0.8 percentage point higher than the nation’s. Of the 169 counties that make up the District, 47 had an unemployment rate below the national rate in April, and 122 counties had a higher rate. Since this time last year, the Fourth District’s unemployment rate has increased 4.2 percentage points, and the nation’s, 3.9 percentage points. Read more

06.09.2009

Inflation Expectations and Monetary Policy

Charles T Carlstrom and Kyle Fee

The recent rise in the yield curve suggests to some observers that inflation expectations are rising. The yield curve may not be the best indicator of this possibility, but there are others. A look at these suggests that, while it is certainly too soon to conclude that long-term inflation expectations are increasing, recent signs warrant an ever-watchful eye to make sure they don’t. Read more

06.05.2009

Improving Financial Market Conditions and Economic Recovery

After deteriorating sharply in August 2007 and then again in the fall of 2008, financial market conditions have improved markedly during the past quarter. Given the historical relationship between financial market conditions and economic activity, we interpret this as an encouraging sign that the economy may be recovering. The improvement in financial markets can be observed in the recent evolution of a few indicators of financial market stress, including indicators of borrowers’ credit risk, financial market liquidity, and uncertainty among market participants. We take a look at these indicators and explain how they may be related to economic activity. Read more

06.05.2009

The Employment Situation, May 2009

Employment losses moderated in May, as nonfarm payrolls dropped by 345,000, much less than the average loss of 643,000 of the prior six months. This was the smallest payroll decline since September 2008, and revisions to March and April lessened those months’ losses by a total of 82,000. The moderation was driven by fewer losses in construction; trade, transportation, and utilities; and professional and business services, as well as larger gains in education and health. Read more

06.05.2009

The Labor Market in this Downturn: A Historical Comparison

NBER declared December 2007 as the peak of the previous expansion in the U.S. economy (and thus, the start of the current recession). Assuming that we are still in the recession, this downturn will likely be the longest since 1945. The deterioration in labor market conditions in the current downturn has been particularly stark, according to either of the typically consulted measures (nonfarm payroll employment and unemployment). Analyzing different recession episodes in the postwar period points to some general patterns and some major outliers. Read more

06.03.2009

Real GDP: First-Quarter 2009 Preliminary Estimate

First-quarter real GDP growth was revised up from an annualized percent change of −6.1 percent in the advance estimate to −5.7 percent, according to the preliminary estimate released by the Bureau of Economic Analysis (BEA). Most of the revisions to the components that comprise GDP were relatively minor. Read more

05.29.2009

Putting the Current Recession in Perspective

The media, as well policymakers, are increasingly calling the current economic downturn the “worst since the Great Depression.” They are not saying that the economy is in a worse place than it was in 1975 or, say the 1980s when inflation and unemployment were in the double digits. The comparison of this recession to others centers on the steepness and breadth of the current decline relative to previous cycles. Read more

05.29.2009

Savings Glut or Domestic Demand?

A lively debate has arisen over the contribution that foreign savings may have made to our current economic problems. Some argue that an influx of foreign savings helped to inflate the U.S. housing bubble, whose bursting caused the financial turmoil that led to our current recession. Others insist that the problems were by and large home grown. A look at exchange rates and balance-of-payments patterns shows that a rise in U.S demand for imports preceded the influx of foreign savings this time around. Read more

05.28.2009

Regional Labor Market Recessions and Recoveries

Timothy Dunne and Kyle Fee

What is the recovery of the U.S. labor market expected to look like this time around and will the states follow the same pattern? Overall, Fourth District states have experienced somewhat different labor market cycles in the current recession. Ohio has had the weakest labor market, while Pennsylvania’s and West Virginia’s have been relatively strong. A current fear is that while we are experiencing a sharp labor market contraction similar in magnitude to the 1981 recession, we will have a labor market recovery similar to those which occurred after the 1990 or 2001 recessions—the so-called jobless recoveries. Read more

05.28.2009

The Credit Environment for Business Loans

Kent Cherny, Yuliya Demyanyk and Saeed Zaman

Some reports have shown evidence of contraction in commercial and industrial (C&I) loans, which could make it difficult for businesses to manage cash flow or finance business expansion. We look at some measures of business lending to analyze supply and demand patterns for these loans. C&I loan volume has fallen, but existing credit lines are being tapped more. Demand for loans has also fallen. Read more

05.21.2009

The Yield Curve, May 2009

Since last month, the yield curve has shifted up and gotten steeper, with both short and long rates rising. The spread between these rates, the slope of the yield curve, has achieved some notoriety as a simple forecaster of economic growth. Read more

05.20.2009

April Price Statistics

The CPI was virtually flat in April, falling 0.2 percent at an annualized rate, pulled down in part by falling food and energy prices, which were down 2.2 percent and 25.1 percent, respectively. Excluding food and energy prices (core CPI), the index jumped up 3.1 percent. As was the case in March, the excise tax on tobacco was the smoking gun pushing up the core CPI. Read more

05.20.2009

Economic Projections from the April FOMC Meeting

The FOMC’s economic projections were released in conjunction with the minutes of its April meeting. The projections have not improved much since the last release of the Committee’s projections, in January 2009. Read more

05.12.2009

How Realistic Were the Economic Forecasts Used in the Stress Tests?

Kenneth Beauchemin and Brent Meyer

Some observers complain that the economic forecasts used in the bank stress tests were not severe enough. But the most recent projections by professional forecasters suggest that the stress-test scenarios remain viable and relevant to the task of assessing the potential losses faced by nation’s largest bank holding companies. Read more

05.12.2009

Is the Housing Bust Over?

It’s been three years since the housing markets did a nosedive. Is the housing market correction finally over? The short answer is probably no, but there are some encouraging signs of improvement. Read more

05.12.2009

The Employment Situation, April 2009

The unemployment rate jumped from 8.5 percent to 8.9 percent in April, largely due to a labor force increase of 683,000 people, which pushed up the participation rate 0.3 percentage point to 65.8 percent. Read more

05.07.2009

Involuntary Part-Time Workers and the Deficiencies of the Unemployment Rate

The unemployment rate is often criticized for leaving some people out of the count. The rate is defined as the percentage of those in the labor force who are unemployed, and to be in the labor force, one needs to be employed or actively seeking work. Not included are people who are willing and able to work but who have stopped searching. Read more

05.04.2009

Mighty Bad Recessions

No two recessions are exactly alike. Nevertheless, recessions often share basic characteristics that determine their severity and the pace of subsequent recoveries. The IMF has been studying two of these—association with a financial crisis and global reach—to see how they affect a recession’s contours. The implications for our current global economic malaise, which shares both of these characteristics, are sobering. They explain why the current global downturn is the worst since the Great Depression. Read more

05.04.2009

Real GDP: First-Quarter 2009 Advance Estimate

Real GDP decreased at an annualized rate of 6.1 percent in the first quarter of 2009, slightly less negative than the fourth quarter’s −6.3 percent, but coming in worse than consensus expectations. The resulting four-quarter growth rate in real GDP fell to −2.6 percent, its lowest growth rate since the 1982 recession. Read more

05.04.2009

The Changing Composition of Consumption

It is no secret that some households are being hit hard in the current recession. The ongoing job losses, lower housing wealth, and tight credit of this financial crisis have led to some abrupt shifts in household consumption behavior. Read more

04.30.2009

Fourth District Employment Conditions, March 2009

The District’s unemployment rate increased 0.5 percentage point to 9.3 percent for the month of March. Since the recession began, the nation’s monthly unemployment rate has averaged 0.6 percentage point lower than the Fourth District unemployment rate. Year over year, the Fourth District and the national unemployment rates have increased 3.5 percentage points and 3.4 percentage points, respectively. Read more

04.29.2009

The Yield Curve, April 2009

Since last month, the yield curve has twisted steeper, with short rates dropping and long rates rising. The difference between short and long rates, the slope of the yield curve, has achieved some notoriety as a simple forecaster of economic growth. Read more

04.23.2009

March Price Statistics

The CPI decreased at an annualized rate of 1.6 percent in March, pulling the 12-month growth rate down to −0.4 percent. The core CPI is up 2.2 percent over the past three months, compared to 1.8 percent over the past year. The measures of underlying inflation produced by the Federal Reserve Bank of Cleveland, the median CPI and the 16 percent trimmed-mean CPI, rose 2.0 percent and 0.4 percent, respectively. Read more

04.13.2009

Fourth District Bank Holding Companies

Kent Cherny, Joseph G Haubrich and Saeed Zaman

Annual asset growth of Fourth District BHCs was 3.5 percent last year, down from 2007’s 5.1 percent growth rate. The U.S. commercial banking sector saw a reduction in total assets during the fourth quarter of 2008, as the financial crisis prompted banks to deleverage or slow their rate of asset growth. Nevertheless, total assets nationally and in the Fourth District did grow over the course of 2008. Read more

04.07.2009

An Overview of the Healthcare System

Despite much of policymakers’ time being devoted to the ongoing financial crisis and the resulting recession, there seems to be a great deal of resolve to tackle the pressing issue of healthcare reform. With this in mind, it is a good time to take a look at the healthcare industry. Read more

04.06.2009

Fourth District Employment Conditions, February 2009

The District’s unemployment rate jumped 0.7 percentage point to 8.8 percent for the month of February. The District’s unemployment rate was again higher than the national rate in February (by 0.7 percentage point), as it has consistently been since early 2004. Since the recession began, the nation’s monthly unemployment rate has been 0.6 percentage point lower on average than the Fourth District unemployment rate. Read more

04.06.2009

The Employment Situation, March 2009

Payroll employment continued its sharp drop in March, declining by 663,000. Revisions left February’s losses unchanged at 651,000, but January’s losses increased to 741,000 (from 655,000 reported last month). Job losses were spread across all major industry groups, with the lone exception of healthcare. The unemployment rate continued to rise, increasing 0.4 percentage point to 8.5 percent, the highest rate since 1983. Read more

04.01.2009

China, SDRs, and the Dollar

China wants a new international reserve currency that is “disconnected from economic conditions and sovereign interests of any single country.” It has recommended Special Drawing Rights for the job. But the private sector will only adopt the SDR if it offers network benefits, comparable to the dollar, but that could take decades. In the meantime, countries worried about their expanding dollar portfolios might take a different tack: Allow their currencies to float and adopt a domestic monetary policy focused on long-term price stability. Read more

04.01.2009

New Policy Moves and the Term Asset-Backed Securities Loan Facility

Andrea Pescatori

At its recent meeting on March 18, the Federal Open Market Committee (FOMC) acknowledged that the economy is continuing to contract as “job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.” Because current economic conditions have rendered the Fed’s traditional interest rate channel no longer viable for stimulating the economy, the FOMC has turned to the use of credit-easing to support to the real economy and the financial system. Read more

03.31.2009

Employment Loss in Ohio’s Manufacturing Industry

Ohio is often thought of as a state with a relatively large share of economic activity coming from the manufacturing sector, especially heavy manufacturing. Even after the sharp declines in the iron and steel industries in the 1980s, Ohio still had 21.7 percent of its workforce in the manufacturing sector in 1990. This was 34 percent more than the U.S. manufacturing employment share. However, over the last several decades, Ohio’s manufacturing employment has declined more rapidly than the nation’s as a whole. Read more

03.31.2009

Real GDP: Fourth-Quarter 2008 Final Estimate

The final estimate of real GDP in the fourth quarter of 2008 came in at −6.3 percent (annualized rate), 0.1 percentage points lower than the preliminary estimate and whopping 2.5 percentage points below the advance estimate. Read more

03.31.2009

U.S. Real Estate: Looking for Progress in Price Stability and Financing

Kent Cherny and Ozgur Emre Ergungor

The Case-Shiller composite price index continues to indicate contraction in U.S. residential home values. In the fourth quarter of 2009, the index stood at 139.14, down a cumulative 26.7 percent from its peak during the second quarter of 2006. By now the story of how we ended up here has become almost passé: a combination of low interest rates, loose lending standards, and financial innovation produced a boom in real estate prices on a broad, national level. Read more

03.27.2009

February Price Statistics

The CPI increased somewhat unexpectedly in February, rising at an annualized rate of 4.8 percent, following a 3.4 percent gain last month. The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends, the median CPI and the 16-percent trimmed-mean CPI, rose 2.3 percent and 2.5 percent, respectively. Also, every subcategory of the apparel price index (except infant and toddler apparel) rose in excess of 8.0 percent during the month, which may suggest that some retail prices are starting to rebound after deeper-than-normal discounts over the holiday season. Given the relatively weak spending environment, its seems hard to view these price changes as anything other than transitory. Read more

03.26.2009

The Yield Curve, March 2009

Since last month, the yield curve has moved lower and flattened slightly, with long rates dropping a bit more than short rates, though the difference between them remains strongly positive. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 3.0 percent rate over the next year, on the high side of other forecasts. The chance of the economy being in a recession next March, according to estimates based on the curve, stands at 1.1 percent, up slightly from February’s 0.98 percent. Read more

03.20.2009

Fourth District Employment Conditions, January 2009

The District’s unemployment rate shot up 0.6 percentage point to 8.1 percent for the month of January. Compared to the national rate in January, the District’s unemployment rate (0.5 percentage point) stood higher, as it has been since early 2004. However, over the past year the gap between unemployment rates has all but vanished as a result of the current recession. Since the same time last year, the Fourth District and the National unemployment rates have both increased by 2.7 percentage points. Read more

03.10.2009

FDIC Funds

Kent Cherny, Joseph G Haubrich and Saeed Zaman

The FDIC recently released its fourth-quarter banking summary, giving us the opportunity to examine trends in the FDIC-insured banking industry during 2008. It was a rough year for FDIC-insured banks. Read more

03.10.2009

The Employment Situation, February 2009

The labor market lost 651,000 jobs in February, meeting expectations and bringing the total tally of losses since the start of the recession to 4.4 million. The unemployment rate increased by half of a percentage point, to 8.1 percent. Payroll losses characterized every part of the economy, with the lone exceptions of the education and healthcare and government sectors. Read more

03.10.2009

The Impact of Credit Easing So Far

John B Carlson and Sarah Wakefield

While it is too early to judge the overall effectiveness of the Fed’s new credit-easing tools, conditions in many financial markets have improved to near-normal levels. However, liquidity strains remain. Read more

03.06.2009

Real GDP: Fourth-Quarter 2008 Preliminary Estimate

Real GDP was revised down 2.5 percentage points to −6.2 percent (annualized rate) in the fourth quarter of 2008, according to the preliminary release by the Bureau of Economic Analysis. For context, the average revision without regard to sign from the advance to preliminary estimate is 0.5 percentage point. If the current estimate holds, it will be the sharpest quarterly decrease between the two releases since the first quarter of 1982. Read more

03.05.2009

Renminbi 101

China manages the renminbi-dollar exchange rate closely. Between mid-1995 and July 2005, the People’s Bank of China pegged the renminbi at approximately 8.3 per U.S. dollar. Since then, the People’s Bank has loosened its reigns, allowing the renminbi to appreciate to 6.8 per dollar. Many people claim that China still manipulates the rate in an unfair bid, however such claims are not strictly correct. Nevertheless, China has never given the exchange-rate-adjustment mechanism free reign. Read more

03.02.2009

The Latest S&P Case-Shiller Housing Price Indexes

Declining U.S. home prices led the way into the current worldwide economic crisis, and one sign that the crisis is abating will be when these prices begin to stabilize. The December 2008 S&P Case-Shiller Home Price Indexes (released February 24, 2009) offered no evidence that this is happening yet. Read more

02.27.2009

The Recent Increase in the Volatility of Economic Indicators

In recent months, we have seen a staggering increase in stock market volatility. One popular measure of market volatility, the Chicago Board Options Exchange’s Volatility Index (VIX), jumped to 62.6 in November 2008, higher than it’s ever been. Is there a corresponding increase in volatility of macroeconomic variables? To answer this question, we focused on four main economic indicators, GDP growth, employment growth, productivity growth, and inflation. Read more

02.26.2009

January Price Statistics

The CPI rose at an annualized rate of 3.4 percent in January, reversing course after three consecutive monthly declines and outpacing all of its longer-term trends. The Federal Reserve Bank of Cleveland’s measures of underlying inflation trends, the median CPI and the 16 percent trimmed-mean CPI, increased 2.7 percent and 2.0 percent, respectively. Read more

02.23.2009

The U.S. Auto Industry

Ford, GM, and Chrysler have struggled for some time, but last fall their situations dramatically worsened. After the auto manufacturers pleaded their cases in December, Congress agreed to extend loans to Chrysler and GM in order to help keep the two companies alive. These three automakers were especially hurt in 2008 when sales declined nearly 25 percent. As sales have declined, Ford, GM, and Chrysler have cut their U.S.-based production in an attempt to adjust to the decreased demand for their vehicles. Read more

02.20.2009

The Yield Curve, February 2009

In the midst of all the depressing news about the economy, the yield curve still might provide a slice of optimism. The yield curve has gotten steeper since last month, with long rates rising more than short rates, and the difference between them remains strongly positive. A steep yield curve usually indicates growth, although the current economic environment may impact its reliability as an indicator. Projections based on it suggest that real GDP will grow at about a 3.3 percent rate over the next year. Read more

02.18.2009

Economic Projections from the January FOMC Meeting

The economic projections of the FOMC are released in conjunction with the meeting minutes four times a year (January, April, June, and October). Economic conditions between the release of the October and January projections have deteriorated considerably. Read more

02.18.2009

Fourth District Employment Conditions, December 2008

The District’s unemployment rate jumped 0.3 percentage point to 7.4 percent for the month of December (0.2 percentage point higher than the nation’s). Unemployment rates across Fourth District counties ranged from 5.2 percent to 13.1 percent, with the median county unemployment rate at 8.0 percent. Read more

02.12.2009

Credit Easing: A Policy for a Time of Financial Crisis

John B Carlson, Kent Cherny, Joseph G Haubrich and Sarah Wakefield

In a recent lecture, Federal Reserve Chairman Ben Bernanke added some clarity to the Fed’s policy response to the current financial crisis. He described a framework for understanding the new tools that have been created and employed to support credit markets and restore their functioning. These tools, he pointed out, enable the Fed to respond aggressively to the crisis even though the federal funds rate stands near zero. Read more

02.11.2009

Weaker Still

With world trade and industrial production falling precipitously, the International Monetary Fund has again pared its forecast for global economic growth. The agency now expects world economic activity to expand by only 0.5 percent in 2009, the slowest growth rate since World War II. The outlook is highly uncertain with risks clearly to the downside. Read more

02.09.2009

Real GDP: Fourth-Quarter 2008 Advance Estimate

Real GDP decreased at an annualized rate of 3.8 percent in the fourth quarter of 2008. While this marks the statistic’s worst quarterly performance since 1982, it is much less than the −5.5 percent that was expected. Read more

02.09.2009

The Employment Situation, January 2009

The labor market shed 598,000 jobs in January, coming in worse than expected and bringing this downturn’s total losses to 3.6 million. Additionally, the unemployment rate jumped from 7.2 to 7.6 percent, the highest rate since September 1992. As of now, the unemployment rate stands 2.7 percentage points higher than a year ago, almost a 55 percent increase. Read more

02.06.2009

Ohio’s Local Labor Markets

Since the recession started in December 2007, the U.S. economy has shed 2.5 million jobs, or 1.9 percent of nonfarm payroll employment, and Ohio has reduced its payrolls by 1.6 percent. However, not all areas of Ohio have experienced similar employment losses. Read more

02.02.2009

Dating a Recession and Predicting its Demise

Few were surprised when the NBER’s Business Cycle Dating Committee announced on December 1, 2008, that the U.S. economy was in recession. However, what may have surprised some observers is that the committee dated the last business cycle peak, and hence the beginning of the recession, to December 2007. Read more

02.02.2009

Labor Turnover

The Bureau of Labor Statistics tracks the hiring and firing activity of establishments across the nation in its JOLTS series. While the net hires rate had been positive for almost five years up until May 2008, other JOLTS statistics have been painting a clearly deteriorating picture of the labor market. Read more

01.27.2009

December Price Statistics

After posting a decline of 8.5 percent (annualized rate) in December, the CPI finished the year up only 0.1 percent on a year-over-year basis, its lowest yearly price appreciation since 1945. As expected, plummeting energy prices (namely a 17 percent slide (nonannualized) in gas prices) caused much of the headline decrease in December. Read more

01.20.2009

The Yield Curve, January 2009

New York Times columnist Paul Krugman doesn’t think we should be relying on the yield curve for predictions of economic growth, given the current economic environment. He makes some good points, but they are not decisive and we explain why. Projections based on the curve and GDP growth suggest that real GDP will grow at about a 3.3 percent rate over the next year. Read more

01.15.2009

The Employment Situation, December 2008

December employment fell by 524,000, roughly meeting expectations and bringing the year’s total losses to 2.6 million. The revised numbers for October and November, coupled with December’s newly reported losses, reveal fourth–quarter 2008 declines exceeding 1.5 million jobs. The unemployment rate also jumped 0.4 percentage point from 6.8 to 7.2 percent in December, the highest rate since January 1993. Read more

01.12.2009

A Focus on Quantitative Easing

John B Carlson and Sarah Wakefield

In an unprecedented move at its December 16 meeting, the FOMC decided to establish a target range for the federal funds rate of 0 to 0.25 percent. Open market operations and other measures have added greatly to the supply of the monetary base, which jumped from around $850 billion in late August to nearly $1.7 trillion on December 31. The doubling of the monetary base in such a short time highlights the fact that the Federal Reserve had already employed other available tools in dramatic fashion to support the functioning of financial markets. Read more

01.07.2009

Fourth District Employment Conditions, November 2008

The District’s unemployment rate remained steady at 7.0 percent for the month of November. As it has consistently been since early 2004, the District’s unemployment rate was higher than the nation’s (0.3 percentage point). Since this time last year, the Fourth District?s unemployment rate has increased 1.7 percentage points, while the nation’s has increased 2.0 percentage points. Read more

01.07.2009

Ohio’s Business Cycle

The National Bureau of Economic Research (NBER) has designated December 2007 as the starting point of the current recession. However, the recession referred to is the nation’s as a whole—individual states vary with respect to the timing of their business cycles as well as in the severity of their recessions. To see how Ohio’s business cycle compares to those of other states and the nation, we examine the state coincident indexes published by the Federal Reserve Bank of Philadelphia. Read more

01.06.2009

Real GDP: Third-Quarter Final Estimate

Real GDP decreased at an annualized rate of 0.5 percent in the third quarter of 2008 (unchanged from the preliminary estimate), according to the final estimate released by the Bureau of Economic Analysis. The latest Blue Chip consensus forecast is for real GDP to drop 4.1 percent in the fourth quarter of 2008, marking the economy’s worst performance since the 1982 recession. It seems that the 2009 outlook has darkened considerably, as nearly every panelist revised down his or her respective 2009 growth estimate from the last report. The 2009 consensus estimate fell from −0.4 percent in November to −1.1 percent in December. Read more

01.06.2009

The Ups and Downs of Current-Account Deficits