Economic Trends
Filling you in on the current state of the economy.
2010
- 12.22.2010
- Ten-Year Treasury Rates
- Since the Fed announced a second round of quantitative easing, the interest rate on 10-year Treasury bonds has increased and is now at its highest level since May 2010. The increase can be partly explained by examining changes in investors’ expectations about short-term interest rates and inflation. Other potential sources of the increase are an improved economic outlook and an increase in the number of Treasuries issued. Read more
- 12.20.2010
- Continued Weakness in Small Business Lending
- As the economy emerges from the worst economic downturn since the Great Depression, concerns remain about the slow, ongoing weakness in credit markets, in particular, the small business loan market. The most recent data on the primary source of loans to small businesses, FDIC-insured banks and thrifts, adds credence to this concern. Read more
- 12.20.2010
- The Yield Curve and Predicted GDP Growth, December 2010
- The yield curve moved sharply steeper over the past month, as long rates increased nearly three-tenths of one percent, and short rates held steady. The slope rose a hefty 29 basis points to end above 300 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next December is 1.5 percent. Read more
- 12.08.2010
- Inflation Swaps
- One way to find out what markets expect for future inflation is to look at the inflation swaps market. A look at the swaps market shows that five-year inflation expectations have declined steadily since the spring of this year, leading some experts to worry about the possibility of deflation. Since September, however, the trend has reversed, and expectations have moved back up into the 2 percent range. Read more
- 12.08.2010
- Where Are We in the Labor Market Recovery?
- The effects of the recent recession have been especially bad for the labor market. With the current estimate of real GDP only 0.6 percent lower than its prerecession peak, most of the loss in real GDP over the course of the recession has been recovered, but payroll employment is still about 5.4 percent less than its pre-recession peak. Indeed, the current job finding rate is at an historical low while the labor market is also experiencing one of its weakest periods in several decades. Read more
- 12.07.2010
- The Balance Sheet Recovery
- In the past, deep recessions have been followed by rapid recoveries. Not this time. Real GDP has been growing at a 2.9 percent rate since the end of the recession. The current level of GDP is still below its 2007 peak, after almost three years. Read more
- 11.26.2010
- Economic Projections from the November FOMC Meeting
- After the November Federal Open Market Committee meeting, participants’ forecasts for economic growth, unemployment, and inflation were released along with the meeting statement. The Committee’s forecasts for near-term output growth were revised down sharply from the June meeting, its unemployment rate projections were marked up through 2012, and the outlook for PCE and core PCE inflation were shaded up as well. Read more
- 11.22.2010
- Mortgage Borrowers Deleverage
- The housing bubble left many borrowers overleveraged once the recession struck. But consumers have begun to deleverage, and this is nowhere more evident than in the housing market. Borrowers have responded to the recent recession by reducing their exposure to mortgage debt. While mortgages remain a much larger proportion of homeowners’ debt today than in 2000, if borrowers continue to deleverage, they will be able to obtain more manageable levels of debt in the future. Read more
- 11.19.2010
- The Yield Curve and Predicted GDP Growth, November 2010
- The yield curve became sharply steeper over the past month, as long rates increased nearly 0.4 percent, and short rates held steady. The slope rose a hearty 39 basis points, ending at 275. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, and based on calculations using the yield curve, we estimate that the chance of the economy being in a recession next November is 2.3 percent. Read more
- 11.10.2010
- Recessions, Housing Market Disruptions, and the Mobility of Workers
- At the end of September 2010, the United States Census Bureau released the 2009 data from the American Community Survey (ACS). One of the questions that participants are asked in this survey is where they were living one year ago. The answer to this question is of particular interest to labor economists since it is one way to assess the degree to which workers are moving around the country to pursue jobs or educational opportunities. Data from the past 10 years of surveys reveal that the fraction of the population living in the same house as they were one year ago has fluctuated between 83.5 percent and 85.5 percent. Read more
- 11.10.2010
- Theoretically, How Long Is This Recovery Supposed to Take Anyway?
- The first estimate for GDP and its components in the third quarter of 2010 is out and it is not a very encouraging one, at least as far as the recovery goes. The positive contributions from personal consumption expenditures and from changes in private inventories were attenuated by strong import growth and a further decline in residential investment. In all, GDP is estimated to have grown at an annual pace of 2 percent in the third quarter. To put things in perspective, just to keep up with its trend, GDP should be growing at an annual rate slightly above 3 percent, but since we are recovering from a recession it should actually be growing at an even faster pace. It is no wonder then that people are throwing out words like subpar or anemic to describe the current recovery. But compared to what? Read more
- 11.08.2010
- A Positive Trend for the Fed’s Exposure to AIG
- One of the key arrangements used to avoid the bankruptcy of American International Group (AIG) in the fall of 2008 was the creation of two special purpose vehicles (SPVs) named Maiden Lane II and Maiden Lane III. SPVs are subsidiary companies with an asset/liability structure and legal status that makes their obligations secure even if the parent company goes bankrupt. Of course, if the assets are not valued correctly, the SPVs may not be able to pay off any creditors. In the case of Maiden Lane II and III, the creditor is the Federal Reserve Bank of New York, which made the loans that were used to purchase assets from AIG subsidiaries and counterparties. Currently, the estimated values of those assets exceed the amounts of the respective loans that were extended. Interestingly, asset revaluations in conjunction with the cash flowing in from the assets have been sufficient to maintain both a steady pay down of the loans and a steady if not rising value of the portfolio. Because the New York Fed will share in any profits remaining after the loans are paid in full, the prospects for a positive return on its investment look very good at this point. Read more
- 11.02.2010
- What’s Up with the Gap between the Core PCE and the Core CPI?
- As of August, there was a somewhat sizeable gap between the 12-month growth rate in the core PCE and the core CPI. Normally, this isn’t much of an issue. However, this time the direction of the gap is reversed relative to historical norms, and measured inflation rates are hovering just above zero. A quick look into the differences between these two series may clear up this mystery. Read more
- 10.25.2010
- New Residential Construction Activity in Fourth District Metro Areas
- The number and value of building permits in the Fourth District show the glimmer of an upturn in local housing markets. This trend is worth watching both for the employment and economic activity it represents, and as an indicator of consumer confidence. From 2000 to 2005, each metropolitan statistical area (MSA) in the Fourth District had a steady or moderately growing annual count of new residential units, and the total value of those units was rising. From 2006 to 2009, both of these metrics plummeted across the region, in step with the national construction slowdown and the economy-wide recession. An upturn in new construction represents consumers’ and builders’ sense that the regional economy is improving enough to support new houses, condos, and apartments. Read more
- 10.25.2010
- Out of Whack—the Renminbi
- To keep the value of its currency low relative to the dollar, China’s central bank has amassed a huge mountain of dollar assets. How is it keeping these holdings from causing inflation? Read more
- 10.21.2010
- Foreclosures in Ohio
- The number of new foreclosures across the United States ticked up mildly in the first and second quarters of 2010, according to the Mortgage Bankers Association’s National Delinquency Survey. When the housing bust was just setting in back in 2006, Ohio’s foreclosure rate was the highest of any state in the nation (3.38 percent) and about three times as high as the national average (then 1.19 percent). Now—four years later—Ohio has the sixth highest percentage, with 4.82 percent of all mortgage loans in foreclosure, and the national average has nearly caught up. What hasn’t changed, however, is that Ohio still easily leads the other states in the Fourth District (Kentucky, Pennsylvania, and West Virginia) in foreclosure rates. Read more
- 10.20.2010
- The 2000s: A Slow Start to the 21st Century
- The decline in GDP from the first quarter to the second quarter, a two percentage point drop from 3.7 percent to 1.7 percent, is particularly worrisome for many observers, as it may be signaling a loss of momentum in the recovery. Adding to the pessimism is an array of rather weak third-quarter indicators that point to further slowing. These expectations make for a fitting end to the growth disaster that was the decade of the 2000s. Read more
- 10.20.2010
- The Yield Curve and Predicted GDP Growth, October 2010
- The yield curve flattened over the past month, as long rates dropped while short rates stayed level. The slope of the curve dropped 19 basis points to 236. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year. Read more
- 10.15.2010
- The Employment Report and Displaced Workers
- September’s employment report showed continued anemic employment growth for the U.S. economy. Every two years, the Bureau of Labor Statistics surveys individuals about displacement from the workforce as part of the Current Population Survey. In this article, we compare the latest results to those of the 2002 survey, which included the 2001 recession, and the 2008 survey, which covers the three years prior to the current recession. Read more
- 10.07.2010
- Recent Changes in Household Net Worth
- During the housing bubble, the nominal value of household assets grew rapidly, peaking in the third quarter of 2007 after rising 64 percent over the course of just five years. During that same time, total household liabilities grew by 66 percent. However, because liabilities were considerably smaller than total assets, households’ net worth still grew by 63 percent. After peaking, the value of household assets fell precipitously. Total liabilities, on the other hand, remained relatively unchanged, causing household net worth to crash by almost 26 percent. Read more
- 10.05.2010
- Recent Developments in Inflation Expectations
- A persistent downward trend in prices has created some concern about whether there will be further disinflation or even a deflation in the future. Here we review what inflation expectations foretell for the future inflation. Since people consider the future level of general prices when they set their own prices, inflation expectations reflect not only their perceptions about the future but they are also an important determinant of future inflation. In addition, there is some empirical evidence showing that the expectations are among the best predictors of future inflation. Read more
- 09.27.2010
- FOMC Keeps It Steady Ahead
- On September 21, the Federal Open Market Committee (FOMC) reaffirmed its commitment to keep the Federal Funds rate within the range 0 to 1/4 percent, as the economy continues with its fragile recovery. Though the National Bureau of Economic Research declared that the recession ended in June of 2009, the recovery has been hampered by pervasive unemployment and soft income growth. Moreover, as the Committee noted in its statement, underlying inflation is below the level it deems necessary, in the long term, to fulfill its mandate of maximum employment and price stability. Read more
- 09.27.2010
- Job Churning in Regional Labor Markets
- A look at the amount of job churning that has occurred in 190 of the largest metropolitan labor markets in the United States since 2001 confirms that levels of job churning typically exceed net employment change by a lot. It also shows that rates of churning have been declining, that some areas have persistently more or less churning than others, and that rates are only moderately correlated with the size of the local labor market. Read more
- 09.23.2010
- Federal Home Loan Banks: The Housing GSE That Didn’t Bark in the Night?
- Since Fannie Mae and Freddie Mac were taken into conservatorship by the U.S. Treasury in 2008, they have required $148 billion in taxpayer funds to cover the losses they incurred. Recent statements by the acting director of the Federal Housing Finance Agency suggest that the final bill to the U.S. taxpayer to resolve the insolvencies of Fannie and Freddie could exceed $400 billion. However, the Federal Home Loan Bank system, another housing GSE, has fared somewhat better during the financial crisis. Read more
- 09.23.2010
- The Yield Curve and Predicted GDP Growth, September 2010
- Long rates took a turn higher over the past month, adding a bit of steepness to the yield curve, as short rates stayed level. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year—a bit more pessimistic than other forecasts. Using the yield curve to estimate the probability of recession in the future, we estimate the expected chance of the economy being in a recession next September at 2.9 percent, well below our August estimate of 18.5 percent. The change reflects the NBER’s placing the official end of the recession at June 2009 and thus adding another year of nonrecession data to our calculations, rather than any massive improvement in the economy. Read more
- 09.10.2010
- Eurodollar Futures, Taylor Rules, and the Conduct of Future Monetary Policy
- With interest rates at zero, traditional monetary policy won’t stimulate the economy or increase inflation, and monetary authorities must find alternative approaches. One policy option is to signal the future path of interest rates and persuade markets that rates will stay lower than they would have historically given similar economic conditions. Is the Fed’s extended period of time language signalling just that? We look at Taylor rules and expectations derived from Eurodollar futures to check out the potential stimulative effect of the Fed’s “extended period” language. Read more
- 09.10.2010
- Households’ Balance Sheets and the Recovery
- Since the Second World War, real GDP in the United States has grown, on average, at a yearly rate of 3.2 percent. This is what economists call “trend growth.” Whenever the U.S. economy is faced with a recession and grows below trend for a while, a recovery period typically follows in which growth is above trend. This Trends article analyzes the current recovery. Read more
- 09.10.2010
- The Great Recession and its Impact on Different Industries
- The recent recession, now called the Great Recession by many, had significant adverse effects on the labor market overall. Even though the recovery has apparently begun and output has been growing since the second quarter of 2009, payroll employment is still about 6 percent less than it was at its prerecession peak in December 2007. New jobs are being created, but at a relatively modest pace. Read more
- 08.30.2010
- The Yield Curve, August 2010
- As long rates continue their steep slide, the yield curve has flattened, as short rates stayed level. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.00 percent rate over the next year. This comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Using the yield curve to predict whether or not the economy will be in recession in the future, we estimate that the expected chance of the economy being in a recession next August rises to 18.5 percent. Read more
- 08.27.2010
- Inflation: Soft but Stable?
- We have experienced a dramatic disinflation—a slowing in the growth rate of inflation—over the past couple of years. With most measures of inflation reporting in at very low rates, speculation abounds that disinflation will eventually give way to deflation. A quick glance at the most recent report on consumer prices might splash some cold water on that discussion. But then, a deeper dig through the report reveals details that might support continued low rates of inflation. Read more
- 08.27.2010
- Where Does the Mortgage Market Go from Here?
- In the first quarter of 2010, it appeared that the mortgage market was running out of steam. Mortgage originations increased in the second quarter, however, demonstrating that there still is demand for mortgages. Read more
- 08.20.2010
- Small Business Lending
- Although the U.S. economy stabilized in the middle of 2009 and is now expanding at a moderate pace, many small business owners who want to take advantage of growth opportunities report having difficulty obtaining credit for equipment purchases, operating capital, or committing to strategic acquisitions. From the perspective of the firm owner, bankers appear to be reluctant to lend regardless of credit history or ability to repay. In turn, bankers say that while lending standards remain tight, they have the capital and are anxious to lend, but demand is low. Bankers often cite as evidence the use of credit lines, which is well below historic norms. Read more
- 08.11.2010
- State Revenue Declines in the Fourth District
- Each of the four states of the Fourth District—Kentucky, Ohio, Pennsylvania, and West Virginia—has experienced substantial declines in tax revenue during the most recent recession. Falling revenues force state lawmakers to cut expenditures or raise tax rates because of balanced-budget requirements. Either of these can slow economic activity. States have been cutting expenditures, although the cuts have been partially mitigated by federal transfers and the use of the states’ own rainy day funds, but the states of the Fourth District will continue to face challenges in balancing revenue and expenditures until more robust economic growth returns. Read more
- 08.10.2010
- Bank Loans: Still Contracting
- Information from various sources suggests that the number of loans that banks are making to businesses continues to fall. The contraction appears to be driven by both supply and demand; banks are extending less credit, and businesses are asking for less. The restriction of credit may be one important factor that is constraining the current recovery, since businesses, especially small ones, rely on bank loans and access to credit to finance their operations, capital expenditures, and growth. Read more
- 08.10.2010
- Has the Beveridge Curve Shifted?
- Has the Beveridge curve, an empirical relationship between job openings and unemployment, changed in a way that would indicate that the labor market’s longer-term adjustment process has been adversely impacted by the recession? It is too early to tell for sure, but the curve’s recent behavior looks very similar to that of previous recessions. Read more
- 08.10.2010
- Measuring Market Beliefs about the Fed Policy Rates
- A look at Eurodollar and fed fund futures, one way of ascertaining the market’s expectations about changes in FOMC policy, shows that market participants anticipate that the FOMC will continue to maintain its position of exceptionally low interest rates far out into the future. Read more
- 08.10.2010
- The Yield Curve, July 2010
- The Yield Curve has a new look and location! We hope you find the new format better. Since last month, the yield curve has flattened, as long rates dropped and short rates edged up. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.14 percent rate over the next year, just up from June?s prediction of 1.00 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Read more
- 07.30.2010
- Bank Executive Pay
- In the wake of the financial crisis and the unprecedented government intervention that followed, the compensation of bank executives has been heavily criticized for having encouraged undue risk taking. We examine trends in executive compensation over the past couple of decades, and look for compensation patterns that might have implications for banks’ risk-taking behavior. Read more
- 07.28.2010
- Renminbi Peg: On Again, Off Again
- The People’s Bank of China indicated—once again—that it would loosen its grip on the renminbi-dollar exchange rate and allow the renminbi to appreciate against the dollar. All else constant, a renminbi appreciation should raise the dollar price of Chinese goods, lower the renminbi price of U.S. goods, and whittle away at our trade deficit with that country. But unless the exchange rate moves by a substantial amount, we probably will not see much of an effect. Since the People’s Bank’s announcement, the renminbi has appreciated a meager 0.7 percent against the dollar. Read more
- 07.28.2010
- The Homebuyer Tax Credit
- The homebuyer tax credits that were intended to aid the floundering housing market have recently expired. Were the programs enough to jump start the housing market or did they merely cannibalize future sales? Read more
- 07.19.2010
- The Labor Market for Men and Women
- Over the course of this recession, men have experienced significantly higher unemployment rates than women. The unemployment rate for men rose by 6.7 percentage points from its 2007 average level, peaking at 11.4 percent , while the unemployment rate for women increased by 4.3 percentage points, peaking at 8.8 percent. This pattern of more cyclically sensitive unemployment rates for men has been apparent over the last four recessions. Read more
- 07.14.2010
- Economic Projections from the June FOMC Meeting
- Four times a year, we get a glimpse of the FOMC’s forecasts for economic growth, unemployment, and inflation. The Committee’s latest forecasts were released with the minutes of the June 22-23 meeting. Read more
- 07.06.2010
- Changes in Foreclosure and Unemployment across States
- During the recent recession, the unemployment rate more than doubled and the foreclosure start rate roughly tripled, but the timing of the increases differed somewhat over the business cycle. In this article, we take a look at the recent movements of these two series and discuss what their paths might be going forward. Read more
- 07.02.2010
- Recent Developments in Prices and Inflation Expectations
- As the economy recovers, interest has turned to the Fed’s strategy for exiting from the accommodative policy it adopted to deal with the crisis. Owing to the Fed’s dual mandate (maximum sustainable employment and price stability), the exit strategy will depend on the developments in prices as well as the real economy. Price statistics suggest that we are in a period of disinflation,and inflation expectations reveal no significant threat of inflation is anticipated. Read more
- 07.01.2010
- The Yield Curve, June 2010
- Since last month, the yield curve has dropped slightly, with both long and short rates ticking down Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.00 percent rate over the next year, just up from May’s prediction of 0.98 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Read more
- 06.28.2010
- Market Expectations for Policy Rates
- The recent financial turmoil in Europe has been associated with a general shift in market expectations about the future course of domestic and foreign monetary policy. Many market participants are now expecting the federal funds rate to remain near the 0–25 basis point range through the early part of 2011. Going forward, market anxieties will have to recede before forward rate curves can accurately portray policy expectations. Read more
- 06.25.2010
- Recession Shrinks State and Local Governments
- State and local governments make up a large portion of our economy, together accounting for 11.8 percent of GDP last year. State and local government employees represent roughly 15 percent of the total nonfarm labor force, a number seven times that of federal government employees and larger than the manufacturing and construction workforces combined. Because of its large relative size, changes in the state and local government sector can have a significant impact on the economy. For this reason, there may be reason for concern over the recent contracting trend in state and local budgets. Read more
- 06.17.2010
- Could Low Educational Attainment Be Slowing the Recovery?
- While people without a bachelor’s degree have experienced higher unemployment throughout the past 15 years, their rate of unemployment has typically been only about 2 percentage points higher than those with a degree. Currently, however, it stands at more than 5 percentage points higher. Shrinking employment opportunities in industries that employ workers without a bachelor’s degree could be slowing the speed of the recovery. Read more
- 06.04.2010
- Three Headwinds on the Current Recovery
- Three headwinds may be constraining our current recovery. One is the damage done to the labor market by prolonged and widespread unemployment. Another is the heightened sense of caution on the part of consumers and businesses due to deep economic uncertainty. A third is ongoing financial imbalances—the excess of debt owed by the household and business sectors. There are a number of channels through which weak balance sheets are likely to depress consumption and investment for some time to come. Read more
- 06.03.2010
- Recent Manufacturing Employment Growth
- Over the past few months, the labor market has begun to show signs of stabilization. Lost in the excitement of multiple positive employment reports has been growth in the manufacturing industry. Even though industrial production numbers have been trending upward since last June, national manufacturing employment has only recently posted gains, adding 101,000 jobs in the first four months of 2010, while Fourth District states have been at the forefront of manufacturing employment growth. Read more
- 06.01.2010
- Current Banking Conditions, FDIC-Insured Institutions
- The latest financial data for depository institutions insured by the FDIC show signs that the banking and thrift industries may be turning the corner. The first-quarter financial results for these firms, however, are at best mixed. Read more
- 06.01.2010
- Getting a Clear Signal on Inflation
- From time to time, components comprising the Consumer Price Index exhibit some idiosyncratic price changes, obscuring the inflation signal in the data. Recently, a couple of examples of these idiosyncratic price changes have shown up in the data. There are a number of ways to deal with these idiosyncracies to get a better read on the inflation signal in prices, with trimmed-mean estimators like the median CPI among the best. Read more
- 05.27.2010
- Monetary Policy and an Extended Period of Time
- The FOMC met on April 27 and 28 and, like at previous meetings, continued to assert that the “Committee will maintain the target range for the federal funds rate at 0 to ¼” for an “extended period.” Trying to figure out when the Committee should increase the funds rate is complex. But John Taylor in a seminal 1993 paper argued that a useful guidepost for conducting monetary policy can be given by a simple rule or strategy whereby the central bank sets the federal funds rate in response to two variables—inflation and deviations of output from potential output. Read more
- 05.27.2010
- The Yield Curve, May 2010
- Since last month, the yield curve has flattened, with long rates falling as short rates barely ticked up. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.98 percent rate over the next year, a bit below April’s 1.17 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Read more
- 05.21.2010
- Economic Projections from the April FOMC Meeting
- The economic projections of the Federal Open Market Committee (FOMC) were released along with the minutes of the meeting on April 27-28. As usual, the projections were based on the information available at the time, as well as participants’ assumptions about the economic factors affecting the outlook and their view of appropriate monetary policy. Read more
- 05.21.2010
- Has the Mortgage Market Run Out of Steam?
- The Fed’s intervention and subsequent purchase of mortgage-backed securities (MBS) early last year drove mortgage interest rates down to historic lows, and federal government stimulus measures, such as the tax credit for first-time home buyers, gave new purchasers additional financial resources. The result was a wave of mortgage originations in the middle of 2009, as homeowners refinanced existing mortgages and others bought houses for the first time. However, new origination data from Inside Mortgage Finance shows that origination volumes fell substantially in the first quarter of 2010. This suggests that the mortgage market may slow down now that the refinancing wave has passed and purchaser tax incentives have expired. Read more
- 05.17.2010
- Some Popular Locales Now Facing Gloomier Labor Market
- Employment conditions vary a great deal across the nation, and the variation increased dramatically during the recent recession. The differences that emerged suggest that places where large housing booms occurred may have attracted populations during the boom that have led to much greater unemployment after the bust than places where house-price increases were more modest, like the Fourth District. Read more
- 05.11.2010
- The Recovery So Far
- According to the Bureau of Economic Analysis’s latest estimate, real GDP increased at a 3.2 percent annualized rate in the first quarter of the year. This increase was fueled by private consumption, which increased 3.6 percent, the largest quarterly growth in this category since the first quarter of 2007. Private investment also increased at a healthy clip, albeit much lower than the previous quarter, when it increased 46.1 percent mainly because of inventories. This is the third consecutive quarter in which real GDP registered positive growth, an opportune time to start talking about the recovery. Read more
- 04.29.2010
- Prices are Falling, Prices are Falling!
- Given the recent low readings on inflation, it wouldn’t be too surprising to hear warnings of an impending deflation. But is there cause for alarm? A quick examination of the incoming data may help to discern whether it’s time to panic. Read more
- 04.29.2010
- Recent Firming in the Federal Funds Market
- The effective federal funds rate has been rising since the end of February 2010, reflecting a number of factors. Some of those factors are the revival of the Treasury’s Supplemental Financing Program, an increase in the Fed’s discount rate, collateral effects generated by new Treasury debt around the April tax deadline, and the tightening of credit lines by GSEs. Read more
- 04.23.2010
- Global Imbalances
- We have never quite understood the pejorative connotation associated with “global imbalances.” Every day people around the world choose how much of their income to spend or save and what types of goods—domestic or foreign—to buy. People make these choices solely with the intent of improving their own lives, and by and large they seem pretty successful at it. Current-account deficits or surpluses merely aggregate these individual choices. How can this be a bad thing? Read more
- 04.23.2010
- The Yield Curve, April 2010
- In the past two months, the yield curve has moved up and gotten steeper, with long rates rising a bit more than short rates. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.17 percent rate over the next year, essentially unchanged from February. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year. Read more
- 04.22.2010
- Economy at a Glance
- Visit the new Economy at a Glance for a quick snapshot of current economic conditions, plus links to all of our related data, analysis, and research. Read more
- 04.21.2010
- Household Finances and a Sustainable Recovery
- Consumption accounts for roughly 70 percent of the country’s gross domestic product. Consequently, a sustainable economic recovery depends on a recovery in household consumption. Will it be a long road ahead for a sustainable recovery? Read more
- 04.21.2010
- The Credit Crunch in Commercial Loan Syndication
- Commercial lending by banks has fallen to double-digit, negative growth rates, both on- and off-balance-sheet. The current financial crisis has also impacted the market size and composition of syndicated loans, which are a unique type of commercial loans. Read more
- 04.14.2010
- Homeowner and Rental Vacancy Trends in the Fourth District
- Financial professionals, academic researchers, and the national media have focused attention on the housing “crisis,” with elevated vacancy a key part of the discussion. Now that we are over two years into the crisis, it seems like a good time to return to the data on vacancy and answer some critical questions. Is vacancy still a problem? Is it rising? Are the attention to vacancy and efforts to lower it still justified? In particular, what are the trends in the Fourth District’s housing markets? Read more
- 04.12.2010
- An Immoderate Inventory Cycle
- The final estimate of fourth-quarter real GDP growth was substantially higher than the 2.2 percent pace recorded in the third quarter. To better understand the apparent strength in fourth quarter activity, it is instructive to split GDP into two basic components: final sales of gross domestic product and the change in private inventories. Read more
- 04.07.2010
- Hours and Labor Market Slack
- Even though it is widely thought that the aggregate economy came out of the recession in the second quarter of 2009, we have not yet seen a major improvement in the labor market. As a result, many are concerned about the potentially “jobless” nature of the recovery. Read more
- 04.05.2010
- Survey-Based Measures of Inflation Expectations
- There are two sources of data on inflation expectations. One is derived from market prices of various financial securities; the other is surveys of the general public and professional forecasters and economists. Recent trends in survey-based measures show that there was substantial disagreement about future inflation expectations early in the recession, reflecting opposite concerns among survey participants: some fear deflation or disinflation and others fear higher inflation. The longer-term inflation expectations are currently around their historical levels, and the dispersion for these expectations also reflects a better anchoring of inflation rates over the longer-term. Read more
- 03.24.2010
- Market Expectations for Monetary Policy in the U.S. and Europe
- On March 16, the Federal Open Market Committee released a statement saying it would hold the Federal Funds target rate at 0 to 1/4 percent, and that “low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Was the market surprised by anything in this statement? Read more
- 03.19.2010
- Personal Savings Up, National Savings Down
- Saving is the engine that drives long-run economic growth. The steady decline in the savings rate of U.S. households has concerned economists, so it may be seen as promising that the trend reversed direction during the latest downturn. In 2008, the personal savings rate rose to 2.6 percent and in 2009 reached 4.3 percent, its highest level since 1998. To understand the reason for this uptick, it helps to know how the savings rate is calculated. Read more
- 03.12.2010
- Commercial Bank Lending
- As the economy emerges from its economic winter, concerns remain about the fragility and robustness of the recovery, in part because of anecdotal evidence that credit flows have yet to return to normal. The most recent data from one of the most important credit channels, commercial bank lending, adds credence to these concerns. Read more
- 03.11.2010
- Ohio’s Labor Market Cycles
- Now that it appears that the worst of the “great recession’ is over, assessing the damage done to Ohio’s labor market offers insights into what a potential recovery might look like in the state. Read more
- 03.04.2010
- January Price Statistics or the Definition of "Subdued"
- The most recent readings in the median CPI, 16 percent trimmed-mean CPI, and core CPI are all below their respective longer-term trends, suggesting a continued disinflationary trend. The longer-term trends in the trim and median have come down sharply relative to the core CPI over the past year or so. Read more
- 03.03.2010
- Signs of Abating Default Risk
- Recent improvements in economic conditions may be having a positive effect on the risk of default in the economy, both for corporations and homeowners. We check a few measures of default risk to see if this is the case. Read more
- 03.02.2010
- Euro Problems
- Whether a country is better or worse off in a monetary union like the euro zone depends on whether the gains from giving up monetary-policy sovereignty exceed the costs of losing an important parameter for economic adjustment. Monetary unions are not one-size-fits-all arrangements. Having a common currency confers key benefits on the euro-zone countries. Having a common currency, however, can also impose a serious cost. Read more
- 02.25.2010
- The Yield Curve, February 2010
- Since last month, the yield curve has moved up and gotten steeper, with long rates rising a bit more than short rates. Projecting forward using past values of the spread and GDP growth suggests that real GDP will essentially be unchanged from January. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts. Like them, it does show moderate growth for the year. Read more
- 02.23.2010
- Economic Projections from the January FOMC Meeting
- The economic projections of the Federal Open Market Committee (FOMC) are released in conjunction with the minutes of the meetings four times a year (January, April, June, and November). Data available to FOMC participants on January 26–27 continued to confirm that the economy was in the midst of a nascent recovery, albeit at a pace that is expected to be somewhat slower than an average snapback. Read more
- 02.19.2010
- The Beginnings of Normalcy
- The Federal Reserve announced a reduction in its primary credit rate (often called the discount rate) yesterday, as part of its ongoing normalization of lending facilities. Market reactions to the news were relatively subdued. Read more
- 02.12.2010
- The Employment Situation, January
- Nonfarm employment was essentially unchanged in January. The number of unemployed persons dropped a substantial 430,000, while the labor force expanded by 111,000, resulting in a decline in the unemployment rate of 0.3 percentage point, to 9.7 percent. Read more
- 02.09.2010
- Seriously Delinquent Mortgages in the Fourth District
- Much of the recent commentary on the economy has focused on the recovery, while seriously delinquent mortgages have quietly crept upwards. Since December 2008, seriously delinquent mortgages have increased 75 percent nationally, whereas in the Fourth District they have increased 48 percent. Read more
- 02.08.2010
- Fourth District Employment Conditions, December 2009
- The District’s unemployment rose 0. 1 percent to 10.8 percent for the month of December. Since this same time last year, the Fourth District unemployment rate has increased by 3.1 percentage points and the national unemployment rate has increased and 2.8 percentage points. Read more
- 02.08.2010
- Real GDP: Fourth-Quarter 2009 Advance Estimate
- GDP had its strongest quarter in more than six years, coming in above the majority of analysts’ estimates. However, the Blue Chip consensus forecast matches the overwhelming concern that a recovery from the current recession will be a slow one. Growth through 2010 should reflect such a return, as forecasters are predicting growth rates closer to the long-run average in all four quarters of the year. Read more
- 02.02.2010
- A Sign of Normalization
- During the recent financial turmoil, the Federal Reserve created several emergency credit facilities to address the extreme demands for liquidity. Several of these facilities involved lending to institutions outside the set of those permitted by the Federal Reserve Act in normal circumstances. Four of the Federal Reserve’s new credit facilities—AMLF, CPFF, PDCF and TSLF—were allowed to expire on February 1. Read more
- 02.02.2010
- Imports and Economic Growth
- A quick look at the latest GDP data might suggest that imports are slowing the domestic recovery. A quick look might get it wrong. Read more
- 02.01.2010
- What Is the Yield Curve Telling Us?...And Should We Have Listened?
- A new year has started, and by some reckoning, a new decade, so it may be a natural time to take a look back. This column has been around for three years, giving a full two years of “year-ahead” predictions, and it’s time assess those predictions. Read more
- 01.28.2010
- December Price Statistics
- The CPI rose at an annualized rate of 1.6 percent in December, as both food and energy prices posted modest increases. In December, the bulk of the consumer market basket (by expenditure weight) continued to reside on the low end of the distribution, as 40 percent of the overall index posted outright price decreases and 23 percent rose at rates between 0 and 1 percent. Roughly half of the overall increase in the core CPI in December was due to a 35 percent increase in used car and truck prices. Although there was a slight uptick in both the short-term and longer-run average inflation expectations from the University of Michigan’s Survey of Consumer Sentiment, they still appear to be relatively “well-anchored.” Read more
- 01.13.2010
- An Update on Banks’ Commercial Real Estate Exposure
- Since our summary of banks’ commercial real estate (CRE) exposure last August, mortgages backed by commercial property have continued to experience weakness in the form of delinquencies and defaults. A handful of factors are perpetuating the stress on nonfarm-nonresidential mortgages and construction loans, in particular. Read more
- 01.13.2010
- Treasury Deposits and Excess Bank Reserves
- An interesting development on the Federal Reserve’s balance sheet is a decline in excess bank reserves. This decline has occurred despite an increase in the overall size of the Fed’s balance sheet. The key factor accounting for the decline in excess reserves is a substantial increase in U.S. treasury deposits at the Fed, which were made as a consequence of having issued new debt. Read more
- 01.12.2010
- The Employment Situation, December
- With the exception of November, the U.S. economy has lost jobs consistently all the way back to December 2007, but the losses have steadily slowed over much of 2009. The unemployment rate was unchanged at 10.0 percent. However, since labor force participation fell precipitously and 661,000 people exited the labor force, the unemployment rate is surely underestimating labor market slack. Read more
- 01.08.2010
- Fourth District Employment Conditions, November 2009
- The District’s unemployment rate remained at 10.7 percent for the month of November. Similar to the national payroll employment situation, Ohio and large metropolitan statistical areas in the Fourth District have recently seen payroll employment begin to bottom out. Read more
- 01.06.2010
- Real GDP: Third-Quarter 2009 Third Estimate
- Third-quarter GDP growth was revised down again in the third estimate. The downward revision was largely driven by an additional 1.8 percentage point decrease in business fixed investment and smaller reductions in personal consumption and private inventories. Other declines occurred in government spending and residential investment. Read more
- 01.05.2010
- The Dollar Carry Trade
- Many attribute the dollar’s recent decline to a relatively easy U.S. monetary policy that is fueling a dollar carry trade. The dollar carry trade refers to a set of foreign-exchange transactions that seem to exploit an economic anomaly and entail substantial risk. Perhaps that is why some people fear that the carry trade could unwind quickly and pose adverse consequences for global currency markets. Read more
- 01.05.2010
- The Yield Curve, December 2009
- Since last month, the yield curve has gotten a bit steeper, with long rates moving up as short rates held steady. The probability of recession coming out of the yield curve is low, and this accords with many forecasts that suggest we have already come out of recession—and remember that the forecast is for where the economy will be in a year. Read more