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

Two weeks ago, the Federal Reserve took action to expand the capabilities of its liquidity swap lines with other central banks. These central bank swap lines were originally put in place at the beginning of the financial crisis in 2007, and since then they have been used periodically. A look back at how they were used during the crisis can help to explain why these recent actions were taken. Read more

12.19.2011

Household Financial Position

Ozgur Emre Ergungor and Patricia Waiwood

In the years preceding the stock market and housing bubbles, household wealth grew faster than incomes, leading Americans to believe that they were getting richer. As the bubbles burst, the wealth-to-income ratio took a dive and returned to its long-term trend. The adjustment took place as households constrained their spending and reduced their debt. After peaking in 2008, household consumption expenditures dropped slightly (1.69 percent), hitting a trough in 2009. Yet since then, the wealth ratio has stabilized, and consumption expenditures have resumed growth, already climbing 2.2 percent beyond the pre-recession peak. Read more

12.02.2011

Pittsburgh?s Labor Market in the Recession and Recovery

Timothy Dunne and Kyle Fee

Over the course of the recent business cycle, labor markets within the Fourth District have experienced distinctly different patterns of contraction and expansion. In particular, Pittsburgh experienced a milder recession, measured in terms of job loss or unemployment rates, than the nation and the three other major metropolitan areas in the Fourth District—Cincinnati, Cleveland, and Columbus. Pittsburgh’s recovery has also been more robust. Read more

12.02.2011

Why Some European Countries and Not the U.S.?

Pedro S Amaral and Margaret Jacobson

Why are interest rates on U.S. sovereign debt so much lower than those of Greece, Italy, Portugal, Ireland, and Spain? The usual suspects--debt-to-GDP ratios and growth prospects--don’t seem to explain the interest rate spreads we’re seeing. We offer a few more likely reasons. Read more

12.01.2011

Policy Innovations at the Zero Lower Bound

The late summer and early fall bore witness to two new innovations in monetary policy. The first was at the August Federal Open Market Committee (FOMC) meeting, when the Committee introduced a change to the statement released after meetings, which altered the projected path of the federal funds rate target. The second came in September, when the Committee opted to begin selling shorter-term Treasuries from the Fed’s portfolio and use the proceeds from those sales to purchase longer-term Treasury securities. Both of these innovative moves were intended to adjust interest rates, one through communications and one through balance sheet manipulations. Here’s a quick look at how they did and at what some of the consequences could be. Read more

11.29.2011

Mortgage Market Struggles to Gain Footing

After a difficult first and second quarter, the U.S. mortgage market is projected to improve in the third quarter of 2011. While the improvement in the third quarter&rsqo;s projected performance is welcomed, it suggests that there is considerable weakness in the U.S. mortgage market. Read more

11.29.2011

Recent Trends in Neighborhood Poverty

Dionissi Aliprantis and Nelson Oliver

Recent data releases have focused attention on the increase in the share of individuals living in poverty since 2006. Since this increase in poverty has not only changed individuals’ economic circumstances, but also those of entire communities, researchers have been interested in understanding how those circumstances have varied across communities. One way to summarize the impact of the recent recession on communities is to examine neighborhood poverty rates. Read more

11.25.2011

The Yield Curve and Projected GDP Growth, November 2011

In November the yield curve got flatter, partially reversing October?s steepening, but still staying above September?s slope. The three-month Treasury bill rate fell to 0.01 percent (for the week ending November 18), and the ten-year rate fell to 2.02 percent. The slope fell to 201. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.7 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 5.8 percent. Read more

11.22.2011

Inflation Takes a Breather…

Upward pressure on the Consumer Price Index from a few component prices reversed in October, and the 12-month growth rate in the index slowed, edging down for the first time since last November. This reversal came as a dip in energy prices more than offset a modest 1.4 percent increase in food prices. Measures of underlying inflation, on the other hand, rose slightly. An alternative way to view the price-change distribution takes the focus off of the price changes for the individual components and draws it to where the mass of the distribution was centered during the month. While we’ve seen a slowing in underlying inflation over the past few months, continued increases in OER and rent are likely to put upward pressure on measured inflation. Read more

11.09.2011

Inflation in Developed Countries

Margaret Jacobson and Mehmet Pasaogullari

Earlier this year average consumer prices increased in the United States, largely due to increases in food and energy prices. Since then, the inflationary pressure brought on by energy prices has been largely alleviated. A similar trend has happened in most other developed countries. Read more

11.08.2011

Emergency Unemployment Compensation and Long-term Unemployment

With the extended unemployment benefits provided by the federal government in the wake of the recession and the extended benefits from individual states, unemployed workers can potentially receive up to 99 weeks of unemployment benefits. We provide some context for interpreting these extended benefits on the unemployment rate. Read more

11.04.2011

Sovereign Debt Implications on the European Banking System

Concerns have arisen over sovereign debt write-downs and the impact they could have on the European banking system. Read more

11.03.2011

The Yield Curve and Projected GDP Growth, October 2011

If September saw a flattening in the yield curve in the wake of Operation Twist, October saw a reversal, with the yield curve steepening. Long rates rose back to summertime levels, and short rates edged up but remained extraordinarily low. The three-month Treasury bill rate rose to 0.02 percent (for the week ending October 28), and the ten-year rate surged to 2.28 percent. Naturally, the slope increased, up to 226. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 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 October is 4.3 percent. Read more

11.02.2011

Local Government Employment in Ohio, Pennsylvania, Kentucky, and West Virginia

Stephan Whitaker

In the past year, policymakers in the Fourth District and across the nation have focused tremendous attention on local government employees. In aggregate across the United States, local government employment has fallen approximately 3 percent since the recession. The ratio of local government employment to total payroll employment rose sharply in the year after the recession because there were widespread layoffs of private sector workers. Read more

11.02.2011

Recent Employment Cost Index Estimates

Kyle Fee

The Employment Cost Index (ECI) is one of the data releases we monitor to help shape our inflation outlook. The latest figures for the ECI continue to point to restrained wage growth. Read more

11.02.2011

Weak Wage and Income Growth Is Holding Consumption Back

Margaret Jacobson and Filippo Occhino

After feeble growth in the first half of the year, third-quarter data came out a little stronger, suggesting that the recovery is continuing and the risk of recession is reduced. According to the advance estimate from the Bureau of Economic Analysis, real GDP grew at a 2.5 annualized percent rate in the third quarter, accelerating from its 0.8 annualized percent growth rate in the first half of the year. Read more

10.27.2011

Household Debt

Ozgur Emre Ergungor

The level of U.S. household debt relative to disposable income has been declining since the financial crisis. This household deleveraging is still continuing, according to the latest data. For more on Read more

10.18.2011

The Shout with Operation Twist

Much attention has been given to the Federal Open Market Committee’s September decision to extend the average maturity of its portfolio by selling short-term Treasury securities and purchasing longer-term Treasury securities. This policy action is commonly called operation twist since its intended effect is to lower long-term interest rates relative to short-term rates—that is, to twist the yield curve. Read more

10.14.2011

Market-Based Inflation Expectations Reflect No Fear of Inflation in the Medium and Long-Term

Mehmet Pasaogullari

In normal times, the Federal Reserve can affect nominal and real interest rates by setting a target for the federal funds rate, an overnight rate for funds exchanged between banks. Because that rate has been near zero for some time, the Federal Reserve has turned to other policy tools. One such tool is the language used in policy statements and press releases. Another is the expansion of the types of securities it holds. Some people have criticized these new actions, fearing that the Fed is going to create out-of-control inflation. One way to check how widespread these fears are is to look at market-based measures of inflation expectations. Read more

10.11.2011

Recent Fourth District Foreclosure Trends

Guhan Venkatu

Some U.S. states have seen their foreclosure rates fall since the housing bust and recession. Some have seen them rise. In the Fourth District, for example, foreclosure rates remain at or near historic highs. Which outcome a state will experience seems to have a lot to do with the kind of process that is used in the state to resolve foreclosures. Read more

10.07.2011

Incomes Are Down, Poverty Is Up

Daniel Hartley

According to the latest Census Bureau data, real median income dropped about 2.3% in 2010. Over the longer term, both mean and median household incomes have returned to levels last seen in the mid-to-late 1990s. This has prompted journalists to refer to the past 10 years as a lost decade in terms of U.S. incomes. Read more

10.06.2011

Government Support for Households Amplifies Tradeoff

Daniel R Carroll and Brent Meyer

The Great Recession and the subsequent weak recovery have prompted the U.S. government to take a larger role in the economy. This increased involvement has been delivered through two channels, one passive and one active. This increase in government activity in the economy has resulted in a tradeoff between increased available income now and larger obligations in the future. Read more

10.06.2011

The Global Slowdown and Central Banks’ Responses

Pedro S Amaral and Margaret Jacobson

After hitting a peak sometime in the middle of 2010, the economic recovery seems to have stalled. This observation seems to be true not only of the U.S. economy, but also of other developed economies and some emerging economies. Both developed and emerging economies are facing very uncertain times. As a result, consumers and businesses are wary of using their funds and are playing it safe. Read more

10.03.2011

The Yield Curve and Projected GDP Growth, September 2011

Since last month and in the wake of the Maturity Extension Program and Reinvestment Policy of the Federal Reserve, more colloquially known as Operation Twist, the yield curve has flattened as long rates fell. Short rates did not increase however, making it a somewhat one-sided twist. The three-month Treasury bill rate stayed at 0.01 percent (for the week ending September 23), and the ten-year rate dropped to 1.86 percent. Naturally, the slope dropped, and at 186 it is the lowest it has been since early 2008. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 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 September is 7.0 percent. Read more

09.30.2011

A Slow Recovery in the Banking Sector

Matthew Koepke and James B Thomson

As the banking sector recovers from the financial crisis and the subsequent recession, its recovery has mirrored the slow and fragile recovery of the general economy. Despite the growth in total assets, loans and leases at depository institutions actually fell from the fourth quarter of 2010 to the second quarter of 2011. Read more

09.21.2011

Interest Rates Have Responded to the Fed’s New Language

At its August policy meeting, the Federal Reserve took the unprecedented step of establishing a specific future date for policy action given current economic conditions. The intention was to clearly communicate to the public that, in light of what is currently known about the economic outlook, the Federal Reserve expects to keep interest rates extremely low for longer than the public previously believed. A quick look at some of the market reaction to the August (FOMC) statement shows that the change in statement language was successful in altering public expectations of future interest rates and, in turn, current interest rates. Read more

09.15.2011

Recent Changes in the Relationship between Education and Male Labor Market Outcomes

Dionissi Aliprantis and Mary Zenker

Most people are aware that more education is typically associated with higher wages. In recent decades, that so-called wage premium has gotten even larger. Over the same time period, the share of men in the labor force has declined and their rates of unemployment have risen, especially in neighborhoods where the residents have obtained less education. Read more

09.09.2011

Fourth District Employment Conditions

Kyle Fee

The Fourth District’s unemployment rate has continued to increase over the summer months. The District’s current rate is very close to the national unemployment rate, which is slightly atypical as it has often run higher than the national rate in recent years. Read more

09.09.2011

The Yield Curve and Projected GDP Growth, August 2011

Over the past month, the yield curve flattened as long rates fell. The three-month Treasury bill rate dropped to 0.01 percent (for the week ending August 26), and the ten-year rate dropped to 2.19 percent. The slope dropped to 218 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 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 August is 4.8 percent. Read more

09.08.2011

Treading Water

Timothy Dunne and Kyle Fee

August’s employment report showed that the labor market is treading water. Payroll employment showed no change in August, and the unemployment rate remained stuck at 9.1 percent. We report on the latest labor conditions. Read more

09.07.2011

Interpreting the Recent Slowdown: Delayed Recovery or Stall Speed?

Margaret Jacobson and Filippo Occhino

Economic activity has slowed markedly in recent months. After growing 3.14 percent in 2010, real GDP grew at a rate of only 0.7 percent during the first half of 2011. This unexpected deceleration has raised doubts about the outlook. Are we still to expect a stronger recovery? Or is a double-dip recession on its way? Read more

09.07.2011

The Impact of GDP Revisions on Taylor Rule Estimations

Charles T Carlstrom and John Lindner

Along with July’s advanced estimate for second-quarter GDP, the annual revisions for previous GDP estimates were released. Revisions showed a dramatically lower path for GDP than had been previously estimated. In fact, after revisions, real GDP is now believed to still be below pre-recession levels. This deeper dip in GDP is a more accurate picture of the actual economic conditions experienced throughout the recession. We look at how these revisions could impact policy using what is known as the Taylor rule. Read more

08.31.2011

Mortgage Market Continues to Struggle

The U.S. market for mortgage originations has continued to struggle through the second quarter. With second-quarter GDP being revised down, the weakness in the housing market has been attributed to poorer-than-expected economic performance and declining confidence in the economic recovery. According to the Mortgage Bankers Association, mortgage originations in the second quarter fell to their lowest levels since September 2008, the peak of the financial crisis. Read more

08.29.2011

Core Prices Edge Up in July

The headline CPI jumped up at an annualized rate of 6.2 percent in July, surprising forecasters’ expectations to the upside. There were some interesting relative price changes in July. This months’ rundown of the current data. Read more

08.15.2011

Household Finances

Ozgur Emre Ergungor and Nelson Oliver

Consumption accounts for roughly 70 percent of gross domestic product (GDP). Consequently, households’ spending behavior is of utmost interest to policymakers. Read more

08.12.2011

Has the Over-the-Counter Derivatives Market Revived Yet?

Jian Cai

Derivatives are financial instruments whose values depend on the values of other assets such as stocks, bonds, and commodities. Firms, banks, and investors can use derivatives to hedge various kinds of risks. However, derivatives can also be used for speculation, and consequently they can magnify the degree of risk-taking that market participants engage in. In contrast to the heavily regulated exchange-traded market, the Over-the-Counter (OTC) market is bound by little regulation and offers customized derivative products. A look at recent trends in the global OTC derivatives market reveals that the market has stayed generally flat since trading volume fell significantly at the peak of the financial crisis. Read more

08.09.2011

Labor Market not So Anomalous After All

July’s employment report was welcome news, especially after the slowdowns in payroll growth that had occurred over the previous two months. Overall, the labor market has been adjusting very slowly during this recovery. Six months after the economy had started growing again, we were still losing jobs. In other words, employment, as measured through payroll survey, had experienced its largest decline (more than 6 percent) two years after the recession started. More troubling still is the slow pace at which employment is returning to normal. However, there is a hint of good news. Read more

08.09.2011

Recent Population Trends in the Midwest

Kyle Fee and Daniel Hartley

The release of the latest Census data reveals that Cleveland’s population has fallen since the last census and dipped below the 400,000 mark. The recent loss of population is not uncommon for cities in the Great Lakes region. Even the largest city in the region, Chicago, has shrunk over the past 10 years. Moving forward, the big question for Cleveland is to what degree population loss at its core is a cause or consequence of its overall population loss. Read more

08.08.2011

Why Is Investment So Soft?

Margaret Jacobson and Filippo Occhino

Three and a half years after the beginning of the recession, real GDP is still below its pre-recession peak. One reason is that firms’ investment (private nonresidential fixed investment) has not recovered. This behavior is unusual compared to past business cycles, when investment returned to its pre-recession peak level much more rapidly. Read more

08.04.2011

Global Banking System Exposure to the Greek Sovereign Debt Crisis

In the past year, the Greek sovereign debt crisis has been the focus of much financial press. According to the Bank for International Settlements, 24 countries reported that their banking systems had foreign claims on Greek debt as of December 2010, representing a total debt exposure of $145.8 billion and additional exposures of $60.7 billion related to derivative contracts, guarantees, and credit commitments. Moreover, the total risk exposure is highly concentrated in the European banking system, representing nearly 94.0 percent of the total foreign claims on Greek debt. Given the European banking system’s level of exposure to Greek debt, it is little wonder that European leaders have moved quickly to mitigate the risk of a potential Greek default. Read more

08.04.2011

The Fourth District: The Next Big Energy Producer?

Margaret Jacobson and Robert Sadowski

When asked about domestic oil and natural gas production and where most of it occurs, people will likely reply: the region surrounding the Gulf of Mexico. This response is correct. Historically, states in the Fourth District have also played an important role in oil and natural gas production. The Fourth District is now positioned to make a comeback as a major domestic energy producer due to exploration and production in the Marcellus and Utica shales. Read more

08.04.2011

The Net International Investment Position

Owen F Humpage and Margaret Jacobson

The United States has run a current-account deficit almost every year since 1982, primarily because U.S. residents have imported more goods and services than they have exported. We finance this deficit by issuing financial claims—such things as stocks, bonds, and bank accounts—to the rest of the world. Since 1986, foreigners have held more claims on the United States than U.S. residents have held on the rest of the world, leaving the United States with—in econspeak—a negative net international investment position. Read more

08.04.2011

The Yield Curve and Projected GDP Growth, July 2011

Over the past month, the yield curve barely moved, experiencing a small parallel upward shift as both short and long rates inched along. The three-month Treasury bill rate rose to 0.03 percent (for the week ending July 22), and the ten-year rate rose to 2.97 percent. The slope stayed constant at 294 basis points. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.82 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 July is 1.7 percent. Read more

08.03.2011

Yield Curve and Predicted GDP Growth

Joseph G Haubrich and Margaret Jacobson

Over the past month, the yield curve barely moved. The three-month Treasury bill rate rose to 0.03 percent and the ten-year rate rose to 2.97. The slope stayed constant at 294 basis points, remaining at its lowest level since last November. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 0.8 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 June is 1.7 percent. Read more

07.21.2011

A Subtle Shift in FOMC Policy

The minutes of recent FOMC meetings show that at least some FOMC members have been considering the costs and benefits of an explicit inflation target as an official policy goal. Recent statements by Chairman Bernanke suggest that the Fed has very nearly adopted an unofficial inflation-targeting policy. Read more

07.20.2011

A Few Bad Apples Spoil June’s Price Statistics

Until recently, the debate between the “inflation is too high” crowd and the “subdued” inflation adherents had centered on the use of headline and core measures of inflation. Core measures exclude food and energy prices, and energy prices had been rising sharply through the first four months of the year, pushing up the headline growth rate relative to the core. In June, however, energy prices reversed course, food prices posted modest gains, and the core CPI jumped up markedly, perhaps causing angst to some debaters. Fortunately at inflection points like these, we have a few alternative price change indicators that may shed some light on the underlying inflation trend. Read more

07.12.2011

Are Underemployed Graduates Displacing Nongraduates?

Stephan Whitaker and Mary Zenker

The current recovery’s failure to produce robust job growth has focused attention on workers who are temporarily getting by in positions that are not good matches. A frequently discussed, but less measured mismatch is those who hold a college degree but must take a job that does not require their degree because they cannot find employment in their field. We hear anecdotes of recent college graduates serving coffee and stocking shelves. We examine data that could reflect the "mismatch trend." Read more

07.11.2011

Shadow Inventory Still Weighing on Ohio Housing Prices

Guhan Venkatu

Home prices continue to trend down, both nationally and across Ohio. Indexes produced by the Federal Housing Finance Agency (FHFA) show that prices in both the state and the nation declined by more than 5 percent from the first quarter of 2010 to the first quarter of 2011. As a result, Ohio’s home prices have fallen roughly to the levels that prevailed in 2000. This is unusual relative to the other states in the nation. Read more

07.07.2011

Short- and Long-term Inflation Expectations

Mehmet Pasaogullari

Inflation as measured by the Consumer Price Index has picked up in recent months, following increases in food and energy prices. Since concerns about future inflation are picking up, it’s a good time to review various measures of inflation expectations. Are near- and long-term inflation expectations contained? Read more

07.05.2011

Is the U.S. Labor Market Becoming More Sclerotic? And Does It Matter?

Pedro S Amaral

The U.S. economy continued to exhibit signs of a painfully slow recovery in the last month. In particular, labor markets seem to be front and center in setting the sluggish pace. One long-term trend that was confirmed in the latest recession is that there is less churning in the labor market. And what are effects of long unemployment spells? Read more

06.30.2011

The Yield Curve and Projected GDP Growth, June 2011

Over the past month, the yield curve dropped and flattened slightly as both long rates and short rates dropped. The three-month Treasury bill rate dropped to 0.02 percent (for the week ending June 24), and the ten-year rate dropped to 2.94 percent. The slope decreased 16 basis points to end at 294 basis points, its lowest level since last November. Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.1 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 June is 1.7 percent. Read more

06.27.2011

Small Business Lending Continues to Struggle

Matthew Koepke and James B Thomson

As the economy continues to grow at an anemic pace, questions remain about the condition of small business lending. The most recent data on conditions are mixed. While the most recent senior loan officer survey suggests conditions are improving for small business lending, the most recent data from the FDIC shows that small business lending continues to struggle. Read more

06.23.2011

Short-Term Interest Rate Markets

A series of events dating back to November 2010 has significantly affected the functioning of short-term funding markets and, in turn, interest rates. The effects of these events can be seen in the trends of not only the federal funds market, but also the repo, commercial paper, Libor, and Eurodollar markets. Collectively, these developments—some of them having nothing to do with monetary policy—have served to ease short-term financing terms. Eventually, when the Federal Reserve begins to raise the target for the federal funds rate, it will probably need to take account of the dynamics of these changes in short-term funding markets. Read more

06.21.2011

The Mysterious Boost in State Tax Revenues

Daniel R Carroll

In year-over-year terms, state tax revenues have been rising throughout 2010, reaching a high of 6.8 percent real growth in the fourth quarter. Given the dramatic impact of the recession on their budgets, state governments will certainly welcome this positive news. This is especially the case as federal aid to states is set to dry up at the end of August. There is reason to be cautious when evaluating these data, however, because it is unclear where the surge in revenue is coming from. Read more

06.08.2011

Policymaking for the Future

Charles T Carlstrom and John Lindner

It was one of the most highly anticipated events so far this year, and we are not talking about the royal wedding. Chairman Bernanke’s press conference at the end of April drew notice from bloggers, news sources, and ordinary citizens concerned about the economy. What the prepared remarks made clear is that monetary policy is largely a forward-looking process. Read more

06.07.2011

Manufacturing Hours and Employment in the Recovery

Timothy Dunne, Kyle Fee and John Lindner

The labor market showed a bit of weakness in May, gaining only 54,000 jobs. This is well below the rate observed since the beginning of the year. The unemployment rate also ticked up by 0.1 percent to 9.1 percent. So will manufacturing lead the way out of the last recession? Read more

06.02.2011

Metropolitan and Micropolitan Population Growth

Timothy Dunne and Kyle Fee

New data from the 2010 Census show that the U.S. population grew by 27.3 million people over the last decade. Most of this expansion was accounted for by growth in larger metropolitan areas, and this is not too surprising, as this is where most of the U.S. population resides. The top 100 metropolitan areas gained 19.8 million people and account for two-thirds of the total population. Still, 48 metros declined in population over the last decade, losing three-quarters of a million people. The populations of the Detroit, Pittsburgh, and Cleveland metro areas fell by roughly 3 percent from 2000 to 2010. Smaller metro areas in this area of the country (Flint, Toledo, and Saginaw) also experienced declines, and even growing metro areas in this region (Akron, Rochester, and Syracuse) eked out only small gains. Read more

06.01.2011

Investment in Structures Is Still Depressed

Timothy Bianco and Filippo Occhino

The behavior of private investment in structures, both residential and nonresidential, has been very unusual in this business cycle. Investment declined more during the past recession than ever before in the last 60 years, and it still remains depressed this far into the recovery. The main reason behind the ongoing low investment in structures seems to be the weak and uncertain profitability of new investment projects. Read more

05.31.2011

Mortgage Originations Struggle to Stay Afloat

Mortgage production is likely to continue to struggle as the economy recovers. Mortgage originations were down in the first quarter of 2011, as demand for refinancings fell. Housing market activity suggests that it is unlikely that there will be enough new purchases to offset that decline in mortgage refinancings. Read more

05.31.2011

Wages, Expectations, and Prospects for Inflation

Rising food and energy prices have prompted speculation of a possible price-wage spiral that will result in rampant inflation. A look at some data that might help spot this inflationary pressure—inflation expectations, income-growth expectations, and employment cost trends—detects no hint of a wage-price spiral. Read more

05.27.2011

The Yield Curve and Economic Growth, May 2011

Over the past month, the yield curve became flatter, as long rates dropped, reversing their previous increase. Short rates edged down yet again. The three-month Treasury bill rate moved further into the single-digit range, to 0.05 percent (for the week ending May 20).The slope decreased 25 basis points—a full quarter of a percent—and is below the levels for both March and April. It stands now at 310 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 May is 1.3 percent. Read more

05.20.2011

Neighborhood Poverty Rates between 1970 and 2000

Dionissi Aliprantis and Mary Zenker

Over the past 40 years, poverty rates have varied between 11 percent and 15 percent of the population. The official poverty statistics measure poverty as experienced at the level of the family, but we can also consider the concentration of poverty within areas by looking at how many people live in high-poverty neighborhoods. We look at trends in the concentration of poverty by comparing poverty rates in different U.S. census tracts over time. We find that since the 1970s there has been an increase in the number of Americans living in neighborhoods with high levels of poverty.

05.10.2011

What’s Up with the Unemployment Rate?

The recent ups and downs of the unemployment rate should not be surprising even this far into the recovery. We would expect unemployment to go down as the economy recovers and firms start to create jobs. On the other hand, the number of unemployed workers looking for a job might also grow, if previously discouraged workers or those not looking for work start coming back to the labor force as the prospect of finding a job improves. These two channels can play against each other in determining the unemployment rate, and they certainly have in this recovery. Which channel will dominate over the next few months is an open question. Read more

05.04.2011

Potential Risks Associated with an Itchy Trigger Finger

Recent comments on monetary policy have focused more and more on containing the inflationary risks posed by rising food and commodity prices. Certainly, there are economic concerns associated with the possibility of high levels of inflation, but there are still several risks to the nascent economic recovery that could make policy tightening a worrisome move in its own right. While there are no episodes in history that correspond directly to our current policy situation, some past experiences are worth reviewing. Read more

05.03.2011

Just an Oily Patch on the Road to Recovery?

Pedro S Amaral and Margaret Jacobson

The Bureau of Economic Analysis estimates that real GDP grew at an annual equivalent rate of 1.8 percent in the first quarter of 2011, down from a pace of 3.1 percent in the fourth quarter of 2010. On the surface, this substantial deceleration owes much to reductions in defense spending, nonresidential structures, as well as to increases in imports. The question we explore here is whether this slowdown is likely to be temporary. Read more

05.02.2011

China’s Inflation

Owen F Humpage and Margaret Jacobson

China’s inflation, which reached 5.4 percent on a year-over-year basis in March, is largely a product of that country’s desire to closely manage the renminbi-dollar exchange rate. Over the past decade and a half, China has alternated between exchange-rate pegs or controlled renminbi appreciations, and foreign-exchange reserves have poured into the country. China and many other countries that closely manage their exchange rates blame commodity prices—typically expressed in dollars—and an easy U.S. monetary policy for fanning global inflation. Is there a solution? Read more

05.02.2011

The Yield Curve and Economic Growth, April 2011

Over the past month, the yield curve became steeper, as long rates increased, resuming a trend that had been broken in the previous month. Short rates edged down yet again. The three-month Treasury bill rate moved to 0.06 percent (for the week ending April 22), down from March’s 0.09 percent, and February’s 0.11 percent. The slope increased 15 basis points and now stands at 335 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 April is 0.9 percent. Read more

05.02.2011

Trends in Office Vacancy Rates

Stephan Whitaker

Since the onset of the financial crisis, everyone involved in financing and developing office properties has been watching trends in commercial real estate markets. They recognize the risk of a downturn similar to that seen in residential real estate. If the demand for office space falls or remains weak, some office properties could slip into delinquency and foreclosure. The additional supply of buildings on the market could lower the value of office properties in the near term. For these reasons, analysts should be watching statistics on office vacancy rates closely. For those not directly involved in commercial real estate, office space statistics provide useful information about economic activity and current growth. Read more

04.29.2011

The Federal Reserve’s Influence over Excess Reserves

As the economy continues to emerge from the recession, it is not yet clear how sustainable the recovery is. One concern is the strength of bank lending and banks’ apparent preference to hold reserves instead of lending to consumers and businesses. On the surface, the large increase in excess reserves makes it appear that banks have significantly tightened their lending standards and are hoarding reserves, but in reality the increase in excess reserves has been a result of the Federal Reserve’s asset purchases. Read more

04.27.2011

Household Finances and a Sustainable Consumer Recovery

Ozgur Emre Ergungor and Nelson Oliver

Consumption accounts for roughly 70 percent of gross domestic product. Consequently, households will play a substantial role in helping to sustain the recovery. Does current data suggest that a sustainable recovery may finally be here? Read more

04.14.2011

Growing Cities, Shrinking Cities

Kyle Fee and Daniel Hartley

As the 2010 census data rolls out, researchers will be conducting extensive analysis on a variety of issues. So far we have only been privy to the re-apportionment (population) data, which have generated their fair share of media coverage. Regardless of the media spin, a clearer picture of how cities’ populations have changed from 2000 to 2010 is emerging. What are some of the characteristics of the cities that grew, and how do they compare to those of the cities that shrank? While it may be tempting to conclude that people are moving to places with job growth, it is equally possible to conclude that jobs are moving to places where city population is growing. Read more

04.07.2011

The Recovery, Revised

Guhan Venkatu

The Labor Department recently released updated employment estimates for U.S. metropolitan areas (MSAs). These revised data alter our assessment of how MSAs have fared throughout the recovery. Within the Fourth District, employment in every MSA except Cleveland is now thought to have grown more over the first 18 months of the recovery than was initially reported. Some of the revisions were relatively substantial. Read more

04.06.2011

Fourth-Quarter GDP Growth and a Look Forward

Kenneth Beauchemin and John Lindner

The short-run outlook for GDP growth is clouded by a series of first-quarter shocks—severe winter storms and political unrest in the Middle East are examples—whose effects will be of uncertain size and duration. Supply shocks of these sorts partly manifest themselves as weaker labor productivity. Our rough estimates suggest productivity growth will be a lot lower than in the previous quarter and considerablly lower than trend. Read more

04.01.2011

Recent Developments in Inflation Expectations

Mehmet Pasaogullari

Recent increases in energy and food prices have fed concerns about the prospect of inflation in the near future. While the rising prices of these important commodities are felt by everyone, as two prices among many, they do not necessarily signal impending inflation. For a better gauge of future inflation, we turn to various measures of inflation expectations. Read more

03.24.2011

How Should We Measure Success?

In the nearly two and a half years since the onset of the financial crisis, the Fed has purchased over $2 trillion in long-term assets. Determining the effectiveness of such a policy is challenging for a number of reasons, including the lack of prior experience with this monetary policy tool. One approach is to examine changes in interest rates to assess how financial markets react to announcements related to and preceding policy decisions. A second approach is to look broadly at the overall effect that the purchases have had on macroeconomic conditions. This article uses both approaches to judge the effectiveness of the Federal Reserve’s large-scale asset purchases. Read more

03.23.2011

Bank Lending

Matthew Koepke and James B Thomson

It has been nearly two years since the National Bureau of Economic Research called an end to the recession, but concerns still remain about the strength of the recovery in bank lending. The most recent data from the FDIC suggest that while some measures of credit flow are improving, other measures continue to show weakness. Read more

03.22.2011

The Yield Curve and Economic Growth, March 2011

Over the past month, the yield curve flattened, as long rates dropped sharply, reversing their pattern of the past several months. Short rates edged down yet again. The slope dropped by a full 29 basis points, and is now just above January’s level of 321 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 March is 0.9 percent. Read more

03.14.2011

The Cost of Food and Energy across Consumers

Daniel R Carroll

Rising food and energy prices have been getting considerable attention recently. The latest report from the Bureau of Labor Statistics shows that both of these components of the CPI outpaced the average for the index. Household expenditures on food and energy make up a significant fraction of total household expenditures and the importance of food and energy prices to households’ bottom lines is not evenly distributed across the income distribution. Read more

03.11.2011

What to Make of Rising Gas Prices and Falling Household Energy Prices

Yes, oil and commodity prices are increasing, and we are starting to see that increase expressed in retail prices. Motor fuel prices jumped up at an annualized rate of more than 50 percent in January, and they have risen nearly 14 percent over the past year. But why don’t we hear about other dramatic changes in relative prices—in the opposite direction? Perhaps it is because increasing prices at the pump are particularly painful for the average consumer. Lately, many are suggesting that the increase in the relative price of gasoline and other commodities is a sign of incipient hyperinflation. But that doesn’t make sense given the decreases in other prices, like household energy prices. Why wouldn’t they be some signal of deflation? Read more

03.07.2011

Household and Corporate Balance Sheets

Timothy Bianco and Filippo Occhino

One reason for the striking severity of the last recession is the double whammy that struck household and corporate balance sheets. Balance sheets deteriorated sharply when the values of both financial and real estate assets plunged. The resulting increase in leverage (the ratio of assets to net worth) was much larger than in any of the previous eight recessions. Weak balance sheets depress real activity in a number of ways: they raise the cost of credit, they reduce its availability, and they constrain consumption and investment demand. Read more

03.07.2011

The U.S. Labor Market Experience in a Global Context

The recent recession was felt around the globe. Most advanced economies and some developing countries experienced a significant contraction in real output sometime after 2007, and this widespread slowdown translated into exceptionally bad performance in world output. According to the IMF, after growing at a rate of 4.2 percent every year between 2000 and 2007, world output grew only 2.8 percent in 2008 and contracted by 0.5 percent in 2009. This might be the first time since World War II that the world economy actually shrank. Read more

03.02.2011

Educational Attainment and Employment

Dionissi Aliprantis and Mary Zenker

Labor market experiences can be highly varied for individuals with different levels of educational attainment. Higher levels of educational attainment tend to be associated with higher wages, and there is evidence that the benefits of a degree have been increasing in recent decades in the United States. Given this changing wage structure, a natural issue to investigate is whether other employment outcomes have also changed by education levels over time. Read more

03.01.2011

Some Prices Are Up, but Is That Inflation?

The headline Consumer Price Index jumped up at an annualized rate of 4.9 percent in January, following a 5.3 percent increase in December. Energy, commodity, and food prices have been exerting significant upward price pressure lately, food prices spiked in January, and the price of motor fuel has risen at an annualized rate of 54 percent over the past three months. But are these recent price increases simply relative price movements brought about by changes in supply and demand conditions, or are the increases symptomatic of a monetary impulse working its way through prices in general? Read more

02.28.2011

Mortgage Originations—A Mixed Bag

The mortgage market ended 2010 on a high note, with mortgage originations increasing for the third consecutive quarter and reversing a trend of three consecutive quarterly declines. Mortgage originations may have improved in 2010, but the improvement has done little to raise the number of mortgages serviced. Though activity has picked up, high levels of refinancing originations and foreclosures have made it difficult for the increased activity to fully offset the declines in servicers’ existing portfolios. Read more

02.25.2011

The Yield Curve and Economic Growth, February 2011

The yield curve twisted steeper over the past month, as long rates once again increased substantially, moving up nearly one quarter of a percentage point, while short rates edged down. The slope rose by 28 basis points, staying above 300, and remains a full 45 basis points above December’s 304. 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. 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 February is at 0.7 percent Read more

02.17.2011

Economic Projections from the January FOMC Meeting

After the January Federal Open Market Committee meeting, participants’ forecasts for economic growth, unemployment, and inflation were released along with the meeting statement. The Committee shaded up its forecasts for near-term output growth relative to its previous meeting, while forecasts for the medium term were largely unchanged. Despite slightly stronger expectations for near-term growth, the Committee’s 2011 unemployment rate forecasts improved only narrowly, and Committee members continue to expect that inflation will remain at or below their longer-run projections. Read more

02.07.2011

Who Is Driving the Decline in the Labor Force Participation Rate?

Daniel Hartley and Mary Zenker

The employment data released last Friday by the Bureau of Labor Statistics show that the unemployment rate has fallen by 0.4 percentage point, to 9.0 percent. However, there was little or no change to the labor force participation rate, which is at its lowest level since the mid-1980s. The fraction of the population that is counted as not being in the labor force has now risen to a level higher than at any time since 1990. Has one demographic group been driving the increase in the number of workers leaving the workforce, or does the increase just reflect a broad-based departure of all demographic groups? Both factors seem to be responsible to some degree, depending on how you slice the data. Read more

02.03.2011

Educational Attainment Trends in the Fourth District

Stephan Whitaker

Research in regional economic development has documented a strong link between the education levels of an area’s workforce and its economic performance. The percentage of adults (over 25) with a college degree—the most commonly used indicator of skills in a workforce—has been linked to income growth, employment growth, and productivity. Fourth District metro areas are adding graduates at a respectable pace. In the coming decade, we can expect the rate of workers with a college degree to continue to rise in the larger metro areas, as older workers with fewer degrees retire and younger workers enter the workforce. Read more

02.03.2011

Is Consumer Spending Really “Driving” the Recovery?

Pedro S Amaral

According to the Bureau of Economic Analysis’s advance estimate, in the fourth quarter of 2010, GDP increased at an annual equivalent rate of 3.2 percent. The growth in PCE was the big news, though. For 2010 as a whole its growth rate was 2.7 percent, the fastest over any four-quarter period since 2006. Economists are very fond of their jargon and one example of it that we hear a lot these days is that “consumption must drive the recovery.” What this means is that because consumption expenditures are such a large share of GDP (roughly 70 percent currently), for GDP as a whole to grow at a healthy pace it had better be the case that consumption expenditure growth does not lag this pace too much. Read more

02.01.2011

Loans and Leases in Bank Credit

While the U.S. economy has shown many signs that it is on the mend from the most severe economic contraction since the Great Depression, the economy faces a particular headwind on its way to recovery: the challenging lending environment. Read more

01.27.2011

The Execution of the AIG Exit Plan

On January 14, American International Group (AIG), paid down the remaining balances on its loans at the New York Fed—removing the Fed from any direct exposure to AIG, and in accordance with a recapitalization plan announced on September 30, 2010. The way in which AIG exited from its assistance is worth a closer look. Read more

01.27.2011

The Yield Curve and Predicted GDP Growth, January 2011