The Persistent Effects of the Temporary Tightening in Financial Conditions
Market-based measures of uncertainty, a common proxy for broader financial conditions, rose sharply in the fourth quarter of 2018 but have retreated to more normal levels over the last few months. While the recent increase in uncertainty was brief, the temporary tightening in financial conditions will likely have longer-lasting effects on economic activity and prices.
Escaping the Housing Shortage
Despite the continuing economic expansion, home construction remains extremely low by historical benchmarks, constrained by the scarcity of undeveloped land in desired locations and land use regulations. Escaping the resulting housing shortage will take many years and likely require a shift toward multifamily construction, the freeing up of single-family homes by downsizing baby boomers, and the faster relative growth of medium-sized metropolitan areas.
What Has Driven the Recent Increase in Retirements?
During the pandemic, the share of retirees in the U.S. population rose much faster than its normal pace. Typically, an increase in this share is driven by more people transitioning from employment to retirement. However, we show that the recent increase was instead driven by fewer people transitioning from retirement back into employment, likely due to pandemic-related health risks. More retirees may rejoin the workforce as these health risks fade, but the retirement share is unlikely to return to a normal level for some time.
U.S. Business Applications Surge in the Face of COVID-19
Business formation in the United States has been on a decline for several decades. Most prior economic recessions have accelerated this trend. However, the recent economic downturn associated with COVID-19 appears to have had the opposite effect: business formation, as measured by business applications, has actually surged since late May.
COVID-19 Challenges State and Local Government Finances
As the coronavirus pandemic wreaks havoc on the U.S. economy, state and local governments will not be immune from the pain. In the near term, governments face liquidity challenges, as many tax deadlines have been postponed. In the longer term, governments will experience large revenue declines that may lead to significant budget cuts.
As Manufacturing Weakens, Consumers Pull Back
The United States has faced two recent downturns in manufacturing: one from 2014 to 2015 and one that has been ongoing since 2018. We examine consumption growth at the state level to see how consumers have responded to the current downturn relative to the last. We find that during the current downturn, changes in consumption growth at the state level have been negatively correlated with the state?s share of workers in manufacturing. In contrast, we find the opposite relationship during the 2014?15 downturn.
Labor Markets Are Tight, but Conditions Vary across States
A record 4.4 million employees quit their jobs in September 2021, and many businesses are struggling to fill open positions. Although at a national level the labor market appears historically tight, we show that labor market tightness differs widely across states. Most states have tighter labor markets than before the pandemic, but others have struggled to recover.
Global Supply Chain Disruptions Can Be Seen Anywhere, but Their Costs Are Not the Same Everywhere
Although ubiquitous, supply chain challenges are exerting more cost pressures on the types of businessesconcentrated in the Tenth Federal Reserve District. Businesses in the region are less willing or able to adjustthe amount of imported goods they purchase even when procurement prices rise precipitously, as they have over the past year.
Consumer Spending Declines, Shifts in Response to the Pandemic
Consumer spending plunged last spring as the pandemic swept through the United States. Although spending rebounded sharply in the second half of 2020, it remained below year-ago levels due to persistently high unemployment, business restrictions, and continued health risks in social settings. In addition to the drop in overall spending, the pandemic has led to dramatic shifts in the mix of goods and services that consumers purchase.
Introducing the KC Fed Economic Bulletin
The Macro Bulletin has a new name and focus. The publication's editor-in-chief, Willem Van Zandweghe, introduces the KC Fed Economic Bulletin and discusses the publication?s expanded scope