The Coronavirus Shock Looks More like a Natural Disaster than a Cyclical Downturn
It’s tempting to compare the economic fallout from the coronavirus pandemic to prior business cycle downturns, particularly the Great Recession. However, such comparisons may not be particularly apt—as evidenced by the unprecedented surge in initial jobless claims over the past three weeks. Recessions typically develop gradually over time, reflecting underlying economic and financial conditions, whereas the current economic situation developed suddenly as a consequence of a fast-moving global pandemic. A more appropriate comparison would be to a regional economy suffering the effects of a ...
The COVID-19 Pandemic and the Fed’s Response
The Federal Reserve has taken unprecedented actions to mitigate the effects of the COVID-19 pandemic on U.S. households and businesses. These measures include cutting the Fed’s policy rate to the zero lower bound, purchasing Treasury and mortgage-backed securities (MBS) to promote market functioning, and establishing several liquidity and credit facilities. In this post, we briefly review the developments motivating these actions, summarize what the Fed has done and why, and compare the Fed’s response with its response to the 2007-09 financial crisis.
Translating Weekly Jobless Claims into Monthly Net Job Losses
News headlines highlighting the loss of at least 30 million jobs (so far) underscore the massive shock that has hit the U.S. economy and the dislocation, hardship, and stress it has caused for so many American workers. But how accurately does this number actually capture the number of net job losses? In this post, we look at some of the statistical anomalies and quirks in the weekly claims series and offer a guide to interpreting these numbers. What we find is that the relationship between jobless claims and payroll employment for the month can vary substantially, depending on the nature, ...
Amid the COVID-19 Outbreak, Consumers Temper Spending Outlook
The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Household Spending Survey, which provides information on consumers' experiences and expectations regarding household spending. These data have been collected every four months since December 2014 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 outbreak, the April survey, which was fielded between April 2 and 30, unsurprisingly shows a number of sharp changes in consumers’ spending behavior and outlook, which we review in this post.
The Money Market Fund Liquidity Facility
Over the first three weeks of March, as uncertainty surrounding the COVID-19 pandemic increased, prime and municipal (muni) money market funds (MMFs) faced large redemption pressures. Similarly to past episodes of industry dislocation, such as the 2008 financial crisis and the 2011 European bank crisis, outflows from prime and muni MMFs were mirrored by large inflows into government MMFs, which have historically been seen by investors as a safe haven in times of crisis. In this post, we describe a liquidity facility established by the Federal Reserve in response to these outflows.
Consumers Increasingly Expect Additional Government Support amid COVID-19 Pandemic
The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Public Policy Survey, which provides information on consumers' expectations regarding future changes to a wide range of fiscal and social insurance policies and the potential impact of these changes on their households. These data have been collected every four months since October 2015 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 pandemic, households face significant uncertainty about their personal situations and the general economic environment when forming ...
Treasury Market Liquidity and the Federal Reserve during the COVID-19 Pandemic
Many of the actions taken by the Federal Reserve during the COVID-19 pandemic are intended to address a deterioration of market functioning. The Federal Open Market Committee (FOMC) announced purchases of Treasury securities and agency mortgage-backed securities (MBS), in particular, “to support the smooth functioning of markets” in those securities. Last month, we showed in this post how one metric of functioning for the Treasury market, market illiquidity, jumped to unusually high levels in March amid massive uncertainty about the economic effects of the pandemic. In this post, we ...
Finally, Some Signs of Improvement in the Regional Economy
The Federal Reserve Bank of New York’s June business surveys show some signs of improvement in the regional economy. Following two months of unprecedented decline due to the coronavirus pandemic, indicators of business activity point to a slower pace of contraction in the service sector and signs of a rebound in the manufacturing sector. Even more encouraging, as the regional economy has begun to reopen, many businesses have started to recall workers who were laid off or put on furlough since the start of the pandemic. Some have even hired new workers. Moreover, businesses expect to recall ...
Did State Reopenings Increase Social Interactions?
Social distancing—avoiding nonessential movement and largely staying at home—is seen as key to limiting the spread of COVID-19. To promote social distancing, over forty states imposed shelter-in-place or stay-at-home orders, closing nonessential businesses, banning large gatherings, and encouraging citizens to stay home. Over the course of the last month, virtually all of these states have reopened. However, these reopenings were preceded by a spontaneous increase in mobility and decline in social distancing. Did the reopenings decrease social distancing, or did it ratify ex post what was ...
Pandemics Change Cities: Municipal Spending and Voter Extremism in Germany, 1918-1933
We merge several historical data sets from Germany to show that influenza mortality in 1918-1920 is correlated with societal changes, as measured by municipal spending and city-level extremist voting, in the subsequent decade. First, influenza deaths are associated with lower per capita spending, especially on services consumed by the young. Second, influenza deaths are correlated with the share of votes received by extremist parties in 1932 and 1933. Our election results are robust to controlling for city spending, demographics, war-related population changes, city-level wages, and regional ...