Chart of the Week
Labor Market | Encouraging Signs
August 7, 2020
Some encouraging news for the labor market this week. Initial jobless claims, though still over a million, fell to the lowest level since the surge in claims began in mid-March, and the jobs report for July released Friday morning showed the economy added 1.8 million jobs last month as the unemployment rate fell to 10.2% from 11.1% in June and a peak of 14.7% in April. Employees continue to be called back from temporary layoffs (the red line in the chart below), and even more encouragingly the number of permanent job losses (the blue line in the chart) stabilized in July after increasing rapidly over the preceding four months. Whether the increase in permanent job losses has peaked or merely paused is the big question.
Source: U.S. Bureau of Labor Statistics, Unemployment Level - Permanent Job Losers [LNS13026638], retrieved from FRED, Federal Reserve Bank of St. Louis; Unemployment Level - Job Losers on Layoff [LNS13023653], retrieved from FRED, Federal Reserve Bank of St. Louis; August 7, 2020.
Economic Growth | Historic Decline
July 31, 2020
The initial estimate of real GDP growth in the second quarter is that the economy shrank at an annualized rate of 32.9% and was 9.5% smaller than it was a year ago. While the recovery appears to have slowed over the past month, the annualized growth this quarter is still likely to be impressively strong. The New York Fed recently developed a Weekly Economic Index to attempt to track the growth of the economy in real time. That index currently estimates that the economy is still about 6.6% smaller than it was a year ago. (For some perspective, at the nadir of the last "great" recession, the economy was down 3.9% on a year-over-year basis.) However, even if the economic recovery completely stalls at this depressed level, annualized real GDP growth in the third quarter will still be over 16% based on the current Weekly Economic Index estimate – historic economic growth that may feel like anything but that with unemployment above 10% and weekly initial jobless claims consistently well over one million. The first chart below shows the year-over-year change in real GDP in red since 1948 and the Weekly Economic Index in blue since 2008. The bottom chart shows the Weekly Economic Index over the past year.
Source: Lewis, Daniel J., Mertens, Karel and Stock, James H., Weekly Economic Index (Lewis-Mertens-Stock) [WEI], retrieved from FRED, Federal Reserve Bank of St. Louis; ; U.S. Bureau of Economic Analysis, Real Gross Domestic Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St. Louis;
Notable Trends | Tracking Covid-19's Impact
July 24, 2020
Starting the last week in April, the U.S. Census Bureau began a new weekly survey to measure the impact of the Covid-19 pandemic. Below are the changing responses over the past eleven weeks. The survey indicates that half of the households in the US have now experienced some loss of income since the middle of March, and over a third expect to experience a loss of employment income over the next four weeks – a number that has ticked higher in recent weeks as Covid-19 cases have spiked and the economic recovery has at best slowed. Unprecedent relief payments from the federal government have largely offset those losses in wages to date; however, even with the passage of another government stimulus package on the horizon, the negative economic impact of the pandemic is likely to increase in the coming months for millions of Americans.
Source: US Census Bureau, https://www.census.gov/programs-surveys/household-pulse-survey.html
July 17, 2020
Banks | Deposits up, Loans down
This past week, the biggest banks reported second quarter earnings, which were generally better than lowered expectations thanks to trading profits offsetting increasing provisions for credit losses as the outlook for the economy turned gloomier over the past quarter. On the plus side, bank deposits have increased significantly in recent months because of the significant government stimulus which has left bank accounts flush with cash. The effect of that stimulus has thus far been somewhat muted by the fact that banks have not multiplied that freshly printed cash through the financial system via new loans, excluding loans made as part of the Paycheck Protection Program. Indeed bank loans as a percentage of bank deposits have fallen to their lowest level since the mid 1970s (the blue line in chart below), accompanying a general decrease in the velocity of money – i.e., how many times a dollar circulates through the economy (the red line in the chart below). A decline in the demand and supply of bank credit as borrowers look to pay down debt and banks tighten lending standards in the current uncertain environment would be a headwind to a brisk recovery. However, at the same time, the decline in the velocity of money should also mitigate concerns about inflation, at least in the short term.
Source: Board of Governors of the Federal Reserve System (US), Loans and Leases in Bank Credit, All Commercial Banks [TOTLL], Deposits, All Commercial Banks [DPSACBW027SBOG], Velocity of M2 Money Stock [M2V], retrieved from FRED, Federal Reserve Bank of St. Louis;
Labor Market | Hard to Comprehend
July 10, 2020
The jobs report for June offered hopeful signs of a recovering labor market as unemployment fell to 11.1% and labor force participation moved higher. However, behind the encouraging headlines was the disconcerting rapid increase in permanent job losses which are increasing much more quickly than in the past two recessions. Also hard to square with the falling official unemployment rate is the continuing high number of individuals claiming unemployment benefits each week. Initial weekly claims for unemployment insurance remain above 1.3 million, and nearly 33 million individuals were receiving unemployment benefits as of the middle of June. These numbers may have only worsened in the past few weeks as some states have paused or rolled back reopening in the face of rising Covid-19 cases. How 33 million individuals can be receiving unemployment benefits while official unemployment has declined to less than 18 million is one of the many headscratchers of the current moment.
Source: U.S. Bureau of Labor Statistics, Unemployment Level - Permanent Job Losers [LNS13026638], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS13026638, July 9, 2020.
Treasury Cash Balance | Uncle Sam Seeks Liquidity
July 2, 2020
During the second quarter, the federal government raised an unprecedented $2.8 trillion in cash via new net debt issuances, and the US Treasury cash balance has reached historically high levels over $1.6 trillion. The Treasury has stated that its “cash balance will likely remain elevated as Treasury seeks to maintain prudent liquidity in light of the size and relative uncertainty of COVID-19-related outflows.”
Source: Board of Governors of the Federal Reserve System (US), Liabilities and Capital: Liabilities: Deposits with F.R. Banks, Other Than Reserve Balances: U.S. Treasury, General Account: Week Average [WTREGEN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WTREGEN, July 2, 2020.
Corporate Debt | Escalation
June 28, 2020
In the first quarter of 2020, non-financial corporate debt grew at a rate of 24%, exceeding its post-WWII growth rate record of 22% set in the first quarter of 1970. In conjunction with its rapid growth, as the chart below illustrates, nonfinancial corporate debt has also now reached all time highs as a percent of U.S. GDP, approaching nearly 50%. Corporate debt was at a high level before the pandemic and has only climbed higher as companies have raised cash to maintain liquidity. The high level of debt could further exacerbate the weak economy if defaults escalate and companies seek to de-lever.
Board of Governors of the Federal Reserve System (US), Nonfinancial Corporate Business; Debt Securities and Loans; Liability,Level [BCNSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; June 26, 2020.
Percent Change | Consumer Spending
June 19, 2020
Opportunity Insights, a research and policy institute based at Harvard University, has developed a real-time tracker of economic activity using anonymized data from several private companies, such as credit card processors and payroll firms. The “Economic Tracker” provides statistics on the economy’s week-to-week recovery from the Covid-19 shutdowns. Among other things, the tracker shows that consumer spending is still down 11.3% from its level in January. Spending had a strong initial bounce from the 33% decline reached in early April, but the pace of the recovery has slowed in recent weeks. The data also indicate that spending in high income zip codes remains more depressed still down 16.8% versus middle income (down 9.9%) and low income (down just 4%). You can find more information at tracktherecovery.org.
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