Liberty Street Economics

June 16, 2020

Finally, Some Signs of Improvement in the Regional Economy

Jaison R. Abel, Jason Bram, Richard Deitz, and Benjamin G. Hyman

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 even more workers over the next month. Looking ahead, firms have become increasingly optimistic that conditions will improve in the coming months.

Posted at 8:30 am in Employment, Human Capital, Labor Market, New Jersey, New York, Pandemic, Regional Analysis, Unemployment | Permalink

Outflows from Bank‑Loan Funds during COVID‑19

Nicola Cetorelli, Gabriele La Spada, and JoÃ£o Santos

The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.

Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)

June 15, 2020

Distribution of COVID‑19 Incidence by Geography, Race, and Income

Rajashri Chakrabarti and William Nober

In this post, we study whether (and how) the spread of COVID-19 across the United States varied by geography, race, income, and population density. Were urban areas more affected by COVID-19 than rural areas? Did population density matter in the spread? Were certain races and income groups affected more by the spread of this deadly coronavirus? Our analysis uncovers stark demographic trends among places affected most severely by the pandemic thus far.

Posted at 7:00 am in Demographics, Inequality, Pandemic, Regional Analysis | Permalink

June 12, 2020

How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID‑19 Strains

Nicola Cetorelli, Linda S. Goldberg, and Fabiola Ravazzolo

The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central banks”—SSCBs) met their increased funding needs by accessing dollars that flowed into the United States through their foreign parent banks. This volume of dollar inflows accounted for at least half of the late March aggregate take-up at SSCB dollar operations.

Posted at 9:19 am in Credit, Crisis, Federal Reserve, Financial Institutions, Liquidity, Pandemic | Permalink

May 29, 2020

Which Workers Bear the Burden of Social Distancing Policies?

Simon Mongey, Laura Pilossoph, and Alexander Weinberg

This analysis identifies the types of workers bearing the highest cost from social distancing practices–an issue of great relevance for policymakers trying to address the fallout from the COVID-19 pandemic.

Posted at 10:01 am in Labor Market, Pandemic | Permalink

Treasury Market Liquidity and the Federal Reserve during the COVID‑19 Pandemic

Michael Fleming

This analysis zeroes in on the Treasury market in early 2020 to better understand how the Fed’s actions regarding the COVID-19 pandemic evolved in relation to day-to-day market developments.

Posted at 7:00 am in Financial Markets | Permalink | Comments (2)

May 28, 2020

The Investment Cost of the U.S.‑China Trade War

Mary Amiti, Sang Hoon Kong, and David E. Weinstein

Starting in early 2018, the U.S. government imposed tariffs on over $300 billion of U.S. imports from China, increasing the average tariff rate from 2.7 percent to 17.5 percent. Much of the escalation in tariffs occurred in the second and third quarters of 2019. In response, the Chinese government retaliated, increasing the average tariff applied on U.S. exports from 5.7 percent to 20.4 percent. Our new study finds that the trade war reduced U.S. investment growth by 0.3 percentage points by the end of 2019, and is expected to shave another 1.6 percentage points off of investment growth by the end of 2020. In this post, we review our study of the trade war’s effect on U.S. investment.

Posted at 7:00 am in International Economics, Macroeconomics | Permalink

May 27, 2020

Job Training Mismatch and the COVID‑19 Recovery: A Cautionary Note from the Great Recession

Benjamin G. Hyman and Karen X. Ni

Displaced workers have been shown to endure persistent losses years beyond their initial job separation events. These losses are especially amplified during recessions. (1) One explanation for greater persistence in downturns relative to booms, is that firms and industries on the margin of structural change permanently shift the types of tasks and occupations demanded after a large negative shock (Aghion et al. (2005)), but these new occupations do not match the stock of human capital held by those currently displaced. In response to COVID-19, firms with products and services that complement social-distancing (like Amazon distribution centers) may continue hiring during and beyond the recovery, while workers displaced from higher risk industries with more stagnant demand (for example, airport personnel, local retail clerks) are left to adjust to unfamiliar job opportunities. As some industries reopen gradually while others remain stunted, what role might workforce development programs have in bridging the skill gap such that displaced workers are best prepared for this new reality of work?

Posted at 7:00 am in Human Capital, Labor Market, Pandemic, Recession, Unemployment | Permalink

May 26, 2020

Consumers Increasingly Expect Additional Government Support amid COVID‑19 Pandemic

Gizem KoÅar, Kyle Smith, and Wilbert van der Klaauw

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 plans and making decisions. Tracking individuals’ subjective beliefs about future government policy changes is important for understanding and predicting their behavior in terms of spending and labor supply, which will be crucial in forecasting the economic recovery in the months ahead.

Posted at 11:00 am in Expectations, Fiscal Policy, Pandemic, Unemployment | Permalink

The Primary and Secondary Market Corporate Credit Facilities

Nina Boyarchenko, Richard Crump, Anna Kovner, Or Shachar, and Peter Van Tassel

On April 9, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the coronavirus pandemic. Among the initiatives are the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), whose intent is to provide support for large U.S. businesses that typically finance themselves by issuing debt in capital markets. Corporate bonds support the operations of companies with more than 17 million employees based in the United States and these bonds are key assets for retirees and pension funds. If companies are unable to issue corporate bonds, they may be unable to invest in inventory and equipment, meet current liabilities, or pay employees. Maintaining access to credit is thus crucially important during the COVID-19 pandemic, both for issuing companies and for their employees. This post documents the dislocations in the corporate bond market that have motivated the creation of these facilities and explains how we expect these facilities to support U.S. businesses and their employees both through the COVID-related disruptions and beyond, when the economy recovers.

Posted at 7:00 am in COVID-19 Facilities, Financial Institutions, Financial Markets, Pandemic | Permalink

Markets & Policy Implementation

Liberty Street Economics

Finally, Some Signs of Improvement in the Regional Economy

Outflows from Bank‑Loan Funds during COVID‑19

Distribution of COVID‑19 Incidence by Geography, Race, and Income

How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID‑19 Strains

Treasury Market Liquidity and the Federal Reserve during the COVID‑19 Pandemic

The Investment Cost of the U.S.‑China Trade War

Job Training Mismatch and the COVID‑19 Recovery: A Cautionary Note from the Great Recession

Consumers Increasingly Expect Additional Government Support amid COVID‑19 Pandemic

The Primary and Secondary Market Corporate Credit Facilities

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