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The State of the Recovery in Public Sector Jobs, Part One

Joseph van der Naald
August 25, 2021 

A great deal of attention has been paid recently to increasing job counts and declining unemployment claims. The Department of Labor’s August 6 news release indicated that July witnessed the single largest one-month period of employment growth (943,000 new jobs) since the late summer of 2020. The Department separately recorded 360,000 new unemployment claims during the week of July 10, which was the lowest number of such claims filed since March 14; however, the number of weekly claims have since risen again.

While most of the discussion on labor markets is overwhelmingly focused on what is happening within industries (primarily leisure and hospitality and retail) in the private sector, a frequently neglected area of the labor market is employment in the public sector. In the oft-forgotten area of public sector employment, declines in sales, income, and property taxes, as well as far below average tourism receipts have led to lower-than-average government revenues that have yielded extended furloughs and layoffs.

In this post, the first in a series of two, we will focus on the state of public-sector employment in state and local governments since the onset of the COVID-19 pandemic. We will look at the varied performance of state and local government employment and show that while the beginnings of what appear to be a rocky rebound elsewhere in the labor market are certainly encouraging, as many economists and observers have rightly emphasized, public sector employment is lagging far behind. The second post will investigate further the question of what fuels the recovery of state and local public employment, and why it has initially been more sluggish than other sectors, with a closer look into sub-national finances.

Figure 1. Total US State and Local Public-Sector Employment in Thousands, January 2000-July 2021

Source: National Current Employment Statistics, US Bureau of Labor Statistics.

Public-Sector Labor Market in Perspective

Public-sector jobs currently compose nearly 15 percent of all US non-farm employment, with a vast majority (87 percent) located in state and local government. As the chart in Figure 1 shows, between January and May 2020, the US economy shed around 1.5 million state and local public-sector jobs. By July of 2021 just a little over one-half of those jobs have returned. The decline in public-sector jobs in the wake of the COVID-19 recession has thus been both sharper and more severe than the loss of public-sector employment following the Great Recession. In the wake of the pandemic the sharp drop in public-sector employment initially set the number of state and local government jobs back to levels unseen since 2001. Though state and local public-sector jobs are returning at an increasing rate, employment in sub-national governmental sectors as of July 2021 is only just approaching its 2015 level.

What is particularly worrisome about recessionary drops in public-sector employment are that they tend to be durable and slow to bounce back. Following the 2008 financial crisis, private-sector employment fell more sharply than all levels of public-sector employment. However, while the private sector reached its pre-recession levels by April 2014, state and local government employment would not reach December 2007 levels for another two and a half years ( Figure 2). This is especially the case for non-education state employment, which never recovered to its pre-recession levels. As of July 2021, both state and local government employment are rebounding, though this may be due in large part to the recovery of education jobs. When education employment is excluded from public-sector job figures, the employment recovery trend appears to be moving largely in the opposite direction.

Figure 2. Ratio of Pre-Great Recession Monthly Employment across Sectors, 2007-2021

Source: National Current Employment Statistics, US Bureau of Labor Statistics

How does public-sector employment compare to two of the hardest-hit sectors of the labor market by COVID-19 pandemic, leisure and hospitality and retail trade? While all these sectors are experiencing some degree of job recovery, they differ in their rates of recovery. Unsurprisingly, the greatest decline in employment from January 2020 to July 2021 has been in leisure and hospitality, which remains approximately 10 percent below pre-pandemic levels ( Figure 3). Though also experiencing a significant initial dip in jobs, retail trade has fared better than state and local public-sector employment. Yet not all sub-sectors of state and local government employment have recovered equally. First, much of the pandemic decline in public-sector jobs has been in the education industry, particularly among non-instructional staff, food service, and transportation occupations. Auxiliary non-instructional education jobs will likely remain in an especially precarious position in the future, as they can become of the target of cuts when sub-national governments face potential persistent budget shortfalls. State public education institutions, largely in public colleges and universities, saw some of the most serious employment shortfalls. At their lowest point in December 2020, state education jobs had experienced a 13 percent decline as compared to pre-pandemic levels, though by July 2021 they have appeared to rebound to about 5 percent below their pre-pandemic levels. Yet, while state and local education employment appears to have begun a sharp rebound as of the spring of 2021, it is important to note that non-education local government jobs have not. Local government employment in particular has remained at around 5 percent below .

Figure 3. Percentage Change in Employment across Select Industries, January 2020 – July 2021

Source: National Current Employment Statistics, US Bureau of Labor Statistics.

Given thatlocal government employment saw the most pronounced pandemic-related drops, it is worthwhile diving deeper to see how public-sector employment fared in individual cities and their outlying communities. Figure 4 presents changes in local government employment in the nation’s six largest cities and their metropolitan areas from January 2020 to June 2021 (except for Phoenix, whose data is available only through May). Unlike other data in this post, municipal-level local government employment data is not seasonally adjusted and is inclusive of workers in education and health services sectors employed by local governments. Additionally, some cities’ figures include local government workers in adjacent cities within the municipality’s metro area.

Nevertheless, the chart demonstrates that though all cities have been affected economically by the pandemic, their response in terms of varying employment differ markedly. The largest declines in public-sector employment have been in the southeast, in Phoenix (5.9 percent) and Los Angeles (5.4 percent) their adjacent urban areas. Cities where layoffs as of June have been most minimal include New York City (a 1.3 percent decline) and Philadelphia (a 2.3 percent decline). Among these six cities, New York City is an outlier in not only managing to keep employment relatively stable, but also to have grown the size of its public-sector labor force above pre-pandemic levels from September 2020 to January 2021.

Figure 4. Percentage Change in Local Government Employment, Six Largest Municipalities or Metropolitan Areas by Population, January 2020-June 2021

Source: National Current Employment Statistics, State and Metro Area, US Bureau of Labor Statistics.

Because data on municipal employment is not seasonally adjusted and includes educational workers, the sharp drop in employment between June and August of 2020 visible in Figure 4 may be due, at least in part, to summer vacation at public schools. Thus, it is more illustrative to compare two months before and during the COVID-19 pandemic to examine the extent of the employment shortfall. Figure 5 compares the number of local government employees in the same six municipalities or metropolitan areas between Januarys in 2020 and 2021. By January 2021, Los Angeles was operating with nearly 50 thousand fewer government workers than it was a year prior, while Chicago and its outlying areas were operating with approximately 25 thousand fewer workers. Though in the seven months that have elapsed since January cities have continued to hire back furloughed and laid-off workers, as Figure 4 shows, the recovery process is far from complete.

Figure 5. Local Government Employment in Thousands, Six Largest Municipalities or Metropolitan Areas by Population, January 2020 and January 2021

Source: National Current Employment Statistics, State and Metro Area, US Bureau of Labor Statistics

The Consequences of Public-Sector Employment Decline

The above-mentioned patterns of public-sector employment decline are troubling for least two reasons. First, public-sector layoffs, like unemployment elsewhere in labor market, drag down economic growth, as laid off workers lead to depressed consumer spending. Further, lagging government employment growth is indicative of austerity in state and local government spending, which has itself historically dragged out economic recoveries. Second, the public-sector disproportionately employs women and workers of color, so layoffs and furloughs in turn disproportionately affect these groups, making public-sector job declines an issue of racial and gender equity. A recent report by the New York Times shows that Black and Hispanic women experienced the greatest drops in employment and continue to be less likely to have returned to work as of April 2021. Given that Black women make up one out of every four public-sector workers, the slow recovery of government jobs has almost certainly contributed to persistent unemployment in this demographic group.

Importantly, the employment shortfalls documented above are linked directly to state and local budget revenues. The American Rescue Plan Act of 2021 (ARPA) provided state and local governments with much-needed aid to stem impending and future layoffs and furloughs. ARPA both provided greater sums of aid, as states received a total of $195 billion and local governments $130 billion, (as compared to the CARES Act’s $150 billion for all fifty states and 38 cities with populations greater than 500,000 people), and a greater degree of flexibility in how the federal aid can be spent, including use for the maintenance of government services and jobs.

The resources provided by ARPA can be used at least in part to stem some of the state and local government employment shortfalls documented in this post. Though relatively under-examined, the recovery of these public-sector jobs, as well as the public services that depend upon them, are an important component of reviving the economic health of United States as the nation works to ‘build back better.’

The State of the Recovery in Public Sector Jobs, Part One2024-12-12T20:42:07+00:00

The Beginning of a new chapter as Inflation and economic growth take center stage: The Fed and the two faces of Janus

by Siokis Fotios

July 30, 2021

As we move away from the virulent pandemic, economic growth is gaining pace, while inflation is threatening to run rampant. With employment still 7.3 million jobs below its pre-pandemic level, how will the Fed respond? Nowadays no question is more vigorously debated than the inflation issue and in view of this discussion, the Federal Reserve System is reacting. The Fed, as a synchronous Janus—the two-faced, gatekeeping Roman God looking forward and backward, past and future and appeared to hold the keys of the opposite doors—is at the point of beginning a new chapter: looking both back and forth at the likelihood of a pandemic resurgence and in the near future, where mounting inflationary pressures could overheat the economy. The Fed is facing a crossroad, as the debate over the direction of the economy takes center stage. “Is the current monetary policy sustainable where the Fed has zero interest rates and buys securities worth $ 120 billion a month while there are strong growth prospects along with accelerating inflation?” In addition, there is the slower than expected return to employment, which complicates the situation even more.

The direction of the economy

In this rapidly changing economic environment, on Wednesday 16th June 2021, the Fed’s governor reiterated the decision of the Federal Open Market Committee (FOMC) for an accommodative stance of monetary policy in promoting maximum employment and price stability, the so-called dual mandate. Target interest rates were kept at 0 to 0.25% levels, while asset purchases will continue, by at least $ 120 billion per month ($ 80 billion treasury securities plus $40 billion agency mortgage‑backed securities), until maximum employment and price stability goals are reached. The continuation of this program was deemed central to fostering smooth market functioning and to supporting the flow of credit to households and businesses.

As for the forecast, the Fed revised the 2021 growth of the economy upwards from 6.5% in March to 7% in June and to 3.3% in 2022, while maintaining the unemployment rate forecast at 3.8% by the end of the year. In terms of the inflation rate, which experienced a huge upward momentum in the last couple of months, the forecast calls for a core inflation rate (which excludes volatile items such as energy and food) equal to 3% for 2021, before falling back to 2.1% in 2022 and 2023—a scenario consistent with a full recovery situation.

Figure 1. FOMC projections of the U.S. economy

What does recent inflation rate data mean to the Fed?

But in the post-pandemic era, strong economic recovery, backed by expansionary monetary and fiscal support sparked inflation to higher than anticipated levels, producing price pressures as excess demand for certain products outstripped supply.

Based on the Personal Consumption Expenditure Price Index (PCE), the inflation rate increased in June to 4.0% year over year (and core PCE of 3.5%) compared with 3.9% a month earlier (core CPE of 3.4%), raising market concerns of an overheated economy (figure 2). Among the contrasting views of economists are those that claim the economy is producing above its capacity level “higher than potential GDP growth.” However the Fed’s policy makers are convincingly down-playing the rising concerns, supporting the narrative that the recent hike in the inflation rate is caused by transitory factors, like the recovery of oil prices, the bottlenecks in the supply chain, as businesses maintained low inventories due to the uncertainty of the pandemic and mainly to the so-called “base effect,” meaning that the price increases were compared with the corresponding period of the previous year, a very low inflation rate during the pandemic year. These distortions will last for few more months before inflation retreats—and in line with the Fed’s full recovery scenario—to around 2.1% in 2022. In that light, it is worth depicting an alternative measure of core inflation, the so-called “trimmed mean” inflation which captures most of the dynamics of inflation, is calculated by sorting in ascending order all price changes and then throwing out or trimming the most extreme observations (at both ends of the spectrum). In fig. 2 the trimmed mean follows a steady and flattened path.

Figure 2. The Inflation Rate.

The employment issue

In light of the dual mandate, there is a growing concern about the emerging employment situation. While unemployment is decreasing at a slower than expected rate, a growing number of job vacancies have been recorded, despite the rising demand for goods and services. The job vacancies have increased to 9.2 million in May, according to the Bureau of Labor Statistics, while the National Federation of Independent Business reported that 46% of small business owners in June were unable to fill job openings. This percentage is roughly in line with the 48% in May and greater than the 48-year average of 22%. Some of the main reasons for this distortion are: fears of the pandemic, parents locked in their houses mainly to assist their children as education was interrupted by the pandemic, high supplemental unemployment benefits and the “retirement boom” where more people than expected decided to exit the job market. Although this labor shortage is expected to sort itself out by the fall, as the supplemental unemployment benefits are set to expire in September and the percentage of vaccinated people increases, currently wage cost is pushed upward, putting pressure on the degree of competitiveness in small businesses, which admittedly were hurt the most during the pandemic.

Decoding the tone of the Federal Open market Committee, FOMC, and market reaction

The Fed frequently uses the forward guidance tool to communicate with the general public and align market expectations especially about how long it intends to keep the federal funds rate at current zero lower bound levels. In line with the approach adopted after 2011, and meticulously enhanced the level of transparency, the Fed is committed to maintaining an accommodative monetary policy until the economy achieves maximum employment, and core inflation is stabilized on average at around 2%. When can this goal be achieved? Based on recent data and according to their recent projections, the dual mandate could be met at the end of 2022. In this context, we could cautiously interpret the forecast exercise taken by the members of the FOMC, displayed in their “dot plot,” where each member of the committee is represented by a dot, two thirds of the 18 members are now projecting a series of two interest rate hikes within 2023, whereas a few months earlier the majority opinion signaled no liftoff in rates until 2024. Evidently the underlying dynamics of the economy and expectations of stronger recovery induced officials to rethink the future of the accommodative monetary policy and consequently adjust expectations as new data becomes available. Nevertheless, the Fed would move earlier to tapering its $120bn asset purchases, before any rate increase.

With the price increases and the Fed’s stated intentions, the markets reacted rigorously, sparking a sharp increase in the most sensitive to interest rate changes, i.e., to two- and five-year bond yields. Figure 3 depicts the yield curve (treasury instruments with different maturity) at different time intervals. The latest curve reported on July 28th is much steeper than the one reported on August 4th 2020 but less steep than the one after the announcement, meaning that the inflation worries were eased. Please note that an upward yield curve means that the market is expecting higher economic growth and higher inflation.

Figure 3. The evolution of the U.S. yield curve

Asset prices

A critical issue that raises concerns in the Central Bank is the continuation of the strong and rapid pace in housing prices. Federal House Finance Agency indicates that the index for May 2021 increased by 18.0% on a yearly basis. By now, the index has far exceeded its peak, which occurred just before the eruption of the Great Recession. Factors such as the build-up of savings during the pandemic year, the very low mortgage rates, and the vast increase in other asset prices, like stocks, along with the limited supply of houses have bolstered the demand for housing. Many have articulated their concerns of a nascent bubble in the housing market, a situation that has occurred multiple times in the past with devastating results.

Figure 4. Housing Price Index

Conclusion

The recent decision by the Fed to boost the cycle by keeping its accommodative policy could be well justified, as risks from the pandemic are still high, while the number of unemployed people persistently remains above the pre-pandemic level. On the other hand, the strong recovery has boosted inflation to exorbitant “temporary” levels. Under the new monetary-policy framework adopted in August 2020, the Fed will wait for an interest rate hike until inflation and employment hit its dual mandate. But the problem with targeting average inflation rate is that nobody still has a clear understanding of how much inflation can be tolerated above the target, in order to make up for past shortfalls. This ambiguity, together with the transitory labor market rigidities could generate higher levels of uncertainty and confusion in the financial markets.

The Beginning of a new chapter as Inflation and economic growth take center stage: The Fed and the two faces of Janus2021-07-30T20:42:44+00:00

New York’s Recovery from COVID-19: Gaining Ground but a Ways to Go

By Fadime Demiralp and James Orr
May 17, 2021

Recent employment data for New York show the job recovery from the impacts of the COVID-19 pandemic and the efforts to contain is continuing but still has ways to go.  Support  for the recovery has come from several unprecedented actions including widespread vaccinations, loosening of restrictions on local activities, massive federal fiscal programs and broad financial support from the Federal Reserve.  Still, unemployment remains high across the state and in New York City, and employment in several hard-hit industries is well below pre-pandemic peaks and their national averages.  This post presents the latest employment figures to show the extent to which jobs in the state and city economies have recovered, and then discusses the forces that will influence a more complete recovery in New York City.

New COVID-19 Cases

The driving force behind the job declines over the past year in New York as well as the nation has been the spreading COVID-19 virus and the efforts to contain it.  Looking at the pattern of new COVID cases in New York City, the first wave hit in February and March of 2020, and a staggering number of hospitalizations and deaths followed.  The reaction to the outbreak included the imposition of an economic lockdown for most businesses other than essential services, various travel and other restrictions, social distancing guidelines and work-at-home arrangements.  The number of new cases subsided over the summer and the economy gradually began to reopen.  However, new cases picked up sharply in the October 2020-January 2021 period, and while still high have been trending down recently.  Unfortunately, hospitalizations and deaths associated with these newer cases are up, but they are not severe as in the first wave. 

New York Labor Markets in Crisis and Recovery

The economic downturn and recovery in the nation and in the New York State and New York City economies is shown in the chart below which uses an index of employment to track monthly employment levels from the pre-pandemic period to the present. The employment patterns are similar to the pattern of new COVID-19 cases: Job counts in the state and city each declined 20 percent from pre-pandemic levels through April 2020, steeper than the nation and totaling roughly 1.9 million jobs in the state, about 990,000 of these in New York City.  A rebound then took hold but flattened out in the fall before resuming during the first quarter of 2021. National employment data mirror these patterns, but the declines were not as deep because New York was one of the early epicenters of the virus outbreak. As of March, of this year about half of the number of jobs lost statewide have been recovered compared to about two-thirds nationwide; about 40 percent of the jobs lost in the city have been recovered, which translates into a shortfall of about 600,000 jobs from pre-pandemic levels.    

As jobs fell in New York State and New York City, the number of unemployed New Yorkers rose sharply.  In New York City, the unemployment rate peaked at 20 percent last May before trending down.  It remained essentially constant from the fall through February 2021, followed by a decline in March to below 12 percent, but is still high and above the rates in both New York State and the nation.

The Dynamics of the Recovery in New York

The employment recovery process from the COVID-19 virus in New York State and New York City is being shaped by a combination of forces.    First are the restrictions on person-to-person contacts, individual avoidance of risky interactions, and the widespread implementation of a vaccination program.  As noted, new cases are declining in New York City from relatively elevated levels and vaccinations are rising—currently about 3.1 million city residents, 47% of the population over the age of 18, are fully vaccinated; statewide, 50% of the population over the age of 18 are fully vaccinated.  New variants of the virus, of course, could setback recent gains and require additional health responses.    

Second, health-related efforts are accompanied by the gradual loosening across the state in the restrictions on activities involving person-to-person contact.  As examples, most museums are now open with reduced capacity, curfews for certain businesses, including movie theaters and gyms have been lifted while outdoor amusement parks can reopen at 33 percent capacity, and restaurants can open up at 75 percent indoor dining capacity.  Job counts, however, remain below pre-pandemic levels.  An earlier post noted the hardest-hit industries in New York City were service industries which cater to resident as well as tourists and office workers.  The chart below shows the deep declines in the Accommodation and Food Service and Retail industries, though jobs were lost across all industries.  The second wave of the virus is seen in the dip in employment at the end of 2020 in these two industries as well as in Construction, though jobs in all three are now on the upswing.     

The industries where office work was more typical, and which were able to avoid major job losses by having their workers work-at-home included the Finance and Insurance and Professional and Business Services industries.  Healthcare and Social Assistance has shown a solid recovery, edging close to pre-pandemic levels.  The Information sector has been trending up for the past nine months, consistent with reports of the expansion of tech jobs. Real estate employment fell about 12 percent, less than the citywide average decline, and started a gradual recovery in November 2020.     

Third, about $6 trillion of federal relief has been provided since the start of the pandemic for individuals, businesses, and state and local governments affected by COVID-19, equal to about 25% of GDP.  Much of the assistance was contained in three fiscal assistance programs—the CARES Act (March 2020, $2.2 trillion), the COVID-relief package (December 2020, $900 billion, and the American Rescue Plan Act (March 2021, $1.9 trillion).  Among the provisions of these Acts is assistance to the healthcare system, including hospitals and healthcare workers; to individuals in the form of direct stimulus payments and expanded unemployment compensation benefits; to businesses, in the form of grants and loans to pay expenses; and to state and local governments to help severely strained budgets.    

Among the aid available to New York City, the financial assistance to individuals turned out to be sufficient to offset the large decline in private sources of income over the past year and raise total personal income of city residents.  Also, assistance in the American Rescue Plan Act helped close budget gaps for the state and city: The New York State government received about $12 billion in budgetary relief, though it did not obviate a rise in corporate taxes and personal taxes on high-income earners.  New York City received about $6 billion in fiscal relief which greatly helped to avoid significant budget gaps.  The Metropolitan Transportation Authority (MTA) received significant funding to help offset revenue declines from reduced ridership.

Finally, the recovery has been fueled by the ongoing substantial financial support provided to the broader economy by the Federal Reserve.   The Fed moved first by reducing the federal funds target rate to near zero levels, introducing an aggressive quantitative easing plan, and then establishing facilities to ensure the smooth functioning of a wide range of financial markets.     

What Direction for New York City?

It is tempting to paint an optimistic scenario for employment in New York City given the progress in vaccinations, the decline in new COVID-19 cases and the pickup in jobs across several industries, including the large Healthcare and Social Assistance industry, the Information industry, and the Retail Trade industry.  The stability in recent new claims for unemployment compensation gives support to forecasts that have annual job growth in the city continuing at a reasonably strong pace, though a full recovery is not expected this year.    Risks remain, however, and could come from the spread of mutations of the virus, from weaker than expected demand for travel to the city, and from the winding down of federal fiscal support.  Also, the viability of companies, particularly smaller companies, and business decisions about locating in the city could change the types of job opportunities in the city even as total employment approaches or surpasses pre-pandemic levels.  For example, while several large employers have said their workforces will be returning to the city, the changes in work arrangements that kept many workers at home could become permanent.  As we await how these developments will unfold, the expected solid performance of the national economy should continue to support the recovery in New York as would the proposed Federal government plan for an eight-year federal rebuilding of the nation’s infrastructure that, if passed, would help finance an improvement in the public capital stock and give a boost to the economy in the recovery and beyond.

New York’s Recovery from COVID-19: Gaining Ground but a Ways to Go2021-05-26T15:42:47+00:00

A Primer on Covid-19 and its Impact on the Supply Chains in China

By Zhio Xi
April 30, 2021

 

The issue of supply chains has been one of the most discussed economic topics in China recently. Since joining the WTO in 2001, China’s integration into the global economy has been accompanied by the reshaping of the global supply chains. Many foreign companies have transferred part of their production to China to enjoy lower labor costs. However, with the gradual increase in labor and environmental costs in China in the past decade, various companies have thought about moving production out of China. The trade conflict between the US and China in the past couple of years and the recent COVID-19 pandemic crisis greatly heated up such discussion. For instance, according to a 2020 survey of over 200 global supply chain leaders, one-third had moved manufacturing activities out of China or planned to do so in the next 2-3 years due to the global pandemic condition as well as US-China trade tensions. This article mainly addresses the impact of the Covid-19 pandemic on the supply chains in China.

The Shock of Covid-19

In terms of the Covid-19 pandemic, the impact on supply chains in China can be analyzed in terms of the trade of intermediate goods, or goods that are used as inputs into the production of final goods. The impact has two aspects. On the one hand, supply chains can be disrupted by the current and post-pandemic situations in the economies of China’s major trading partner countries and would affect directly Chinese exports to the United States, Japan, and Korea. The effects are bilateral: the lack of demand due to the lockdown in these countries can impose pressure on China’s supply chains, as foreign producers cut back on their imports of China’s goods. The possible future waves of Covid-19 in China and the associated costs and uncertainties may challenge producers as well.

Source: OECD, 2019

Note that these trade partners rely heavily on Chinese exports such as computers, electronics, electrical equipment, and textiles. The Chinese exporters in these sectors, in turn, are sensitive to demand shocks, especially those arising from subsequent waves of Covid-19 in these trade partners. For China, the major trade partners for intermediate goods imports are South Korea, Japan, and the US. The main imported goods are electronics and chemicals. Therefore, put together, the computers, electronics, textiles, and chemical industries in China’s manufacturing sector will see the largest impact during the pandemic. Among those industries, firms that rely highly on imported goods with high value added (high tech) are more fragile than firms that can find substitute source countries. For instance, firms associated with optical imaging, medical equipment, vehicle components, printed circuit boards (PCB), and integrated circuits (semiconductor) should be well prepared for the future uncertainties associated with pandemic.Chinese intermediate goods imports as a percentage of total global output (ex-China) by industry

Source: Swiss Re Institute (2020）

There is no doubt that the global supply chains are getting increasingly connected and complex, thus the real long-term impacts of the pandemic are yet to be known. China is a big importer of raw materials and a major exporter of labor-intensive goods used as intermediate goods in final production (according to one estimate, China’s world share of labor-intensive exports is 27%). One aggregate indicator that shows the effect of COVID-19 on China’s trade to date is the trend in exports and imports. The graph below shows that China’s exports have begun to recover from the sharp decline at the start of the pandemic, mid-summer 2020.

Source: General Administration of Customs

Another timely measure of the effects of the pandemic on the supply chains in China is the recent variation in the manufacturing PMI (Purchasing Managers Index, figure below): the PMI had declined to a record low of 35.7 due to the Covid-19 pandemic, but it rebounded back above 50 in twelve successive months following the virus outbreaks in China.

The Purchasing Managers’ Index (PMI) is based on a monthly survey of supply chain managers across 19 industries, covering both upstream and downstream activity. The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.

Source: The National Bureau of Statistics

Both the trends in exports and exports, and the PMI pattern illustrate several points: the impact of Covid-19 was sudden and huge; the virus was contained in a relatively short time and the supply chains in China show some resilience.

A Stress Test

Despite having the world’s largest population size as well as some of the biggest cities, China has become one of the first countries to recover from the pandemic with relatively limited damage. But it is one thing to contain the virus successfully, it is another to reboot the supply chains after the lockdown of the entire country. To some extent, the Covid-19 pandemic acted as a natural stress test for the country’s economy, the government response as well as supply chain resilience and stability. One lesson that supply chain leaders may learn from this pandemic crisis is that instead of pursuing low cost and high efficiency, firms should also focus on resilience and stability. To reach such balance between efficiency and resilience, supply chain leaders may consider measures such as creating more inventory and capacity buffers, as well as diversifying their sourcing or manufacturing bases.

The Future

To keep China as a destination country for foreign firms, one of the leading priorities of the government policies has been the development of the supply chains, especially during the era of pandemic crisis. The government measures are in two main categories: 1) further opening of the Chinese markets to global investors; 2) increasing domestic innovations and development. The measures collectively belong to what the media called “dual circulation” strategy. Such measures are expected to help China reach the goal of offshoring low-value manufacturing of goods and services but maintaining the safe and stable environment for the high-value global supply chain leaders.

The future of the world is highly uncertain. Firms in the global supply chains will gradually find their balance between risks and rewards. As a result, China’s role in the supply chains may get more quality-driven instead of quantity-driven.

A Primer on Covid-19 and its Impact on the Supply Chains in China2021-05-02T23:34:04+00:00

A Look at the New York State Budget

James Orr and Merih Uctum
February 10, 2021

Governor Cuomo recently announced the NY State budget for this year, the FY 2022 Executive Budget Financial Plan. Is New York in a deep budget hole? Will a new Federal spending bill help? In this post we dissect the executive budget and examine how economic developments affect budget projections and the bottom line for the current budget plan.

The plan projects the state’s revenues and expenditures, as well as any shortfalls in revenue, for the current fiscal year FY 2021, which began on April 1, 2020 and ends on March 31, and for each of the four subsequent fiscal years. The focus of interest is the potential shortfall of revenues in the remainder of FY 2021 and FY 2022 and the economic costs imposed on the state by the COVID-19 pandemic. It also considers the potential receipt of some additional funds from a new Federal economic stimulus bill now being negotiated in the Congress. But the plan recognizes the risk of revenue shortfalls and the uncertainty of any Federal assistance, and proposes some state income tax increases and new sources of revenue. The budget will now be discussed by the legislature and a final state budget will be enacted for the April 1 start of FY 2022.

The New York State Executive Budget

The executive budget presents the planned disbursements and the sources of revenues to fund those disbursements for each fiscal year. The final budget is enacted after discussions with the legislature and then updated quarterly. When we talk about the state budget we need to note first that there are three separate but related budgets, or funds, each with specific categories of revenues and disbursements.

The General fund is where most state tax revenues go. The categories of spending within the fund include state assistance to local areas, Medicaid and state agency operations. Medicaid is a particularly important item in the state budget because, as a program where costs are shared between the Federal and state government, the Federal share can be increased to reduce the burden on the state, even as the number of people in the program rises. Total revenues in the General fund were $79.2 billion in FY 2020.

The State fund is a broader concept which includes the General fund plus additional sources of state revenues, such as debt service funds, that help to fund state operations. It is normally considered as the state’s basic operating fund.

The third fund is the All funds measure which includes most of the State fund and federal monies which are used by the state to directly fund some categories, such as transportation spending, as well as joint federal-state programs. Total All funds receipts reached $177.4 billion in FY 2020, and the sources of funds in FY 2020 are shown in the figure below.

Figure 1: NY State FY 2020 revenue sources

Source: Mid-Year Update | FY 2021 Financial Plan (ny.gov) (Tables 15, 26).

The state is required to balance the General fund budget each year, broadly defined as having sufficient revenues to fund the planned disbursements. The figure shows that about 46% of revenues from all sources come from taxes, and most of those tax revenues are placed in the General fund. The broad categories of revenue and spending in the General fund in FY 2020 are shown below.

Figure 2: Shares of revenue and spending in the General fund: FY 2020

Source Financial Plan | NYS FY 2022 Executive Budget (page 29).

The amount of the tax revenues in the fund depends heavily on the income, business, sales and other tax revenues that are generated from economic activity, and projecting activity is key to projecting tax revenues. An example of the variability inherent in projecting revenues is the projection of tax receipts before and after the onset of the pandemic. The executive budget for FY 2021 was presented in January of 2020 and projected tax revenues of $77.1 billion, following the receipt of $72.2 billion in FY 2020. Between February and April the state lost over 900,000 jobs, about 20% of employment, as the economic fallout from the pandemic hit hard and the enacted budget for the fiscal year that began on April 1reduced projected tax receipts to $61.9 billion. The mid-year fiscal update further lowered those revenue projections to $59.1 billion as activity continued weak in the summer. A pickup in activity in the fourth quarter of 2020 raised projected revenues for the fiscal year to $62.4 billion. These changes in the tax revenue projections get great attention as the state needs to bring the General fund into balance.

Because the pandemic and its economic impact were felt broadly across all states, the Federal government passed four measures in 2020 to help alleviate the problems of workers, small businesses, and state and local governments. The largest bill, CARES Act, had $2.6 trillion of spending that included a coronavirus relief fund (CRF) to cover costs to state and local governments related to the pandemic. The categories covered included public safety, personal protective equipment, medical equipment, emergency response activities, and testing. New York received roughly $6 billion in funding for these activities. Currently, the state has regained only half of the jobs lost in the early months of the pandemic and there is still uncertainty about the future for the state and the nation.

Current Projections for FY 2021 and FY 2022

Projections for FY 2021 and FY 2022 in the General fund show a shortfall in revenues: $4.7 billion in FY 2021 and $10.2 billion in FY 2022, or a $15 billion two-year gap. The state has proposed cutting spending and raising revenues to bring the budget into balance. Below we reproduce the state’s plan to close these gaps in FY 2021 and FY 2022. The positive numbers in the table indicate either increases in revenues or declines in spending, and we highlight several key entries.

Table 1: Executive budget gap-closing plan
(millions of dollars)
UPDATED “BASE” BUDGET GAPS FY 2021
(4,772)		 FY 2022
(10,201)
Local Assistance:1
School Aid/Local District Funding Adjustment 0 1,506
Medicaid 1,230 599
All Other 991 1,265
Agency Operations 44 110
Debt Service/Capital Projects
New Revenues:		 517 135
PIT High-Income Surcharge 0 1,537
PIT Middle-Cl ass Tax Cut One-Year Pause 0 394
All Other 17 60
Federal Resources:
CRF 2,476 0
Medicaid FMAP 497 995
FEMA Reimbursement (1,000) 600
Unrestricted Federal Aid 0 3,000
­­­­­­­­­­­­­­­­­­­­­­______________________________________________________________________________

  1. Includes savings from reductions outside the General Fund that are achieved through the transfer of balances. and/(or) increase in revenues made available by spending reductions
    Source: Financial Plan | NYS FY 2022 Executive Budget (page 20).

Focusing on FY 2022, the largest spending cuts are in the categories of planned state aid to localities, $1.5 billion, or about 3% of this assistance, largely from changes in reimbursements to school districts. These cuts effectively shift some of the burden of state revenue shortfalls down to cities and towns. Medicaid spending is also cut by $600 million with the cuts planned to come partly from increased program efficiencies. Proposed FY 2022 new revenue sources include a high-income surcharge, which will raise revenue by $1.5 billion through a 2 percentage point increase on taxable income above five million dollars, to 8.8%, and a pause in the reduction of income tax rates on middle-income taxpayers which yields an additional $394 million.

Federal aid

Federal resources are also seen as potential sources of new revenue. The CRF revenues are projected to run out but Medicaid reimbursements will remain high. Spending in FY 2020 for emergency relief is expected to be reimbursed by FEMA (Federal Emergency Management Agency) over the next several years. A key factor in the projections is whether the proposed Federal stimulus bill with $350 billion for state and local governments will be passed. No such aid was contained in the December 2020 Federal stimulus bill and its inclusion in the bill now being negotiated is uncertain. The state gap closing account assumes it will receive $6 billion in unrestricted aid and allocates $3 billion in FY2022 and the same amount in FY 2023. Higher levels of aid will eliminate some of the pressure to cut spending and/or raise taxes.

Outlook

The outlook for the state budget depends on numerous factors, but key among them are progress in controlling the spread of the COVID-19 virus. New waves of the virus this winter or spring could lead to a further clampdown on economic activity. The strength of the recovery in the nation and state economies will determine the path of tax revenues going forward. Risk abound, but a break out of pent-up demand as the virus abates would give a needed boost to the economy and revenues. Finally, should the Federal stimulus bill currently being negotiated provide significant unrestricted aid to states and localities there is a potential to avoid any of the cuts and tax increases in the current gap closing plan.

A Look at the New York State Budget2021-02-24T00:49:15+00:00

New York’s Employment Gains Slow in November

The number of jobs in New York State continued to increase in November though at a slower pace than in October, even taking into account the phasing out of the 2020 census jobs. The New York State Department of Labor reported that employment statewide increased by 29,500 (seasonally adjusted) in November following an increase of 32,300 in October; private sector job counts in the state were up by 36,300 in November following an increase of 54,800 in October. The slower gains in the state this month follow the pattern of slowing job gains nationwide. The U.S. Bureau of Labor Statistics reported that employment in New York City was up by 10,500 in November, below the 23,200 jobs gained in October. Employment levels in the both the state and the city are now roughly 10% below their pre-COVID-19 peaks.

The unemployment picture in New York continued to improve in November. The state’s unemployment rate fell to 8.4 % from 9.2% in October, but still above the 6.7% unemployment rate nationwide. In New York City, the unemployment rate fell to 12.1% in November from 13.0% in October.

The New York State Department of Labor reported filings of initial claims for Unemployment Insurance in the state totaled 58,311 during the week ending December 12, slightly below the previous week’s filings but above the four-week average of 53,500. Nationally, filings of initial claims for Unemployment Insurance also rose in the week ending December 12 over the prior week and the prior four-week average. In New York City, filings of initial claims for Unemployment Insurance totaled 26,762 during the week ending December 12, slightly above last week’s filings and the prior four-week average of 23,000.

New York’s Employment Gains Slow in November2021-01-12T23:22:27+00:00

New York’s Economy Trying to Heal From the COVID-19 Crisis

Fadime Demiralp and James Orr
October 31, 2020

Deep declines in employment across New York resulted from the efforts to contain the COVID-19 outbreak. Where does the economy stand? What factors will affect the recovery? We address these questions in this post. In March New York declared a state of emergency, public schools were closed, and an executive order was issued requiring residents to stay-at-home and all non-essential businesses to shut down. Containment efforts in states across the nation led to deep declines in aggregate economic activity. In New York, a phased reopening of economic activities got underway in May and currently the state’s economy is largely reopened, though with some important exceptions. A smooth process of recovery would generally have minimal new virus-related disruptions, employment returning to its pre-COVID-19 level, a so-called V-shaped recovery, and no spillovers that create longer-term negative economic impacts. In New York, employment has turned around and is well off its March/April lows, but recent job gains have slowed. Next, we use trends in employment to describe where the New York economy is in the recovery process and then outline the factors that might have an impact on the recovery.

New York hit hard by the COVID-19 crisis

After the first reported COVID-19 case in late February, New York saw daily new cases rise to as much as 10,000 in mid-April before stabilizing at about 600 by mid-June. The pattern reflects the timing of new cases in New York City.

September saw the start of a rise in the number of daily new cases and localized clusters in the city, though the number of new cases is well below those of the Spring. Within New York City, the cases were relatively concentrated in areas with large household sizes and lower incomes, and the highest rate of new cases was among those aged 75 years and older. Deaths from the virus were concentrated in areas with large Black and Latino populations, as well as among the elderly; over 32,000 state residents and more than 23,000 city residents to date have died.

The state’s executive order was essentially a lockdown that, together with precautions by individuals to avoid the risk of contagion, resulted in a huge decline in economic activity in New York State and New York City. Early indications of the magnitude of the downturn came from March business surveys and the massive filings of initial claims for unemployment insurance. The impact was then reflected in job counts. The monthly index of employment shows huge declines in March and April in New York State, New York City and the nation: Employment in New York City fell by 944,000, or 20% of total city jobs, statewide by 1.945 million, also roughly 20% of the state total, and nationally by 22 million, about 15%.

Unemployment rates also rose dramatically, rising from around 4% just prior to the crisis and peaking around 16% nationally and in New York State and over 20% in New York City.

Some of the hardest-hit industries in New York City were, predictably, those considered non-essential, affected by travel restrictions, and where face-to-face transactions are the norm, including hotels and restaurants, retail, segments of healthcare and social assistance, personal services, building services and transportation and warehousing. All non-essential construction projects were halted. Industries where office work was more typical were able to avoid major losses by having their workers work-at-home, including the information, finance and professional and technical services industries.

Signals from the real estate market reflect the recent weakness. In the residential market in the city, and Manhattan in particular, school closings, social distancing and work-from-home orders were associated with a sudden outmigration. It is not clear how permanent this is, but more mobile, higher-income residents appear to be those most likely to be moving; lower-income residents who have lost their jobs may have difficulties paying their rent. The market now has a rising rental inventory, more than double that of last summer and, in Manhattan, rents are down roughly 8% from a year ago. The commercial market is also weak: New leases in Manhattan were reported to be down more than 60% in August from last year’s monthly average, office rents are down, and sub-letting of space is on the rise. Bucking this trend is the ongoing purchases and leases of significant amounts of office space by major high-tech companies, suggesting they continue to pursue their long-term expansion plans in the city.

The COVID-19-related weakness in the state and city was compounded by the dampening effect of efforts throughout the country to address the rising number of new virus cases. In fact, the national economy was shown to have entered a recession in February. The national scope of the decline gave the impetus for broad monetary and fiscal programs to mitigate economic hardships for workers, businesses and state and local governments, and to maintain smooth functioning of financial markets. Congress is currently debating additional fiscal support.

Where does the economic recovery in New York City stand?

The phased reopening has been underway since the stay-at-home order ended on May 28. In New York City, ongoing social distancing practices still restrict some consumer activities and tourists and most office workers have yet to return. Focusing on employment, the recent decline was more than four time larger than in either the prior two downturns—that following the 9/11 attack in 2001 or the financial crisis that began in 2007.


The developing V-shape pattern of employment recovery in the first seven months since the crisis started shows a bounce off the bottom and contrasts with the more gradual upturns in the two earlier cycles. The shape has flattened out a bit in the past two months, however, and there is now a fair amount of variation in employment recovery across industries.

Looking at five affected industries, employment in the healthcare and social assistance sector had a relatively small percent decline but has plateaued about 6% below its pre-COVID-19 level. The huge size of the sector means jobs are down about 45,000. The professional and business services sector also had a relatively modest percent decline, an important component related to services to buildings, and employment has been slow to recover. Retail tradeemployment had a much larger percent decline, including losses in clothing and department stores. The industry is still 10% below its pre-COVID-19 level.
Construction jobs had a large decline and a fairly strong bounce, characteristic of a V-shaped recovery, and has levelled off about 10% below pre-COVID-19 levels. Employment in the accommodation and food service sector was extremely hard hit, falling about 70%, or 250,000 jobs, before beginning to recover. A full return to business in this sector will likely require eliminating remaining restrictions on bars and restaurants and the return of customers in the varied base that it serves—residents, office workers, domestic and international tourists and business travelers–who will all need to feel much more comfortable in an environment based on individual contact. Although job gains there continue, the industry is still more 40% below its pre-COVID-19 level.

Looking ahead

The New York employment figures have clearly been moving in the right direction but the pace of recovery has slowed after the bounce off the March/April lows. However, initial claims for unemployment insurance in recent weeks are down and do not indicate a surge in job losses in either New York State or New York City. For New York City, forecasts have jobs down significantly from pre-COVID-19 levels this year though the pickup that began in May is expected to continue in 2021. The range of job forecasts is wide, and numerous risks remain. Local risks include a pickup in residential outmigration flows, or decisions by outmigrants not to return, and the reconfiguration of office work in a way that keeps significant numbers of workers at home or otherwise outside the city. Roughly 10% of office workers to date have returned. For governments, potential revenue shortfalls for both the state and city that lead to cutbacks in spending and services could weigh down economic activity. A follow-up federal fiscal package could address budgetary aid for state and local governments. Nationally, GDP is expected to grow in the second half of 2020 and into 2021, and should help support local industries—professional services, manufacturing, finance—that serve broader domestic markets. International travel and tourism are already highly constrained and the timing of a pickup here remains uncertain.

The full return to pre-COVID-19 levels of employment, or essentially a return to the trend of residents, consumers and businesses desiring proximity and feeling the traditional pull of the city, will be greatly supported by the development of a vaccine for the virus that reduces the need for social distancing and make shoppers, transit riders, tourists and office workers more comfortable being in the city.

Podcast link

New York’s Economy Trying to Heal From the COVID-19 Crisis2020-11-02T17:06:51+00:00

The Fed’s enlarged balance sheet: The Expanding Importance of Bank Reserves (Part II)

Fotis Siokis
September 30, 2020

Introduction

With an enlarged balance sheet, what is the new operating regime of the Fed (or how does it conduct monetary policy) and what are its options? In this second post we address these questions. In Part 1 we discussed the action taken by the Fed to limit the economic damage from the pandemic and stabilize the highly volatile financial markets. We showed how in early March, the Fed first reduced the federal funds target rate to near zero levels. Then, moving beyond the conventional monetary policy tools, the Fed introduced an aggressive quantitative easing plan, purchasing unlimited amounts of longer-term assets ( U.S. Treasuries and agency mortgage-backed securities) and utilizing a variety of liquidity facilities. The aggressive response to the coronavirus crisis caused an enormous expansion of the Fed’s balance sheet, well above the elevated levels of the Great Recession. The superabundance of reserve balances held by banks at the Fed is attributed predominantly to the vast preponderance of excess reserves.

How does the excess liquidity environment affect monetary policy and why? The Federal Funds Rate and the Floor System

Historically, banks used to hold a minimum amount of excess reserves in the Fed just to meet transaction obligations. With limited excess reserves, the Fed could easily use the interest rate policy and, by conducting open market operations, steer the target of the federal funds rate. However, the dramatic increase of banks reserves held at the Fed impaired the mechanism of influencing the federal funds target rate. This is because the Fed could no longer rely on small changes in the supply of aggregate reserves to adjust the level of the federal funds rate. This outcome along with the authorization of the Fed to pay interest on banks reserves, under the Financial Services Regulatory Relief Act of 2006, signaled the beginning of a new policy regime. The Interest on Excess Reserves assumed a very powerful key role, in terms of “navigating” the federal funds rate and consequently the whole spectrum of short-term interest rates.

The interest on excess reserves as an administered rate sets the “floor” for the federal funds rate, below which banks have no incentive to lend to other banks. Although the two move closely together, a fed funds rate drifting far below the interest on excess reserves triggers arbitrage actions, in which banks borrow at the lower fed fund rate and deposit it as reserves and thus earn the higher interest on reserves. As can be seen in Figure 1, the fed funds rate is trading below interest rate on reserves since other institutions such as government-sponsored enterprises that have deposits at the Fed without earning interest on reserves, transact with other depository institutions and other institutions at the fed funds rate.

In addition, allowing other non-depository institutions, such as money–market funds or broker-dealers, to deposit funds for very short periods with the Fed, these funds earn a fixed interest rate less than the interest rate on reserves , called the overnight reverse repurchase program. With this program on board, the Fed complements the interest rate on excess reserves facility and increases the control over the fed funds target rate. The two interest rates serve as the upper and lower limits of the fed funds target range.

Figure 1. The evolution of interest on excess reserve and the federal funds rate
Source: FRED, Federal Reserve in St. Louis

In addition to the control of the interest rates, the Fed oversees a wider set of organizations (both the regulated and the shadow banking systems), and it can mitigate the economic incentives especially by depository institutions to engage in usurping excessive amounts of maturity transformation to finance long-term lending with short-term borrowing.

The expanding role of the Fed may lead to difficulties ahead

Inevitably, the Fed operates in an enduring environment of enlarged balance sheets. Judged by historical standards, the advent of an enlarged balance sheet is probably here to stay. With successive quantitative easing measures starting from the Great Recession and onwards, excess reserves have grown enormously. Particularly from September 2012, and due to signs of weaker than expected labor market conditions, the Federal Open Market Committee began a third round of large-scale asset purchases (Quantitative Easing, QE3), equal to $ 85 billion per month, which later decreased to $ 75 billion per month. As a result of QE3, depository institutions reserves increased dramatically (Figure 2, period 2012-2015), since banks receive cash in the form of reserves in exchange for their Treasury securities.

Figure2. Currency in circulation and Banks’ Deposits

Attempts to decrease asset holdings and consequently the reserves could be very challenging by causing disruptions in monetary policy and an arrhythmia in financial market functioning. Consider for example the incident in mid-September 2019 in which a reduction of the balance sheet was in progress, by means of not reinvesting the proceeds of bonds that were maturing, a process called normalization policy. It proved quite difficult to achieve the required federal funds target rate without the continuous interventions of the open market Fed’s desk. To assure markets that the system had ample supply of reserves, the desk had to conduct term and overnight repurchase agreement operations in the amount of $60 billion in short-term Treasury securities per month and for at least six months.

Yet, some of the liquidity facilities introduced by the Fed, such as the program of buying investment-grade corporate debt from primary and secondary markets, could open the Pandora’s box. Not only the Fed assumes credit risk, which could be quite worrisome and constrain the efficacy of monetary policy, but also the employment of multidimensional tools could blur the boundary between monetary and fiscal policy, threatening the Fed’s policy independence.

The issue of independence deserves broader consideration because, under the terms of an enlarged balance sheet, the Fed in the role of a multipurpose vehicle could create the conditions for off-budget fiscal policy and credit allocation attempts.Political interference as it happened in the past and particularly in 2015, where the Fed funded a transportation bill under congressional mandate, could limit the Fed’s independence which is widely viewed as an important pillar of sound monetary policy.

Discussion

Increased purchases of longer-term assets illustrate the fact that central banks increasingly rely on balance sheet policy rather than the traditional interest rate policy. This reliance is likely due to the fact that the supply of reserves is greater than the demand, creating the need to establish new levels of interest on excess reserves as the floor and the ON RRP as a subfloor. Therefore, the interest on excess reserves as the new instrument of monetary policy is complementary to maintain a large balance sheet and offers an opportunity to improve financial stability.

Also, worth noting that recently Chair Jerome Powell announced a change in the inflation targeting policy, shifting from a 2% target to “a flexible form of average inflation targeting” strategy. The new framework indicates that the Fed will now allow inflation to overshoot 2% temporarily-with the average to be 2%- to compensate for times when the rate falls for quite some time, as it does right now, below the 2.0% target. As it stands, the layout of the new average inflation targeting strategy is not so explicit. The Fed should provide adequate details as to how it will calculate the average inflation, and it should provide some form of forward guidance regarding the time period that inflation remain above the 2% target, or it will be tied to the state of the economy.

In principle this new framework is constructed to (i) to create more inflation, although the Fed’s main challenge is to demonstrate how this can be achieved, after years of undershooting  2%, (ii) give some space to monetary policy and (iii) contain inflation expectations close to 2%. Hence, for those reasons the new inflation targeting framework points to a monetary policy where short term interest rates will stay close to zero lower bound area for at least the next couple of years, even if the unemployment rate reaches low levels.

Lastly, the regime in setting up interest rates is analogous to that of other central banks like the European Central Bank or the Bank of Japan.  The major difference is that, with zero lower-bound interest rates, these two central banks have operated for quite some time in an environment of negative banks’ deposit interest rates. Could the fed contemplate a similar financial environment?

The Fed’s enlarged balance sheet: The Expanding Importance of Bank Reserves (Part II)2020-11-02T01:18:44+00:00

New York’s Employment Gains Slow Modestly in August

The number of jobs in New York State increased in August at a slightly slower pace than in July, and were boosted by the start of hiring for the 2020 census. The New York State Department of Labor reported that employment statewide increased by 153,300 (seasonally adjusted) in August following an increase of 161,000 in July; Federal government employment in the state in August rose nearly 21,000.  The state’s job count is now about 14% below its pre-COVID-19 peak in February.  The increase in employment nationwide in August also slowed from July, the total boosted as well by census hiring; employment nationwide is now about 7.5% below its pre-COVID-19 peak.   The U.S. Bureau of Labor Statistics reported that employment in New York City was up by 108,000 in August, above the 42,400 job gain in July.  Employment in the city is now roughly 15% below its pre-COVID-19 peak.

The unemployment picture in New York improved significantly in August.  New York State’s unemployment rate fell more than three percentage points from July to 12.5%. The state’s rate is above the 8.4% unemployment rate nationwide. In New York City, the unemployment rate fell to 16.0% in August from 19.9% in July.

The New York State Department of Labor reported filings of initial claims for Unemployment Insurance in the state totaled 71,641 during the week ending September 19, above the previous week’s filings and up from the prior four-week average of 64,102. More than 3.8 million workers in New York have filed an initial claim for Unemployment Insurance since the start of the COVID-19 pandemic. In New York City, filings of initial claims for Unemployment Insurance totaled 41,463 during the week ending September 19, also above the previous week’s filings and up from the prior four-week average of 35,662.

New York’s Employment Gains Slow Modestly in August2020-09-26T16:29:54+00:00

New York’s Employment Recovery Slows in July

The number of jobs in New York State increased in July but at a slower pace than in June, and the statewide unemployment rate ticked up.  The New York State Department of Labor reported that employment statewide increased by 176,600 (seasonally adjusted) in July following an increase of 274,000 in June.  Employment statewide is still 15% below its pre-COVID-19 peak in February.  The increase in employment nationwide also slowed in July, though total employment is now about 9% below its pre-COVID-19 peak.   The U.S. Bureau of Labor Statistics reported that employment in New York City was up by 56,000 in July following a gain of 101,000 in June.  Employment in the city is now roughly 17% below its pre-COVID-19 peak.   

Despite the reported increase in jobs, New York State’s unemployment rate rose modestly to 15.9% in July from 15.6% in June.  The state’s rate is above the 10.2% unemployment rate nationwide.  The rise in the state’s unemployment rate can be partially explained by an increase in the state’s labor force in July of more than 200,000.  In New York City, the unemployment rate fell to 19.8% in July from 20.2% in June. 

The New York State Department of Labor reported filings of initial claims for Unemployment Insurance in the state totaled 63,178 during the week ending August 15, moderately above the previous week’s filings but down from the July weekly average of roughly 88.000.   In New York City, filings of initial claims for Unemployment Insurance totaled 33,591 during the week ending August 15, also above the previous week but down from the July weekly average of roughly 45,000. 

New York’s Employment Recovery Slows in July2020-08-31T17:10:46+00:00
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