Aug 10, 2022

Matt Martin provides an update on economic conditions in North Carolina and South Carolina, based on his recent conversations with local business contacts and analysis of the data. Martin is the regional executive based at the Richmond Fed's Charlotte office.

Full transcript and related links: https://www.richmondfed.org/podcasts/speaking_of_the_economy/speaking_2022_08_10_carolinas

As inflation has risen during the past year, it is natural to ask: "How long will this period of high inflation last?" This question is important to households and firms forming expectations about the future, as well as policymakers deciding what actions to take against rising prices. In this Economic Brief, we provide a framework for thinking about inflation and conduct an analysis concerning the persistence of contemporaneous shocks that move price levels. In recent decades, the persistence of inflation has been low, especially when compared to the high inflation of the late 1970s and early 1980s.

Job openings have been a very stark signal of labor market tightness in recent months, with Federal Reserve Chair Jerome Powell referencing historically elevated levels of job openings at the last six Federal Open Market Committee press conferences. But some signs may be pointing to that tightness starting to ease.

Last week, the Bureau of Labor Statistics (BLS) announced that June job openings declined to 10.7 million from 11.3 million in May, with the job openings rate falling to 6.6 percent compared to 6.9 percent in May. For every unemployed person, 1.8 jobs were available, falling from a ratio of 1.9 job openings per unemployed person in the previous month.

Research staff regularly monitors the national economy, helping the Richmond Fed grasp current conditions and their implications for monetary policy. Updated weekly, the following data is part of the information presented during policy discussions and meetings with our board of directors.

Apr 30, 2021

John Bailey Jones discusses his work on medical spending of the elderly and other financial decisions that people make as they age. He also previews a conference on this topic that he is organizing in early May. Jones is vice president of microeconomic analysis at the Richmond Fed.

Full transcript and related links: https://www.richmondfed.org/podcasts/speaking_of_the_economy/speaking_20210430_jones

Microsoft's Irish subsidiary "Microsoft Round Island One" made an astonishing $315 billion profit last year — an amount surpassing half of Ireland's GDP. The subsidiary was able to accomplish this without any employees other than its directors. Moreover, it did so without paying any corporate income taxes.

If this sounds like an impressive accomplishment, then welcome to the world of cross-border corporate taxation. Microsoft Round Island One received its income from other Microsoft affiliates, and it avoided paying income taxes due to its hybrid status as a firm registered in Ireland but tax domiciled in Bermuda, which does not levy a corporate income tax. It's just one example of strategies used by multinational corporations to reduce their global tax bills by using technically legal maneuvers that allow them to shift taxable income to affiliates in low-tax jurisdictions.

The details have varied over the years, but the basic idea has remained the same....

In 1938, in the wake of the Great Depression, the Fair Labor Standards Act (FLSA) established the first federal minimum wage of 25 cents per hour. At that time, a limited number of states had minimum wage requirements, and even the 1938 act applied primarily to companies involved in interstate commerce or producing goods for interstate commerce. The most recent change in the federal minimum wage rate, enacted in 2007, raised the hourly rate from $5.15 to $7.25 by July 2009. But changes to minimum wage laws are neither consistent across states nor uncontroversial among economists. Many states, including some in the Fifth District, have enacted legislation in the last year to increase the minimum wage, and those increases will have both direct and indirect effects on workers, households, and businesses in the District. This article outlines both who will be affected and what those effects could be.

The Fifth District and Its Minimum Wages

State legislatures...

August 26, 2021

Maryland businesses mostly reported growth in August, according to the most recent survey from the Federal Reserve Bank of Richmond. The general business conditions index fell from 35 in July to 12 in August while the sales index rose from 14 July to 17 in August, leaving both indexes in expansionary territory. Firms increased spending, and they expected conditions to improve in the coming months.

August 26, 2021

Firms in the Carolinas reported improved activity, overall, in August, according to the most recent survey from the Federal Reserve Bank of Richmond. The general business conditions index and the sales index declined but remained positive — going from 28 and 26 in July to 4 and 19 in August, respectively — indicating continued growth. Firms also reported increased capital spending and were optimistic that conditions would improve in the coming months.

In February, the Electric Vehicle Association of America released specifications for standard plugs that would allow different makes of electric vehicles to use the same charging stations. If you don't remember reading about it, that's because this attempt at standardization occurred not last February, but in February 1914.

By 1914, electric vehicles (EVs) already had lost nearly all their market share to internal combustion cars. But at the turn of the century, EVs and steam-powered cars were leading the horseless road race. Counting motor vehicles for the first time in 1900, the U.S. Census Bureau captured data from 109 manufacturers that built 1,681 steamers, 1,575 electrics, and only 936 internal combustion cars.

In 1900, expectations for EVs were high, according to David Kirsch, associate professor of management and entrepreneurship at the University of Maryland, who has studied the technology competition between EVs and internal combustion cars. "If you had...

Many employers changed their work arrangements during 2020 in response to the COVID-19 pandemic. In particular, the number of people working from home increased substantially. But as we'll see in this post, there is some discrepancy between our two main sources of information about this labor market development.

August 24, 2021

Fifth District service sector activity strengthened in August, according to the most recent survey by the Federal Reserve Bank of Richmond. The indexes for revenues and demand declined from 19 and 26 in July to 15 and 25, respectively, in August but continued to indicate expansion. Respondents reported improved local business conditions and increased capital spending, and they were optimistic that conditions would continue to improve in the coming months.

August 24, 2021

Fifth District manufacturing activity improved in August, according to the most recent survey from the Federal Reserve Bank of Richmond. The composite index declined from 27 in July to 9 in August but remained in expansionary territory, as all three component indexes — shipments, new orders, and employment — decreased but remained positive. However, several manufacturers reported deteriorating local business conditions. Survey contacts also noted that lead times continued to increase and inventories remained low. Overall, they were optimistic that conditions would improve in the next six months.

Research staff regularly monitors the national economy, helping the Richmond Fed grasp current conditions and their implications for monetary policy. Updated weekly, the following data is part of the information presented during policy discussions and meetings with our board of directors.

Over the past year, Americans have been inundated with news of one large-scale cyberattack after another. The Democratic National Committee's email server was compromised during the 2016 election, and the organization's internal emails were posted publicly by WikiLeaks. An October 2016 attack temporarily disrupted service to many of the most trafficked sites on the Web, including Netflix, Amazon, and Twitter. Ransomware — malicious code that locks a computer's files until users pay for a decryption key — infected business, government, and personal computers around the globe in May and June 2017. And in September, credit bureau Equifax disclosed that hackers accessed personal data used to obtain loans or credit cards for as many as 143 million Americans — making it potentially the largest data theft in history. No digital system seems safe.

According to Symantec's 2017 Internet Security Threat Report, more than 1 billion identities were exposed due to data breaches in...

In this Economic Brief, we give an overview of the changes that have taken place in the unemployment insurance system during the last two severe economic episodes: the Great Recession and the COVID-19 pandemic. We discuss how unemployment benefits supported households' consumer spending and whether it slowed labor market recovery.

We investigate the macroeconomic effects of changes in extreme weather in the United States over the past sixty years by incorporating the Actuaries Climate Index (ACI) into a smooth transition vector autoregressive analysis of the United States economy. The ACI tracks changes in the distribution of extreme temperatures, heavy rainfall, drought, high wind, and sea level. While the effects of extreme weather events are negligible at the beginning of the sample, they become more significant later: An increase in the index now persistently reduces the growth rate of industrial production while raising the unemployment rate and inflation.

Household spending fell sharply, especially on services, during the early days of the pandemic because of social distancing and business restrictions. On a nominal basis, spending on services only returned to pre-pandemic levels in June of this year, and adjusted for inflation, spending on services remains 3.1 percent below February 2020 levels. In contrast, durable goods consumption fell in March and April 2020 but by May of that year was essentially at pre-COVID-19 levels (both in real and nominal terms). As of June, inflation-adjusted durable goods spending is 22.7 percent above February 2020 levels.

Renee Haltom and John O'Trakoun explore recent wage inflation within the context of the short-term challenges of hiring workers in certain industries as well as longer term trends in income growth. Haltom is vice president and regional executive and O'Trakoun is a senior policy economist at the Richmond Fed.

Research staff regularly monitors the national economy, helping the Richmond Fed grasp current conditions and their implications for monetary policy. Updated weekly, the following data is part of the information presented during policy discussions and meetings with our board of directors.

How do local government borrowing, default, and migration interact? We find in-migration results in excessive debt accumulation due to a key externality: Immigrants help repay previously-issued debt. In addition to providing direct IV evidence on this mechanism, we show cities are heavily indebted and remain so even after large population growth, resulting in boom defaults. While default rates are currently low, default risk has increased secularly despite the secular decline in interest rates, which we show lowered default risk else equal. Our quantitative model implies large interest rate declines in the Great Recession and COVID-19 crisis prevented default.

The early months of the COVID-19 pandemic were marked by shortages of toilet paper, hand sanitizer, face masks, and food staples like poultry and beef as households stocked up across the country. The sudden spike in demand combined with disruptions to supply as producers shut down to mitigate the spread of the virus led to some bare shelves in grocery store aisles. (See "Unpacking the Meat Industry.") As spring turned into summer, many of these shortages were resolved, but a new one had emerged.

"I started getting a few phone calls from members asking, 'Is it just me, or are more quarters walking out the door than before?'" says Brian Wallace, president of the Coin Laundry Association.

Of the roughly 30,000 self-service laundromats in the United States, Wallace says that a little more than half take only quarters as payment to operate washers and dryers. Before the pandemic, some of these coin-operated businesses would take in more quarters each week than they...

Latest Reading

The Hornstein-Kudlyak-Lange Non-Employment Index (NEI) was 8.4 percent in July 2021, declining from June 2021. The index was 3.6 percentage points lower compared to July 2020. The NEI including workers who are part time for economic reasons (PTER) was 9.3 percent in July 2021, declining from the previous month. That index was 4.2 percentage points lower compared to the same month in 2020.

Last Friday, we received the employment situation report for July from the Bureau of Labor Statistics (BLS). By some measures, the labor market appears to be booming. Nonfarm payrolls grew by 943,000, following a gain of 938,000 in June. The number of employed people rose by 1 million in July, after falling 18,000 in June. July's unemployment rate dropped to 5.4 percent from 5.9 percent the prior month. Progress on labor force participation has been more tepid, however. Labor force participation rose to 61.7 percent, compared to 61.6 percent in June. Participation rates have been roughly flat since June of last year.

The employment situation report that's released at the beginning of every month is based on two different surveys: the Current Population Survey, which is also called the "household survey," and the Current Employment Statistics survey, also called the "payroll" or "establishment survey." It's possible for the two surveys to provide different pictures of...