May 8

This blog is the first in a series from Nicolas Crouzet and François Gourio that will discuss how the current pandemic affects the financial positions of publicly traded U.S. corporations, the potential implications of these financial developments, and the federal policy response. This first blog discusses the financial positions before the pandemic started. We document three facts: (1) the share of nonfinancial public companies with large amounts of leverage was elevated, suggesting financial fragility; however, (2) interest expenses were small for most firms due to the low level of interest rates; and (3) most firms had significant liquidity.

The Brave-Butters-Kelley Indexes (BBKI) for the U.S. are constructed from a collapsed dynamic factor analysis of a panel of 500 monthly measures of real economic activity and quarterly real gross domestic product (GDP) growth. Monthly updates to the BBKI are released at 8:30 a.m. ET on scheduled days.

Average wages are a closely watched economic indicator. The growth rate of average wages can help tell us, for example, how workers’ living standards are changing, whether employers face rising costs that they might pass through to consumer price inflation, and whether the labor market is tight or has room to improve further. In the realm of monetary policy, the last two applications are particularly important because they can help people assess the outlook for the Federal Reserve’s “dual mandate” of price stability and maximum employment.

Given the many important reasons to keep an eye on wage growth, economists have developed a wide range of ways to measure it. Naturally, the best way to measure wage growth depends on the reason you are making the measurement—some statistics are better if you want to get a handle on living standards, while other statistics may

Luojia Hu is a senior economist and research advisor in the economic research department at the Federal Reserve Bank of Chicago. Hu conducts research in the areas of econometrics, labor economics and consumer finance. Her research has been published in Econometrica, Economic Journal, Journal of Econometrics, Journal of Labor Economics, Journal of Business and Economic Statistics, the Econometrics Journal, Journal of Econometric Methods, the Industrial and Labor Relations Review and the Review of Finance.

Prior to joining the Chicago Fed in August 2007, Hu was an assistant professor of economics at Northwestern University. She also was a visiting research fellow at the industrial relations section and department of economics at Princeton University. Hu received a BA in economics from the People's University of China and a PhD in economics from Princeton University.

In this blog post, we document that recent revisions to the Chicago Fed’s National Financial Conditions Index (NFCI) have been large and clustered in time—a pattern not seen since the 2007–09 global financial crisis. As financial conditions tightened early on during the Covid-19 outbreak here in the U.S., there were large positive revisions to the NFCI through much of March. We show that revisions of this magnitude and in this direction have often preceded substantial increases in stock market volatility. More recently, in late March and April, the large negative revisions to the NFCI suggest that financial conditions are improving faster than expected by the historical relationships underpinning the index.

The Chicago Fed’s National Financial Conditions Index (NFCI) provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets and the traditional and “shadow” banking systems. Because U.S. economic and financial conditions tend to be highly correlated, we also present an alternative index, the adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on financial conditions relative to current economic conditions.

The NFCI and ANFCI are updated on a weekly basis at 8:30 a.m. ET on Wednesday, and cover the time period through the previous Friday. When a federal holiday falls on a Wednesday or earlier in the week, the NFCI and ANFCI will be updated on Thursday.

We know that tens of millions of people are currently out of work in the United States. More than 26 million workers filed for unemployment benefits between mid-March and mid-April alone. The most popular measure of the strength of the labor market is the unemployment rate. Forecasts for how much it will rise in the coming months vary widely, but many economists now expect an increase to at least 15%, and perhaps much more.

Despite its popularity, the official unemployment rate does not capture all workers facing adverse employment conditions. To count as unemployed, one must be out of work and either on temporary layoff or actively looking and available for new work. This leaves out many people who want to work but did not look for work in the period covered by the data, as well as people who may remain employed but at substantially reduced hours.

The Labor Department has alternative, broader measures of labor market underutilization that track these...

Nahiomy Alvarez

Cleared derivatives contracts are now concentrated among a small and dwindling number of institutions. Many policymakers and regulators have argued that this concentration has adverse consequences, some of which may have systemic risk implications. The author explores the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs). If done prudently, increasing and diversifying the pool of clearing members and redistributing outstanding derivatives contracts across them may help CCPs become more resilient.

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For much of the recent expansion, real wage growth was surprisingly sluggish, by some measures never reaching its pace prior to the 2008 financial crisis, despite tight labor markets that drove the unemployment rate to 3.5%. However, on average, the lowest-earning workers fared substantially better, consistently experiencing real wage growth of 6% or more for much of the late 2010s, a pace well above the previous two decades.

In this Chicago Fed Letter, we examine the extent to which local minimum wage hikes contributed to the acceleration of wage growth among low-wage workers. We find that minimum wage hikes led to, on average, an additional 0.5 to 0.6 percentage points per year in real hourly wage growth for workers at the bottom quartile of the wage distribution between 2015 and 2019. Bottom-quartile real wage growth grew from about 4% in 2014, when a new round of local minimum wage legislation began, to 6% to 6.5% per year shortly thereafter. Therefore, we...

The Brave-Butters-Kelley Indexes (BBKI) are a research project of the Federal Reserve Bank of Chicago. The BBK Coincident and Leading Indexes and Monthly GDP Growth for the U.S. are constructed from a collapsed dynamic factor analysis of a panel of 500 monthly measures of real economic activity and quarterly real GDP growth. Monthly updates to the BBKI are released at 8:30 a.m. ET on scheduled days.