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Social distancing and employment loss in leisure and hospitality

The FRED Blog has used the Current Employment Statistics from the Establishment Data Survey from the Bureau of Labor Statistics before. Past posts cover the ups-and-downs of payroll employment in the information industry and the increasing proportion of women in the workforce.

Today, we use that rich data source to learn more about the reduction in overall payroll employment in March 2020—the first reduction in ten years.

The FRED graph above compares the job losses in the goods-producing industry (mining & lodging; construction; and manufacturing) with the job losses in the service-providing industry (trade, transportation & utilities; information; financial activities; professional and business services; education and health services; leisure and hospitality; and other services).

The bulk of the recent reduction in payroll employment occurred among service-providing activities; during the onset of the 2007-2009 recession, the largest reductions in payroll employment took place among goods-producing activities.

The social distancing to manage the COVID-19 pandemic has changed the routines of millions of people, and their use of services has changed. The FRED graph below shows the change in employment for service-providing industries. These changes are presented in percentages to let us compare sectors of different size.

The loss of employment in leisure and hospitality has been the largest: They represent almost 3% of the employed workers in the industry and 65% of the overall reduction in payroll employment. Restaurants and bars are either exclusively offering take-out or temporarily shutting down, so some decline was expected.

How these graphs were created: From the FRED home page, browse data by category by clicking on the “Release” category. Search for “Employment Situation” and select “Current Employment Statistics (Establishment Data).” Click on “Table B-1. Employees on nonfarm payrolls by industry sector and selected industry detail, Not seasonally adjusted.”

For the first graph, select the following series by clicking the box to the left of their names: Goods-producing; and Private service-providing. Click “Add to Graph.” From the “Edit Graph” panel, change the units to “Change” and the format to “Bars,” selecting “Stacking > None.”

For the second graph, select the following series by clicking the box to the left of their names: Trade, transportation, and utilities; Information; Financial activities; Professional and business services; Education and health services; Leisure and hospitality; and Other services. Click “Add to Graph.” From the “Edit Graph” panel, change the units to “Change” and the format to “Bars,” selecting “Stacking > Normal.”

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: CES0800000001, USEHS, USFIRE, USGOOD, USINFO, USLAH, USPBS, USSERV, USTPU

Unexpected changes to the benchmark U.S. interest rate

Discretion is the better part of valor

Quoting from the Board of Governors of the Federal Reserve System website: “The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System… The FOMC schedules eight meetings per year, one about every six weeks or so. The Committee may also hold unscheduled meetings as necessary to review economic and financial developments.”

One of those unscheduled meetings took place on Sunday, March 15. At that time, the FOMC announced a reduction in the benchmark U.S. interest rate target range by a full percentage point. This decision was made ahead of the regularly scheduled March 17-18 meeting. How often does the FOMC do this? That is, how often does it change its monetary policy target without waiting for a regularly scheduled meeting? FRED can help us answer that question.

The purple bars in the FRED graph above show the change in the federal funds target rate (which is a series that was discontinued after December 16, 2008, and the green bars show the change in the federal funds target range (upper and lower limits). The spacing between the bars shows the pace of interest rate adjustments. Because the data are at a daily frequency (including Sundays), we can see details more easily if we zoom in…

In the graph above, we’ve zoomed in to the months between June 2004 and August 2006, showing 17 increases in the target rate, matched to the regular FOMC meetings. All the changes in the target rate were of the same size: 0.25% (or 25 basis points).

Now, look at the months between August 2007 and July 2009. You can see 10 decreases in the target rate: 8 were announced at the regular FOMC meetings and 2 were in between meetings (January 22 and October 8, 2008). The changes in the target rate were of different sizes, ranging from 0.25% to 0.75% (or 25 to 75 basis points). Note that the December 16, 2008, change in the target rate was accompanied by the implementation of the target range, with upper and lower limits.

Over the past 20 years, the FOMC has held 184 meetings, 30 of which were unscheduled. During the same period, the FOMC changed its monetary policy target 54 times, 7 of which occurred after unscheduled meetings, which amounts to 13% of all policy target changes. You can also keep track of this schedule yourself: The Federal Reserve Board publishes the list of meetings and the list of open market operations that have changed the monetary policy rate

How these graphs were created: Search for and select “federal funds target rate (DISCONTINUED)” (series ID DFEDTAR). From the “Edit Graph” panel, use the “Add Line” to search for and select “federal funds target range upper limit” (series ID DFEDTARU). Repeat for “federal funds target range lower limit” (series ID DFEDTARL). For all lines, change the units to “Change, Percent.” For the second and third graphs, adjust the time periods.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: DFEDTAR, DFEDTARL, DFEDTARU

Bank lending standards and loan growth

Monitoring lending activity in troubled times

One of the many serious concerns about the ongoing coronavirus pandemic is that affected firms will find it difficult to continue to pay interest and principal on their outstanding bank loans, while many firms will require additional loans to tide them over until normal levels of economic activity resume. It’s likely banks will want to help their customers weather the downturn, but some might be reluctant or incapable of extending a large volume of new loans, particularly when the specter of a possible, perhaps likely, recession looms.

A reliable indicator of the willingness of banks to make loans is the Fed’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. Researchers find that bank lending tends to slow after an increase in the percentage of banks that are tightening lending standards. The FRED graph plots the compound annual rate of change in commercial and industrial loans alongside the net percentage of banks tightening standards for such loans to large and middle-market firms.

As the grapht shows, loan growth tends to slow (increase) following an increase (decline) in the net percentage of banks reporting a tightening of lending standards. Moreover, substantial net tightening of standards occurred before and during recessions in 2001 and 2008-09. As of January 2020 (the most recent survey month), the net percentage of banks reporting a tightening of standards was close to zero. In recent weeks, the Federal Reserve has taken several actions to encourage banks to continue to lend to businesses and households during the pandemic event. The net percentage of banks reporting a tightening of lending standards in upcoming surveys will likely be a good indicator of how strong lending will be through the remainder of 2020 and into 2021.

How this graph was created: Search for and select “Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms” (FRED series ID DRTSCILM). From the “Edit Graph” panel, use the “Add Line” feature to search for and select the “Commercial and Industrial Loans, All Commercial Banks” series (FRED series ID TOTCI). From the “Edit Line 2” tab, modify units to “Compounded Annual Rate of Change” and frequency to “Quarterly.” Then, from the “Format” tab, change “Line 2 Y-Axis position” to “Right.” Finally, adjust the sample period to a time when both series are available.

Suggested by Qiuhan Sun and David Wheelock.

View on FRED, series used in this post: DRTSCILM, TOTCI


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