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Change in the metal value of coins

For a long time, coins were supposed to contain enough valuable metal to be worth their face value. This intrinsic value was intended to create trust in the coins and, thus, facilitate transactions for a smooth-running economy. But this hasn’t always worked out well.

  1. Coin issuers had strong incentives to dilute the value by adding less-precious metals or reducing the weight of the coins.
  2. The value of the underlying metals could fluctuate quite a bit, leading to more fluctuation in the price of goods than some liked.
  3. There’s the chronic big problem of small change—the high costs and degree of difficulty to produce the coins.

Today, the most-used U.S. coins are made of nickel, copper, and zinc. The FRED graph above shows that the value of these metals still fluctuates a lot. But that’s not as important now, since nobody expects these coins to have the metal value to match their face value. (Their role is to facilitate change, not really to store value.) But the coins still have some metal value, and the FRED graph below shows that value for quarters (blue), dimes (red), nickels (green), and pennies (purple). 

It may be surprising that the most expensive coin is the nickel, whose metal value frequently exceeds five cents, whereas the penny rarely goes over a cent. Note that these are just the raw costs of the metals. The actual manufacturing on the planchets and their minting adds cents to the cost for each coin.

Suggested by Christian Zimmermann.

How inflation helps the stock market set records

The news regularly reports that this or that stock market index has reached new heights. What does that really mean?

Economies tend to grow, whether it’s their population or their productivity, so it’s natural that their economic statistics would also increase. Prices generally increase as well, which means that even if an economy doesn’t grow, economic measures will increase. That is, if those measures aren’t cleared of general price inflation (“deflated”). Eventually, any stock index will also appear to increase over time. It will have ups and downs—sometimes big ones—but eventually it will set new records.

Let’s consider the example shown in the graph above, which is the Nikkei index for the Japanese stock market over the past 10 years. It seems to have been increasing and, in fact, setting quite a few new records along the way. But has it?

Our second graph shows 60 years of data for the same index. The dramatic run up in 1990 was clearly the record high for the Nikkei, which it has yet to match. But little by little, it’s getting closer to that level and eventually a new record will be set. On this graph, the Nikkei is 74% of the way there.

Our third graph has taken care of the general price inflation problem by dividing the Nikkei by the consumer price index for Japan. This price index pertains only to consumption and not to general output, but it’s the series that is long enough and close enough for our purposes here.

We see from the graph that the record high in 1990 is actually a longer way off: The Nikkei’s current level is really only 68% of the way there. The difference between 68% and 74% isn’t actually that large, thanks to low inflation in Japan. Had Japanese inflation been higher, we might have seen a much bigger difference. But look at the early decades in this graph and you’ll notice crashes that were hidden by inflation in the last graph. Inflation helped the Nikkei reach new records, but adjusting for inflation reveals when the index was actually decreasing.

How these graphs were created: Search FRED for “NIKKEI” and you have the first graph with the default 10 years of data. For the second graph, expand the sample period of the first graph to include all available years, either by clicking on “MAX” above the graph or by playing with the slider below the graph. For the third graph, use the “Edit Graph” panel to search for and add “Japan CPI” and apply formula a/b*100.
Suggested by Christian Zimmermann.

Ceasing emergency federal unemployment benefits: A look at the latest state-level data

The federal government has provided emergency unemployment insurance (UI) benefits to states since March 2020 to supplement their regular state programs. On June 12, 2021, Alaska, Iowa, Mississippi, and Missouri will stop accepting those benefits. Over the next several weeks, 21 other states will also withdraw from these federal emergency UI benefit programs.

These 25 states are withdrawing from these federal emergency programs before their federally legislated closure in September. They include extended eligibility to many workers who otherwise wouldn’t be covered by state UI programs, a $300 weekly add-on for UI recipients, and an extension of benefits beyond the regular state programs’ duration.

These 25 states, which we refer to as “halting states,” will continue to operate their regular state UI programs (RSPs). The non-halting states will operate both their RSPs and the federal emergency programs. RSP details vary by state, but a typical RSP offers benefits for up to 20 to 26 weeks and a replacement rate of 40% to 50%.

This post looks at one of the first places we might see an impact of these upcoming policy changes: state UI claims.

The FRED graph above shows RSP continuing claims in Florida (a halting state) and California (a non-halting state) over the past several months through the week ending May 29. Each series is reported as an index, normalized to equal 100 at the start of May. Continuing claims in Florida have been falling substantially more than in California. These two states are indicative of a nationwide pattern.

In recent weeks, continuing UI claims in RSPs declined in halting states in both absolute terms and somewhat more than non-halting states. The most recent weekly RSP continuing claims data cover the week ending May 29. From May 15 to May 29, these claims fell by 10.3% in halting states and only 3.3% in non-halting states.1

Simply put, continuing claims filings in RSPs have, on net, been falling somewhat more in states in which governors had announced they will end the federal emergency programs before July.

It’s possible some claimants in halting states—aware the $300 weekly add-on and other provisions will soon expire—chose not to continue taking what will become less-generous benefits. No such expectation of reduced generosity would have been present in non-halting states. Likewise, non-claimants in halting states might have chosen to leave the labor force or take up jobs: If the latter is the case, a straightforward interpretation of the data is that ending emergency benefits early is re-incentivizing work for some individuals.2

We’ll be looking at future employment reports to see if differences in RSP claims in halting and non-halting states are associated with differences in employment across those states. Time will tell whether the pattern that is identified in this blog post holds for future claims reports and is seen in future employment reports.

For more analysis, read on…

Other explanations (beyond work incentives) might explain these differences. For example, halting and non-halting states could differ in other important ways, such as in their pre-recession employment trends.

Another relevant issue is that many currently out-of-work individuals are not making initial claims or continuing claims on RSPs. These include recipients who have timed out of the RSPs and others who receive UI as gig workers through the federal programs rather than RSPs. The labor force and employment decisions of these individuals may differ from those tracked in the data examined here and thus may not be representative of the entire out-of-work population.

1 In this comparison, we identify halting states as the 22 states that have planned program termination in June. And comparisons are based on data weighted by state populations. The differential effect is statistically significant at a 99% level.

2 In some states—both halting and non-halting—potential recipients of the federal benefits are required to first apply and be rejected for their RSP before they can be admitted to the federal program. In these states, a decline in initial claims might be due to this feature of the program. For this reason, this post only looks at continuing claims.

NB: this post was revised on 6/14/2021 to correct a few calculations presented in an earlier version.

How this graph was created: Search for and select “continuing claims California.” From the “Edit Graph” panel, change “Units” from “Number” to “Index (Scale value to 100 for chosen date).” Then select 2021-05-01 as the custom index. Next, use the “Add Line” tab to search for and add “initial claims Florida.” Follow the same steps to change the Florida series from a number to an index. The series will show data from 1986 to the present, but use the slider bar beneath the graph to move the start date to April 5, 2021, to zoom in on the most recent data.

Suggested by Bill Dupor.

View on FRED, series used in this post: CACCLAIMS, FLCCLAIMS

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