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Employment growth after the macro disruptions of COVID and World War II

At the start of the pandemic, from February to April 2020, non-agricultural employment in the United States fell by approximately 32 million persons—or 14%. But since then, the US labor market has been experiencing an historic run.

The first FRED graph plots monthly total payroll employment in the nonfarm sector over the past five years, ending in April 2023, the latest data point at the time of this writing. The series is reported as an index, constructed to equal 100 in the “trough” month of April 2020. So, one can read the percentage employment growth from any month relative to the trough directly from the graph. For example, for the three years from April 2020 to April 2023, this employment measure grew by 19.4%, which is a remarkable increase.

One has to go back nearly 80 years to see three-year employment growth of this magnitude. Specifically, the end of World War II in September 1945 brought about the demobilization of over 7 million US troops. According to the National WWII Museum, “the Army had decreased from eight million soldiers in 1945 to 684,000 on July 1, 1947.” Many returned to search for and take up jobs.

The second FRED graph plots the same index, but between September 1943 and September 1948, constructed to equal 100 in the “trough” month of September 1945. After the World War II demobilization, US employment grew 17.6% as servicemembers returned home. This three-year employment growth is nearly as large as the post-COVID increase.

Although driven by very different factors, both can be viewed—in part—as the relenting of contractionary labor market supply shocks.

  • After World War II, servicemembers were no longer sequestered for military duty and thus allowed to return to the labor force.
  • After the initial contractionary impact of COVID, the economy saw gradual reductions in lockdown mandates, lifting of emergency unemployment benefits, and unwinding of voluntary withdrawals from the workforce. Employment growth was likely further fueled by expansive monetary and fiscal policy during much of the period.

How these graphs were created: First, the inspiration for this blog post came from George Hall and Thomas Sargent’s 2021 working paper “Three World Wars: Fiscal-Monetary Consequences.” To create the top graph, seach FRED for “All employees, total nonfarm.” To change the time span, adjust the “year-month-date” dialogue boxes to “2018-04-01” and to “2023-04-01.” Next, click the “EDIT GRAPH” box and change the “Units” option to “Index (Scale value to 100 for chosen date)” and enter the date “2020-04-01” as the date that equals 100 for your custom index. For the bottom graph, use the same series but adjust the start month, end month, and reference index month accordingly.

Suggested by Bill Dupor.

Qualitative information about wholesale credit markets

Data from the Senior Credit Officer Opinion Survey on Dealer Financing Terms

FRED recently added data from the Senior Credit Officer Opinion Survey on Dealer Financing Terms (SCOOS). As the name of this series strongly suggests, there’s a survey involved: The Board of Governors currently sends this survey to the senior credit officers of at least 20 domestic financial institutions. The questions ask for their opinions on current availability and terms of credit in securities financing and over-the-counter derivatives. This qualitative information is used by monetary policymakers to gauge general conditions in those financial markets.

The FRED graph above shows the responses to the first question in the survey:

“Over the past three months, how has the amount of resources and attention your firm devotes to management of concentrated credit exposure to dealers and other financial intermediaries (such as large banking institutions) changed?”

The color represents the specific response and the length of the color segment is proportional to how many participants chose that response:

  • Increased Considerably is blue
  • Increased Somewhat is red
  • Remained Basically Unchanged is green
  • Decreased Somewhat is purple
  • Decreased Considerably is teal

The latest data at the time of this writing are from the first quarter 2023 survey, which shows the survey respondents devoted an unchanged amount of resources and attention to managing credit risks from the group of financial intermediaries. Additional questions in the survey ask about the dealer financing terms for other types of financial intermediaries such as hedge funds and insurance companies, among others.

To learn more about the origins and design of the SCOOS survey, read this working paper from Matthew J. Eichner and Fabio M. Natalucci.

How this graph was created: First, note that the graph title is omitted above (to make more room for the stacked bars), but the graph with the title is here. Now, search the list of FRED releases for “Senior Credit Officer Opinion Survey on Dealer Financing Terms” and click on the first entry (which refers to “Table View”). Next, click on “Counterparty Types (Questions 1-40)” and on “Dealers and Other Financial Intermediaries (Question 1).” The text of the questions and possible answers will be displayed in a table. Select the five possible answers and click on “Add to Graph.” Next, click on the “Edit Graph” button and use the “Format” tab to change the graph type to “Bar” and the stacking to “Percent.”

Suggested by Diego Mendez-Carbajo.

Despite high inflation, households haven’t yet depleted their pandemic-related savings

During the COVID-19 pandemic, households accumulated significant savings, beyond the typical amount in a given year: In 2019, the personal saving rate* in the US averaged 8.8%. In 2020, it had almost doubled to 16.8%.

These additional savings were driven by two factors: a higher propensity to save and higher disposable income.

The first factor was the choice made by households to spend less, which could be due to a combination of health concerns, pandemic restrictions, and the prospects of lower future income, among others. (An earlier FRED Blog post offers more on this topic.) The second factor was the transfer payments from the federal government that generated a substantial increase in income for many households. Research by the Federal Reserve Board found that, from the first quarter of 2020 to the first quarter of 2021, about 40% of excess savings stemmed from a higher propensity to save and 60% stemmed from fiscal support that increased incomes.

The FRED graph above applies the Board analysis to show the trend rate of savings prior to the COVID-19 pandemic. Knowing where the trend line is allows us to depict excess savings, which is measured as the difference between actual savings (blue line) and trend savings (red dashed line). To measure accumulated savings, we add these differences each quarter through the third quarter of 2021. This calculation implies that households accumulated about $2.3 trillion in savings in excess of the pre-COVID savings trend.

Since the fourth quarter of 2021, the blue line has been below the red dashed line, which signifies a rundown in excess savings of around $1.3 trillion. It also suggests that, as of the first quarter of 2023, households still had excess savings of about $1 trillion. However, as Board researchers have noted, this growth and decline in excess savings has not been uniform across the income distribution, as most of the remaining excess savings is being held by the top of the income distribution. This trend is consistent with other analysis, such as the San Francisco Fed’s recent research and the Bank of America’s analysis of their internal data showing steeper declines in account balances of lower-income households, although balances for all income groups is above pre-pandemic levels.

*From the Bureau of Economic Analysis: Personal saving as a percentage of disposable personal income (DPI), frequently referred to as “the personal saving rate,” is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences.

How this graph was created: Search FRED for “personal saving” (PSAVE is the series ID). Limit the dates using the upper right date boxes to “2014-10-01” to present. Next, click on the “Edit Graph” button and use the “Add Line” tab’s “Create line” button. Here, change the starting value to 882.159 and the ending value to 1735.176. This is the pre-pandemic trend line, estimated by a linear regression that is not included in FRED. Next, use the “Format” tab to change the style of Line 2 to “Dashed.”

Suggested by Charles Gascon.

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