In our estimation, the Fed is caught in the interstitial between its current rate, forward guidance polices and what we think will be a policy of yield curve control that will need to be put in place in 2021. … READ MORE >
Economics
RSM Manufacturing Outlook Index shows six-standard-deviation hit
The RSM Manufacturing Outlook Index is now tracking at 6.3 standard deviations below normal conditions, surpassing levels seen during Global Financial Crisis of 2007-08 and even the global debacle of the July 1980 “double dip” recession. This reading strongly suggests that the Institute of Supply Management’s Purchasing Managers Index—a closely watched gauge of manufacturing activity—will post a historical low of 36 in the time series when ISM releases its monthly report on May 1. … READ MORE >
First-quarter GDP: Depression-like shock, no depression
Depression-like shock, and no depression, are likely to be the mantras for policymakers following this morning’s 4.8% drop in U.S. first-quarter gross domestic product. That drop in output and the 7.6% decline in household consumption almost certainly understate the depth and breadth of the collapse in economic activity. … READ MORE >
Sources of deflation: Measuring distress in the real economy and financial markets
The magnitude of the economic shocks strongly implies that the probability of a general decline in prices — a dynamic known as deflation — is rising. This is happening despite $3.4 trillion in liquidity commitments and $2.89 trillion in fiscal support. … READ MORE >
Monetary policy in an era of pandemic economics
The Fed has put together nine different lending facilities and put forward liquidity commitments that run in the trillions. While we expect the Federal Open Market Committee to restate its commitment to keeping short-term rates as low as possible for as long as necessary, there will be more policy innovation coming in the near term. … READ MORE >
Testing, testing, testing: Preparing for the reopening of the economy
The idea of reopening the economy is somewhat of a misnomer. The economy will not return to normal all at once, and there is a clear risk of a second wave of the pandemic coming with the relaxation of shelter-in-place orders around the country. Since some governors are in the process of relaxing these restrictions, we thought this is the perfect opportunity to discuss the risks around those decisions. … READ MORE >
Claims for unemployment insurance continue to overwhelm state agencies
The number of initial claims for unemployment benefits declined in all but five states for the week ending April 18, according to filings processed at state agencies. But this is only the fifth week since the economies of most states were shut down to stop the spread of the coronavirus, and the levels remain extraordinarily high. … READ MORE >
Initial jobless claims deteriorate further as concerns over wage deflation mount
American labor dynamics deteriorated further for the week ending April 18 as 4.427 million workers filed initial jobless claims, implying that the near real-time unemployment rate has increased to 21.1% at a minimum. … READ MORE >
Government devotes another $484 billion in aid, much of it for small businesses. But it may not be enough.
Aid to small businesses and hospitals comprise the bulk of the $484 billion aid package put forward by Congress and the Trump administration on Tuesday to mitigate the economic fallout from the COVID-19 public health emergency. … READ MORE >
Policy improvisation is needed to prevent broader business catastrophe: Three fixes for critical aid needed by small and midsize companies
The government aid rolled out to small and medium-size enterprises, which was exhausted after only 13 days, has been problematic at best; at worst, if not changed, it will lag the survival period of many struggling businesses. The U.S. government framework is going to have to be enlarged, include more generous terms for participation and ensure that aid flows to far more smaller firms than the current oversubscribed program has accomplished to date. … READ MORE >