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The Federal Reserve Bank of St. Louis provides an invaluable service in producing and hosting their FRED statistical database and FRASER economic history digital library. (My Macro Theory slides are a testament to the former.) They have recently compiled an ongoing list of preliminary analyses by their Research Division economists related to COVID-19 and the economic fallout from the pandemic:

• Federal Reserve Bank of St. Louis: COVID-19 Research Resources

They are also maintaining an ongoing interactive timeline of events related to the pandemic.

St. Louis Fed President James Bullard recently made headlines when he issued a dire warning that the U.S. unemployment rate could soon skyrocket to 30% (for context, unemployment hit roughly 25% during the Great Depression and 10% during the Great Recession). But there is a huge amount of uncertainty surrounding such forecasts. Relatedly, economists at the St. Louis Fed have warned that, based on back-of-the-envelope calculations, the U.S. unemployment rate could rise to somewhere between 10.5% and 40.6% by June. Related reading, and one of the COVID-19 Research Resources links:

• Th St. Louis Fed On the Economy blog (3/24/20): Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate by economist Miguel Faria-e-Castro

During crises, back-of-the-envelope calculations or novel forecasting techniques play a larger role in informing policymaking, because time is always a constraint and current statistical analysis is constrained by data availability lags.

Vox has another good piece out contrasting the economic uncertainty and challenges posed by coronavirus relative to that of the 2007-09 financial crisis and Great Recession. (I think we’re going to see this genre proliferate.) Recommended reading:

• Vox (3/30/20): “This one is scarier”: Obama-era officials say current economic crisis is fundamentally different from 2008 by Li Zhou and Ella Nilsen

I like former Rep. Barney Frank’s (D-MA) take: “This one is scarier to me, because we knew how to handle the other one.* The other one was a result of human error and bad decisions. This is different.” Rep. Frank was the Chairman of the House Financial Services Committee during the Great Recession, and the “Frank” namesake of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

That said, I think today’s policy responses are shaping up to be much more similar to 2008-09 than the authors suggest. That’s certainly true of the Fed’s aggressive playbook of late. On the fiscal side the $1,200/$2,400 lump-sum tax cuts in the CARES Act are roughly a scaled-up version of the lump-sum tax rebates from the Economic Stimulus Act 2008 (enacted in February 2008, a year ahead of the Recovery Act of 2009). And Congress should take a nod from 2009 and turn on the spigots to state budgets by increasing the Federal Medical Assistance Percentages (FMAP), the federal cost-sharing rates for state Medicaid programs. State fiscal relief via FMAP increases was a significant chunk of the Recovery Act. House Democrats were recently pushing for FMAP increases, and this issue will almost certainly be revisited as state revenues dry up, Medicaid programs are walloped by the pandemic, and balanced budget amendments start to force budget cuts in the midst of a recession… balanced budget amendments are truly ill-conceived budgetary policies that exacerbate recessions, but I’ll save that for a future post.

*Important caveat to Frank’s point: Knowing does not always translate to doing. A premature withdrawal of federal stimulus and pivot to fiscal consolidation in 2010-14, forced by House Republicans, greatly stymied our recovery from the Great Recession. State-level spending cuts and tax hikes, necessitated by balanced budget amendments, further slowed recovery. It took the U.S. labor market over a decade to recover—which amounts to an abject policy failure, with one aisle of Congress largely to blame. Recommended related reading:

• EPI Report (8/11/2016): Why is recovery taking so long—and who’s to blame? by Josh Bivens

More pushback against the false dichotomy of social distancing vs. the economy:

• Vox (3/28/20): Top economists warn ending social distancing too soon would only hurt the economy by Matthew Yglesias

Key takeaway: “according to a new poll of leading economists from the University of Chicago’s Booth School, there is very little support among experts for the idea that officials must choose between saving lives through continued social distancing and saving the economy by ending the practice.”

Economists Jonathan Dingel and Brent Neiman have an interesting new white paper out: “How Many Jobs Can be Done at Home?“

Key takeaway: “Our classification implies that 34 percent of jobs can plausibly be performed at home.” Let it suffice to say that this does not bode particularly well for the headline unemployment rate.

Speaking of which, the U.S. unemployment rate stood at 3.5% in February 2020, or 5,787,000 unemployed persons relative to a civilian labor force of 164.5 million. On Thursday we saw initial unemployment insurance claims skyrocket to 3.3 million for the week ending Saturday, March 21. You can think of initial UI claims as a floor for job losses, because not all workers who lose their jobs qualify for UI (e.g., part-time employees or workers who recently moved between states). Holding the size of the labor force constant, if we see, say, 4 million workers transition from employment to unemployment in March, the unemployment rate would surge from 3.5% in February to 5.9% in March (9,787,000/164,546,000=0.059).

For context: The largest monthly increase in the U.S. unemployment rate during the Great Recession was 0.5 percentage points, while the largest monthly increase since WWII was a 1.3 percentage point increase during the recession of 1949. Via FRED:

The Center on Budget and Policy Priorities (CBPP), a DC-based think tank, is my go-to for tax and budget policy analysis, especially for anything related to the social safety net and social insurance for low- and moderate-income individuals and families. CBPP has a new, timely report out analyzing the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law yesterday.

Summary: The bill’s a good first step for cushioning an imminent recession, but Congress has plenty of work still cut out for itself, and more targeted fiscal support will still be needed. CBPP’s report highlights various omissions and shortcomings of the bill—not to give Congress a pass, but remember, it was cobbled together and enacted in just over a week—that will need to be rectified with more deliberate legislation targeted toward the nature of the public health crisis. From the report: “The next legislative package needs to continue improvements in unemployment benefits and provide additional fiscal relief for states, including a larger increase in the federal share of Medicaid costs, for as long as the economy remains weak. Otherwise, we risk under-sizing and turning off key stimulus measures too early, lengthening and deepening the recession.”

Recommended reading, via CBPP: 

• CBPP (3/27/20): CARES Act Includes Essential Measures to Respond to Public Health, Economic Crises, But More Will Be Needed

One of those major shortcomings noted in CBPP’s report: “[The CARES Act] lacks any provisions to expand health coverage or pay for COVID-19-related treatment for the uninsured.” The Affordable Care Act (ACA) significantly expanded health care coverage and access in the United States, but as of 2018, roughly 28 million nonelderly people (10.4% of the nonelderly population) had no health insurance—a number and a share that’s been rising since 2016. In 2010, when the ACA was enacted, 46.5 million people (17.8% of the nonelderly population!) were without any semblance of health insurance. See this report by the Kaiser Family Foundation for more information about the uninsured population in the United States.

In many respects the U.S. is poised for a worse experience with this global pandemic than our advanced economy peers, in no small part because of the lack of universal health care coverage and the lack of paid sick leave in the United States. The fact that the U.S. has only 2.6 hospital beds per 1,000 people—lower than many advanced economy peers—despite spending a far greater, staggering 17.7% of GDP on healthcare is not unrelated to the former:

More from CBPP:

Stimulus "rebates": who is eligible, who got left behind, & why Treasury must aggressively use the full extent of its authority to get payments out automatically to as many people as possible:

Our @CenterOnBudget initial brief summary here: https://t.co/LUYADRUEXw

— Chye-Ching Huang (@dashching) March 28, 2020

And @JHWeissmann looks at a critical issue: actually getting the checks to people who are eligible: https://t.co/NBZTv3NEx9

Much will be determined by Treasury/IRS. Critical they use their full authority to get payments quickly to people without unnecessary filing requirements.

— Chye-Ching Huang (@dashching) March 28, 2020

Update: The U.S. House of Representatives passed the ~$2 trillion CARES Act to help ameliorate the public health and economic fallout of the coronavirus. President Trump is expected to sign the bill into law shortly.

One of the usual knocks against fiscal policy is timeliness: Policymakers’ awareness of economic downturns comes with a lag (data lags are very real), policymakers often take too long to enact related legislation (often true), and enacted legislation then takes effect with further policy lags (true of infrastructure spending, less true of transfer payments). Many provisions of the CARES Act will have near-term stimulative effects—notably the lump-sum tax cuts, safety net spending, and state fiscal relief—and there is zero risk that the bill will inadvertently overheat the economy because of policy lags. Relatedly, there is zero risk that the Federal Reserve will tighten interest rates to counteract the stimulative effect of this bill. I’ll have more say more about the “usual knocks against fiscal policy” in a future post…

Congress should have been preparing for the coronavirus much earlier, in January and February, but they moved surprisingly quickly for a (usually deliberative) legislative body after the gravity of the situation became… er, indisputable in the U.S. in March. The CARES bill was introduced in the Senate on March 19—just eight days ago.

Related reading:

• Politico (3/27/20): House passes $2 trillion coronavirus package — but not without last-minute drama

The U.S. House of Representatives is currently debating the Coronavirus Aid, Relief and Economic Security (CARES) Act, the ~$2 trillion fiscal stimulus and emergency response bill passed by the Senate by a 96-0 margin late Wednesday night. Here’s the full text of the bill, via Politico. This is the third, and by far the largest, federal fiscal response to the coronavirus, following the Families First Coronavirus Response Act ($3.5 billion in appropriations and additional authorizations, largely for testing, food assistance, unemployment benefits, and emergency family medical leave and paid sick leave, enacted on March 18) and the Coronavirus Preparedness and Response Supplemental Appropriations Act ($8.3 billion in emergency appropriation, enacted on March 6).

The bill is moving too quickly for the Congressional Budget Office to have produced their usual “cost estimate” for such legislation, but my understanding of the major provisions and their price tags—largely based on this estimate by the Committee for a Responsible Federal Budget—is as follows:

• $510 billion loan and loan guarantee program
  • $454 billion for a Fed loan and loan-guarantee program for businesses, states, and municipalities
  • $56 billion in loans to specific industries, roughly half for passenger airlines
• $377 billion loan facility for small businesses (with loan forgiveness for maintaining employment)
• $300 billion for lump-sum tax cuts (up to $1,200/adult and $500/child)
• $260 billion for emergency unemployment insurance
• $150 billion in grants (fiscal relief) for states, municipalities, and tribes
• $100 billion for hospitals and health care providers
• $45 billion for FEMA disaster relief
• $30 billion in grants for K-12 and higher education
• $25 billion in grants for transportation infrastructure
• $25 billion for food assistance (mostly Supplemental Nutrition Assistance Program)
• $20 billion for veterans health programs
• $10 billion for the CDC, NIH, FDA and other health-related agencies
• Various business tax write-offs and credits

Here’s EPI’s take on the good, the bad, and the ugly in the major provisions of the CARES Act:

• EPI’s Working Economics Blog (3/25/20): Despite some good provisions, the CARES Act has glaring flaws and falls short of fully protecting workers during the coronavirus crisis by Heidi Shierholz and Josh Bivens

Related reading on the politics of the House vote:

• WaPo (3/27/20): Enormous coronavirus bill heads for House vote, as many lawmakers reluctantly return to Washington

Michael Ettlinger’s blog (3/26/20): A Different COVID-19 Graph

Key takeaway: “The charts that normalize the path of the epidemics in different countries leave the impression that every country started at the same point. Not so. The United States and other countries that had the opportunity of seeing what had happened in other countries have no excuse for not being ahead of the game.”

Related readings:

• WaPo (3/20/20): U.S. intelligence reports from January and February warned about a likely pandemic
• TPM (3/26/20): The Warning of SARS by Josh Marshall

And the political spin, via Talking Points Memo: “Treasury Secretary Steven Mnuchin told CNBC Thursday morning that the jobless figures were “not relevant” at the moment, because there are direct payments going out to Americans soon.”

• TPM (3/26/20): 3.28 Million People File Jobless Claims, Smashing Previous Record Amid COVID-19 Outbreak

This is asinine and dangerous thinking. It’s a safe bet that next to no one filing an initial UI claim this last week would prefer a one-time $1200 check and emergency unemployment insurance (if they even receive both) over having their job back. And the staggering scale of these (and future) initial claims numbers are exceedingly relevant for calibrating an overhaul of our beleaguered UI system for the pandemic and “quarantine unemployment.”

New data out this morning showed a record-breaking and truly staggering number of initial unemployment insurance (UI) claims last week. The Economic Policy Institute (EPI), a DC-based think tank, is my go-to for labor market analysis. (Disclosure: I worked for EPI from 2010-13.) Recommended reading, via EPI:

• Economic Policy Institute (3/26/20): Unemployment insurance claims jumped nearly 1,500% in two weeks by economist Heidi Shierholz (EPI, formerly Chief Economist of the Department of Labor under President Obama)

Key takeaway: “Initial UI claims jumped from 211,000 three weeks ago to 282,000 two weeks ago to 3.3 million last week. That is nearly a 1,500% increase in two weeks.”

Today’s Department of Labor report spanned initial UI claims for the week ending Saturday, March 21. But many of the state-level social distancing orders—and related curtailment of economy activity—were mandated after last Saturday (or have yet to be ordered), which doesn’t bode well for subsequent initial UI claims reports (released every Thursday). Related reading on the timeline of stay-at-home orders:

• CNN (3/26/20): These states have implemented stay-at-home orders. Here’s what that means for you by Alicia Lee

Political consultant James Carville famously quipped “It’s the economy, stupid.” But more nuance is needed, now more than ever, when talking about “the economy” as a policy or political objective: We care about the economy not for its own sake, but because the living standards and wellbeing of the public are heavily influenced by the economy, in particular the health of the labor market. Living standards and wellbeing are now being threatened by a global pandemic and health crisis, as well as the cessation of economic activity and skyrocketing layoffs ensuing from the coronavirus threat.

Zooming out a bit from the macroeconomic fallout of the coronavirus, I highly recommend this broader, long-form perspective on the pandemic response and possible fallout:

• The Atlantic (3/25/20): How the Pandemic Will End: The U.S. may end up with the worst COVID-19 outbreak in the industrialized world. This is how it’s going to play out by Ed Yong

Good contrast between the economic challenges of 2008-09 versus the economic fallout from the coronavirus via Ezra Klein:

• Vox (3/23/20): How the Covid-19 recession could become a depression: Coronavirus is a global economic catastrophe by Ezra Klein

In a nutshell: “In 2008, economic policy was motivated, albeit imperfectly, by the single question, “How quickly can we get the economy back to normal?” In 2020, we face two questions in conflict with each other. First, how do we stop mass deaths from coronavirus? Second, how can we make sure there’s an economy to come back to, once we can get back to normal?”

Preventing a mass failure of small businesses is critical to the latter point. Doubtful that a $367 billion small business loan facility is up to the job. For a sense of scale, the Federal Reserve’s Financial Accounts (or “Flow of Funds”) data show that the non-financial, non-corporate business sector (encompassing small businesses) had $8.8 trillion in total liabilities, including $4.2 trillion in mortgage liabilities, outstanding on their balance sheets at the end of 2019 (see Table B.104, Lines 26 and 30).

I also liked this reframing of how to think about unemployment in the present crisis via economist Christina Romer (UC Berkeley, formerly Chair of the Council of Economic Advisors under President Obama):

“I feel like we need a new term for the kind of unemployment we’re going to have,” says Christina Romer, the Berkeley economist who led President Obama’s Council of Economic Advisers during the financial crisis. “It’s not cyclical unemployment. It’s quarantine unemployment. Businesses aren’t allowed to operate. People aren’t allowed to be out of their home. The idea that if you just give people money it’ll somehow prevent the unemployment rate from skyrocketing makes no sense. No amount of demand stimulus will get people to go to restaurants if they’re closed.”

The U.S. Senate seems poised to pass a revised, bipartisan $2 trillion economic stimulus and coronavirus emergency response package. The text of the bill is not yet publicly available, but major provisions reportedly include expanded unemployment benefits, tax cuts of up to $1200 for every American adult, a $367 billion loan program for small businesses, $150 billion in state fiscal relief, $130 billion for hospitals, and a $500 billion loan facility for industries, cities and states. Related articles:

• WaPo (3/25/20): Senate to vote Wednesday on $2 trillion coronavirus bill after landmark agreement with White House
• Politico (3/25/20): Negotiators strike deal on massive coronavirus rescue package

Comparison of timeline to enactment of the American Recovery and Reinvestment Act of 2009, via Jason Furman (@jasonfurman), formerly Chairman of the Council of Economic Advisors under President Obama:

Our first meeting with Congress on the Recovery Act was on Dec 17 2008 and President Obama signed it into law on Feb 17th 2009. That was a $800 billion law with a Democratic President and Congress.

This time it will be less than a week from first draft to Presidential signature.

— Jason Furman (@jasonfurman) March 25, 2020

Bleak predictions for Thursday’s initial jobless claims report, based on a timely analysis of news reports:

• Economic Policy Institute’s Working Economics Blog (3/24/20): The coronavirus crisis led to a record-breaking spike in weekly unemployment insurance claims: An estimated 3.4 million workers filed for unemployment last week by Aaron Sojourner (University of Minnesota Carlson School of Management) and Paul Goldsmith-Pinkham (Yale School of Management)

[Update: This proved to be pretty much on the money come Thursday’s release.]

New economic data for the U.S. economy is released almost every day, but data is released with a lag: Much of the upcoming data releases are for economic activity in February, or even as late as 2019Q4 (third, revised release of 2019Q4 GDP estimates). Most U.S. economic data doesn’t yet show a collapse in economic activity, in part because of these data availability lags. If you’re curious about upcoming data releases, here’s the NY Fed’s Economic Indicators Calendar. And here’s a similar calendar of economic data releases with median forecasts via MarketWatch.

• Average weekly hours, manufacturing (hours typically get cut before layoffs)
• Average weekly initial claims for unemployment insurance (UI)
• Manufacturers’ new orders, consumer goods and materials
• The Institute for Supply Management (ISM) Index of New Orders (new manufacturing orders)
• Manufacturers’ new orders, nondefense capital goods excluding aircraft orders
• Building permits for new private housing units (permits lead new construction, residential investment)
• Stock prices (S&P 500)
• The Conference Board’s Leading Credit Index (measure of credit conditions)
• 10-year Treasury yield less the federal funds rate (risk-free credit spread)
• Index of consumer expectations for business conditions