Economic Letter

Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.

  • The Rise and Fall of Pandemic Excess Wealth


    Hamza Abdelrahman, Luiz Edgard Oliveira, Adam Hale Shapiro

    U.S. households accumulated significantly more wealth following the pandemic onset than would have been expected without the pandemic shock. Overall excess household wealth—measured as households’ inflation-adjusted net worth beyond pre-pandemic projections—peaked in late 2021 at $13 trillion, then rapidly fell to zero in late 2022, where it broadly remained through the third quarter of 2023. This rise and fall can be attributed mainly to financial assets, particularly equity holdings. Similarly, real liquid asset holdings currently sit below pre-pandemic projections despite a persistent rise in checking account balances.

  • Price Stability Built to Last


    Mary C. Daly

    The economy is healthy and price stability is within sight. But progress is not victory, and considerable uncertainty and risks remain. To finish the job will take fortitude and patience, along with the agility to respond as the economy evolves. The following is adapted from the keynote address by the president of the Federal Reserve Bank of San Francisco at the 40th Annual NABE Economic Policy Conference in Washington, DC, on February 16.

  • The Long-Run Fiscal Outlook in the United States


    Brigid Meisenbacher, Daniel J. Wilson

    The federal debt as a share of U.S. GDP is nearing its historical high from World War II. This ratio fell sharply over the three decades after World War II due to a primary surplus, rapid economic growth, and low interest rates. Projections for the coming three decades point to a persistent primary deficit without major reforms to mandatory spending programs or higher taxes. Thus, the rates of interest and economic growth will be crucial for determining the long-run debt-to-GDP ratio’s evolution.

  • Why Is Prime-Age Labor Force Participation So High?


    Deepika Baskar Prabhakar, Robert G. Valletta

    The labor force participation (LFP) rate for prime-age workers surged from early 2021 through early 2023, especially for women. This helped reduce the large shortfall of available workers relative to available jobs that emerged during the recovery from the pandemic. Analysis of state labor markets indicates that the cyclical response of prime-age LFP was much more pronounced during the two most recent business cycles than in prior ones. This state-level relationship weakened in 2023, however, suggesting that the cyclical gains in prime-age LFP are winding down.

  • Does Working from Home Boost Productivity Growth?


    John G. Fernald, Ethan Goode, Huiyu Li, Brigid Meisenbacher

    An enduring consequence of the COVID-19 pandemic is a notable shift toward remote and hybrid work. This has raised questions regarding whether the shift had a significant effect on the growth rate of U.S. productivity. Analyzing the relationship between GDP per hour growth and the ability to telework across industries shows that industries that are more adaptable to remote work did not experience a bigger decline or boost in productivity growth since 2020 than less adaptable industries. Thus, teleworking most likely has neither substantially held back nor boosted productivity growth.

  • Extreme Weather and Financial Market Uncertainty


    Augustus Kmetz, Mathias S. Kruttli, Brigitte Roth Tran, Sumudu W. Watugala, Alan Yan

    Extreme weather can have negative, minimal, or even positive effects on business performance—creating significant uncertainty about outcomes for those businesses. Financial markets show heightened uncertainty among investors for companies that have been hit by hurricanes. This uncertainty persists for several months after a hurricane’s landfall, as reflected by continued discussion of hurricanes in analyst calls. Comparing expected volatility to actual volatility shows that markets have underreacted to the uncertainty caused by hurricanes. After Hurricane Sandy, a particularly salient hurricane for investors, this market underreaction appears to have diminished.

  • From Hiring Difficulties to Labor Hoarding?


    Sylvain Leduc, Luiz Edgard Oliveira

    Businesses faced challenges finding enough workers to fill job openings early in the pandemic recovery. One view suggests that, as economic growth moderated relative to the strong bounceback in economic activity in the early pandemic recovery period, some businesses started hoarding labor to avoid the potential difficulty of recruiting workers in the future. Evidence from Okun’s law—which theorizes that economic output tends to fall as unemployment rises—is consistent with this view. The results suggest that businesses partly adjusted production by changing the number of hours for current workers rather than varying employee numbers.

  • Do Banks Lend to Distressed Firms?


    Miguel Faria-e-Castro, Pascal Paul, Juan M. Sánchez

    Concerns emerged during the COVID-19 pandemic over banks continuing to lend to unproductive businesses that were close to default. Recent research shows that lenders have incentives to offer relatively better terms to less-productive and more-indebted firms to recover their prior investments. U.S. loan-level data confirm the empirical relevance of such lending behavior. A rich model of firms and banks further emphasizes that this type of lending can also depress overall productivity by sustaining firms that should otherwise exit the economy.

  • What the Moment Demands


    Mary C. Daly

    When central banks are unsure about how the economy will evolve, what impact their policies will have, or how fundamental benchmarks in the economy are changing, the optimal strategy is a gradualist approach to policy. The challenge will be to respond rapidly when the situation requires and to resist the pressure to act quickly when patience is needed. The following is adapted from the closing keynote by the president of the Federal Reserve Bank of San Francisco to the 33rd Frankfurt European Banking Congress in Frankfurt, Germany, on November 17.

  • Recent and Near-Term Fiscal Policy: Headwind or Tailwind?


    Brigid Meisenbacher, Daniel J. Wilson

    The federal government routinely uses government spending and taxes to help offset the highs and lows of the U.S. business cycle. While government spending typically increases during a recession, the magnitude of the fiscal expansion during the pandemic recession was outsized compared with the average historical pattern. This likely contributed to real economic growth and possibly inflation during the recovery. Over the next few years, U.S. fiscal policy is expected to be roughly neutral, providing neither a tailwind nor headwind to the overall economy.