COVID-19 RESOURCES AND INFORMATION: See the Atlanta Fed's list of publications, information, and resources for help navigating through these uncertain times. Also listen to our special Pandemic Response webinar series.


The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

Comment Standards:
Comments are moderated and will not appear until the moderator has approved them.

Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political.

In addition, no off-topic remarks or spam is permitted.

May 27, 2020

COVID-19 Mortgage Relief—The Role of Income Support

The COVID-19 pandemic has led to a large number of furloughs, layoffs, reductions in hours worked, and wage cuts. Anticipating that many homeowners would consequently have problems paying their monthly mortgage bill, the U.S. Department of Housing and Urban Development ordered all mortgage servicers of federally backed debt to provide forbearance to any homeowners affected by the crisis. In addition, bank regulators encouraged lenders to forbear and restructure mortgages for borrowers affected by the shutdown, actions that staved off an immediate wave of foreclosures. At the end of the forbearance window, borrowers will likely be offered a series of repayment schemes: starting with a period of catch-up payments, then moving to extended terms on their mortgage or possibly even rate reductions. However, if the borrower has not returned to work, paying for what is effectively a new mortgage obviously poses a challenge. Options such as creating a modified repayment plan, lowering the mortgage interest rate, or extending the term of the loan might not be enough for a borrower who has experienced a substantial income loss.

In 2009, researchers at the Boston Fed proposed an alternative policy of supplemental mortgage payment assistance targeted to underwater borrowers experiencing a significant reduction in disposable income due to factors such as employment loss or medical costs associated with illness. That 2009 research built on earlier Boston Fed research demonstrating that—during a previous housing market downturn—most underwater households continued to pay their mortgages unless they were hit with a further reduction in earnings or increase in expenses. The idea that mortgage default is caused by both a negative house price shock and a negative income/employment shock is known as the "double trigger" theory of default. However, the empirical evidence on the double trigger theory was limited. Underwater homeowners in areas with increased unemployment appeared to default more, but this was mostly an interesting correlation, not necessarily a causal relationship.

Since the Great Recession, considerable research (here, for example) has tried to identify the central role income shocks play in default. The econometric challenge is that shocks to income from changes in employment or wages tend to be capitalized into house prices. So a community experiencing the second trigger from widespread job loss, say, will likely also experience a drop in house prices, making it difficult to isolate the real cause of default. In a forthcoming paper we consider the unique sources of changes in employment and income arising from the hydraulic fracking boom in Pennsylvania in the late 2000s to isolate the second trigger from the first.

Fracking involves injecting large amounts of water, sand, and potentially toxic chemicals underground at great pressure to break shale formations and release the trapped natural gas. The fracking process also involves piercing aquifers, storing and treating large quantities of contaminated water, and employing heavy equipment. Some evidence shows that these real or perceived negative features lower the value of homes near fracking wells. At the same time, the shale boom increased demand for middle- and low-skilled workers and generated significant royalty payments to many property owners.

Observing the performance of mortgages that originated before fracking began allows us to treat the resulting shale boom as an experiment where household incomes were sustained (or increased) even as housing prices were flat or declining. Using geological information to predict the location of fracking activity, we find that fracking wells significantly raised total household income, from both wages and royalties, and the wells appear to have increased employment in fracking-related industries. At the same time, fracking does not appear to have raised house prices or made it less likely that a household has negative equity. However, fracking does significantly reduce the probability that a mortgage becomes seriously delinquent (that is, when a borrower misses more than a few payments).

In addition, when we use only geology to predict the location of fracking wells, we get a much larger decline in mortgage delinquency, suggesting that more vulnerable communities were quicker to embrace fracking. Finally, the ameliorative effects of fracking were concentrated among borrowers who are likely to be underwater on their mortgages (the first trigger), consistent with the double trigger hypothesis, since the theory predicts that borrowers with positive equity are unlikely to default in the first place.

Our results suggest that an effective strategy for preventing a foreclosure crisis in the current situation is direct support of household income. Indeed, the Coronavirus Aid, Relief, and Economic Security Act (commonly known as the CARES Act) contains several income transfers to help sustain household budgets, including expanded unemployment insurance, direct cash payments to most households, and loans to small firms that are forgivable on the condition that they sustain employment through the shutdown. It is our view that these programs are not simply helping to sustain families during the crisis, but they're also limiting disruption to the housing market. Depending on how the crisis evolves in the coming months, further income support for affected households may forestall the need for less efficacious interventions to aid distressed borrowers.

April 17, 2020

Businesses Are in Uncharted Waters

Inflation expectations in our April Business Inflation Expectations (BIE) survey fell to an all-time low (going back to October 2011) of 1.4 percent, plunging far below its next lowest level of 1.7 percent (most recently observed in February 2020). Perhaps unsurprisingly, firms have bigger worries on their minds. And our boss, President Raphael Bostic, agreed, noting on WednesdayOff-site link that "inflation at this point is not something I'm particularly worried about."

The drop in inflation expectations was not the only historical low that our survey results uncovered. Firms' assessments of current sales levels relative to what they consider "normal" levels fell precipitously. Recovering from the 2007–09 financial crisis and recession, this quantitative sales gap measure had slowly been moving toward zero (or "normal" sales levels) alongside solid gains in gross domestic product growth and previously strong job gains. However, that all changed in April. Our survey, which was in the field from April 6 to 10, showed an extraordinarily large decline in sales levels relative to normal—from 2.5 percent below normal in the first quarter to 32 percent below normal in April (see the charts). The decline in sales had an impact on firms of all sizes, but smaller firms reported a much larger hit to sales than did firms with more than 100 employees.

Our survey's special questions this month focused on the level of disruption the coronavirus outbreak was causing for southeastern firms. We asked participating firms to assess disruption to their business operations and sales activity, on a scale of "no disruption" to "severe disruption," and it's obvious that a majority of firms in our panel have experienced severe disruption to their sales activity (see chart 2). The table indicates how disrupted firms' operations and sales were. Among those firms experiencing severe disruption, current sales levels have been roughly halved relative to normal conditions. The results suggest that the disruption associated with the outbreak has not hit all firms equally. There is also some evidence of dispersion (reallocation) across firms, as a small share of firms that indicated they are experiencing low levels of disruption are seeing stronger-than-usual sales levels.

As firms continue to grapple with the unprecedented impact and uncertainty that the coronavirus outbreak has inflicted, we wanted to get a rough sense of how long they expect these unusual conditions to persist and how long they can weather the economic shutdown without seeking new sources of funding. The left-hand graph in chart 3 shows the cumulative distribution function (CDF) for how many months before business operations return to normal. The CDF on the right-hand side plots how long firms can continue to operate in the current environment without seeking additional funding to backstop operations.

The typical (median) response was an expectation that it will be about four more months for business operations to return to normal (though the tail is long, and about 10 percent thought a year or longer is in order). Perhaps the silver lining here is that the typical response was an expectation to be able to operate for another six months before needing to tap additional sources of funding. Assuming that much of the economic activity that has been shuttered begins to resume by the beginning of the fourth quarter and conditions do not deteriorate further, the "typical" firm in our panel should be able to continue to operate.

However, digging into the individual responses reveals some nuance in this relationship. The cross-sectional relationship between a business decision-maker's assessments of the length of time he or she can continue to operate without securing additional funding and the length of time before resuming normal activity carries a correlation coefficient of just 0.2. (This finding essentially means that survey respondents often had different notions of when they would be able to resume normal business operations and need to tap additional funding.) The typical firm expects to be able to resume normal operations about a week or so before they need to tap additional funding. And, perhaps more importantly, nearly 40 percent of firms in our sample expect they'll need to secure additional funding before their operations return to normal.

Finally, although inflation isn't the first thing on everyone's mind at the moment, we did ask firms about their price expectations (see chart 4). While roughly 60 percent expect to hold steady on prices over the next six months, roughly a quarter of the panel expect to lower prices, and just 15 percent expect to increase them. On average, firms expect to lower prices by 2.2 percent, and there appears to be a relationship between COVID-related disruption to sales activity and expected price declines.

Across many dimensions, the disruption caused by the current pandemic is without precedent. Many firms headquartered in the Southeast have indicated severely disrupted business operations and sales activity, disruptions that appear to have caused incredibly sharp declines in sales levels. The typical firm in the panel expects this disruption to persist at least through the summer months (which may foreshadow the likely shape of the recoveryOff-site link). And—though not a primary concern at the moment—inflation expectations are the lowest we've recorded in more than 100 consecutive months of conducting this survey. In many ways, we appear to be in uncharted waters.

April 13, 2020

Unpaid Absence from Work Because of COVID-19

As has been widely reported, the March employment report shed light on the early impact of the COVID-19 pandemic on the U.S. labor market. One telling number is the official unemployment rate, which tallies the share of the labor force made up of people out of work (but who are looking for a job) plus those who have been laid off and expect to be recalled. The official unemployment rate increased from 3.5 percent in February to 4.4 percent in March. My own preferred measure is the share of the working-age population who are unemployed, working part-time because of economic conditions, or outside the labor force but still want to work. This underutilization rate is featured in the Atlanta Fed's Labor Report First Look analysis of the U.S. Bureau of Labor Statistics (BLS) labor report. The First Look shows that this measure increased from 5.8 percent in February to 7.1 percent in March.

According to the BLS, people who did not work "because of the coronavirus" were supposed to also be classified as unemployed (on temporary layoff). However, relative to February, it appears that around 1 million more people were classified as employed but absent from work and not getting paid for "other reasons" (reasons other than illness, childcare problems, bad weather, being in school, etc.). If those people were instead counted as unemployed, then the unemployment rate in March would have been closer to 5.0 percent, and the underutilization rate would have been 7.5 percent. The data in the table below break down the various components of these measures, if you want to perform your own calculations.


March 2020

One-month change

Labor force






Part-time for economic reasons



Unpaid absence from work for other reasons



Want a job



Don't want a job



Note: Data represent thousands of people and are seasonally adjusted except for unpaid absence. People in the "Want a job" category include those who currently want a job but are not counted as unemployed. The "Don't want a job" category includes people not in the labor force who say they don't currently want a job (see here for more details). "Unpaid absence" includes those who have a job but are on an unpaid absence from work for an unspecified reason.

Source: BLS, Federal Reserve Bank of Kansas City's Center for the Advancement of Data and Research in Economics, and author's calculations

A few observations about the absence-from-work data for March. First, a marked increase in absence from work across occupations took place, in both paid and unpaid absences. However, being paid while absent from work for "other reasons" was disproportionately prevalent among professional occupations, likely reflecting those workers' relatively greater ability to continue to work remotely. Second, unpaid absence from work was disproportionately common among food-preparation and building-maintenance occupations, as well as jobs providing personal services—the types of occupations most directly affected by social distancing mandates.

The April BLS labor report (due on May 8) will provide a clearer picture of the depth and breadth of the impact of COVID-19 on the labor market, and it will be important to include unpaid absences from work in the analysis. In the meantime, I'm keeping a close eye on the weekly unemployment insurance claims data as well as other high-frequency surveys (such as this one from Gallup).

April 9, 2020

Amid the COVID-19 Crisis, a Tale of Two Cities

The COVID-19 pandemic has resulted in both a major public health crisis and a major economic crisis. The economic impact is coming primarily via social distancing (or stay-in-place) restrictions that have resulted in the temporary closing of nonessential businesses in many parts of the country. As a result, millions of workers have been laid off or furloughed. Unemployment claims for the week ending March 21 totaled more than 3 million—the highest number of seasonally adjusted initial claims in the history of the series at that time. That record was broken quickly. For the week ending March 28, the number of seasonally adjusted initial claims increased to an adjusted 6.9 million. For the week ending April 4 there were an additional 6.6 million new unemployment insurance claims.

In response, Congress has passed two laws that contain measures designed to help individuals affected by this shock: The Families First Coronavirus Response Act (FFCR Act), signed into law on March 18, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27. (In addition, the Coronavirus Preparedness and Response Supplemental Appropriations Act was signed into law on March 6 and provided $8.3 billion in emergency funds to state and local governments to fight the outbreak.)

In this macroblog post, we summarize how the assistance offered in the acts supplement the preexisting social safety net to financially support a hypothetical displaced American working in a restaurant prior to the outbreak. We present our case study in two locations: Boston, Massachusetts, and Birmingham, Alabama. Overall, the potential impact of these acts depends on the ultimate length of the unemployment spell, variation in state unemployment insurance laws, and variation in cost of living.

Our case study: Introducing Chef Andrew

Chef Andrew is single adult 25 years old without children. He works full-time in a restaurant, earning the area-specific typical entry-level wage for chefs. On April 1, Andrew's restaurant employer closes. He is laid off but is unable to find another chef job since many other restaurants are also closed or operating in limited capacity.

What the acts and existing social safety net do

Both acts have a variety of provisions to help those affected by COVID-19, but we focus only on the key unemployment-related components of the acts that benefit workers directly. By focusing only on workers, the analysis excludes components that incentivize employers to retain or rehire workers. In addition to the acts, the preexisting social safety net provides assistance to low-income individuals, including those who encounter short-term periods of financial distress. We review the key elements of the acts and the social safety net that are relevant to Chef Andrew.

  • Individual receipt of up to $1,200 in tax rebates and an additional $500 per qualifying child. The rebate begins phasing out when a single filer's annual income exceeds $75,000.
    • We assume Chef Andrew makes $34,472 per year in Boston and $37,000 in Birmingham. In either city, he receives the full rebate of $1,200.
  • A suspension of all payments on federal student loans through September 30 and a pause on the accrual of interest.
    • We assume Chef Andrew pays $100 per month in student loan payments. The suspension of payments suspension will allow him to reduce monthly expenses between April and September.
  • Expansion of unemployment insurance (UI). On top of the regular state UI benefits, the federal government provides an additional $600 per week in federal pandemic unemployment compensation through July 31. After an individual reaches the state's maximum number of weeks on UI, emergency federal UI benefits extend the state UI benefits for up to an additional 13 weeks.
    • In Birmingham, Chef Andrew's regular state UI payment is $275 per week for 14 weeks. Boston provides a higher dollar amount of unemployment compensation: $353 per week for 26 weeks.
  • The FFCR Act suspends work requirements for determining Supplemental Nutrition Assistance Program (SNAP) eligibility until the declared end of the national public health emergency.
    • Without the act, Andrew would have access to SNAP for three months only while unemployed. The act provides possible extended eligibility to the program. The initial amount he receives is small (less than $20 per month). However, if he is still unemployed after the maximum duration of UI, the size of the support will be larger (about $200 per month).
  • Medicaid and health insurance subsidies provided by the Affordable Care Act (ACA) help low-income individuals afford health insurance, but the laws vary significantly from state to state.
    • When Andrew becomes unemployed, we assume he loses access to employer-sponsored health insurance. In Boston, Andrew is eligible for either Medicaid or ACA subsidies, depending on the amount of his UI income. This significantly reduces his health insurance costs compared to Alabama, which has not expanded Medicaid under the ACA. Therefore, Andrew in Alabama has to pay the full cost of health insurance on the private market when he is unemployed. We estimate this cost to be about $400 per month.

The accompanying analysis describes the assumptions and specifics of how each program assists Andrew during his period of unemployment.

Putting it all together: Birmingham and Boston

Here, we summarize how the provisions in the FFCR and CARES acts, along with the preexisting social safety net, combine to support Andrew and help him pay his living expenses. The vertical axis in the following chart shows net resources, which we define as the sum of after-tax income, SNAP, Medicaid, ACA subsidies, and assistance from the two acts, minus the basic expenses affected by the acts and safety net provisions (food, health insurance, rent, and student loan payments). A value of net resources above zero can be thought of as the excess amount of money that can be used to cover additional expenditures.

The chart shows monthly totals of Andrew's net resources from January 2020 to January 2021. We assume his period of unemployment and the distribution of the acts' funds begin in April 2020. We also assume he remains unemployed for 10 months, a period that includes the maximum duration of assistance under the acts in Massachusetts—39 weeks—and an additional month of unemployment simply to illustrate his financial status without any of the acts' financial support.

Since the dynamics of the net resources over time is complex and depends on changes in individuals' income and expenses over time, we provide a simplified summary here and present a detailed analysis in the accompanying analysis.

Net Resources: Birmingham, AL vs. Boston, MA

Before the crisis, Andrew has about $1,000 of slack in his monthly budget in Birmingham. In Boston, due to the slightly lower wage and higher living expenses (rent in particular, which is more than twice as high in Boston as in Birmingham), he cannot meet his covered expenses even before he becomes unemployed. Thus, in this period, he would likely have to borrow to make ends meet.

When he loses his job in April, the acts (represented by the green lines) allow Andrew to cover basic expenses in both cities from April until August. Despite the fact that the financial support package is larger in Boston than in Birmingham, net resources are higher in Birmingham for this period because of the difference in the costs of living. In September, if Andrew is still unemployed, his net resources drop below zero in both cities. The FFCR and CARES Acts improve Andrew's financial security relative to a world without the passage of the acts. Without the acts (represented by the blue lines), net resources drop below zero as soon as Andrew loses his job and remain negative for the duration of unemployment.

Our case study highlights that although the FFCR and CARES Acts provide financial stability for displaced workers in the short term, the size and duration of the acts' positive impact will depend on individual circumstances, including their income prior to unemployment, state of residency, and household composition. Duration of the crisis also matters. The longer the COVID-19 crisis continues, the greater the financial stress for many households and the greater the call for additional policy action.