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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.


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February 25, 2019


Tariff Worries and U.S. Business Investment, Take Two

Last summer, we reported that one fifth of firms in the July Survey of Business Uncertainty (SBU) were reassessing capital expenditure plans in light of then-recent tariff hikes and retaliation concerns. Roughly 6 percent had already cut or deferred capital spending as a result of tariff worries.

Since then, tariff hikes and trade policy tensions have continued to mount, as recounted in the Peterson Institute's Trade War Timeline. U.S. stock market volatility also rose sharply in the last four months of 2018, partly in reaction to trade policy concerns. These developments led us to pose another round of questions about trade policy and investment in the January 2019 SBU.

We first asked each firm if tariff hikes and trade policy tensions caused it to alter its capital expenditures in 2018 and, if so, in which direction and by how much. We use the responses to estimate the net impact of tariff hikes and trade policy tensions on U.S. business investment in 2018.

Exhibit 1: Estimated Impact of Tariff Hikes and Trade Policy Tensions on Gross Capital Investment Expenditures by U.S. Businesses in 2018

We estimate that tariff hikes and trade policy tensions lowered gross investment in 2018 by 1.2 percent in the U.S. private sector and by 4.2 percent in the manufacturing sector. The larger response for manufacturing makes sense, given its relatively high exposure to international trade. In constructing these estimates, we consider firms that raised and lowered investment due to trade policy, and we weight each firm by its size.

To estimate the dollar impact of trade policy developments, we multiply the percentage amounts by aggregate investment values. The resulting amounts for U.S. business investment in 2018—minus $32.5 billion for the private sector and minus $22 billion for manufacturing—are modest in magnitude, in line with our forward-looking assessment last summer.

In January, we also asked forward-looking questions about the potential impact of trade policy worries on business investment. As reported in Exhibit 2 below, 20 percent of firms said they are reassessing their capital expenditure plans in 2019 because of tariff hikes and trade policy tensions, a share very similar to what we obtained in our forward-looking question last July. As before, manufacturing firms were more likely to reassess their capital spending plans due to trade policy concerns.

Exhibit 2: Share of Firms Reassessing Capital Expenditure Plans due to Tariff Hikes and Trade Policy Tensions

Exhibit 3 below speaks to the question of how firms have reassessed their capital expenditure plans. Here, too, results are similar to what we reported last summer, with one important exception. Among firms reassessing, more than half have either postponed or dropped some portion of their capital spending for 2019, compared to just 31 percent in July 2018. Thus, it appears that firms anticipate somewhat larger negative effects of trade policy developments on capital expenditures in 2019 than they did in 2018.

Exhibit 3: How Firms Are Reassessing Capital Expenditure Plans

All told, our results continue to suggest that tariff hikes and trade policy tensions have had a rather modest impact on U.S. business investment. Of course, tariffs and other trade barriers affect U.S. and foreign economies through multiple channels. Even if the near-term business investment effects of trade policy developments are modest in magnitude, trade barriers can disrupt supply chains, raise input prices, and lead to higher prices for consumer goods. That's important to keep in mind as the trade policy outlook remains murky.

February 25, 2019 in Capital and Investment, Economics, Trade | Permalink

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February 14, 2019


Trends in Hispanic Labor Force Participation

Although the labor force participation (LFP) rate has fallen significantly for the overall population during the past two decades, the trends can differ a great deal depending on which demographic group you examine. One way to view these varied, ever-changing patterns is to use the Atlanta Fed's Labor Force Participation Dynamics tool. We recently redesigned the tool, adding a new interface and more options for understanding specific demographic groups' LFP. The tool also allows users to see what factors (such as disability/illness, being in school, retirement, or family responsibilities) influence changes in the LFP rate for different groups.

While the tool shows us many stories, a particularly interesting one is the experience of people of Cuban, Mexican, Puerto Rican, South or Central American, or other Spanish culture or origin regardless of race (henceforth referred to as Hispanic). Hispanics are a growing share of the U.S. population (the U.S. Bureau of Labor Statistics [BLS] projects that nearly a fifth of the people in the labor force will be Hispanic by 2024, up from a tenth in 1994), and therefore Hispanics' differences in attitudes and preferences for work will exert an increasingly great effect on headline LFP numbers.

Let's parse the LFP rate among Hispanics. First, the Hispanic population is more likely to engage in the labor force than non-Hispanics. (In 2017, the LFP rate of Hispanics was 66.1 percent, compared to 62.2 percent for non-Hispanics). Second, their LFP has fallen by less during the past two decades.

The pictures below come from the redesigned tool. The first two charts compare the decline in the LFP rate for all ethnicities (Chart 1) versus Hispanic (Chart 2) as the combination of six nonparticipation categories. Each colored bar represents how much a particular category of nonpartipation has changed since the fourth quarter of 1998. The red line shows the summation of the change in each nonparticipation category, or the net change in the LFP rate. For example, the LFP rate overall has declined 4.2 percentage points (ppts) during the past two decades. However, among Hispanics, it has fallen significantly less—just 1.0 ppt. A comparison of the size and direction of each of the nonparticipation categories between the two charts shows many differences in the factors affecting the decline in the LFP rate of each group.

Macroblog_2019-02-13_chart1

Macroblog_2019-02-13_chart2

Because differences across ethnicity could reflect differences in their age distributions—Hispanics are younger on average than the population as a whole—it is important to control for this difference. Using the tool, it's easy to narrow this comparison to look specifically at 26–55 year olds.

In particular, the LFP rate for women of all ethnicities from 26 to 55 years old has declined by 1.0 ppt since 1998. In sharp contrast, the LFP rate for Hispanic women 26 to 55 years old has actually increased by 3.8 ppts. Compared to 20 years ago, this group is less likely to say they don't want a job because of disability/illness (1.1 ppt) and family responsbilities (1.4 ppt). This group is also less likely to be part of the shadow labor force (1.4 ppt) compared to two decades ago. (The shadow labor force, as we define it, is made up of individuals who say they want a job but are not considered unemployed by the BLS.) This article from the BLS delves into more detail about Hispanics in the labor force.

Macroblog_2019-02-13_chart3

Macroblog_2019-02-13_chart4

The LFP tool allows you to explore many other labor force stories. Users can cut the LFP data by three education categories (less than a high school degree, high school or some college, or associate's degree or higher), two age groups (26–55 or all ages), three race/ethnicity categories (white non-Hispanic, black non-Hispanic, and Hispanic) and for men and women. One thing that the tool makes clear is that the factors that influence individual decisions to work, look for work, or to pursue other activities vary across demographic groups, and each group's experience contributes to our understanding of movements in the overall LFP rate.

February 14, 2019 in Employment, Labor Markets | Permalink

Comments

The new tool is an outstanding piece of work. Is there a deficiency in the underlying data which prevents an age partition for those older than 55? Early retirement and re-entry into the labor force may be significant indicators of economic conditions and certainty, especially in the period during and since the Great Recession. These factors are hard to see when the student-age and primary-age groups are included.

Posted by: Charles Smiler | February 14, 2019 at 03:17 PM

Thanks for your interest in the tool. You may want to look at the Trends Over Time tab of the web page, which shows how participation and nonparticipation categories, including retirement, have changed over time by age (and otherselected demographic characteristics).

Posted by: Ellyn Terry | February 26, 2019 at 10:51 AM

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