Economic Letter

When U.S. shoppers buy something imported, are they also paying for local inputs? How much of what is “Made in the U.S.A.” actually is? These questions require accounting for both the U.S. components in the price of imported goods and the use of imported inputs in U.S. production. Estimates show that nearly half of spending on imports stays in the United States, paying for the local components of these goods. Over 10 cents of every dollar U.S. consumers spend reflects the cost of imports at various stages of production.

Studies that seek to forecast stock price movements often consider measures of market sentiment or stock return momentum as predictors. Recent research shows that a multiplicative combination of sentiment and momentum can help predict the return on the Standard & Poor’s 500 stock index over the next month. This predictive power derives mainly from periods when sentiment has been declining over the past year and recent return momentum is negative—periods that coincide with an increase in investor attention to the stock market as measured by a Google search volume index.

Some reports blame opioid use for part of the decline in labor force participation among adult men. Estimates based on workers’ compensation data shed light on the relationship between opioid prescriptions and the return to work among people who suffer work-related low-back injuries, for which opioid use is common. Differences in opioid prescribing patterns across locations demonstrate how various use of these medications can impact how quickly workers return to work. When opioids are prescribed for longer-term treatment, workers have considerably longer durations of temporary disability following an injury.

The Federal Reserve has typically used a short-term interest rate as the policy tool for achieving its macroeconomic goals. However, with short-term rates constrained near zero for much of the past decade, the Fed was impelled to use two unconventional monetary policy tools: forward guidance and quantitative easing. These tools likely strengthened the economic recovery and helped return inflation to the Fed’s target—although their full impact remains uncertain.

A key measure of inflation finally reached the Fed’s 2% target in July after remaining persistently below that for years after the end of the last recession. Analysis shows that most of the increase in personal consumption expenditures price inflation towards the Fed’s target can be attributed to acyclical factors and are not due to a strengthening economy. While risks to the outlook for inflation appear broadly balanced, they include the considerable possibility that inflation has not yet sustainably reached target.

A labor force participation rate that is at or above its long-run trend is consistent with a labor market at or above full employment. In 2018, the estimated rate is at its trend of 62.8%, suggesting that the labor market is at full employment. Studying the population’s demographic makeup and labor trends for different groups sheds some light on what is driving the aggregate participation trend and implications for the future. Projections based on these trends estimate that labor participation will decline about 2.5 percentage points over the next decade.

The yield spread between long-term and short-term Treasury securities is known to be a good predictor of economic activity, particularly of looming recessions. One way to learn more is through a careful scrutiny of the historical variation of such yield spreads and how they relate to the current slope of the Treasury yield curve. The results suggest that the recent flattening of the yield curve implies only a slightly elevated risk of a recession in the near term relative to any other month.

People’s feelings about the economy have been shown to be strongly connected to a state’s current economic health over short horizons. So, how well do such consumer sentiment measures coincide with economic growth over a longer period? Sentiment shocks are associated with large and statistically significant changes in state economic output over as long as a three-year horizon. While the sentiment shocks initially affect state consumption expenditures to a smaller degree, the impact tends to be more persistent, continuing as long as five years after the initial shock.

U.S. labor force participation by people in their prime working years fell substantially during the Great Recession, and it remains depressed despite some recovery since 2015. This appears to reflect longer-term developments, rather than lingering effects from the recession. One key factor is labor market polarization—manifested in the gradual disappearance of manual jobs—which helps predict declining worker attachment across states. This has been reinforced by other long-term economic and social trends, such as health considerations, that also have eroded prime-age labor force attachment.