The economy of the United States was markedly less volatile in the past two to three decades than in prior periods. The nation enjoyed long economic expansions in each of the last three decades, interrupted by recessions in 1990-91 and 2001 that were mild by historical standards. While it has proven difficult to conclusively pinpoint the causes of the reduced volatility, candidates include structural changes in the economy, better monetary policy, and smaller shocks (good luck). Many economists and policymakers came to view lower volatility--the Great Moderation--as likely to be permanent.

More recently, the severity of the recession that started in late 2007 has led some observers to conclude the Great Moderation is over. The recession produced declines in economic activity steeper than in the sharp recessions of the 1950s, 1970s, and early 1980s.

However, the occurrence of a sharp recession does not necessarily mean variability has returned to pre-Great Moderation levels or that the Great Moderation is over. For example, the recession may have produced a more modest rise in volatility that could be temporary. Whether any rise in volatility is more likely temporary than permanent will depend on the cause of the rise in volatility. An increase in volatility due to structural changes in the economy or monetary policy might be permanent. But an increase in volatility driven by larger shocks might prove temporary.

Clark conducts a detailed statistical analysis of the putative rise in volatility and its sources to assess whether the Great Moderation is over. He concludes that, over time, macroeconomic volatility will likely undergo occasional shifts between high and low levels, with low volatility the norm.

Are the Energy States Still Energy States? (PDF 455K)

By Mark C. Snead

Traditional energy states managed to avoid the early stages of the recent national recession, buoyed by record high crude oil and natural gas prices. Both production and exploration for crude oil and natural gas expanded rapidly in response to the spike in energy prices, propelling strong job and income gains in the energy states. But the strong performance of the energy states through the early stages of the recession subsequently reversed itself under the weight of collapsing energy prices. These states began to underperform non-energy states by the second quarter of 2009. These gyrations in economic activity are reminiscent of the volatility experienced during the 1970s and early 1980s, suggesting that the energy cycle is alive and well in the energy states.

Snead examines the economic performance of the energy states in the recent energy price spike and recessionary cycle. He finds that the economies of the energy states remain highly sensitive to changes in energy prices and follow a much different economic cycle than non-energy states. The energy states posted far stronger job growth prior to the recession, entered the recession much later and with more momentum, and have posted smaller cumulative job losses than non-energy states. Most of the energy states were nearly as reliant on the energy sector as a source of state earnings in 2008 as they were at the peak of the prior cycle in 1982. He also finds that the historical ranks of the energy states are poised for a shuffling. Unconventional natural gas production will move some states closer to the top as other states enter the ranks of the major oil and gas producers for the first time.

Attracting the Power Cohort to the Tenth District (PDF 1.86mb)

By Kelly D. Edmiston

A long debated issue in regional economics is whether ?people follow jobs? or ?jobs follow people.? That is, do people move to where jobs are available, or do employers locate their facilities where potential employees reside? If people follow jobs, an appropriate economic development policy would be to concentrate on luring employers, especially large employers. This view reflects many traditional state and local economic development policies. If, on the other hand, jobs follow people, a better policy would be to focus on luring skilled people by creating an environment that is an attractive place to live.

Increasingly, state and local economic development agents are following the latter policy. In particular, many state and local governments are seeking to attract a ?power cohort? of young, childless, college-educated residents. These people are not only attractive to employers but are typically more responsive to the quality of the urban milieu, which can be influenced by policy. Because singles are generally more mobile than families with school-aged children, much of the economic development effort is focused on that subgroup, but the effort also focuses on childless couples.

In the Tenth District most cities are relatively weak in attracting this power cohort. Specifically, the district cities as a whole attract fewer migrants from this cohort than would be expected given their populations, wage levels, and housing costs. This fact raises an important question: Why?

Edmiston argues that the relative performance of migration across Tenth District cities?and elsewhere in the United States?is largely a function of two sets of factors. The district does well based on the first set of factors: unemployment, wages, and taxes. The district is relatively weak based on the second set of factors: cultural and recreational amenities, intellectual capital, topography, and crime.

Can the Ag Credit Survey Predict National Credit Conditions? (PDF 552K)

By Brian C. Briggeman and Christopher Zakrzewicz

With the farm boom ending in 2009, many farmers have become less able to repay short-term loans. As farm profit margins erode and farm loan delinquencies rise, some in the agricultural industry worry that lending standards will tighten?as they did in the farm debt crisis of the 1980s.

One barometer of future agricultural credit conditions is agricultural bankers. Experience and access to information give these bankers a unique perspective on agricultural credit conditions. In fact, several Federal Reserve banks survey agricultural bankers in their district to tap this source of information. But how reliable are regional Federal Reserve agricultural credit surveys? And can a regional survey shed light on future loan delinquencies and credit standards nationwide?

Briggeman examines the Federal Reserve Bank of Kansas City?s Survey of Agricultural Credit Conditions to explore these questions. He concludes that the Survey of Agricultural Credit Conditions reliably predicts farm loan repayment rates in the district and provides valuable insight into future farm loan delinquencies and credit standards nationwide. The most recent Survey data suggest that the nation?s farm loan delinquencies will continue to rise in the year ahead, which may cause collateral requirements to stay elevated heading into 2010.