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Hutchins Roundup: Mortgage forbearance, long social distancing, and more

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Chances of delaying mortgage payments depended on the servicer

Whether borrowers in 2020 were able to enter forbearance—that is, delay mortgage payments—depended on who the servicer was, according to You Suk Kim and co-authors from the Federal Reserve Bank of New York. Small servicers, nonbanks, and in particular nonbanks with low amounts of cash were significantly less likely to facilitate forbearance. Borrowers from the most forgiving lenders deferred an additional $300 in mortgage payments on average between April and November 2020, equivalent to about $6,000 in deferred payments for each additional forbearance. Had all borrowers used these lenders, they would have deferred an additional $10 billion in payments.  Money saved from entering forbearance was primarily used for precautionary savings and nondurable consumption, which includes spending on everyday necessities.

‘Long Social Distancing’ is reducing US labor force participation

Using their monthly Survey of Working Arrangements and Attitudes, Jose Maria Barrero of Instituto Tecnológico Autónomo de México, Nicholas Bloom of Stanford, and Steven J. Davis of the University of Chicago find that about 13% of Americans with recent work experience will not return to pre-COVID activities—such as entering subways, crowded elevators, taxis, ride-hailing services, and indoor restaurants—after the pandemic ends. An additional 45% of respondents report that they will engage in either “substantial” or “partial” efforts to limit pre-COVID activities, a behavior that the authors dub Long Social Distancing. Respondents with in-person jobs, lower incomes, and lower educational attainment were more likely to report that they will not return to pre-COVID activities. The authors estimate that Long Social Distancing is reducing current labor force participation by 2 to 2.5 percentage points, thereby reducing output in the U.S. economy by nearly 1% in the first half of 2022. Furthermore, the authors calculate that due to the lower supply of non-educated workers, the college wage premium decreased by between 0.9 and 2.5 percentage points in 2022.

COVID-19 caused an unexpected bump in US fertility rates

Martha Bailey of UCLA, Hannes Schwandt of Northwestern, and Janet Currie of Princeton find that more children were born in the U.S. in 2021 than in 2020. This increase ended 13 years of continuous decline and is especially surprising in the wake of the COVID-19 pandemic, as recessions typically depress fertility rates. The COVID-19 pandemic lowered the opportunity cost of raising children for many women whose work schedules became more flexible. Millions of Americans also received income from pandemic support programs. As a result, changes in family planning caused births to U.S.-born mothers to break their pre-pandemic trend and begin increasing nine months after March 2020. Births to foreign-born mothers, on the other hand, immediately dropped in March 2020, as many women seeking to give birth in the U.S. were unable to due to border closures. The results suggest both that “the time costs of childbearing [are] an important driver of falling fertility rates,” and that “the phenomenon of women seeking to give birth in the U.S. is an important one.”

Chart of the week: Gasoline inflation shrinking while food at home inflation remains high

Line graph showing monthly consumer price index, percent change from a year earlier, from January 2020 to September 2022, for gasoline, food at home, new and used motor vehicles, full service meals and snacks, and all items. Gasoline has plummeted from a high of 59.9% growth in June 2022 to 18.2% growth in August 2022. Meanwhile, food at home has gradually risen since early 2021 to its current level of 13% growth.

Chart Courtesy of the Wall Street Journal

Quote of the week:

“The EU has formulated the concept of open strategic autonomy. One of its main goals is to strengthen the resilience of supply chains. The question is: how? In my opinion, deglobalization cannot be the answer. Reshoring production and clustering it domestically entails high risks as well. Just imagine an earthquake like the one that hit Japan in 2011, or a flood. We simply cannot rule out the possibility of something interrupting production, no matter where, and diversified supply lines act as insurance against such events,” says Joachim Nagel, President of the Deutsche Bundesbank.

“What is more, trade offers efficiency through comparative advantages, and deglobalization would sacrifice that. Openness and resilience are not generally a tradeoff, but they are often complementary. As history has shown time and again, trade is crucial to higher living standards. Therefore, rather than turning away from world markets, it is essential to reevaluate one’s trading partners, production networks and the terms on which trade takes place. In my view, companies have to make these decisions themselves. It’s in their own interest to diversify supply chains and avoid clustering production in countries where geopolitical tensions could lead to operational disruptions or closed borders.”

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