Axios Macro

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September 27, 2022

A bumpy week on global markets continues, with bonds and currencies experiencing another volatile day. Below, we look at the latest chatter from Federal Reserve officials for signs of how much the U.S. central bank is sweating a global recession risk.

  • But first, a look at some new research on how the jobs recovery is playing out in Trump country vs. Biden country.

Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 693 words, a 2½-minute read.

1 big thing — First look: Trump country wins in the Biden economy

Illustration of two different colored briefcases on a grid

Illustration: Sarah Grillo/Axios

The places where Donald Trump won in the 2020 election are also those seeing the strongest labor markets in the Biden economy.

  • A new report from the Economic Innovation Group, first shared with Axios, offers an in-depth look at how economic patterns have shifted in key states and counties won by the two candidates.

Why it matters: Beyond the political irony, the last couple of years have seen a boom in the counties that make stuff, where the manufacturing, energy and agriculture sectors are a disproportionate share of their economies. And in a reversal of the 2010s, the status quo has been less kind to big-city knowledge economies.

  • That divide increasingly represents politics as well as economics, with the goods-producing areas voting red and the services-producing areas voting blue.

Details: As of the first quarter of 2022, counties that voted for Trump were 0.3% below their pre-pandemic employment levels. For Biden counties, that gap was 1.8%.

Between the lines: To understand why blue state labor markets are bouncing back more slowly, look to the economic makeup of the geographies.

  • In many ways, the forces that explained why these areas thrived in the years leading up to the pandemic are now weighing on recovery.

Counties Biden won include nearly all the country's key business districts that were once a consistent bustling center of economic activity.

  • Why these areas have fewer jobs now can be at least partially explained by the rise of remote work, a phenomenon that's rippled through these economies.
  • Some local businesses have seen demand plummet. For them, fewer office-goers mean fewer customers.

Meanwhile, Trump counties employ a bigger share of workers in the goods-producing sector. For decades, that took a backseat to services — that is, until the pandemic ushered in a historic rotation of consumer spending.

  • Roughly 25% of those in areas that Trump won in 2020 are employed in the goods sector, the report finds, compared to Biden counties, where the share is 14%.
  • Goods-producing businesses went on a hiring spree to keep up with the pandemic-induced demand. The services sector saw demand bounce back, but not until fear of the virus ebbed and the economy began to reopen.

What they're saying: "It seems that the pandemic has been a force for convergence across the U.S. economy: modestly lifting up many formerly-struggling and right-leaning areas while weighing down formerly-dominant and left-leaning ones," the EIG's Kenan Fikri writes in the report.

Of note: The authors find that six states with high-profile elections this cycle that may decide control of the Senate (Arizona, Florida, Georgia, Nevada, North Carolina and Wisconsin) feature above-average economic performance. All but Wisconsin have surpassed pre-pandemic employment.

2. The latest in Fedspeak

Chicago Fed President Charles Evans

Chicago Fed president Charles Evans. Photo: Daniel Acker/Bloomberg via Getty Images

It has been less than a week since the Fed's last policy announcement, but what a week it's been. Markets have been turbulent, with interest rates soaring and stocks falling amid rising fears of a global recession.

  • That creates a dilemma for Fed officials speaking publicly. They face a high-wire act of needing to acknowledge rising risks while not undermining confidence in the Fed's resolve to bring inflation down.

So far, Fed officials have stuck to the script from last week.

  • Chicago Fed president Charles Evans said this morning that his views of needed rate increases are in line with those announced last week. Yet he did say that "we must be watchful and ready to adjust our policy stance if changes in economic circumstances dictate."
  • Cleveland Fed president Loretta Mester said that "there will be some pain and bumps along the way as the growth in output and employment slow and the unemployment rate moves up" in a speech Monday.
  • "We need a slowdown," Atlanta Fed president Raphael Bostic said Sunday on CBS's "Face the Nation." "There's no question about that. But I do think that we're going to do all we can at the Federal Reserve to avoid deep, deep pain."

What's next: We'll be paying close attention to a scheduled speech by vice-chair Lael Brainard on Friday morning called "Remarks on Financial Stability Considerations for Monetary Policy." Besides being part of the central bank's senior leadership, she is highly attuned to the international dimensions of Fed policy.