Off the Kuff Rotating Header Image

Federal Reserve

Coronavirus and coins

If you’re not using cash, you’re not circulating any coins.

Show some love for Millard

Stores around the U.S. are struggling with an unexpected shortage. (No, not toilet paper — sorry, we’ve already made that joke.) They’re running low on coins.

Supermarkets and gas stations across the U.S. are asking shoppers to pay with a card or produce exact change when possible. Walmart has converted some of its self-checkout registers to accept only plastic. Kroger is offering to load change that would normally involve coins onto loyalty cards. Some Wawa gas stations are accepting coin rolls in exchange for bills.

The trouble began weeks ago, when the coronavirus pandemic delivered a bizarre double blow to the U.S. supply of quarters, dimes, nickels and even pennies. Social distancing and other safety measures slowed production of coins at the U.S. Mint. But also fewer coins made their way from customers to banks, coin-sorting kiosks and stores’ cash registers as people holed up at home.

“The flow of coins through the economy … kind of stopped,” Federal Reserve Chair Jerome Powell told lawmakers in June.

That month, the Fed began rationing coins. Soon after, business groups — representing grocers, convenience stores, retailers, gas station operators and others — wrote to Powell and Treasury Secretary Steven Mnuchin that the situation was an emergency.

“We were alarmed to hear that the system for distributing coins throughout the country is at the breaking point,” they wrote on June 23, offering a series of suggestions for how to fix it. A week later, the Fed announced it would convene a U.S. Coin Task Force to address the matter.

All things considered, I’d generally rather use cash for buying lunch and other small purchases. Old habits, I suppose, plus I know that no one is taking a cut of the cash away from the merchant I’m patronizing. But since we all started staying home and doing contactless transactions, I’ve barely used the stuff. I haven’t hit an ATM since February. I do tip more, and more often, now that it’s all credit card all the time. That’s something I need to pay attention to going forward. I do look forward to the day when I can just hand over a $20 for my lunch, if only because it will be a sure sign that things have returned to some kind of normal.

Sales tax revenues take a dip

Don’t freak out just yet, but do be a little worried.

Houston’s 53-month consecutive span of year-over-year sales tax revenue gains has come to an end, five months into an energy slump analysts said could dent the city’s economic numbers for the rest of the year.

The city’s $50.1 million sales tax revenues for April, received this month as its allocation from the state, represented a 2.3 percent decline from a year ago, according to the Texas Comptroller’s Office.

One month’s spending activity doesn’t represent a trend, and revenues from various sectors of Houston’s economy were all over the map. Among the top-grossing sub-sectors providing tax revenue in Houston, reported collections were down roughly 2 percent at discount department stores and family clothing stores that month compared with 2014, and off 2.6 percent at supermarkets and grocery stores. Full- and limited-service restaurant collections, on the other hand, rose 4.7 percent and 10.1 percent, respectively, figures show.

But as Houston’s sales tax revenues declined 2.3 percent, the state’s $2.6 billion in sales tax revenue represented a 5.2 percent increased over April 2014, suggesting that a sharp downturn in the oil and gas industry so crucial to Texas has affected Houston more significantly than the rest of the state.

[…]

In Houston, sales taxes account for 30 percent of the city budget’s general fund revenue. As the city prepares its next budget, whether the monthly dip is a blip or a more sustained rattle is being monitored, city Controller Ronald Green said.

“I think now’s the time not to panic but for us to kind of determine if there’s going to be a trend in this,” Green said, adding he needs two more months of data to determine whether’s April’s revenues were a trend or an anomaly.

Compared to the doom-and-gloom predictions of late last year, steadying crude prices for the last several weeks are a sign industry is making adjustments, said Ed Wulfe, chairman and CEO of Wulfe and Co., a commercial retail real estate brokerage firm. “I think it has corrected itself already,” he said of the energy downturn. “By and large, we’re starting to get back on the normal speed and level already.”

Crude oil prices began dipping last summer after reaching a peak above $100 per barrel and have hovered around $60 since April.

The effects of that sharp price decline began arriving at the beginning of April, said Jesse Thompson, business economist with the Houston branch of the Federal Reserve Bank of Dallas.

“At this point, the only thing that’s hitting us is what’s happening in the energy market,” Thompson said.

I basically agree with Ronald Green. A one month dip like this can be brushed off as an aberration. Three months of it is a serious problem. If it’s about what’s happening in the energy industry, there’s not much to be done about it except adjust behavior and expectations accordingly. Check back in August and we’ll see where we are.

Is this the end for the dollar coin?

Fine by me if it is.

Millard is keeping hope alive

The dollar wars have raged for years, with various sides battling over what a dollar should look like: Should it be a green piece of paper (cotton, actually) that you can slide in your wallet? Or should it be a metal coin that you put in your pocket?

On one side are the vending machine companies, the miners, and anyone who has traveled enough in Europe to know the convenience of a coin worth one or two euros or pounds. On the other side is Crane, the company that makes the paper for dollar bills, and the banks and retailers that prefer the convenience of paper bills.

A working assumption has been that coins would be cheaper, in the long run, for the government. They cost more to make but last much longer than paper money. The Government Accounting Office estimated the move could save $4.4 billion over the next 30 years. Others have been doubtful that such savings would materialize, as Wonkblog’s Brad Plumer details here.

Now, researchers at the Federal Reserve are weighing in, and they, too, find that getting rid of $1 bills entirely wouldn’t be the panacea that some analysts have claimed.

The most important points of the new working paper, by Michael Lambert, Shaun Ferrari and Brian Wajert, boil down to this: Coins aren’t all they’re cracked up to be.

See here for my previous entry in this ongoing bit of obsession, and be sure to read that Brad Plumer piece from last year as well. Basically, the Fed questions the “seigniorage” effect, which is the primary driver of savings for the government, and points out a bunch of costs that hadn’t previously been taken into account. The net result is that the presumed benefit of switching to coins is likely to be pretty small, especially considering they’re spread over a long time period. As noted at the end, the pro-coin people disagree with this finding, so my hope that this debate is over is almost certainly premature. But I can hope.

Job growth in 2012

Depending on how you look at it, there’s good news, or fair-to-middling news for the Texas job market next year.

Source: Paul Krugman (click for originating post)

Texas job growth in 2012 will reach about 2 percent for the third consecutive year, Federal Reserve Senior Economist Keith Phillips said Tuesday.

Two percent equates to a net increase of 200,000 jobs statewide, Phillips said during a luncheon held at the San Antonio branch office of the Federal Reserve Bank of Dallas and attended by about 60 invited South Texas business leaders.

Texas annual job growth was 2.1 percent in both 2010 and 2011, Phillips said, fueled by expansions in the energy, high-tech and export sectors.

The growth rates for those industries will slow in 2012, Phillips said, but construction in apartments, offices and houses will offset that to keep job growth steady in Texas.

The good news is that there is job growth predicted, and it’s above the growth rate predicted for the nation as a whole. The not so good news is that it’s not any better than it’s been the last two years, which weren’t exactly boffo, and in fact may be a tad below those years. The unknown is how the job growth will compare to the growth in the population of employment-age people. It’s that comparison that will determine Texas’ unemployment rate.

This doesn’t fill me with confidence:

A year ago, Phillips had forecast a 2.7 percent Texas job growth rate. Jobs in the private sector increased at close to that rate. The surprise in 2011 was the loss of local and state government jobs, especially teacher positions, he said.

Fifteen percent of Texas jobs are tied to local and state governments. Budget cuts last year dropped the number of those jobs by 4.4 percent, Phillips said.

“I don’t expect more local and state job cuts in 2012,” he said.

Public sector job losses last year were a surprise? Really? Maybe at this time last year, before the Lege got to work, you could convince yourself that they wouldn’t really take a chainsaw to public education like they did, but the handwriting was certainly on the wall. Not expecting more cuts in 2012 seems like a bad bet to me, because funding reductions to school districts were backloaded a bit. I will not be at all surprised if there are more teacher layoffs this year. I agree that the bulk of the job losses in public education have already occurred, but I do expect there to be more this year. I’ll be glad to be wrong about that.

Slowdown at the Mint

They’re not making as many coins as they used to.

As falls the economy, so falls the jingle of coinmaking at the U.S. Mint.

Production at the federal government’s coin factory in Denver fell a sharp 26 percent in 2008 from the previous year, contributing to a national output decline of 30 percent.

Mint officials said the drop is a direct reflection of the plunging economy and the resulting fall in cash-register transactions that require merchants to provide change.

“Coin demand is definitely affected by economic activity,” said Greg Hernandez, acting director of public affairs in Washington for the U.S. Mint.

“Banks are not ordering as many coins as they were,” he said. “If local banks are not getting orders from local merchants, it’s going to affect Mint production.”

The U.S. Mint in 2008 produced 10.1 billion general-circulation coins, the fewest in at least 10 years.

[…]

Part of the coin-production decline stems from diminishing consumer interest in collecting quarters issued for each of the 50 states — a phenomenon that had ramped up the minting of quarters to a record level in 2000.

And some analysts say increasing use of credit and debit cards, and other electronic transactions, has played a role in reduced demand for coins and currency.

But economic conditions are believed to be the biggest factor.

“If people are just buying fewer things and there are fewer transactions, that will have an effect” on the demand for cash, said Dennis Stansbury, assistant vice president for cash operations at the Denver branch of the Federal Reserve Bank of Kansas City.

That makes sense, though I admit it’s not something I ever would have thought of. Learn something new every day.

Mint officials said they expect production of at least one coin type — the relatively new U.S. presidential $1 coin — to increase as the government conducts a marketing push for merchant and consumer acceptance of the coin.

It’s been more than a year, and I’ve still never seen one of these coins. Maybe some day.