Monday , August 10 2020
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Menzie Chinn

Menzie Chinn

He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Articles by Menzie Chinn

Covid-19 Fatalities, Excess Fatalities, Forecasts, Again

2 days ago

From CDC, Atlantic/Covid Tracking Project, and IHME:

Figure 1: Weekly fatalities due to Covid-19 as reported to CDC for weeks ending on indicated dates (black), excess fatalities calculated as actual minus expected (teal), fatalities as tabulated by The Covid Tracking Project/Atlantic (dark red), IHME forecast (light red), all on log scale. Source: CDC accessed 8/7/2020 vintage, Covid Tracking Project/Atlantic accessed 8/7/2020, IHME forecast of 8/6/2020, and author’s calculations.
Three observations: (1) the unofficial count was rising; (2) recent weeks’ (about a month’s worth) CDC data are subject to severe undercounting, so inferring recent trends on the basis of CDC data is not advisable; (3) IHME forecasts are for about constant pace of fatalities going forward. As far as I can

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Business Cycle Indicators, August 7th

3 days ago

With today’s employment situation release, here are five key indicators referenced by the NBER’s Business Cycle Dating Committee in Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M02=0.

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.
Since the graph is in log-deviations, one can

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The US-China Trade War/Soybean Front: Home before the (Next Batch of) Leaves Fall

4 days ago

On July 9, 2018, over two years ago, reader CoRev wrote:
Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.

Prices were in the 982 range in October 2017, midpoint in the previous harvest season. As of today, November futures are at 881.

Since then, despite the recession, the overall CPI has risen about 4.3%, while soybean prices have fallen 10.3% (and about 15.7% below what it was when Mr. Trump announced the Section 301 action against China). But…victory is at hand!
Or, maybe not:

Source: Chad Bown, Aug 5, 2020.

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The GDP Collapse: It Is What It Is

5 days ago

Jim discussed elements of the 2020Q2 advance release on Thursday. Here, I amplify some aspects that he mentioned.

Confirmation: A Catastrophe in the Making
First, the Trump recession is truly catastrophic in scale; the pace of GDP decline is much greater than that in 2008. This is shown in Figure 1.

Figure 1: GDP in logs, normalized to 0 at 2019Q4 (NBER peak) (blue), and GDP normalized to 2008Q2 (red). NBER defined recession shaded gray, assuming trough at 2020Q2. Source: BEA, 2020Q2 advance release, NBER, author’s calculations.

A “No Confidence” Vote in Administration Policy and Investment
Second, investment has crashed — for both structures and equipment investment. That’significant insofar as capital investment is forward looking.

Figure 2: Fixed investment in structures (blue,

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Business Cycle Indicators: August 3, 2020

7 days ago

Here are five key indicators referenced by the NBER’s Business Cycle Dating Committee in Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M02=0.

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (8/3 release), NBER, and author’s calculations.
We will soon get July employment numbers. Goldman Sachs employment tracker indicates a

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Guest Contribution: “The impact of the pandemic on developing countries”

7 days ago

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.  A shorter version appeared in Project Syndicate.

The covid-19 pandemic has had differentiated impacts across countries. This is true even among the set of Emerging Market and Developing Economies (EMDEs), which share the disadvantages of more poverty, less adequate health care, and fewer jobs that can be done remotely, compared to Advanced Economies.
Differentiation across continents
Surprisingly, the rates of infection and death have so far been lower in most EMDEs than in the US and Europe, as pointed out by Pinelopi Goldberg and Tristan Reed, and by Raghuram  Rajan. Undercounting is undoubtedly

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Guest Contribution: “Lasting Damage of the Pandemic”

12 days ago

Today we are pleased to present a guest contribution written by Ayhan Kose and Franziska Ohnsorge, respectively Director and Manager in the World Bank’s Prospects Group. The findings, interpretations, and conclusions expressed in this blog are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.

The COVID-19 pandemic has already triggered deep recessions in many countries. These recessions are likely to leave lasting scars that depress potential output for years to come through multiple channels, including lower investment, erosion of human capital, and a retreat from global trade and supply chains. The long-term damage will be particularly severe if recessions are accompanied by financial

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Covid-19 Fatalities, Excess Fatalities, Forecasts

12 days ago

From CDC, Atlantic/Covid Tracking Project, and IHME:

Figure 1: Weekly fatalities due to Covid-19 as reported to CDC for weeks ending on indicated dates (black), excess fatalities calculated as actual minus expected (teal), fatalities as tabulated by The Covid Tracking Project/Atlantic (dark red), IHME forecast (light red), all on log scale. Source: CDC 7/29/2020 vintage, Covid Tracking Project/Atlantic accessed 7/29/2020, IHME forecast of 7/22/2020, and author’s calculations.
Two observations: (1) the unofficial count is rising; (2) recent weeks’ (about a month’s worth) CDC data are subject to severe undercounting, so inferring recent trends on the basis of CDC data is not advisable.
From week ending February 29th through the week ending June 27th, the cumulative CDC fatality tally is

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Covid-19 Fatalities per Million

13 days ago

See figure below:

Source: FT, accessed 7/28/2020.

For those who believe that increased testing is behind the increased number of cases, here is a testing-insensitive time series.
Addendum: Reader sammy says these numbers in the first figure are infinitesimal; but those are flows. Here are cumulatives. Not …so…trivial…now.

Source: FT, accessed 7/28/2020.
Reader Bruce Hall thinks Southern states that opened up are doing relatively well on a per capita basis. Here is a graphic for that view.

You can’t fault the governors of Florida, Texas and Georgia for not trying hard!
Addendum, 7/30: Reader CoRev agrees that one should beware definitive statements. Here is one from CoRev on July 9, 2018, over two years ago:
Those of us arguing against the constant anti-tariff, anti-Trump dialogs have

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Guest Contribution: “International Factor Payments and the Pandemic”

13 days ago

Today we are fortunate to have as a guest contributor Joseph Joyce, Professor of Economics and M. Margaret Ball Professor of International Relations at Wellesley College.

Trade in goods and services constitutes the most visible component of globalization. But there are also markets for labor and capital, the factors of production, as workers and firms seek profitable opportunities  in foreign markets. Their activities yield income in the form of wages, which can be sent to the home countries of the workers as remittances, and profits, which can be repatriated or reinvested. Both forms of income have diminished considerably this year and may take a very long time to recover—if they ever do.
Remittances have become a major source of foreign exchange for the home countries of migrant

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The Dollar’s Value under Pressure

14 days ago

The dollar’s value has come under pressure recently. Does this mean the dollar’s role as a key international currency is at threat?

The short answer: not necessarily.

Figure 1: Nominal value of US dollar against major currencies, in logs (black, left scale 1/2/2020=0), dxy dollar index, in logs (teal, left scale), Economic Policy Uncertainty index (tan, right scale). Source: Fed via FRED, tradingeconomics.com, policyuncertainty.com. 
The value of the US dollar, like any exchange rate, is a function of macroeconomic fundamentals, like the money supply, the stock of government bonds, relative income, as well as risk appetite (risk aversion) and possibly uncertainty. For some empirical models, see this post (paper). Unlike some currencies, the dollar has a demand based on attributes like

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Collapsing Confidence in Public Health/Macroeconomic Management

15 days ago

Consumer sentiment declines; economic policy uncertainty on the rise; real interest rates declining. It’s all in the graph below.

Figure 1: University of Michigan consumer sentiment (top), Economic Policy Uncertainty Index (middle), TIPS 10 year constant maturity yield, % (bottom). U Mich sentiment is preliminary for July, EPU in July is thru 7/25/2020, TIPS in July is thru 7/24/2020. Source: University of Michigan and Treasury via FRED, policyuncertainty.com.

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Congressional Research Service: “Fiscal Policy and Recovery from the COVID19 Recession”

15 days ago

From the summary of the document, which reviews the literature and current macroeconomic state of play. Some key findings are germane to the current intra-Republican party debate over how to proceed with the current recovery package. I know it is the triump of hope over experience to think they will accede to expertise, but here goes.

Economic theory and empirical evidence suggest that stimulative measures tend to move the economy toward full employment as the economy recovers from the contraction, but that measures to reduce the debt (which would require the opposite types of policies, reducing the deficit) are better put in place when the economy returns to full employment. Some views hold that one of the “most significant policy mistakes”in recent times was a premature shift to this

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Business Cycle Indicators, 24 June 2020

17 days ago

Reverse radical or V-ish (or W?)

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), Bloomberg consensus estimate at 7/24 (blue gray), Goldman Sachs Employment Tracker estimate based on data thru 7/7 (sky blue), all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (6/26 release), Bloomberg, Goldman Sachs (7/23/2020), NBER, and author’s calculations.

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Guest Contribution: “Is China’s economic growth lower than officially announced?”

17 days ago

Today, we are fortunate to present a guest contribution written by Laurent Ferrara (SKEMA Business School and QuantCube Technology), Alice Froidevaux (QuantCube Technology) and Thanh-Long Huynh (QuantCube Technology). 

On July 17, 2020, the National Bureau of Statistics of China published its preliminary quarterly accounts for the second quarter of 2020. After a drop of -6.8% in 2020q1, the China’s GDP bounced-back in positive territory to 3.2% (expressed in year-over-year growth), against a background of government expenses and cut in lending rates and banks’ reserve requirements. While much below its pre-Covid dynamics, China’s GDP annual growth was above expectations according to a Reuters poll done few days before.
Official GDP figures often come with some skepticism about their

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A Reminder: The Advance Estimate of Q2 GDP Growth Is…an Estimate

19 days ago

For instance, Goldman Sachs presents two forecasts for Q2 growth (SAAR): one for advance, and one for final. As of 7/19, the forecast of the advance release was -29.0%, and final was -33.0% (Seasonally Adjusted at Annual Rates, SAAR). Something to remember when contemplating the near future.

Figure 1: Real GDP (bn Ch.2012$, SAAR) (black line),  potential GDP CBO estimate from July 2020 (gray line), from January 2020 (chartreuse line), HP filter (pink line), and CBO July 2020 projection (red line). Source: BEA, GDP 2020Q1 3rd release, and CBO, An Update of the Economic Outlook (July 2020), [data], Budget and Economic Outlook (January 2020), and author’s calculations.
In other words, not only is potential GDP an estimate; so too, to varying degrees, are all the GDP figures associated with

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If We Were to Implement a Gold Price Target, What Should the Fed Funds Rate Be?

20 days ago

Given the Senate Banking Committee’s approval of Judy Shelton’s nomination to the Board of Governors of the Federal Reserve, it seems like a good time to see what stabilizing the price of gold in US dollars would’ve required in terms of the policy rate (akin to how the exchange rate is managed). Using the policy rate to  stabilize the dollar price of gold at February 2020 levels would required the increase of the Fed funds rate by 1.15 percentage points higher than it was at that time.  The Fed actually decreased the Fed funds rate by 1.5 percentage percentage points by June 2020.

Figure 1: Price of gold (blue). Red line at NBER defined peak. Source: London bullion market 3pm via FRED.
To obtain this estimate this out, consider the relationship between the log price of gold and the

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Declining Confidence in Trump Economic Management

21 days ago

Real interest rates are declining. Measured economic policy uncertainty is rising.

Figure 1: Ten year constant maturity TIPS, % (blue, left scale), Economic Policy Uncertainty (red, right scale). NBER defined recession dates shaded gray, assumes continues through July.,  Source: Treasury, policyuncertainty.com, accessed 20 July 2020, NBER.
What about the stock market (and the VIX)? This paper suggests that we interpret EPU increases as more associated with Main Street economic uncertainty than Wall Street (represented by VIX) [ungated version here]. The real rate decline is consistent with a belief in more pronounced economic deceleration.

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Economists’ Public Letter on Recovery Policy: State Aid, SNAP, UI

21 days ago

Public Letter on Recovery Policy (from Scholar’s Strategy Network), released today:

Dear National Lawmakers,
As you consider a new package of aid to support the nation during the ongoing COVID-19 pandemic, now is an appropriate time for the federal government to consider economic research carefully in order to provide well-targeted, significant relief to state governments and to individuals experiencing economic hardship. Support for state budgets, and for safety net programs, most notably funding for the Supplemental Nutrition Assistance Program (SNAP) and for Unemployment Insurance, are wise ways to do this.
Unlike the federal government, most states cannot issue debt to support operating expenses. Economic theory and history show that significant state and local government spending

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US Covid-19 Fatalities, Updated Estimates

22 days ago

Comparing CDC tabulated Covid-19 fatalities, excess fatalities, and unofficial data (an update to this post).

Figure 1: Weekly fatalities due to Covid-19 as reported to CDC for weeks ending on indicated dates (black), excess fatalities calculated as actual minus expected (teal), fatalities as tabulated by The Covid Tracking Project/Atlantic (dark red), IHME forecast (light red) . Source: CDC 7/15/2020 vintage, Covid Tracking Project/Atlantic accessed 7/18/2020, IHME forecast of 7/14/2020, and author’s calculations. 

Two observations: (1) the unofficial count is rising; (2) recent weeks’ (about a month’s worth) CDC data are subject to severe undercounting, so inferring recent trends on the basis of CDC data is not advisable.
From week ending February 22nd through the week ending June

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Is Florida In for a W?

23 days ago

I see Governor DeSantis say all is under control, as the Florida economy remains largely open. Economic activity as of mid-June did recover. But Covid-19 surges suggest a retrenchment in the future; the extent of this will depend on how much the epidemic progresses, and what the governor’s tolerance for fatalities/day is.

First, the recovery in employment.

Figure 1: Nonfarm payroll employment in US (blue), in Florida (brown), in logs, normalized 2020M02=0. Source: BLS.
However, toward the end of the month, even in the absence of government restrictions, behavior was moving toward less activity.

Source: Wells Fargo Global Mobility Report, July 15. Applies to google data through 10th, apple data trhough 15th.
The data are not seasonally adjusted, so one has to be careful in

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Nowcasting Q3

24 days ago

Believe it or not, we’re in the 3rd quarter. IHS/Markit (née Macroeconomic Advisers) informs me:

Stall warning
Key economic indicators covering labor markets, consumer spending, housing, and factory activity show that economic activity rose sharply over the May-June period, but alarming increases in COVID-19 infections, hospitalizations, and most tragically deaths have led some states to pause or roll-back steps to re-open and resume activities. The recovery in economic activity will slow and could stall in response to the intensification of the pandemic.
Here are two graphics that illustrate the concerns. First are nowcasts:

Notice that as we entered mid-June, Q2 forecasts fell and Q3 forecasts stopped rising.
This is linked with the pattern in Covid-19 cases and fatalities.

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Inferring Covid-19 Fatalities

25 days ago

If you look at the CDC statistics without looking at the footnotes, you could be forgiven for mistakenly concluding the US was nearing zero Covid-19 fatalities.

Covid-19 fatalities could be counted by referring to death certificates labeling cause as such. However, this method is subject to error due to misreporting. An alternative approach is to calculate excess fatalities — the actual count minus “expected” (CDC sets negative excess deaths to zero, see technical notes to the data. This approach is particularly useful when administrative data are sketchy, e.g., Puerto Rico in the wake of Hurricane Maria. The catch is estimating the expected number of deaths for usual times.
Compounding this problem of inference are long data submission to the CDC. Particularly recent figures are likely

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Wisconsin Employment in June…and the Course of Covid-19

25 days ago

Nonfarm payroll employment slightly exceed June 22 Economic Outlook forecast.

Figure 1: Wisconsin nonfarm payroll employment (black), and forecast from Wisconsin Economic Outlook (red). Source: BLS, DWD, WI DoR (June 22, 2020).
The average over Q2 was 2600.6 thousands, slightly exceeding the forecast of 2586 thousands. The Q2 forecast is for continued expansion; however, this depends on the evolution of the pandemic in the state.
While new cases have surged, hospitalizations and deaths have thus far remained stable (fatalities, not graphed, have been declining since end-May).

Figure 2: Change in positive test results (blue, left scale), and change in hospitalizations (brown, right scale). Source: Wisconsin DHS, accessed 7/16/2020.
It is an interesting questions of how long new cases

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Business Cycle Indicators as of 15 July 2020

26 days ago

Industrial production numbers are out today. Here are five key indicators referenced by the NBER’s Business Cycle Dating Committee.

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M02=0. May observation for manufacturing and trade sales projected using log-linear regression of sales on retail sales ex.-food services over the 2019-20M04 period. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (6/26 release), NBER, and author’s calculations.
If one were convinced that these indicators (along with many others) were going to continue to trend upwards, one could imagine a recession

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Recessions vs. Negative Output Gaps

27 days ago

Two observations: (i) recessions do not necessarily coincide with negative output gaps (although they do seem to coincide with the beginning of periods of negative output gaps); and (ii) recoveries do not always coincide with positive output gaps. [This is an update of a 2008 post.]

This distinction can be illustrated by reference to the evolution of output in 2020, and forecasts.

Figure 1: Real GDP (bn Ch.2012$, SAAR) (black line),  potential GDP (gray line), CBO July projection (red line), and WSJ panel July survey mean (teal line). Hypothetical recession dates based upon NBER-defined peak date and 2020Q2 trough, shaded pink. Source: BEA, GDP 2020Q1 3rd release, and CBO, An Update of the Economic Outlook (July 2020), [data], NBER, and author’s calculations.
This difference is obvious

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Chinn-Ito Index, Updated to 2018

27 days ago

See the website for the data (available xls and dta formats) and data description.

Here’s a map of financial openness in 2018 (normalized index, 1 to 0. The darker, the more open.

And here’s the evolution of the series, by country income group.

See: Menzie Chinn, Hiro Ito, “A New Measure of Financial Openness,” Journal of Comparative Policy Analysis 10(3) (September 2008): 307-320. [PDF]

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Open Letter to Lawmakers: “On Recovery Policy”

28 days ago

From Scholars Strategy Network, an open letter:
Economists’ Letter on Recovery Policy
Dear National Lawmakers,
As you consider a new package of aid to support the nation during the ongoing COVID-19 pandemic, now is an appropriate time for the federal government to consider economic research carefully in order to provide well-targeted, significant relief to state governments and to individuals experiencing economic hardship. Support for state budgets, and for safety net programs, most notably funding for the Supplemental Nutrition Assistance Program (SNAP) and for Unemployment Insurance, are wise ways to do this.

Unlike the federal government, states cannot issue debt to support operating expenses. Economic theory and history show that significant state and local government spending cuts

Read More »

An Improved GDP Outlook from Wall Street

29 days ago

The Wall Street Journal’s July survey results are out. The forecasted level of GDP is higher despite the deteriorating Covid-19 infection and fatality numbers.

Figure 1: GDP, bn. Ch.2012$ SAAR (black), mean, from WSJ April survey (tan), May (green), June (red), and July survey (blue), all on log scale. Source: BEA, WSJ, various vintages, and author’s calculations.
It’s still the case that recovery to 2019Q4 levels – the prior peak — is not attained by 2022Q1 according to the mean response. This prediction is broadly consistent with the IGM/538 survey, which has a modal response for catchup taking place in 2021H2 (see here.)
Despite the worsening outlook, there are few seeing a “W” in output; and the optimistic are pretty optimistic.

Figure 2: GDP in billions of Ch.2012$, SAAR, reported

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Lessons from the Past (i.e., the Last Recession)

July 12, 2020

Remember “austerity” and “expansionary contraction” stories? Well, if you don’t, then gird yourself for another round of claims (primarily by non-macroeconomists) about how state and local governments need to tighten up their finances, by cutting spending (and cutting taxes to necessitate further spending cuts). Perhaps, we should consider expanding federal transfers to the states and localities…From the fourth round survey of the IGM/Fivethirtyeight Covid-19 panel:

Fivethirtyeight discussion in this article. As the graphic highlights, austerity measures imposed upon states due to the collapse in revenue and the inability to borrow is a widely held concern.
CBPP documents the impending shortfalls in state budgets here.
We now project that the state budget shortfalls expected from

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