The October Treasury International Capital (TIC) data, which report on U.S. cross-border financial flows, suggested continued unwinding of a massive flight to quality that took place in financial markets in the second half of 2008. (For a detailed overview of U.S. cross-border financial flows during the recent crisis, see a comprehensive report from the Federal Reserve Board.)

Cross-border private capital flows, which plummeted at the peak of the financial crisis in fall 2008, resumed as risk aversion in financial markets started to abate. On net, foreign private investors have again become buyers of U.S. assets, which has helped to increase the supply of capital in the United States.

Based on the TIC data, it appears that U.S. investors, too, are now channeling their savings abroad by buying foreign bonds and equities. Last fall as the global economy fell into a deep recession, U.S. investors sold, on net, foreign assets and repatriated capital at a record pace, partly offsetting outflows of foreign private capital. In recent months, U.S. investors on net bought foreign equities and bonds as foreign economic growth resumed and conditions improved in financial markets. The renewed purchases of foreign securities by U.S. investors shown in the data, however, represent an outflow of capital from the United States and, all else equal, increased U.S. reliance on foreign financing.

The TIC data also show the easing of financial stress, which is reflected in the recent pick-up in foreign net buying of riskier U.S. assets, such as equities, and an increasing demand for agency bonds, including agency mortgage-backed securities, from foreign private investors. Also, foreign investors are rebalancing their portfolios from U.S. Treasury bills to longer-term Treasury securities.

As the financial crisis intensified in the fourth quarter of last year, foreign official investors bought on net a record $181 billion in Treasury bills while on net they sold $23.4 billion in Treasury bonds and notes. Although emerging markets' official reserves fell in the fourth quarter of 2008 (their central banks were selling dollars to support local currencies), net selling of longer-term Treasuries and a sharp sell-off in agency debt funded a surge in net buying of U.S. Treasury bills, based on the TIC data. Similarly, private investors' net buying of treasury bills soared in the second half of 2008. Buying short-term Treasuries allowed a shift to quality and safety in the most prudent way, leaving open the option to quickly reverse the flow. Now that the crisis has subsided, foreign official investors have tapered their purchases of Treasury bills and have increased their purchases of longer-dated Treasuries while private investors began on net selling Treasury bills in second quarter of this year.

Despite all these improvements, the influence of the financial crisis is still evident in the data that show persistent net selling of agency bonds by foreign official investors that began last year as well as continued net selling of long-term corporate debt by foreign private investors.

By Galina Alexeenko, economic policy analysis specialist in the Atlanta Fed's research department

November's employment report released last week provided significantly better-than-expected numbers on the jobs front. Payroll counts declined by 11,000 last month—the smallest decline in two years—and job losses in September and October were revised down a considerable 160,000. The declining number of job cuts is showing up in some other data, too.

First-time claims for unemployment insurance have shown a clear downward trend since last spring (though there was an unexpected increase during the first week of December). Claims have fallen by 200,000 since peaking in March, dipping by roughly 25,000 in the weeks following the payroll survey alone.

While the trend is better, fewer layoffs do not necessarily translate to job creation. On average, the jobless had remained unemployed for a record 28.5 weeks in November. Tuesday's Job Openings and Labor Turnover Survey (JOLTS) reported another record low hiring rate in October and a continued decline in the number of job openings.

However, even in today's weak labor market there are signs that some hiring is going on, even if it is temporary. The American Staffing Association's (ASA) staffing index has temporary hiring trending up since July 2009. The U.S. Bureau of Labor Statistics payroll survey showed the temporary help sector started posting gains a month later, adding a net 117,000 jobs in the four months through November.

In the coming weeks, the ASA index will shed more light on the evolution of temp demand ahead of the December payroll report. Temporary employment is typically regarded as a leading labor market indicator—the intuition being that firms tend to hire temps or increase the hours of current employees before committing to permanent workers. The combination of fewer layoffs and more hiring provides some welcome news—but within the context of two years of job losses.

By Laurel Graefe and Menbere Shiferaw, both Atlanta Fed senior economic research analysts

Though the tab to taxpayers could still be substantial when all is said and done, it now appears the taxpayer cost of the Troubled Asset Relief Program (TARP) will be substantially lower than was thought not too long ago:

"The Obama administration expects the cost of the Troubled Asset Relief Program to be $200 billion less than projected, helping to reduce the size of the budget deficit, a Treasury Department official said yesterday.

"The administration forecast in August that the TARP would ultimately cost $341 billion, once banks had repaid the government for capital injections and other investments. Congress authorized $700 billion for the program in October 2008."

There is precedent for such good news. Travel back for a moment to the formation and operation of the Resolution Trust Corporation (RTC), the agency formed to purchase and sell the "toxic assets" of failed financial institutions following the savings and loan crisis of the 1980s. As noted in a postmortem by Timothy Curry and Lynn Shibut of the Federal Deposit Insurance Corporation (FDIC), the cost projections for the RTC ballooned in the early days of its operations:

"Reflecting the increased number of failures and costs per failure, the official Treasury and RTC projections of the cost of the RTC resolutions rose from $50 billion in August 1989 to a range of $100 billion to $160 billion at the height of the crisis peak in June 1991..."

In the end, however, the outcome, though higher than the very first projections, came in well below the figures suggested by the worst case scenario:

"As of December 31, 1999, the RTC losses for resolving the 747 failed thrifts taken over between January 1, 1989, and June 30, 1995, amounted to an estimated $82.7 billion, of which the public sector accounted for $75.6 billion, or 91 percent, and the private sector accounted for $7.1 billion, or 9 percent."

While people may debate the approaches taken, it is heartening to see evidence that TARP, like the RTC before it, is ultimately costing considerably less than estimated.

By David Altig, senior vice president and research director of the Atlanta Fed

An otherwise fine article from the Wall Street Journal starts with this headline:

"New York Fed Starts To Unwind Stimulus"

You might casually read that headline and assume that the Federal Open Market Committee was mighty impressed by the November employment report—and quick to respond with the first stages of a reversal in the stance of monetary policy. The facts lie, however, underneath the headline.

At issue are so-called "reverse repo" operations, described in the article thus:

"In a reverse repo, the Fed sells securities with an agreement to buy them back later at a higher rate…

"Reverse repos are one tool the Fed has at its disposal when the economy and financial markets have improved enough for it to drain cash from the system. The Fed uses short-term repurchase and reverse repurchase agreements to temporarily affect the size of the Federal Reserve System's portfolio and influence day-to-day trading in the federal-funds market."

On Thursday, the New York Fed conducted $180 million worth of reverse repo transactions on, as the article points out, "the heels of a series of reverse repo tests that have been done by the bank over recent weeks." That word "tests" is the key:

"The Fed earlier this week said it would implement small-scale reverse repos over coming weeks but said the operations have no implication for monetary policy. Rather, the Fed said the operations are being conducted to ensure operational readiness at the Fed, tri-party repo clearing banks J.P. Morgan Chase and Bank of New York Mellon, and primary dealers, the lead group of banks that deal directly with the central bank…

" 'The idea is they want to get all their ducks in a row and be ready (to pull cash) when the time is necessary,' [RBC Capital Markets interest-rate-strategy group head Ira] Jersey said, adding that there's no point in doing large scale reverse repos as long as the Fed is still purchasing assets."

A better headline for the article would surely have been something like "New York Fed Starts to Lay Groundwork to Unwind Stimulus When Time Comes." It doesn't exactly sing, but it represents the facts.

By David Altig, senior vice president and research director at the Atlanta Fed