.@calculatedrisk argues housing prices in real terms will be under pressure for some time as the bottom in prices can lag the bottom in investment by years. He expects at least 10% decline in nominal prices from peak with 2.4% already having occurred.
My expectation is residential investment will decline further in 2023, although the largest percentage decline was in 2022. If we look at the most comparable period to the current cycle, the 1978 to 1982 period, we see that real house prices bottomed several years after activity bottomed. Activity bottomed in 1981 or early 1982, but house prices didn’t return to the previous peak (inflation adjusted) until mid-1986. The timing and extent of nominal price declines is difficult to predict. I’ve guessed that we will see 10%+ in nominal price declines nationally. We’ve already seen national price declines of 2.4% seasonally adjusted (Case-Shiller National Index) as sellers appear to be willing to give back some of the extraordinary gains over the last two years (not completely “sticky”). The bottom line is that there will be two bottoms for housing: one for activity and the other for prices. Existing home sales may have already bottomed, but we will see further declines in residential investment. Prices - especially in real terms - will be under pressure for some time.
The Colorado’s River’s flow has averaged less than 10M acre-feet a year in the past three years vs. a long-term average of under 15M. The reduced flows may force the Federal government to impose water use restrictions affecting 40M Americans. @Cflav
The states that rely on water from the shrinking Colorado River are unlikely to agree to voluntarily make deep reductions in their water use which would force the federal government to impose cuts for the first time in the water supply for 40 million Americans. The Colorado River Compact apportioned the water among two groups of states. The so-called upper basin states would get 7.5 million acre-feet a year. The lower basin got a total of 8.5 million acre-feet. A later treaty guaranteed Mexico, where the river reaches the sea, 1.5 million acre-feet. The premise that the river’s flow would average 17.5 million acre-feet each year turned out to be faulty. Over the past century, the river’s actual flow has averaged less than 15 million acre-feet each year. From 2000 through 2022, the river’s annual flow averaged just over 12 million acre-feet; in each of the past three years, the total flow was less than 10 million.
Japan and the Netherlands are finalizing plans to join American exports controls designed to limit Chinese semiconductor production. @Bloomberg
Japan and the Netherlands are poised to join the US in limiting China’s access to advanced semiconductor machinery. The Netherlands will expand restrictions on ASML Holding NV, which will prevent it from selling at least some of its so-called deep ultraviolet lithography machines, crucial to making some types of advanced chips and without which attempts to set up production lines may be impossible. Japan will set similar limits on Nikon Corp.
Between 2010 and 2010 the share of Chinese women 20-24 who were unmarried rose from 67.5% to 80.4% as young Chinese delay marriage. @ft
This week, an estimated 200mn unmarried Chinese returned home to celebrate the lunar new year greeted by relatives brimming with questions about when they plan to get married and start a family. The annual inquisition is such a predictable part of life for young Chinese that social media channels are filled with viral how-to guides coaching people on how to bat away pushy parents. “Everyone has their own technique,” said a Beijing teacher in her late 20s, who has been keeping her boyfriend a secret from her family for years as a pre-emptive strategy against demands for marriage. Young people who do get married are doing so later, while the total pool of China’s marriageable youth continues to shrink annually. The number of women of childbearing age, defined as those between 15 and 49 years old, fell by more than 4mn last year.
.@Brian_Riedl notes that the eight largest deficit reduction bills since 1985 were attached to debt-limit bills and offers some plausible goals for the negotiation such as ending all pandemic related emergency spending.
There are several plausible policy goals. Conservatives could seek to end the Covid-emergency designation and end all pandemic-related emergency spending (a chance for Democrats to declare victory over the pandemic, too). Several Democrats have also expressed openness to the TRUST Act, which would create a congressional commission to extend Social Security and Medicare solvency. Conservatives could seek to freeze discretionary spending for the year (which may mean trimming domestic programs to accommodate any defense or veterans’ health hikes). If progressives want to eliminate the debt limit, they can make a deal to provide other tools to address unrestrained mandatory spending, such as statutory fiscal targets.
.@Jasonfurman notes GDP is “basically at CBO’s pre-pandemic forecast.” Consumer spending, which has enjoyed “huge fiscal support in 2020 and 2021,” is running well ahead of the CBO’s pre-pandemic forecast, while residential investment declined by 26.7%/yr.
Overall GDP is basically at CBO's pre-pandemic forecast. The big story for economic growth was the consistent strength of consumer spending, which is more than two-thirds of the economy. It has been consistently running well ahead of CBO's pre-pandemic forecast. Likely continued impact of huge fiscal support in 2020 and 2021. The countervailing story is the collapse of residential investment. It has fallen for 7 straight quarters, fell 19.3% over the last four quarters, with a decline of 26.7% (annual rate) in Q4. Biggest since the financial crisis. And the third story is that over the pandemic recovery the huge increase in US demand was partly accommodated by rising imports and production shifted from exports to domestic consumption. But the large increase in the trade deficit has been narrowing.
.@EthanYWu offers support to the Charles Goodhart and Manoj Pradhan view that population aging is inflationary as retirees create more demand than supply.
An ageing population, and the dependency it creates, will hamper supply and stoke inflation. Mikael Juselius and Elod Takats of BIS’s core insight: “The young and the old are inflationary, while the working-age cohort is disinflationary.” That is, prime-age workers create more supply than demand, while their elders and juniors do just the opposite.
The cost of moving money out of China has surged to 12 cents on the dollar relative to 1 cent prior to the pandemic. Nevertheless, Natixis SA estimates capital flight in 2023 will be greater than the pre-pandemic level of $150B per year. @Bloomberg
Before the pandemic, China faced capital flight of about $150 billion annually from people going overseas, but the amount is likely to be higher in 2023 since they haven’t been able to travel for the last three years, according to Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. Her calculation — worked out by looking at unexplained differentials in global tourism data — is an estimate of funds left abroad permanently by Chinese nationals who travel. About 10,800 rich Chinese migrated in 2022, the most since 2019 according to New World Wealth, a global data intelligence partner of investment migration consultant Henley & Partners. According to one private banker, wealthy individuals told him the cost of moving money offshore has risen to 12 cents on the dollar late last year from 1 cent in the years before the pandemic, as the government clamped down on money transfers.
.@MattThomasNYC argues the GOP’s performance in New York in last year wasn’t driven by suburban voters but by minority voters in NYC who accounted for 2/3 of the decline in democratic margins btw 2018-2022.
The suburbs account for just over a third of the decline in the Democratic margin of victory between 2018 and 2022. The people of New York City, through a combination of defection and abstention, account for most of the rest. Narrowing our focus to only those precincts where at least three-quarters of residents share the same racial identity – which I’ll refer to as racial enclaves – the trends are even more pronounced. Between 2018 and 2022, Hispanic and Asian enclaves swung fifty-eight and fifty-two points toward the GOP, respectively. Their turn to the right was far more decisive than that of white enclaves, which swung thirty-two points toward the GOP. For their part, black enclaves moved just eight points to the right over the same period. Between 2014 and 2022, the swings were as follows: six points in black enclaves, forty-two points in white enclaves, fifty-six points in Hispanic enclaves, and fifty-eight points in Asian enclaves. Now that’s what I call a revolt.
New @FedResearch finds that a 1pp policy-induced increase in mortgage rates lowers the presence of low-income households in the population of home buyers by 16%, and of low- and moderate-income households by 7.5%.
I identify the effects of monetary policy by exploiting the timing of high-frequency observations of mortgage rate locks around unanticipated monetary policy shocks conveyed in Federal Open Market Committee (FOMC) announcements. I find that a contractionary policy shock which increases mortgage rates by 1 percentage point would reduce the share of home purchase loans going to low- and moderate-income (LMI) borrowers by 2.1 percentage points (or 7.5%) in the weeks following the announcement. The share going to low-income borrowers alone would fall by 1.1 percentage points (16%). While low-wealth households may not experience an immediate appreciation of financial assets when the stance of monetary policy is expansionary, that stance can allow them to get their foot in the door of homeownership.
In 2022 there were 1.7M applications for new businesses that are likely to hire workers. These applications – labeled “high propensity applications” by the Census Bureau – were up 28% over the pre-pandemic baseline. @kenanfikri
Americans filed nearly 1.7 million applications to start new likely employer businesses in 2022. These applications—labeled “high propensity applications” by the Census Bureau—make up a subset of total business applications, capturing those with a higher likelihood of hiring employees in the future based on their industry or other information in the filing. Over the course of the year, there were 359,000 more filings from likely employers in 2022 than in 2019—a 27.8 percent increase over the pre-pandemic baseline. While 2022’s count was 6.5 percent lower than 2021’s, it still ranked as the second-largest haul of the series. These applications are particularly noteworthy because they represent the businesses most likely to lead to lasting job growth and innovation, if and when they become operational.
.@paulkrugman argues that the run-up in debt in the aftermath of the financial crisis and pandemic is likely a better outcome than the counterfactual where debt wasn’t incurred.
My preferred measure — because it avoids some distortions associated with recessions — is debt as a percentage of potential G.D.P., an estimate of what the economy could produce at full employment. The big rise in debt from 2007 to the late 2010s was actually justified by economic events, and any attempt to avoid that rise would have done more harm than good by slowing our recovery even further. Did we borrow too much money? Probably not. During the economic crises of Covid and the Great Recession, adding to the debt was more than justified.
The aging of the American population has left the US short 1.9M workers relative to 2019. A decline in labor force participation of older workers is responsible for a drop of another 500,000 workers. @gelliottmorris @S_Rabinovitch
The labor-force participation (LFP) rate of prime-age workers (aged 25-54) and the foreign-born workforce have almost fully recovered. Neither explains the current squeeze. The biggest shortfall comes from Americans getting older and leaving work behind. Since 2019 those aged at least 65 have gone from less than 16% of the population to nearly 17%. Moreover, unlike prime-age workers, many people who retired early as covid-19 struck have not come back to work. LFP among older Americans, which rose from 12.5% in 2000 to 20.7% in early 2020, has dipped to 19.3%, the same as in 2016. The aging of the population accounts for the loss of 1.9m workers (0.7% of people aged at least 16), while the overall drop in LFP, mainly among the old, is responsible for a further 0.5m (0.2%).
According to a new @USCBO forecast, US population growth after 2033 will be driven by immigration, which will account for all American population growth in 2042. @Bloomberg
US population growth will be driven entirely by immigration within two decades, according to the latest forecasts by the Congressional Budget Office. The projections, published on Tuesday, show a population of 373 million by 2053 — about 3 million more than the CBO was expecting a year ago. That’s partly due to a sharp increase in the forecast for immigration in 2023 and the following two years, after pandemic travel restrictions eased — adding some 1 million to the population over that period. Much of the growth is projected to come in the so-called prime-age bracket, between 25 and 54, that is the core of the workforce. The CBO expects that cohort to increase by about 1.1 million people, or 0.9%, each year.
.@Edsall argues that a “white rural red wave” is the driving force of the Republican party today and cites shifts in Wisconsin suburban and rural voting patterns between 2016 and 2022.
In 2016, Ron Johnson rode Trump’s coattails and the Republican trail blazed by the former governor Scott Walker to a 3.4 point (50.2 to 46.8) victory and swept into office, in large part by running up huge margins in Milwaukee’s predominantly white suburbs. That changed in 2022. Craig Gilbert, a fellow at Marquette Law School conducted a detailed analysis of Wisconsin voting patterns and found that Johnson, "performed much worse in the red and blue suburbs of Milwaukee than he did six years earlier in 2016. So again, how did Johnson win? The simple answer: white rural Wisconsin. As recently as 17 years ago, rural Wisconsin was a battleground. In 2006, Jim Doyle, the Democratic candidate for governor, won rural Wisconsin, about 30 percent of the electorate, by 5.5 points. “Then came the rural red wave,” Gilbert writes. “Walker carried Wisconsin’s towns by 23 points in 2010 and by 25 points in 2014.” In 2016, Johnson won the rural vote by 25 points, but in 2022, he pushed his margin there to 29 points.
.@ojblanchard1 argues that the secular stagnation environment – where real interest rates were low, often negative, and much lower than the economy’s rate of growth – will soon reassert itself and will then be the “prevalent regime for some time to come.”
Summers has argued that the increase in public debt due to the fiscal response to COVID will lead, other things equal, to an increase in r [real return on capital]. He is right about the sign of the increase in public debt’s impact on r, but the effect is likely to be quite small. The debt-to-GDP ratio in advanced economies has increased only from 75 percent in 2019 to 82 percent in 2022; under standard assumptions, this implies an increase in r of no more than 15–30 basis points. That would be insufficient to offset the pre-COVID downward trend in safe rates, let alone to close the gap between r and g [growth rate of output.]
Michael Cembalest @jpmorgan notes that it has been difficult for legislators to increase tax receipts beyond 19% of GDP, and yet entitlement spending plus interest is likely to exceed that level by 2032.
The above chart plots the history of US tax increases since 1950 (as % of GDP and vs Federal receipts as a % of GDP). While there have been tax increases of 2% of GDP or more, they occurred when overall tax receipts were much lower. The red square shows the required increases in taxes, which if spent entirely on increasing discretionary spending, would reduce the ratio of entitlements to non-defense discretionary spending back to 2.2x (its 2006 level). The Sanders high net worth income and capital gains tax plan and the Warren wealth tax plan appear as well.
.@WSJ reports that year-over-year wages for the bottom 10% of earners increased 9.8% relative to 7.4% for the median for all workers. Workers in the top 10% of earnings saw a 5.7% gain.
Median weekly earnings for all workers were 7.4% higher, year-over-year, at the end of 2022, according to an analysis of newly released Labor Department data. The bottom 10th of wage earners—those that make about $570 a week—saw their pay increase by nearly 10%. Better pay increases late last year went to workers who attended college, a reversal from earlier in the pandemic when those who hadn’t completed high school saw outsize gains. The annual rate of wage growth for workers with less than a high school diploma touched a recent peak in the second quarter of 2022, when it was up 11.1% over the prior year, higher than the 7.6% wage growth during that period for workers with a bachelor’s degree or higher. The median raise for Black Americans employed full-time was 11.3%, compared with the prior year.
.@jan_eeckhout suggests that, when the underlying inflation data is not especially noisy, it might be appropriate to use “instantaneous” measures of inflation, which consider only very recent data. “Instantaneous inflation” hit 2% in Dec ‘22.
Current practice to measure inflation for monetary policy uses the average annual inflation rate. When inflation changes fast, whether increasing or decreasing, the annual average rate is biased towards data from too far in the past and conveys the true price level with six months delay. I propose to use instantaneous inflation as a more adequate measure of the price change. The measure trades off noise in the data with the precision of the instantaneous price change. Using the latest inflation numbers, it shows that instantaneous inflation in the US and the Eurozone is back to the target of 2% and that the high inflation period is over. Instantaneous core inflation, which excludes food and energy, is falling, but at 4%, it remains higher than the inflation target of 2%. The conventional measure of core inflation is at 5.7%.
A @nberpubs analysis finds workers who are working from home in the US save an average of 55 minutes with 39% of those time savings being devoted to a primary or secondary jobs and 33% for leisure activities. @I_Am_NickBloom
The pandemic-induced shift to work from home yielded large private benefits in the form of commute time savings. To gauge the magnitude of these benefits, we turn to the Global Survey of Working Arrangements and consider data on commute times and the extent of work from home in 27 countries. We estimate that work from home saved about two hours per week per worker in 2021 and 2022, and that it will save about one hour per week per worker after the pandemic ends. That amounts to 2.2 percent of a 46-hour workweek, with 40 paid hours plus six hours of commuting. As we discussed, the after-tax wage rate is a reasonable benchmark for the private value of commute time savings. Thus, we estimate that the private value of the commute time savings associated with work from home will be about 2.2 percent of after-tax earnings in the post-pandemic economy.