Macro Roundup

Note as of May 2020 she hasn’t followed up with a paper

“…Using the American Community Survey’s five-year data estimates, I studied socioeconomic and demographic data for 16,732 census-designated places, ranging from major cities like New York City and San Francisco to rural communities with fewer than 5,000 people like Danville, Pa., where I grew up. With my doctoral student Andy Eisenlohr, I divided these places into cities, with populations above 100,000; small towns significantly outside cities, with 5,000 to 15,000 inhabitants; and rural America, those places with fewer than 5,000 inhabitants. We tracked homeownership, unemployment, white unemployment, mortgage payment and household income, along with demographic measures such as education and ethnic diversity. What we discovered surprised us. By most measures other than education, median households in small-town America tend to be doing at least as well as their counterparts in urban America. Congressional districts that voted Republican in both 2016 and 2018 tend to have higher median incomes than those that went Democratic in both years. Of the 45 states we studied in detail, 28 have a lower share of significant poverty (defined as family income of under $10,000 a year) in small towns than in urban centers. Fifteen of them have a higher median household income in small towns than in cities. That share would undoubtedly be higher if we adjusted income for cost of living, which is lower in small towns. And 40 of the 45 states we analyzed have lower unemployment rates in small towns than in cities….”

Elizabeth Currid-Halkett, "The False Stereotype of Two Americas,"Wall Street Journal, December 26, 2018, https://www.wsj.com/articles/the-false-stereotype-of-two-americas-11545869142

The False Stereotype of Two Americas

In the popular stereotype since the 2016 election, America is divided into two unappealing halves: irate, disenfranchised, often poor rural dwellers versus smug, satisfied and woefully obtuse urban elites—the latter joined in 2018 by suburbanites. The voting map illustrates this narrative: skinny coastal arms of blue, likely holding oat-milk lattes, alongside a giant, angry sea of red.

This story of division may be unsettling, but it isn’t true. Using the American Community Survey’s five-year data estimates, I studied socioeconomic and demographic data for 16,732 census-designated places, ranging from major cities like New York City and San Francisco to rural communities with fewer than 5,000 people like Danville, Pa., where I grew up. With my doctoral student Andy Eisenlohr, I divided these places into cities, with populations above 100,000; small towns significantly outside cities, with 5,000 to 15,000 inhabitants; and rural America, those places with fewer than 5,000 inhabitants. We tracked homeownership, unemployment, white unemployment, mortgage payment and household income, along with demographic measures such as education and ethnic diversity.

What we discovered surprised us. By most measures other than education, median households in small-town America tend to be doing at least as well as their counterparts in urban America. Congressional districts that voted Republican in both 2016 and 2018 tend to have higher median incomes than those that went Democratic in both years. Of the 45 states we studied in detail, 28 have a lower share of significant poverty (defined as family income of under $10,000 a year) in small towns than in urban centers. Fifteen of them have a higher median household income in small towns than in cities. That share would undoubtedly be higher if we adjusted income for cost of living, which is lower in small towns. And 40 of the 45 states we analyzed have lower unemployment rates in small towns than in cities.

These results hold true for rural America, too. Take the mid-Atlantic, where 90% of all communities with fewer than 5,000 people voted Republican for president in 2016. The median homeownership rate for these places is around 73%, compared with 32% in New York City and 52% in Philadelphia. Fifty-eight percent of rural communities have a higher median household income than that of their state’s reference city. Between 2012 and 2016, these places had a median unemployment rate of 6%, which is lower than in New York City (9%), Philadelphia (13%) and Washington (9%).

Midwestern rural communities, 96% of which voted Republican in 2016, show similar trends, with a median unemployment rate of 5%, both overall and for the white population. Forty-two percent of these rural places have higher median household incomes than cities such as St. Louis, Chicago and Milwaukee. In New England, these results are even starker. Sixty percent of rural communities have a higher median household income than the nearby cities. Rural New England places have a 66% homeownership rate, in contrast with New England cities such as Boston (34.7%), Providence, R.I. (34%), and Manchester, N.H. (47%). Homeownership—a key factor for intergenerational upward mobility—is almost universally lower in cities.

The data are more complicated than the stereotype when it comes to income inequality, too. Philadelphia’s income distribution is remarkably similar to that of small Pennsylvania towns, which if anything are closer to a statistically normal distribution. While 3% of Philadelphia residents make over $200,000, so do 2.1% of small-town Pennsylvanians, and whereas 14% of Philadelphians make less than $10,000, only 8.1% of small-town Pennsylvanians do. A greater share of small-town Pennsylvanians fall into the prosperous $100,000 to $150,000 income range than do Philadelphians, and the proportions making $150,000 to $200,000 are similar (2.9% in small towns vs. 3.4% in the city).

The same pattern holds in New York City and Pittsburgh compared with the small towns of New York state and West Virginia, respectively. While 17.7% of Pittsburghers make $100,000 or more, 18.5% of small-town West Virginians fall within this income bracket. Consistent with the wider income gaps in cities, notably more New York City households earn more than $200,000 (8.3%) than in the Empire State’s small towns (3.3%).

Education is the one area in which urban Americans exceed rural ones. Almost half of Austin, Texas, residents have bachelor’s degrees, vs. 12% of Southern rural dwellers. The same contrast holds for Minneapolis and Denver compared with the rural Midwest and Southwest. (The same pattern is evident comparing cities with small towns.) Yet in urban areas we see ranges from 12% (Santa Ana, Calif.) to 60% (Seattle). If anything, the differences within urban or rural America are greater than those between the two.

And that’s the point. We have created a false dichotomy between urban and rural America by cherry-picking places like San Francisco and New York and pitting them against equally specific examples of rural America, like Appalachian Kentucky. We have painted a portrait of an out-of-touch elite vs. an angry populist movement. But both are tiny minorities of the population. Most Americans aren’t in the top 1% and don’t attend Pilates classes or read the New Yorker. But neither are the lives of most rural Americans captured in the pages of “Hillbilly Elegy,” nor are they angry and resentful of globalization and Manhattanites.

Extreme poverty and chronic unemployment exist in rural America. But these problems exist in the cities, too—evidence of a class divide that cuts across geography and demographics.

Ms. Currid-Halkett is a professor of public policy at the University of Southern California.

“…Our deepest anxieties about the future of where we live are embodied in other cities — in Portlandification, Brooklynification, Manhattanization. The comparison is seldom a compliment. You don’t want to become Manhattan (too dense), Portland (too twee), Boston (too expensive), Seattle (too tech-y), Houston (too sprawling), Los Angeles (too congested), Las Vegas (too speculative), Chicago (too indebted)….”

Emily Badger, "Happy New Year! May Your City Never Become San Francisco, New York or Seattle,"New York Time, December 26, 2018, https://www.nytimes.com/2018/12/26/upshot/happy-new-year-may-your-city-never-become-san-francisco-new-york-or-seattle.html

Or Portland, Denver, Boston, Dallas, Houston or Los Angeles.

Seattle does not want to become San Francisco, a fate that has come to refer exclusively to the city’s worst traits: its $5,000-a-month rents, its homeless encampments and the ever-present dissonance between those two.

As San Francisco’s troubles have grown more vivid, so too has its status as other cities’ worst nightmare. In Portland, Oakland and Sacramento, residents and pundits have voiced dread at becoming The Next San Francisco, where the middle class is disappearing.

San Francisco is worried, too — about becoming Manhattan. That fear has lurked for decades behind every new proposed skyscraper. And now cranes are erecting them all over downtown. The new Salesforce Tower sits at the center of the construction zone, 1,070 feet tall and butting into every vista in the city.

Surely there is nothing left to fear in New York, a place that already has tall buildings and high rents. But the pending arrival of Amazon in Long Island City, as Vice recently put it, has some residents on edge about “becoming Seattle on steroids.” The specter captures the particular mix of high housing costs, tall buildings and tech bros.

Our deepest anxieties about the future of where we live are embodied in other cities — in Portlandification, Brooklynification, Manhattanization. The comparison is seldom a compliment. You don’t want to become Manhattan (too dense), Portland (too twee), Boston (too expensive), Seattle (too tech-y), Houston (too sprawling), Los Angeles (too congested), Las Vegas (too speculative), Chicago (too indebted).

San Francisco has come to stand for the most specific set of horrors. It is the place where extreme poverty and tech wealth occupy the same block, while the schoolteachers and firefighters all live two hours away.

Consider other nuances: Portlandification can be Brooklynified, as happens when ambitious media-savvy types commercialize twee. Manhattanization has evolved over time. It once meant building up. Now it increasingly refers to building only for the rich.

Seattle-ization, meanwhile, is a particularly dire diagnosis: The high housing costs and tech riches there have remade the city with startling speed.

Denver seemed to imply no obvious meaning until The Kansas City Star’s editorial board assigned it one last month. “Stop the Denverization of Kansas City,” its headline said. Befuddled readers in Denver realized their city was now a synonym for gentrification — at least, among cities not yet expensive enough to worry about San Francisco-ization.

In truth, most of these cities have qualities other cities would reasonably desire. Denver has one of the country’s fastest-growing tech labor forces, with minorities and women relatively well represented in those jobs. Seattle and Portland have among the fastest all-around job growth. New York has some of the fastest-growing wages. San Francisco has unemployment well below the national average and household incomes among the highest in the country.

But San Francisco-ization and the other -izations don’t refer to the process of acquiring any of these good things. Rather, those terms capture the deepening suspicion of many communities that the costs of urban prosperity outweigh the benefits. The tech jobs and the high wages aren’t worth having if they come with worsening congestion, more crowded development or soaring housing costs.

Amazon’s search this year for a new second headquarters made this trade-off explicit for many cities. Despite the tens of thousands of new high-paying jobs in tech and construction on offer, protesters in Chicago and Pittsburgh — even some in the winning areas of New York and Washington — concluded that they didn’t want to be the next Seattle.

Numerous writers in Seattle warned that they were right to oppose that future.

Embedded in these fears is something slippery, seemingly inevitable. Once you let tech giants in the door, you have a homeless crisis. Once you allow more density, you’re surrounded by skyscrapers. Once housing costs begin to rise, the logical conclusion is San Francisco.

“Bostonians: Do you worry more about Manhattanization? Or San Francisco-ization?” Tim Logan, a Boston Globe reporter who covers development, asked on Twitter this year. To him, the cities represent different routes to the same end of creating urban playgrounds for the rich.

Manhattan has built its way there, through the construction of luxury condos seemingly affordable only to oligarchs and venture capitalists. San Francisco has become equally expensive, but it has arrived there by not building much for decades (its present construction boom is too little too late).

There are, in other words, multiple models to creating what others see as an urban dystopia. It’s much harder to point to cities that have gotten all of this right — the growth without the congestion, the tech jobs without the homeless crisis, the affordable housing without the sprawl.

We could use a word for the condition of becoming such a place. Maybe Minneapolisization?

blog post/chart from St. Louis Fed, yield curve inversions aren’t just a leading indicator of recessions but a cause of them. can pinch bank lending margins and contract loan activity. the curve isn’t inverted now, but the spread has flattened.

“…An inverted yield curve—or a situation in which market yields on shorter-term U.S. Treasury securities exceed those on longer-term securities—has been a remarkably consistent predictor of economic recessions. However, simply because inversions forecast recessions does not necessarily mean that inversions cause recessions. Why might a yield curve inversion cause economic activity to slow?….The figure below illustrates the tendency of banks to tighten lending terms when the yield curve inverts. It plots the yield on 10-year Treasury securities minus the yield on two-year securities….Why is this important? Researchers have found that the economy tends to slow after banks tighten their lending standards, suggesting that an inversion of the yield curve could cause economic activity to slow by leading banks to reduce the supply of loans.3Thus, an inverted yield curve might do more than predict a recession: It might actually cause one….”

Normally, the yield on 10-year securities exceeds the yield on two-year securities, reflecting the fact that the yield curve is usually upward sloping. The yield curve is downward sloping (or inverted) when the yields on shorter-term securities are higher than those on longer-term securities, as in 2000 and 2006. Both of those inversions were followed by the start of a recession within a few months.

The Fed has surveyed banks on their lending terms continuously since 1990.2 The chart shows that the net percentage of banks tightening their lending standards on commercial and industrial loans began to rise around the time that the yield curve inverted in 2000 and 2006.

Why is this important? Researchers have found that the economy tends to slow after banks tighten their lending standards, suggesting that an inversion of the yield curve could cause economic activity to slow by leading banks to reduce the supply of loans.3 Thus, an inverted yield curve might do more than predict a recession: It might actually cause one.

Notes and References

1 October 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices.

2 The Fed also surveyed banks on their lending terms from 1967 to 1983.

3 Lown, Cara S.; Morgan, Donald P.; and Rohatgi, Sonali. “Listening to Loan Officers: The Impact of Commercial Credit Standards on Lending and Output.” Federal Reserve Bank of New York Economic Policy Review, July 2000. Also, Bassett, William F.; Chosak, Mary Beth; Driscoll, John C.; and Zakrajsek, Egon. “Changes in Bank Lending Standards and the Macroeconomy.” Journal of Monetary Economics 2014, Vol. 62,pp. 23-40.

The figure below illustrates the tendency of banks to tighten lending terms when the yield curve inverts. It plots the yield on 10-year Treasury securities minus the yield on two-year securities.

Can an Inverted Yield Curve Cause a Recession?

An inverted yield curve—or a situation in which market yields on shorter-term U.S. Treasury securities exceed those on longer-term securities—has been a remarkably consistent predictor of economic recessions. However, simply because inversions forecast recessions does not necessarily mean that inversions cause recessions. Why might a yield curve inversion cause economic activity to slow?

Banking and Yield Curve Inversions

One possible channel is through the banking system. Banks engage in maturity transformation. That is, on average, the loans in a typical bank’s portfolio have a longer term to maturity than the deposits and other funds they use to finance those loans. In essence, banks transform their short-term liabilities (such as deposits) into longer-term assets (such as business and consumer loans).

Normally, banks can profit on the spread between the yields on longer-term assets and the interest they pay on deposits and other short-term liabilities. However, bank profits get squeezed when short-term interest rates rise relative to the yields on long-term assets. This can lead banks to cut back on their lending, which, in turn, can put the brakes on economic activity.

Tightening Lending Standards

Recently, the Federal Reserve asked banks how their lending policies might change in response to a hypothetical moderate inversion of the yield curve.1 Many of those surveyed indicated that they would tighten lending standards or price terms on every major loan category.

When asked why they would do so, several potential reasons were given:

David Wheelock, “Can an Inverted Yield Curve Cause a Recession?,” Federal Reserve Bank of St. Louis, December 27, 2018, https://www.stlouisfed.org/on-the-economy/2018/december/inverted-yield-curve-cause-recession

• An inversion could cause loans to be less profitable relative to the bank’s cost of funds.
• An inversion would cause their banks to be less risk tolerant.
• An inversion may signal a less favorable or more uncertain economic outlook.

WSJ write up of Fed's bew consumer credit #. Note they don't show gross debt as a % of GDP
"...Consumer debt, including credit cards, auto and student loans and personal loans, is on pace to top $4 trillion in 2019.That comes even as mortgage debt approaches levels last seen during the housing meltdown. Homeowners owed about $10.3 trillion on mortgages at the end of the third quarter, up 2.8% from a year earlier, according to Federal Reserve data. Mortgage debt peaked at $10.7 trillion in early 2008...."