Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, October 15, 2020

AI Summary. America's economic performance was mixed relative to other large advanced economies: median household income growth accelerated and unemployment fell to its lowest since the 1960s, though job growth was slower than in the preceding period and the unemployment decline was not exceptional internationally. GDP growth exceeded prior years and beat International Monetary Fund forecasts.

Economist Staff The Economist
Date Posted:
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The American economy performed marginally better than expected from 2017-2019, with median household income growth accelerating & GDP growth outperforming IMF forecasts.

Did the American economy outperform other advanced economies?

Core argument: U.S. GDP growth from 2017 to 2019 was faster than during Obama's terms, and America outperformed IMF forecasts for those years, leaving the economy marginally better than expected.

From 2017 to 2019, America's economic performance showed mixed results relative to the G6. Median household income growth accelerated, driven by a tight labor market that boosted low-skilled wage growth to levels not seen since the Clinton era. However, job growth was slower compared to Obama's second term, and while unemployment fell to its lowest since the 1960s, this was not exceptional internationally. GDP growth was faster than during Obama's terms, with America outperforming IMF forecasts for 2017-19. Despite a global economic slowdown in 2018, the U.S. economy accelerated, maintaining a lead over other countries in 2019. Overall, the American economy performed marginally better than expected during this period.

Takeaways by Macro Roundup® AI

  1. U.S. GDP growth from 2017 to 2019 was faster than during Obama's terms, and America outperformed IMF forecasts for those years, leaving the economy marginally better than expected.
  2. Median household income growth accelerated from 2017 to 2019 as a tight labor market lifted low-skilled wage growth to levels not seen since the Clinton era.
  3. Job growth from 2017 to 2019 was slower than during Obama's second term, and although unemployment fell to its lowest since the 1960s, that decline was not exceptional internationally.

Economist Staff, "How the American economy did under Donald Trump,"The Economist, October 14, 2020, https://www.economist.com/united-states/2020/10/14/how-the-american-economy-did-under-donald-trump

In terms of low skilled wage growth, “…The lot of working-class Americans, however, definitely improved in 2017-19.Comparing household incomes between countries is difficult, certainly for recent years. But though there is some dispute about the reliability of the data gathered in 2020, where the pandemic made it difficult for researchers to conduct surveys, there is clear evidence of an acceleration in the growth of America’s median household income from 2017 onwards (see chart 7). A tight labour market also helped raise the wage growth of the lowest-paid Americans, relative to others, to a degree not seen since Bill Clinton was president (see chart 8)…”

In terms of labor markets, “…America’s labour-market performance is similarly nuanced. Though Mr Trump particularly likes to boast about monthly employment figures, it is hard to make the case that in 2017-19 the jobs machine was whirring. Jobs growth was slower than it had been during Mr Obama’s second term. In 2009-16 America’s unemployment rate fell relative to the average for other g7 economies (see chart 6). Under Mr Trump unemployment did fall to the lowest since the 1960s, but this was not internationally exceptional. America’s improvement relative to employment in other countries stopped under Mr Trump...”

In terms of beating forecasts, “….another way to look at this question is to assess whether America in 2017-19 exceeded or fell short of economists’ expectations (see chart 2). In October 2012 the imf forecast that in the subsequent four years (those of Mr Obama’s second term), the American economy would grow by an annual average of 3%. In fact that proved to be too optimistic; it actually grew by closer to 2% a year. But the imf was too pessimistic in its projections for 2017-19, released shortly before the election of 2016. In those years America outperformed the forecasts….”

In terms of GDP, “…GDP growth was somewhat faster in 2017-19 than it was in either Barack Obama’s first or second term, according to official data. America also did well relative to other countries. The world economy peaked in 2017. In 2018 it slowed but America accelerated. In 2019 America slowed too, but stayed ahead of others…”

The Economistreviews America’s relative economic performance versus the G6 and concludes, “…in 2017-19, the American economy performed marginally better than expected….”

Ed Comment:“Good data. Ok to add. But not done thoughtfully. Accumulated investment is more relevant for example than yearly change. And employment should be relative to slack and working-age population growth. Without that context, head to head comparisons are dumb. In both cases, Obama comes up way short. After 2010, there should have been a much bigger surge in investment. He barely accumulates enough investment to get us back to 2007. And Trump faced much more headwinds than Obama on increasing employment (and growing the economy) ….”

Monday, October 19, 2020

AI Summary. The S&P 500's rebound has been driven by expectations for dividends far in the future, while futures on dividends due within five years remain well below pre-pandemic levels in both the US and abroad. The authors argue this pattern indicates a pessimistic market view of near-term economic conditions.

Andrew Chen, Markus Ibert and Francisco Vazquez-Grande Federal Reserve Board
Date Posted:
Is Database:
Database

US corporate dividend futures for the next 5 years remain significantly below pre-pandemic levels, indicating a bearish outlook for near-term economic conditions.

Does the stock market rebound reflect optimism about the near-term economy?

Core argument: The S&P 500's rebound is driven largely by long-term dividend expectations, while dividend futures for horizons up to five years remain significantly below pre-pandemic levels.

Analysis reveals a significant disconnect between stock market recovery and real economic conditions, particularly in the context of corporate dividends. While the S&P 500 has rebounded, this recovery is largely driven by long-term dividend expectations, with short-term (up to 5 years) dividend futures remaining significantly below pre-pandemic levels. This suggests a bearish outlook for near-term economic conditions, as the market values of dividends expected in the next five years are depressed both in the US and internationally. The divergence highlights that the stock market's gains are not reflective of immediate economic recovery, but rather of far-dated dividend claims, indicating a more cautious stance on the near-term economic outlook.

Takeaways by Macro Roundup® AI

  1. The S&P 500's rebound is driven largely by long-term dividend expectations, while dividend futures for horizons up to five years remain significantly below pre-pandemic levels.
  2. Market values of dividends expected over the next five years are depressed in both the US and international markets, which the analysis reads as a bearish outlook for near-term economic conditions.
  3. The gap between stock market gains and real economic conditions reflects the pricing of far-dated dividend claims rather than an immediate economic recovery.

The Stock Market-Real Economy "Disconnect": A Closer Look: Extended Excerpt Image 1


Andrew Chen, Markus Ibert and Francisco Vazquez-Grande, "The Stock Market-Real Economy "Disconnect": A Closer Look," Federal Reserve Board, October 14, https://www.federalreserve.gov/econres/notes/feds-notes/the-stock-market-real-economy-disconnect-a-closer-look-20201014.htm

They also adjust for tech, “….They also adjust for Figure 3 divides the S&P 500 stocks into information technology plus FAANG (Facebook, Amazon, Apple, Netflix, and Google)stocks versus ex-info tech and ex-FAANG stocks. The figure mirrors the previous results: Info tech and FAANG firms, which are expected to pay the lion's share of their dividends at distant dates, have recovered all of their losses and more between March and April. The portfolio of remaining stocks, which is more closely tied to the near and medium term, is still below its pre-pandemic level on September 1….”

Research from Fed decompresses equity prices into short and long term duration assets and finds that dividend future prices are depressed at a five year horizon both in US and overseas. Suggesting the recovery in equity prices btw March and September has been driven by far-dated dividend claims and Mr. Market is still bearish on the near term (<5 years out) outlook. “….S&P 500 dividend futures are contracts that require two parties to exchange, on a specific future date, the dividends that the S&P 500 index paid over the year preceding that date and a predetermined cash amount (the futures price). We use these contracts to create portfolios that decompose the S&P 500 index into the value of S&P 500 dividends that will be paid over different time periods. The market prices of these portfolios are shown in Figure 1…we construct assets that are more comparable to near and medium term economic conditions using data on domestic and international dividend futures and the cross section of U.S. stock returns. We find that the disconnect is driven by gains in the market value of long-term (beyond five years) dividends. In contrast, the value of corporate dividends for the next five years remains far below pre-pandemic levels…our results from dividend futures prices suggest a more pessimistic near and medium term outlook (up to 5 years) compared with the relatively quick recovery in earnings implied by Wall Street analysts' earnings forecasts…”