Macro Roundup

Figure 1 displays the trends in the share of children living in with married parents by parental income quintiles. The results from 1979 to 2018 are similar to those of Reeves and Pulliam over the same years. Living with married parents become less common among children in all five income categories, but this change was especially pronounced in the bottom two-fifths...Within the second-poorest fifth, 88 percent of children lived with married parents in 1967. The share reached a low of 54 percent in 2012 but was still less than 56 percent in 2020. The share of bottom-fifth children living with married parents was especially low in 1967 -just 63 percent. That fell to 36 percent in 2020; barely a third of the poorest children today live with two married parents...the low point was actually 1992. Since that low of 31 percent, the share of the poorest children living with married parents has risen 5 percentage points. In fact, it rose 6.8 points between 1997 and 2000 before falling before 2002 and 2003...in Figure 4, I provide the same trends by parental educational groups to complete the analyses.While living with married parents did not become more common after 1992 among children with the lowest-educated parents, the share of living with two parents did rise. After falling from 78 percent in 1976 to 60 percent in 1992, it rose to 64 percent in 2020. That was higher than in every year between 1983 and 1999. The increase was concentrated between 1992 and 2001.…. A Hypothesis: Welfare Reform?...Trends in the share of disadvantage children living with married parents or two parents generally both shifted after 1992

Scott Winship, "A Half Century Decline In Marriage...That Ended 30 Years Ago For Disadvantage Kids,"American Enterprise Institute, April 2022, https://www.aei.org/wp-content/uploads/2022/04/Half-Century-Decline-in-Marriage-.-.-.-That-Ended-30-Years-Ago-for-Disadvantaged-Kids.pdf

Women...now make up 44% of college-educated workers in science, technology, engineering, and mathematics (STEM) occupations. However, a closer look at the underlying data reveals divergent patterns of gender (in)equality within STEM. Men continue to make up the vast majority of degree recipients in STEM fields that are spatially and mathematically intensive — geoscience, engineering, economics, mathematics, computer science, and physical science — while women are overrepresented in life sciences, psychology, and social sciences....In 2017, 49% of all bachelor’s degrees in science and engineering were awarded to women. This number masks substantial gender disparities across fields, however. Women earned two-thirds of bachelor’s degrees in life sciences, psychology and social science fields — 62% in biology, 78% in psychology, and 61% in social science. In contrast,women were only slightly over one quarter of degree recipients in the combined math-intensive fields of geoscience (39%), engineering (22%), economics (32%), mathematics (42%), computer science (19%), and the physical sciences (40%)....Gender disparities within science, technology, engineering, and mathematics bachelor’s degrees have become more pronounced since 2000...Gender differences carry over from education to the STEM workforce.

A leaky pipeline reduces the share of women rising up the ranks of career hierarchy in academia. Women were 45% of junior full-time faculty but only 33% of senior full-time faculty in 2019. However, the pipeline leaks more in fields where women are overrepresented in the lower ranks. In psychology, for instance, the share of women was 68% among junior full-time faculty and 53% among senior faculty, a 15 percentage-point difference. With a 6 percentage-point difference, pipeline leakage is smallest in computer science: the share of women was 25% among junior full-time computer science faculty and 19% among senior faculty. What explains the differences in pipeline leakage by field? It is possible that the smaller number of women who choose to enter the male-dominated fields may be highly positively selected — especially motivated — compared to those who enter the more female-friendly fields. This is consistent with research showing that a large number of female entrants into STEM fields has a negative impact on gender equality in that field in terms of career outcomes. In psychology and the social sciences, it may be that the higher degree of female representation in the lower ranks indicates a shift in the preferences of men: the number of junior male faculty has declined since 1981. This may be due to occupational “tipping”, whereby men start to exit an occupation when the fraction of women in that occupation rises above a certain threshold.

What this Means:

As a smaller proportion of women enter geoscience, engineering, economics, mathematics, computer science, and physical science at the undergraduate level, the career pipeline in these fields will become even smaller. Less gender diversity could be detrimental to the quality and relevance of knowledge generated in these fields, by narrowing the range of ideas generated and reducing success in problem solving. We should then expect the same outcome in life sciences, psychology and social sciences if women continue to saturate them while men exit. A widening of the uneven gender distribution between STEM fields helps perpetuate the gender pay gap. This, in turn, can have negative consequences for gender equality outside the labor market if, for example, lower female-male wage ratios erode women’s decision-making power in the family and reduce women’s well-being.

The share of women holding academic positions has increased substantially but also varies greatly by field. In 2019, women comprised 39% of all academic positions held by science, engineering and health doctorate holders at 2- and 4-year colleges or universities. This reflects a substantial increase from just 9% in 1973 and 22% in 1993. Gender gaps vary noticeably by fields. Women held only 19% of academic positions in engineering, 26% in physical and geosciences, 26% in mathematics and statistics, and 23% in computer science. This is in contrast to 60% of positions in psychology, 47% in life sciences, and 42% in social sciences including economics. Among academic position types, women are more likely than men to hold “other” full-time positions (instructor, adjunct, lecturer, research associate, administrator) as well as post-doc and part-time positions.

The STEM fields in which women are underrepresented typically pay higher salaries than fields with high shares of women. For example, the median salary in 2019 for full-time workers holding the highest degree in their field was $105,000 for computer scientists and $100,000 for engineers, both male-dominated occupations. Among female-heavy occupations, median salary was $74,000 for psychologists and $64,000 for biological, agricultural and environmental scientists.

Gender differences carry over from education to the STEM workforce. While the college-educated STEM workforce had almost reached gender parity in 2019, with a female share of 44%, large gender gaps remain between types of STEM jobs. Although only 29% of the science and engineering (S&E) workforce in 2019 was female, women were 57% of S&E-related workers (e.g. nurse, dental hygienist). The representation of women coincides with the patterns of gender balance in STEM degrees. Women scientists and engineers comprise 48% of biological, agricultural and environmental life scientists, 81% of psychologists, and 64% of social scientists; and much smaller shares of geoscientists (30%), engineers (16%), economists (24%), mathematical scientists (42%), computer scientists (24%), and physical scientists (35%). Even within the S&E-related workforce, women comprise 70% of health-related occupations — such as nurses, pharmacists, and physician assistants — but only 21% of computer and information systems managers.

Female attrition along the STEM educational hierarchy is driven by the very disciplines that, paradoxically, seem to attract large numbers of women at the entry level. In general, women earned a smaller share of doctoral degrees than bachelor’s degrees in 2017, reflecting the well-known leaky pipeline in women’s progress up the career hierarchy. In STEM fields, the pipeline is leakiest in life science, psychology and social science fields, which are female-dominated at the undergraduate level — the female share of degree recipients in these fields was 58% at the doctoral level compared with 66% at the bachelor’s level in 2017. In contrast, the four fields with the lowest female shares among bachelor’s degrees recipients — geoscience, engineering, economics, and computer science — have higher female representation among PhD recipients (see here).

Gender disparities within science, technology, engineering, and mathematics bachelor’s degrees have become more pronounced since 2000. The number of women earning bachelor’s degrees in life sciences, psychology and social sciences grew faster than the number of men since 2000. These fields, which started out with high female shares at the turn of the century, became even more disproportionately represented by women at the undergraduate level. Similarly, even as the numbers of women in many of the STEM fields that started out with a disproportionate representation of men have been increasing, the number of men earning bachelor’s degrees in several of these fields grew faster than the number of women — this trend was most pronounced in computer science and mathematics, while engineering was an exception (see chart).

While women earn close to half of all STEM bachelor’s degrees, there is wide variation in women’s representation across fields. In 2017, 49% of all bachelor’s degrees in science and engineering were awarded to women. This number masks substantial gender disparities across fields, however. Women earned two-thirds of bachelor’s degrees in life sciences, psychology and social science fields — 62% in biology, 78% in psychology, and 61% in social science. In contrast, women were only slightly over one quarter of degree recipients in the combined math-intensive fields of geoscience (39%), engineering (22%), economics (32%), mathematics (42%), computer science (19%), and the physical sciences (40%).

Prathi Seneviratne, "Are Women Reaching Parity with Men in STEM?"Econofact, April 15, 2022, https://econofact.org/are-women-reaching-parity-with-men-in-stem

Are Women Reaching Parity with Men in STEM?

Women have made tremendous gains in education and now make up 44% of college-educated workers in science, technology, engineering, and mathematics (STEM) occupations. However, a closer look at the underlying data reveals divergent patterns of gender (in)equality within STEM. Men continue to make up the vast majority of degree recipients in STEM fields that are spatially and mathematically intensive — geoscience, engineering, economics, mathematics, computer science, and physical science — while women are overrepresented in life sciences, psychology, and social sciences. If anything, these gender disparities appear to be widening slightly over time at the undergraduate level, with potential implications for gender differences in employment, pay, academia, and beyond.

The Facts:

Women have made dramatic inroads in education since the 1990s. From making up less than a third of the college-educated workforce in the early 1990s, women have come to surpass men — making up 52% of the workforce with at least a college degree in 2019. The representation of college-educated women in STEM occupations has also been trending upwards since the early 1990s.

Credit spreads produced non-overlapping confidence intervals in predicting future returns for two-thirds of the asset classes we tested—a remarkable degree of statistical power....Below we show the distribution of returns to the Fama-French value factor relative to changes in credit spreads. The value factor works well when spreads are falling and poorly when spreads are rising. The cheap cyclical stocks captured by the value factor are heavily impacted by changes in credit conditions. Notably, this is the opposite pattern shown by 10-year Treasurys, which is why the two asset classes serve as good complements in a business-cycle based strategy. We can see another interesting relationship with the Fama-French size factor. The size factor delivers higher one-month forward real returns when credit spreads are above their 10-year median. The size premium appears to work better when the price of liquidity is more costly, when spreads are above median, and when liquidity is widely available, the returns to investing in small-cap stocks are lower.These confidence interval tests are confirming basic economic intuition.

Johann Colloredo-Mansfeld, "Confidence,"Verdad, April 2022, https://mailchi.mp/verdadcap/confidence

Confidence

Every day investors are greeted with a stream of headlines proclaiming what is special about this moment in market history. Some narratives from the past 12 months have included Evergrande, supply-side inflation, demand-side inflation, the Federal Reserve raising rates, and most recently Russia’s invasion of Ukraine.

These events, of course, are important and newsworthy, but how can they inform an investment strategy and generate actionable signals for investors? How can we separate the signal from the noise and contextualize each current news event within a framework that has stood the test of time?

When we’re looking at stocks, we make sense of the options by using ranking models based on cross-sectional analysis. We look back at what factors (size, value, etc.) would have ranked stocks effectively in the past and then look at which stocks best fit those criteria today.

But cross-sectional analysis is not very well suited to parsing narratives and understanding how asset classes are priced relative to economic conditions. To understand whether a signal is robust, we look not only for whether the signal produces high or low returns in a given asset class but also for the range of potential outcomes. We want to make sure that the signal produces non-overlapping confidence intervals, which is a more difficult test of the signal’s predictive strength.

The best way to understand this test is visually, with examples. Compare, for example, how changes in credit spreads predict the future returns of 10-year Treasurys (left-hand side of Figure 1) to how changes in the Federal Reserve rate predict the future returns of 10-year Treasurys (right-hand side of Figure 1).

We have found that the level and direction of credit spreads are a powerful macroeconomic indicator. Below, we show a table that looks at stocks (divided by factor), bonds (corporate and government, divided by duration and credit rating), and commodities from 1975 to 2022 and whether credit spreads produced non-overlapping confidence intervals in predicting one-month future returns. The green highlights indicate assets for which a given indicator has been reliably predictive at the one-month horizon.

We wanted to highlight a few of these relationships so you can understand why we spend so much time talking about credit spreads. Below we show the distribution of returns to the Fama-French value factor relative to changes in credit spreads.

We can see another interesting relationship with the Fama-French size factor. The size factor delivers higher one-month forward real returns when credit spreads are above their 10-year median.

We find running these types of analyses to be essential to separating real signals from noise. On Google trends, “interest rates” has ~90x more search interest than “credit spreads.” For all the mindshare that interest rate hikes are currently taking up, we don’t see much predictive signal in this noise. So, just as Warren Buffett cuts wheat from chaff by reading annual reports in the bathtub, we give closest attention to credit spreads to gauge the relative attractiveness of asset classes.

Figure 1:Corporate profits pre-tax, w/o IVA and CCAdj, in bn.$ SAAR (blue line, left log scale), and as share of GDP (bold red line, right scale).NBER defined recession dates peak-to-trough shaded gray. Source: BEA via FRED, NBER, and author’s calculations.

Menzie Chinn, "Corporate Profits, pre-tax, w/o IVA and CCAdj,"Econbrowser, April 16, 2022, http://econbrowser.com/archives/2022/04/corporate-profits-pre-tax-w-o-iva-and-ccadj

Corporate Profits, pre-tax, w/o IVA and CCAdj

10 seconds on FRED allows one to see a time series. 20 seconds in a stats package (or even Excel) allows one to see ahead of time if one is going to write something stupid.

Corporate giants are setting deadlines, but millions of Americans will likely never return to a five-days-a-week office regime. Nick Bloom, a Stanford University economist, anticipates 25% of work will be done from home after the pandemic ends... Office occupancy rates, which were running at 99% before the pandemic, now range from 30% to 50% across several major U.S. cities, according to Kastle Systems....As well as changing daily routines, remote work is helping redraw the economic map. Hundreds of thousands of Americans have fled coastal cities like New York and San Francisco for more affordable locations in southern or mountain states... Some of the hottest pandemic housing markets have been in cities like Boise, Idaho and Phoenix—which between them have more than 100,000 additional workers compared with before Covid. Local employers are having to compete with big-city wages....Government aid helped even the country’s lowest-paid workers bolster their savings. Still, the decades-long trend that’s seen wealth concentrate at the top persisted during the pandemic. The richest 1% of Americans enjoyed a surge in their net worth, driven by the rapid rebound in stock and housing markets...there’s also been an unprecedented surge in entrepreneurship. Before Covid, Americans typically filed about 290,000 new business applications a month. But the figure surged in 2020—and it’s remained well above pre-pandemic levels into 2022, with about 415,000 filings in March.

Reade Pickert, Alexandre Tanzi and Jacqueline Gu, "How Covid-19 Transformed the U.S. Economy,"Bloomberg, April 29, 2022, https://www.bloomberg.com/graphics/2022-us-economy-pandemic-recovery/

How Covid-19 Transformed the U.S. Economy

Covid-19 arrived as an emergency. It’s turned into a catalyst for lasting economic change.

The pandemic now in its third year has redrawn the map of the U.S. economy, reshuffled its labor force, and reupped the toolkit available to its policy makers. All of those shifts appear likely to outlast the health crisis that triggered them.

American workers are on the move, as the economy tilts away from its historic coastal strongholds. They’re also more likely to be found at home during office hours, after a remote-work revolution.

Companies are scrambling to hire—but they’re investing in machines too, with automation and e-commerce gaining ground. Entrepreneurship is on the rise. Politicians have discovered the power of direct payments, which shored up household and business finances in the pandemic, and may be back next time there’s a downturn. Consumers are grappling with the biggest jump in the cost of living for generations.

What all of this means for already-sharp income and wealth divides is a key question for the post-pandemic era. The richest have pulled further ahead. Work-from-home advantages skew to educated professionals. Low-income workers are winning pay raises in a tight labor market—but inflation is eating away at their gains.

One thing is clear: there’s no going back to the American economy as it was in early 2020 when Covid hit.

Following is a roundup of pandemic changes that look like they’re here to stay.

Remote Revolution

Corporate giants are setting deadlines, but millions of Americans will likely never return to a five-days-a-week office regime. Nick Bloom, a Stanford University economist, anticipates 25% of work will be done from home after the pandemic ends. And A survey found the average U.S. employee values two to three days of remote work each week as much as a 6% pay hike—and that many would seek a new job if required to come back to the office permanently.

Workers who want to stay home have a powerful bargaining chip. Since firms are struggling to attract or retain employees, they’re under pressure to offer remote-work options. And the tight labor markets may persist after the pandemic, with the population growth rate at a record low.

Ultimately, the remote revolution could help the U.S. offset those difficult demographics, says Bloom. There are significant segments of the population, from the disabled to those looking after young kids or retirees, who wouldn’t take a job that requires five days of commuting—but are willing to work from home.

“That's a very positive effect,” says Bloom. “But it's going to take time.”

Moving Inland

As well as changing daily routines, remote work is helping redraw the economic map. Hundreds of thousands of Americans have fled coastal cities like New York and San Francisco for more affordable locations in southern or mountain states.

Wall Street financiers have been heading south to Florida, and tech companies are increasingly looking inland. More than four in ten listings for higher educated white-collar jobs at West Coast tech firms are outside the region, according to an analysis by the Conference Board, a sharp increase since 2019.

That’s heating up many local economies, and bringing drawbacks of its own. Some of the hottest pandemic housing markets have been in cities like Boise, Idaho and Phoenix—which between them have more than 100,000 additional workers compared with before Covid. Local employers are having to compete with big-city wages.

There's about eight states that have accounted for the bulk of the shift, says Mark Vitner, senior economist at Wells Fargo & Co., listing Texas, Tennessee and the Carolinas among them. Businesses have been “chomping at the bit” to relocate to places that had a less stringent Covid policy, he says.

Labor's Moment?

Job openings are near record highs, and states from Georgia to Utah have all-time low unemployment rates—quite the turnaround since the spring of 2020, when more than 20 million Americans lost their jobs in a matter of weeks. Labor markets may not always be this tight, but slower population growth and immigration should prop up demand for workers.

And there are some key industries where that demand is booming, and likely lasting. Transportation and warehousing may be the best example. Employment is up more than 600,000 from February 2020, as a long-term shift toward e-commerce accelerated in the pandemic.

Those new jobs aren’t coming at the expense of bricks-and-mortar retail, where employment has climbed back above pre-pandemic levels. Transportation and warehousing has been a haven for many workers who lost jobs in leisure and hospitality, where employment is still well below what it was in 2019. They’re often better paid, too.

With so much switching going on—about one in five adults quit their jobs last year—Erica Groshen, senior economics adviser at the Cornell University School of Industrial and Labor Relations, says there’s reason to hope for a broader rethink among employers, which could bring more stability for workers.

“There's been a very strong emphasis over the past 20, 30 years to containing costs and particularly personnel costs,” she says. “Personnel management strategies might shift a little bit more toward wanting to provide long-term careers to people.”

The energization of U.S. unions could help, too. This month, workers at Amazon’s warehouse on Staten Island in New York City voted to unionize, an historic victory for the labor movement.

“We could have more worker voice in the workplace than we have had for a while,” Groshen says.

More Robots

One fear for many U.S. workers is that they’ll lose their jobs to robots. Labor shortages and rising wages have pushed businesses to invest in technology that automates routine tasks.

Restaurants and bars, for example, are switching to app-based or digital ordering. McDonald’s Corp. has been rolling out kiosks where customers tap in their orders, and says it’s looking into automation of frying and grilling too. Hilton has expanded a system of contactless check-in via mobile phones. And United Parcel Service Inc. said automation initiatives, like label application, have freed up 1,200 people inside their buildings this year.

That kind of technology can augment human labor as well as simply replacing it. Still, Daron Acemoğlu, an economist at the Massachusetts Institute of Technology, says he’s worried that the shift will end up limiting job opportunities for people without degrees, and making America’s income and wealth gaps even worse.

“Most firms will not reverse their automation decisions once they have installed robots or self-checkout kiosks,” Acemoglu says. “The increased automation in many consumer-facing industries might mean even fewer decent jobs for low- education and some semi-skilled workers.”

Have Some Cash

In response to the pandemic, the government sent out direct payments to Americans on a scale that had never been tried before—three rounds of checks adding up to as much as $3,200 per adult, and even more for families with children.

Their delivery, via the Internal Revenue Service, proved smoother than other parts of the relief package like expanded unemployment benefits, which got snarled in bureaucracy. That’s one reason why the tool will likely be deployed again in future downturns, says Claudia Sahm, director of macroeconomic research at Jain Family Institute and a former Federal Reserve economist.

“If you want to deliver economic support, this is a really good way to do it, because you can actually get the money out,” says Sahm. There’s room for refinement, she says, with more debate likely next time about the timing and size of direct payments.

But the policy also has its critics, who blame the handouts for fueling inflation and adding to the national debt.

Wins for the Wealthy

Government aid helped even the country’s lowest-paid workers bolster their savings. Still, the decades-long trend that’s seen wealth concentrate at the top persisted during the pandemic.

The richest 1% of Americans enjoyed a surge in their net worth, driven by the rapid rebound in stock and housing markets.

Go It Alone

Companies received support, too -- one reason why the pandemic didn’t turn into the conflagration of small businesses that some had feared. Many were indeed forced to close their doors. But there’s also been an unprecedented surge in entrepreneurship.

Before Covid, Americans typically filed about 290,000 new business applications a month. But the figure surged in 2020—and it’s remained well above pre-pandemic levels into 2022, with about 415,000 filings in March.

That’s partly due to government support for household finances, which shored up demand for goods and services. The broader re-think of working life triggered by Covid also helped persuade many Americans to take the leap into self-employment.

The entrepreneurial spirit was alive across the country, with almost three-quarters of U.S. counties reporting an increase in the number of businesses, according to a study by the Economic Innovation Group. Professional services and freight trucking were among the fastest growth areas.

Inflation Is Back

The pandemic recovery has finally brought the boogeyman out of the closet. After decades when inflation was subdued, often dropping below the Fed’s target rate, it’s now running at the fastest pace in 40 years.

That means most Americans have never seen the kind of price increases they’re confronted with today. Even workers getting better-than-before pay raises now have to weigh them against the rising cost of living.

Already, resurgent inflation is threatening Democrats’ prospects in midterm elections this year, and pushing the Fed onto an aggressive path of interest-rate increases to stifle it. It’s an example of how the pandemic has injected new uncertainties into economic life.

“The economy as a whole is more robust than I think we'd ever imagined,” says Justin Wolfers, professor of public policy and economics at University of Michigan. The flip side, he says, is “that maybe—and these two things can both be true—prosperity is more fragile than we might have imagined.”

Over the past two years, Americans who own their homes have gained more than $6 trillion in housing wealthsum, estimated by the Federal Reserve,doesn’t count all the equity in rental properties. So it’s an underestimate of the riches piling up in the housing market late...The highest-income households, who own the most expensive homes, have seen the largest total gains. But because homeownership is so widespread in America, the poorest fifth of households have also added billions in home equity in the last two years. In percentage terms, they’ve seen the biggest increases in wealth.

Emily Badger and Quoctrung Bui, "The Extraordinary Wealth Created by the Pandemic Housing Market,"New York Times, May 1, 2022, https://www.nytimes.com/2022/05/01/upshot/pandemic-housing-market-wealth.html

The Extraordinary Wealth Created by the Pandemic Housing Market

Over the past two years, Americans who own their homes have gained more than $6 trillion in housing wealth. To be clear, that doesn’t mean homebuilders have transferred to buyers $6 trillion worth of new housing, or that existing homeowners have made $6 trillion in kitchen and bathroom upgrades.

It’s a remarkably positive story for Americans who own a home; it’s also inseparable from the housing affordability crisis for those who don’t. For them, rents are rapidly rising. Inflation is whittling away their incomes. And the very thing that has created all this wealth has pushed homeownership as a means of wealth-building further out of reach.

That dual reality follows what has been a mass wealth creation event with few precedents in American history.

“I really struggle to come up with a parallel to this,” said Benjamin Keys, a professor at the Wharton School of Business, trying to identify a moment when this many people gained this much wealth in this little time.

In percentage terms, the stock market has risen by more during the pandemic, but fewer Americans have profited from that. During the last housing boom, the run-up in home values was similarly dizzying but limited to fewer parts of the country. And that equity largely vanished in the kind of bust that economists say is far less likely to happen this time. Perhaps a better analogy, Mr. Keys suggested, would be the 1889 Oklahoma Territory land rush, or the 1920s Los Angeles oil boom, events that abruptly changed who owned land and how much it was worth.

The $6 trillion sum, estimated by the Federal Reserve, doesn’t count all the equity in rental properties. So it’s an underestimate of the riches piling up in the housing market lately.

Hard-to-predict events, like a painful recession, could still claw back some of this total, of course. Property taxes can go up. And this wealth is not the same as having money parked in a bank account. To use it, households must sell a home or tap its value through a tool like a home-equity loan, and that’s not risk-free. But evidence shows that homeowners wield home equity in real ways — to send their children to college, to start businesses, to invest further in housing, building even more wealth.

“There’s a rosy picture and a not-so-rosy picture,” said Emily Wiemers, an economist at Syracuse University who has studied how families tap their home equity to pay for higher education. “The flip side is pretty troubling. There’s this set of kids whose parents don’t own a home and so didn’t see this increase in wealth, and also whose parents may have seen declines in income.”

The cumulative effects figure to be sweeping, and divergent: This period of rising equity will enable some families to create intergenerational wealth for the first time. It will force other families to delay homeownership for years.

It will amplify inequality, as gains go disproportionately to baby boomers (at the expense of millennials who will one day buy their homes), and to white households, who have a homeownership rate that is 30 percentage points higher than that of Black households. But Black home-owning families will benefit in particular because Black household wealth is overwhelmingly in the form of housing.

“I don’t think that there’s a viable alternative to homeownership at this point in time” in terms of building wealth, said Cy Richardson, the senior vice president for programs at the National Urban League, which promotes homeownership among Black families. “And it’s an economic disaster for Black families who are unable to achieve homeownership.”

The highest-income households, who own the most expensive homes, have seen the largest total gains. But because homeownership is so widespread in America, the poorest fifth of households have also added billions in home equity in the last two years. In percentage terms, they’ve seen the biggest increases in wealth.

The bubble in the early 2000s was defined by risky lending and overbuilding. Today, home buyers are on much sturdier ground with their credit scores, conventional mortgages and pandemic savings. Today there’s also a housing shortage nationwide. And that has collided with soaring demand from historically low mortgage rates, from families in search of more space during the pandemic, and from remote workers who could relocate to more affordable places. Home values, as a result, have been up nearly everywhere (making many of those affordable places not so affordable any more).

Price growth will most likely slow now that interest rates are rapidly rising, but economists generally don’t expect prices to fall. There’s just too much demand for too little housing in America today. Rising rates will make it more expensive to access equity. But this equity, Mr. Zandi said, “will prove largely durable.”

Black Knight, a company that tracks the mortgage market, estimates that the average homeowner with a mortgage has gained $67,000 in “tappable equity” in the last two years. That’s actual cash households could access while still keeping 20 percent of the equity in their homes as lenders often require.

By that measure, the average mortgage holder in the San Jose, Calif., metro area has picked up $230,000 in two years. In Boise, Idaho, it’s $114,000. In Cleveland, it’s $27,000.

Mr. Lovenheim has found that families that experienced higher home price growth while their children were in high school were more likely to send their children to college. And the children who went to college were more likely to attend public flagship universities than community colleges.

He and colleagues have also found that households with rising home values were more likely to have children. Work by other researchers has shown that they’re more likely to start new businesses, too.

“Is this wealth real?” Mr. Lovenheim said. “People act like it’s real.”

The first home Julio Velezon II was able to buy in 2019 in Springfield, Va., has measurably changed his life. He and his wife had their first child in that townhome. Then they were able to buy a larger single-family home in December, keeping the first home as a rental property.

Had they not bought in 2019 — before today’s home prices, and today’s rental inflation — he knows exactly how his life would be different: Not buying a home, he said, would have meant not having a son.

“I wouldn’t have felt comfortable having a kid when we were moving and renting,” said Mr. Velezon, a 35-year-old Air Force technical sergeant. “Renting is such an unknown variable — it’s at the mercy of someone else, of the market.”

Now he imagines that his 18-month-old son could live as an adult one day in one of these homes.

Similar stories are increasingly out of reach for other families who come to First Home Alliance, a housing counseling nonprofit based in Northern Virginia that helped Mr. Velezon. Today a family making $70,000 a year can’t compete for a three-bedroom in the area.

“Some of them just have to wait,” said Larry Laws Sr., the president of First Home Alliance (a nonprofit he started with his own housing wealth). “We can educate them on the process, get them fully qualified for affordability. But they cannot purchase in this area.”

They’ll wait, instead, for their incomes to rise, or for home prices to cool, or for new home building to pick up.

But going forward, Mr. Keys, the Wharton professor, worries that all this housing wealth will only reinforce aspects of the American housing market that are fundamentally problematic: that families feel they have few alternatives to build wealth, that housing must act as both shelter and financial asset, that homeowners are motivated as a result to protect that asset.

“There’s actually something that’s kind of pernicious about this,” he said. In a sense, millions of people have made trillions of dollars the last two years by doing nothing.

“But it’s worse than that,” he continued. “It’s not that they’re not doing anything; it’s that they’ve aggressively blocked development in so many places.”

This wealth has been created, he said, precisely because it’s so hard to build housing in America. And that could make the case for building more of it harder still.

In the years before and after the 2008 recession, American homebuilding completely collapsed.... Today, new housing starts are higher than at any point since early 2006—but it’s nowhere near enough to keep up with population growth, let alone make up for the decade of lost construction....After steadily climbing out of the post-2008 hole, new housing starts have been on a serious uptick since the start of the pandemic. As it stands, starts are about 12% higher than they were just before COVID hit, a level of homebuilding not seen since the early 2000s....However, the construction surge has still left total homebuilding at historically weak levels. Relative to America’s still-growing population, homebuilding is hovering near pre-2008 lows. That’s despite a deficit of millions of units that need to be built and a housing stock that is increasingly outdated. Construction would have to at least match the boom periods of yesteryear to make a dent in real rental costs....Granted, America’s net population growth is lower than it was in the early 200s (~0.5% in 2019 versus ~1.1% in 2001) but a wide variety of non-population factors have made housing demand extremely strong.... While assessing the impacts of household formation on the housing market can be exceptionally difficult, vacancy rates can help gauge the strength of demand without examining price. In any given month, a certain number of units will be in between tenants or otherwise vacant. The vacancy rate will usually tick down when demand outstrips supply and new tenants are constantly scrambling to fill available units—and right now the rental vacancy rate is at the lowest level since the early 1980s. In fact, the homeowner vacancy rate is at the lowest level ever. On the whole, the rise in housing construction must be put in context against the backdrop of possibly the most severe housing shortage in American history.

Joseph Politano, "America's Homebuilding Boom (That Isn't),"Apricitas Economics, April 30, 2022, https://apricitas.substack.com/p/americas-homebuilding-boom-that-isnt

America's Homebuilding Boom (That Isn't)

In the years before and after the 2008 recession, American homebuilding completely collapsed. The financial crisis caused housing starts to plummet, and a weak labor market couldn’t support a recovery in rents until 2011. By 2015, though, the problem swapped: weak construction levels couldn’t support a recovery in the labor market. Real rents began climbing rapidly and consistently—something that hadn’t happened before in modern American history.

Today, new housing starts are higher than at any point since early 2006—but it’s nowhere near enough to keep up with population growth, let alone make up for the decade of lost construction. The pandemic has driven increased demand for housing as living patterns shift and incomes improve, but construction is falling behind. Supply chain issues are increasing building costs, keeping housing completions low, and preventing many projects from even breaking ground. Underconstruction has pushed vacancy rates to the lowest levels in nearly 40 years, indicating just how severe the housing shortage has gotten.

There may be a construction boom, but it’s a false boom—one dwarfed by the size of the demand it is trying to satiate. Across America (but especially in major cities), it still remains incredibly difficult or outright illegal to build new housing of any type. More and more Americans are moving into lower cost cities in the South and Southeast, but even these places are failing to keep up. The US will still need millions more homes before demand is even close to satiated—and today’s construction boom needs to be placed in the proper context of an acute housing shortage.

Household formation is a critical concept in determining housing demand, but it can be extremely difficult to accurately track. The general theory is simple enough: people tend to live in the same house as their parents until they reach a certain age and move out to live alone, with a significant other, or with roommates. That moving out represents household formation (which can also occur with divorces, old age, and other life events, but growing up is generally the biggest contributor and main focus). The problem is that household formation affects—and is affected by—price. In general, people tend to move out when they grow up, and an increase in the number of people aging into adulthood can push up housing demand. But if rent is too expensive than these young adults are more likely to stay with their parents—which is exactly what has happened in America over the last 20 years. That keeps household formation numbers low despite high housing demand growth.

A few reinforcing factors relating to household formation have pushed housing demand higher despite weak population growth. The first is a general increase in housing’s relative importance to consumers. People (especially during the pandemic) are spending more time at home—working from home, consuming media at home, and socializing at home. That makes the average person more willing to spend on floorspace. The second factor is a delay in marriages—by 2019 the median age at first marriage had risen to nearly 30 for men and 28 for women, a jump of 4 years since the 1990s. More time unmarried means more demand for separate bedrooms and separate units. The final factor is a general trend towards preferences for living alone. The data for this is admittedly less compelling, but falls into the general multi-decade trend of Americans living more socially isolated and atomized lives. A 2015 survey found that 58% of millennial renters with roommates would prefer to live alone. That preference, unsurprisingly, drives up housing demand. Mix that in with the massive number of millennials aging into their homebuying years and you have a picture that is extremely complicated but points to strong housing demand.

At the same time, the number of housing unit authorized but not started is also at a record high. The same supply issues that is are delaying construction are also making it difficult to even break ground. Builders often have a hard time quickly scaling up production—something that has been made all the worse by the pandemic—so extended construction times can manifest as delays to housing starts.

Now, we are in a third paradigm that started in the late 2010s but has been supercharged by telecommuting and the shifting economic geography caused by the pandemic. In the two years since COVID hit the US, workers have increasingly left the downtown areas of major cities for their suburbs and exurbs. At the same time, they have left expensive states altogether for cheaper ones. This is fairly revolutionary in its own right, but the knock-on effect of these moves could be even more important: workers are again moving from supply-constrained “closed access” cities to areas that choose to permit more construction. It is easier to build in the Dallas metropolitan area than the Los Angeles metropolitan area, so the movement of workers from LA to Dallas can generate an uptick in overall construction. A similar effect, though on a smaller scale, occurs between the downtowns and suburbs of many cities. As pandemic-era restrictions end, it will be critical to see to what degree remote work and its new migration paradigm persists.

Conclusions

Residential construction may be at the highest levels in more than 15 years, but that headline number betrays a lot of weakness under the surface. Completions are still weak and many projects haven’t even broken ground. Vacancies are exceptionally low and construction costs are rising quickly. Many projects are located in second-best areas: banished from the most desirable cities, construction has to make a home elsewhere. Americans’ per-capita housing demand may be at the highest levels ever, and strong labor income growth is pushing up housing demand. No wonder home prices are up nearly 20% over the last year.

This only looks like a homebuilding boom against nearly a decade of housing underproduction. Compared to the scale of the housing shortage, this construction boom isn’t nearly enough. So what should be done? Everything. It is almost impossible to understate how detrimental the housing shortage is to America’s economic well-being—a now-famous Hsieh and Moretti paper estimated that total US GDP was 14-36% lower due to the impact of housing supply restrictions in just a few major American metros. While the priority should be unblocking construction in these cities, the scale of the problem is so vast that nearly anything that can increase construction will be beneficial. The only way out is to keep building.

Chinese regulators have held an emergency meeting with domestic and foreign banks to discuss how they could protect the country’s overseas assets from US-led sanctions similar to those imposed on Russia for its invasion of Ukraine, according to people familiar with the discussion. Officials are worried the same measures could be taken against Beijing in the event of a regional military conflict or other crisis....The internal conference, held on April 22, included officials from China’s central bank and finance ministry, as well as executives from dozens of local and international lenders such as HSBC, the people said. The ministry of finance said at the meeting that all large foreign and domestic banks operating in China were represented.... When one official asked Chinese bankers if they could diversify into more yen or euro-backed assets, they replied that the idea was not practical. Some bankers present, however, doubted whether Washington could ever afford to cut economic ties with China given its status as the world’s second-largest economy, huge holdings of dollar assets and close trade relationship with the US.

Sun Yu, "China meets banks to discuss protecting assets from US sanctions,"Financial Times, April 30, 2022, https://www.ft.com/content/45d5fcac-3e6d-420a-ac78-4b439e24b5de

China meets banks to discuss protecting assets from US sanctions

Chinese regulators have held an emergency meeting with domestic and foreign banks to discuss how they could protect the country’s overseas assets from US-led sanctions similar to those imposed on Russia for its invasion of Ukraine, according to people familiar with the discussion.

Officials are worried the same measures could be taken against Beijing in the event of a regional military conflict or other crisis. President Xi Jinping’s administration has maintained staunch support for Vladimir Putin throughout the crisis but Chinese banks and companies remain wary of transacting any business with Russian entities that could trigger US sanctions.

The internal conference, held on April 22, included officials from China’s central bank and finance ministry, as well as executives from dozens of local and international lenders such as HSBC, the people said. The ministry of finance said at the meeting that all large foreign and domestic banks operating in China were represented.

They added that the meeting began with remarks from a senior finance ministry official who said Xi’s administration had been put on alert by the ability of the US and its allies to freeze the Russian central bank’s dollar assets.

The officials and attendees did not mention specific scenarios but one possible trigger for such sanctions is thought to be a Chinese invasion of Taiwan, which China claims as its territory and has threatened to invade if Taipei refuses to submit to its control indefinitely.

“If China attacks Taiwan, decoupling of the Chinese and western economies will be far more severe than Russia because China’s economic footprint touches every part of the world,” said one of the people briefed on the meeting.

Andrew Collier, managing director of Orient Capital Research in Hong Kong, said the Chinese government was right to be concerned “because it has very few alternatives and the consequences are disastrous”.

Senior regulators including Yi Huiman, chairman of the China Securities Regulatory Commission, and Xiao Gang, who headed the CSRC from 2013 to 2016, asked bankers in attendance what could be done to protect the nation’s overseas assets, especially its $3.2tn in foreign reserves.

China’s vast dollar-denominated holdings range from more than $1tn US Treasury bonds to New York office buildings. State-owned Dajia Insurance Group, for example, owns the Waldorf Astoria New York.

HSBC did not respond to a request for comment.

Some bankers suggested that the central bank could require exporters to exchange all of their foreign exchange revenues for renminbi to increase its onshore dollar holdings. Exporters are currently allowed to retain a portion of their foreign exchange earnings for future use.

Others suggested a “significant” cut to the $50,000 quota that Chinese nationals are allowed to purchase every year for overseas travel, education and other offshore purchases.

When one official asked Chinese bankers if they could diversify into more yen or euro-backed assets, they replied that the idea was not practical.

Some bankers present, however, doubted whether Washington could ever afford to cut economic ties with China given its status as the world’s second-largest economy, huge holdings of dollar assets and close trade relationship with the US.

“It is difficult for the US to impose massive sanctions against China,” agreed Collier. “It is like mutually assured destruction in a nuclear war.”