Edward Conard

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  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
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Macro Roundup


Friday, November 11, 2022

AI Summary. Underlying inflation gauges suggest inflation may have peaked: the Cleveland Federal Reserve's "trimmed mean" measure, which excludes the largest price outliers, has dipped slightly, while the Atlanta Federal Reserve's "sticky price" measure, covering goods and services whose prices change least often, is unchanged. Both remain very elevated.

John Authers Bloomberg
Date Posted:

.@JohnAuthers argues that the Cleveland Fed “trimmed mean” and the Atlanta Fed “sticky” inflation measure suggest inflation has peaked.

Do underlying inflation gauges suggest inflation has peaked?

Core argument: The Cleveland Fed's trimmed mean inflation measure, which excludes the largest outlier components in either direction, has dipped slightly, while the Atlanta Fed's sticky price measure, covering goods and services whose prices are hardest to change, is unchanged.

Underlying metrics confirmed that this time might really be the peak, in a way they conspicuously failed to do earlier this year when core CPI last seemed to have started a descent. The chart shows the “trimmed mean” inflation produced by the Cleveland Fed that excludes the biggest outliers in either direction from the index’s components and takes the average of the rest; and the “sticky” inflation measure produced by the Atlanta Fed, which looks only at the goods and services whose prices are hardest to change. In practice, when these measures rise, it’s taken as a sign that inflationary pressure is gaining strength; it’s good to see that while both remain very elevated, the trimmed mean has dipped slightly, while sticky price inflation is unchanged.

Takeaways by Macro Roundup® AI

  1. The Cleveland Fed's trimmed mean inflation measure, which excludes the largest outlier components in either direction, has dipped slightly, while the Atlanta Fed's sticky price measure, covering goods and services whose prices are hardest to change, is unchanged.
  2. Both the trimmed mean and sticky price inflation measures remain very elevated, though rises in these measures are taken as a sign that inflationary pressure is gaining strength.
  3. Underlying inflation metrics suggest this may be the peak, in a way they failed to do earlier in the year when core CPI appeared to have begun a descent.

AI Summary. Newer macroeconomic theory using forward-looking rather than adaptive expectations holds that inflation is stable under an interest rate target and can fade on its own even when interest rates sit below the inflation rate. Under the fiscal theory of the price level, a burst of inflation devalues government debt and ends once the real value of that debt is restored.

John Cochrane The Grumpy Economist
Date Posted:

.@johnHCochrane argues that inflation potentially peaking with the Federal Funds rate < CPI is evidence that the fiscal theory of the price level is the right way to understand inflation

Can inflation fade on its own with interest rates below inflation?

Core argument: CPI data suggest inflation might be peaking, with other news pointing to inflation easing, though the author says it is too soon to declare victory.

The news of the moment is that inflation might--might--be peaking. I just present the CPI to make the point, but there seems to be a lot of news suggesting that inflation is easing off. Newer theory, which primarily uses rational (better, forward-looking or model-consistent) rather than adaptive expectations, says that inflation is stable under an interest rate target. It follows that inflation can go away all on its own, even with interest rates substantially below inflation. With fiscal theory + rational expectations, we are having a burst of inflation to devalue government debt, as a response to the 2020-2021 fiscal blowout. But once the price level has risen enough to bring the real value of debt back, it’s over. Until the next shock hits. If inflation fades away despite interest rates below the inflation rate, we have a rather striking confirmation of this rational expectations view, with stable inflation, relative to the traditional spiral-away view. So, are we headed there? It’s too soon for this cautious commenter to declare victory, but I am willing to provide context and say I’m watching anxiously!

Takeaways by Macro Roundup® AI

  1. CPI data suggest inflation might be peaking, with other news pointing to inflation easing, though the author says it is too soon to declare victory.
  2. Under rational, forward-looking expectations, inflation is stable with an interest rate target, so inflation can fade on its own even when interest rates sit substantially below the inflation rate.
  3. Fiscal theory combined with rational expectations frames the inflation burst as a response to the 2020–2021 fiscal blowout that devalues government debt, ending once the price level has risen enough to restore the real value of that debt.

AI Summary. Republican voters outnumbered Democrats in the midterm electorate according to AP VoteCast, yet Democrats won. The analyst argues the Supreme Court's Dobbs ruling ending federal abortion rights was the major factor, citing stronger Democratic special-election results afterward and a 2.7% rise in the Democratic share of primary voters.

Eric Levitz New York Magazine
Date Posted:

.@Davidshor notes that Republicans likely turned out at higher rates than democrats in 2022 and suspects the reason Democrats won independents was anger at the Dobbs decision.

.@Davidshor notes that Republicans likely turned out at higher rates than democrats in 2022 and suspects the reason...

Why did Democrats win the midterms despite being outnumbered by Republican voters?

Core argument: David Shor argues Dobbs was the major factor in the 2022 midterms, noting the share of primary voters who were Democrats rose about 2.7 percent after the decision and that Democrats performed much better in special elections held afterward.

Republicans literally outnumbered Democrats, according to the AP’s VoteCast. And yet Democrats still won. What’s really unique about this midterm cycle is that Republicans created a radical policy change — and one that was quite unpopular — without controlling the presidency or the legislature. And that allowed Democrats to plausibly run as the party that was going to make less change than the opposition, which is a super-unusual situation. In our ad testing, messaging about reproductive rights tested very well. Dobbs had an immediate impact on election outcomes. If you look at special elections before and after the decision, Democrats did much better in the latter. And the percentage of primary voters who were Democrats increased by about 2.7 percent after Dobbs. So I think Dobbs was really the major factor.

Takeaways by Macro Roundup® AI

  1. David Shor argues Dobbs was the major factor in the 2022 midterms, noting the share of primary voters who were Democrats rose about 2.7 percent after the decision and that Democrats performed much better in special elections held afterward.
  2. Republicans outnumbered Democrats among 2022 midterm voters, according to the AP's VoteCast, yet Democrats still won.
  3. Shor describes the 2022 cycle as unusual because Republicans created a radical, unpopular policy change without controlling the presidency or the legislature, letting Democrats run as the party that would make less change, with reproductive-rights messaging testing very well in his ad testing.

Monday, November 14, 2022

AI Summary. The labor force participation rate for 20-24 year-olds has fallen to 70.8% from 72.1% before the pandemic, a shortfall of roughly 500,000 workers, and college enrollment has also declined by 1.5m students, so schooling does not account for the drop. Caretaking duties, mental health issues, Covid-19 effects, and young workers holding out for better jobs are cited as contributing factors.

Bryan Mena Wall Street Journal
Date Posted:
Is Database:
Database

@BryanMena The labor force participation rate for 20-24 year-olds has declined to 70.8% from a pre-pandemic level of 72.1%, resulting in a shortfall of about 500,000 workers in this age group compared to 2019.

Why has labor force participation fallen among young adults?

Core argument: The labor force participation rate for 20–24 year-olds fell to 70.8% from a pre-pandemic 72.1%, a shortfall of roughly 500,000 workers in this age group relative to 2019.

The labor force participation [LFP] rate for 20-24 year-olds has declined to 70.8% from a pre-pandemic level of 72.1%, resulting in a shortfall of about 500,000 workers in this age group compared to 2019. This decline is not offset by increased educational enrollment, as college enrollment has decreased by 1.5m students since the pandemic. The NEET [Not in Employment, Education, or Training] rate for this demographic rose to 18.27% in 2021, the highest since 2014. Factors such as caretaking responsibilities, mental health issues, and the impact of Covid-19 contribute to this trend. Additionally, some young workers may be waiting for better job opportunities, reflecting a shift in mindset towards greater bargaining power in a tight labor market. This situation contrasts with past economic downturns where increased education enrollment typically accompanied reduced LFP among younger individuals.

Takeaways by Macro Roundup® AI

  1. The labor force participation rate for 20–24 year-olds fell to 70.8% from a pre-pandemic 72.1%, a shortfall of roughly 500,000 workers in this age group relative to 2019.
  2. College enrollment has fallen by 1.5m students since the pandemic, so the drop in young-adult participation is not offset by more schooling, unlike past downturns when reduced participation came with rising enrollment.
  3. The NEET rate for 20–24 year-olds rose to 18.27% in 2021, the highest since 2014, with caretaking responsibilities, mental health issues, Covid-19, and waiting for better job opportunities cited as contributing factors.

The labor force participation rate for 20-24 year-olds has dropped to 70.8% relative to a pre-pandemic level of 72.1%, without a corresponding increase in educational enrolment

Labor Market Mystery: Where Are the Older Gen Z Workers?: Extended Excerpt Image 1



“…For people ages 20 to 24, participation that averaged 72.1% in 2019 stood at just 70.8% in October. That equals a shortfall of about half a million workers in their early 20s when comparing the current size of that workforce with 2019 levels. In the past, a decline in labor-force participation among younger people has usually coincided with an increase in their school enrollment, generally reflecting higher relative demand for educated or highly skilled workers, especially in a weak labor market, economists said. That’s what happened during the 2007-09 recession—but it hasn’t been the case this time. About 1.5 million fewer students were enrolled in college this fall compared with before the pandemic….”

Bryan Mena, "Labor Market Mystery: Where Are the Older Gen Z Workers?"Wall Street Journal, November 13, 2022, https://www.wsj.com/articles/labor-market-mystery-where-are-the-older-gen-z-workers-11668278379

Labor Market Mystery: Where Are the Older Gen Z Workers?

The exodus from the labor force in the pandemic’s early months has mostly reversed, but one group remains oddly absent: people in their early 20s.

For people over age 15, the labor-force participation rate—the share of people employed or actively seeking a job—dropped from an average of 63.1% in 2019 to 61.7% in 2021, and recovered to 62.2% in October. But for people ages 20 to 24, participation that averaged 72.1% in 2019 stood at just 70.8% in October.

That equals a shortfall of about half a million workers in their early 20s when comparing the current size of that workforce with 2019 levels.

Labor Market Mystery: Where Are the Older Gen Z Workers?: Extended Excerpt Image 2


Participation for people over 55 also remains well below prepandemic levels. That seems at least partly due to many of them taking early retirement, either by choice or because of difficulty finding suitable work late in their careers.

Those reasons don’t apply to people in their 20s, who are usually just starting out in their careers.

Demand for workers is intense. As states reopened their economies in 2021, employers were competing from a smaller pool of available workers. Wages rose robustly, job openings became plentiful and some employers even reduced their requirements to fill jobs.

That did the trick in luring 16- to 19-year-olds into the workforce, and they raked in the fastest wage increases of any age group last year. That group’s participation rate averaged 36.2% in 2021, the highest since 2009, and has since climbed to 36.6% this year through October.

Economists cite several possibilities for why so many people in their early 20s stayed on the sidelines.

In the past, a decline in labor-force participation among younger people has usually coincided with an increase in their school enrollment, generally reflecting higher relative demand for educated or highly skilled workers, especially in a weak labor market, economists said. That’s what happened during the 2007-09 recession—but it hasn’t been the case this time around.

About 1.5 million fewer students were enrolled in college this fall compared with before the pandemic, according to the National Student Clearinghouse, an educational nonprofit. College enrollment had been declining for a decade in part because of concerns about student debt and the rise of alternative credentials.

Overall enrollment in graduate and undergraduate programs across all ages was 3.2% lower in this fall semester versus two years ago. However, enrollment in graduate school among those ages 21 through 24 was 8.5% higher during the same period. That age group almost entirely drove the 1.6% increase in graduate-school enrollment from 2020 to 2022.

That might indicate that some workers in their early 20s aren’t working because they are pursuing a graduate degree, although some might be working while in school, said Andria Smythe, an economist at Howard University.

Workers in their early 20s may have decided to continue their education because of pandemic disruptions in 2020, when schools pivoted to online instruction.

“For a vast majority of students, going to college is just as much about the experience as it is getting the degree, so if that’s the case, they’ve missed out on the experience and want to figure out a way of getting it,” said Ron Hetrick, an economist at data-analytics firm Lightcast.

Some people in their early 20s are neither in school nor working. The Organization for Economic Cooperation and Development, an intergovernmental group that promotes economic growth, tracks the share of people who aren’t in employment, education or training, known as the NEET rate. The NEET rate for U.S. workers ages 20 to 24 rose from 14.67% in 2020 to 18.27% in 2021, the highest since 2014.

The NEET rate might have increased specifically for workers ages 20 to 24 because some of them might have dropped out of school in the early days of the pandemic when they were high-school seniors, according to Alejandra Grindal, senior international economist at Ned Davis Research Group.

“The NEET rate is always much higher among people who don’t even have a high-school education,” Ms. Grindal said.

These people appear to be disconnected from work, for reasons that include child care, the toll of long Covid, fear of catching Covid-19 and mental health.

An analysis of Census Bureau data by Gad Levanon, chief economist of The Burning Glass Institute, found workers in their early 20s who aren’t in school or the labor force overwhelmingly cited caretaking responsibilities, though the numbers hadn’t changed much since 2019. Covid-19 may also be keeping some of these workers on the sidelines.

Finally, 20-somethings might simply be waiting for the right job opportunity to come along, a luxury afforded by the ease of finding a job in the still-tight U.S. labor market.

“They might just be making decisions that are best suited to them and not necessarily rushing into the labor market to get the first job out there,” said Nicole Smith, chief economist of Georgetown University’s Center on Education and the Workforce.

Job openings began to soar in 2021 and have remained historically high this year. The number of workers quitting their jobs has also remained elevated, reflecting confidence in finding a new job.

“Movements like ‘work your wage’ and ‘quiet quitting‘ are very revealing of this changed mind-set for these young workers. They think that they have more bargaining power so some of them became more picky,” Justine Hervé, an economist at the Stevens Institute of Technology in Hoboken, N.J., said.

“Quiet quitting” and “work your wage” are both phrases popularized this year that mean working no harder than the job, or its pay, deserves.