Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, December 19, 2022

AI Summary. Britain's economy has grown 7% per person in real terms since 2007, ahead of Canada and France at 6% but behind the US, Australia, and Germany at 13-16%. British labor productivity rose just 4% over 15 years, compared with 6% in France and double-digit gains elsewhere.

Economist Staff The Economist
Date Posted:

Britain has seen a relative decline in GDP per person, growing only 7% between 2007 and 2022 relative to 15% growth in the United States. UK GDP per hour worked productivity grew 4% during that period relative to 18% in the United States @Economist

Has Britain's per-person growth lagged most peer economies?

Core argument: Britain's real GDP per person has grown 7% since 2007, just ahead of Canada and France at 6% but behind America, Australia, and Germany at 13–16%.

On a per-person basis, Britain’s economy has grown by 7% in real terms since 2007. That is just ahead of Canada and France, both at 6%, but behind America, Australia, and Germany, which sit at 13-16%. Unfortunately, much of Britain’s meager growth has come not from working more efficiently but rather from working more. Over the past 15 years, British labor productivity has climbed by just 4%, slightly behind France’s 6% and far worse than the other countries’ double-digit gains.

Takeaways by Macro Roundup® AI

  1. Britain's real GDP per person has grown 7% since 2007, just ahead of Canada and France at 6% but behind America, Australia, and Germany at 13–16%.
  2. British labour productivity has risen 4% over the past 15 years, behind France's 6% and far below the double-digit gains of America, Australia, and Germany.
  3. Much of Britain's growth since 2007 has come from working more rather than working more efficiently.

AI Summary. Britain's National Health Service has 6.8m people on waiting lists, up from 4.2m before the pandemic, and has 2.9 doctors per 1,000 people compared with an average of 3.7 across European Union countries in the OECD and 5.4 in Austria.

Catherine Nixey The Economist
Date Posted:

Britain’s National Health Service is under increasing stress, with 6.8mm people on its waiting lists, up from 4.2mm prior to the pandemic. Britain has 2.9 doctors per thousand people, vs. 3.7 average for the OECD. @Economist

Britain’s National Health Service is under increasing stress, with 6.8mm people on its waiting lists, up from 4.2mm prior to...

Is Britain's health service understaffed and overwhelmed by waiting lists?

Core argument: Britain's NHS has 6.8m people on waiting lists, up from 4.2m before the pandemic.

The NHS is in poor shape. It has 6.8m people on waiting lists, up from 4.2m before the pandemic. EU countries in the OECD, a club of mostly rich countries, have an average of 3.7 doctors per 1,000 people (Austria has 5.4). Britain has 2.9.

Takeaways by Macro Roundup® AI

  1. Britain's NHS has 6.8m people on waiting lists, up from 4.2m before the pandemic.
  2. Britain has 2.9 doctors per 1,000 people, below the 3.7 average across EU countries in the OECD, a club of mostly rich countries, and Austria's 5.4.

AI Summary. A survey of consumer expectations finds the average reservation wage — the lowest pay respondents say they would accept for a new job — has risen for both employed and non-employed respondents, with a larger increase for the employed (19.4% versus about 12%). Among employed respondents, those without a college degree showed the largest rise, 27%.

Felix Aidala and Gizem Kosar Federal Reserve Bank Of New York
Date Posted:

According to the @NewYorkFed, the reservation wage continues to climb, with the average now $73,667. Since March 2020, that’s a 19.4% increase for employed workers and 12% for the unemployed.

Is the lowest pay workers will accept still rising?

Core argument: The average reservation wage in the SCE Labor Market Survey rose 19.4% for employed respondents between March 2020 and November 2022, versus about 12% for non-employed respondents over the same period.

When we look at the series for employed and non-employed (unemployed or out of the labor force) respondents separately, as in the chart below, we observe that the average reservation wage has been increasing for both groups since late 2017, but more so since the onset of the pandemic. In addition, the chart displays the increase since the onset of the pandemic (since March 2020) to be more pronounced for employed respondents. Specifically, while the average reservation wage increased by 19.4% between March 2020 and November 2022 for employed respondents, it increased by around 12 percent for non-employed respondents in the same time period. Among the employed respondents, we observe the highest rise in this time period for those without a college degree (a 27% increase).

Takeaways by Macro Roundup® AI

  1. The average reservation wage in the SCE Labor Market Survey rose 19.4% for employed respondents between March 2020 and November 2022, versus about 12% for non-employed respondents over the same period.
  2. Among employed respondents, those without a college degree recorded the largest increase in average reservation wage between March 2020 and November 2022, at 27%.
  3. Average reservation wages have risen for both employed and non-employed respondents since late 2017, with the increase more pronounced since the onset of the pandemic.

AI Summary. Market pricing for interest rates diverges from the Federal Reserve's own projection of holding the federal funds rate at 5.125%. The author argues the jobs market is not weakening, and the Federal Reserve will not shift course without unmistakable signs of labor market weakness.

Jim Bianco Bianco Research
Date Posted:

.@biancoresearch sees two scenarios for equities, both bad: either the stock market declines on weak recessionary earnings and the Fed pivots, or the economy stays hot, and the market declines on higher-than-expected rates.

Will the Fed cut rates without clear signs of labor market weakness?

Core argument: The Fed projects holding the federal funds rate at 5.125% next year, a level markets have not priced in, and this divergence will define trading in the first part of 2023.

As this chart shows, there is a big difference between what the market and the Fed thinks. And this divergence will define the first part of 2023 trading. What does the Fed see causing the funds rate to stay at 5.125% next year? Start with the labor market. The simple truth is the jobs market is NOT weakening. And the Fed is not changing unless it shows UNMISTAKABLE signs of weakening.

Takeaways by Macro Roundup® AI

  1. The Fed projects holding the federal funds rate at 5.125% next year, a level markets have not priced in, and this divergence will define trading in the first part of 2023.
  2. The jobs market is not weakening, which underpins the Fed's expectation that the funds rate stays at 5.125% next year.
  3. The Fed will not change course unless the labor market shows unmistakable signs of weakening.

AI Summary. A New York Federal Reserve survey shows consumers expect elevated inflation over the next year while medium-term inflation expectations remain low, which the author reads as showing no sign that inflation is becoming entrenched.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman notes that, despite high inflation, there is a continued absence of evidence that inflation has become entrenched, with median one, three, and five-year-ahead inflation expectations declining to 5.2%, 3.0%, and 2.3%, respectively.

Do inflation expectations show inflation becoming entrenched?

Core argument: The New York Fed's ongoing survey shows respondents expect elevated inflation over the next year while medium-term inflation expectations remain quite low, which the author reads as no sign of inflation becoming entrenched.

We do, however, have some direct evidence on inflation expectations. For example, here are the results of an ongoing survey by the New York Fed. People do expect elevated inflation over the next year, probably because they’re extrapolating from elevated gas prices earlier this year. But medium-term inflation expectations are quite low. There’s just no sign of inflation getting entrenched.

Takeaways by Macro Roundup® AI

  1. The New York Fed's ongoing survey shows respondents expect elevated inflation over the next year while medium-term inflation expectations remain quite low, which the author reads as no sign of inflation becoming entrenched.
  2. The author suggests elevated one-year inflation expectations in the New York Fed survey probably reflect respondents extrapolating from elevated gas prices earlier in the year.

AI Summary. Acceleration in wage growth over the past year appears connected to faster inflation in services excluding housing and energy. Though that category includes prices not necessarily tied to wages—health care billed to insurers, imputed financial and insurance services, and social assistance—excluding those categories makes core services inflation look substantially worse.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that inflation is unlikely to decline until nominal wage growth slows, which it has not to this point.

Is faster wage growth driving accelerating core services inflation?

Core argument: Wage growth acceleration appears connected to faster inflation in services excluding housing, electricity, and gas.

There does seem to be a connection between the acceleration in wage growth over the past year or so and the acceleration in the inflation rate of services other than housing, electricity, and gas. One could reasonably quibble that “services excluding housing and energy services” is 32% health care prices charged by providers to insurers (including Medicare and Medicaid), 13% imputed financial and insurance services, plus 9% “social assistance” (excluding child care) and non-profits. None of those prices are necessarily linked to wages. But these problematic categories do not explain why inflation has accelerated. In fact, excluding those categories, along with other non-market PCE, makes core services inflation looks substantially worse, as can be seen in the difference between the green line and the orange line in the chart above.

Takeaways by Macro Roundup® AI

  1. Wage growth acceleration appears connected to faster inflation in services excluding housing, electricity, and gas.
  2. The "services excluding housing and energy services" category comprises 32% health care prices charged by providers to insurers, 13% imputed financial and insurance services, and 9% social assistance excluding child care plus non-profits, none necessarily linked to wages.
  3. Excluding those categories along with other non-market personal consumption expenditures makes core services inflation look substantially worse, so they do not explain the acceleration.

AI Summary. How firms respond to an expected decline in demand is the central question for the economic outlook: whether they announce substantial layoffs as usual, or whether difficulty finding and retaining qualified workers leads them to sacrifice short-run profits to keep workers on the payroll.

Michael Boskin Project Syndicate
Date Posted:

Michael Boskin notes that tight labor markets may cause firms to respond to declining demand with fewer layoffs than in a typical recessionary cycle. @AEIecon @ProjSyn

Michael Boskin notes that tight labor markets may cause firms to respond to declining demand with fewer layoffs than in a...

Will firms lay off workers or retain them as demand falls?

Core argument: The single biggest factor in the 2023 economic outlook is how firms respond to a likely reduction in demand.

The single biggest factor in the 2023 outlook is how firms will respond to a likely reduction in demand. Will businesses announce substantial layoffs, as usual? Or will the difficulties in finding and retaining qualified workers lead them to sacrifice short-run profits to keep people on the payroll? (Many have already been laid off in the tech sector, but that is because those companies binge-hired in 2020 and 2021.)

Takeaways by Macro Roundup® AI

  1. The single biggest factor in the 2023 economic outlook is how firms respond to a likely reduction in demand.
  2. Businesses face a choice between announcing substantial layoffs, as is usual, or sacrificing short-run profits to keep workers on the payroll given difficulties finding and retaining qualified staff.
  3. Tech-sector layoffs already made stem from those companies' binge-hiring in 2020 and 2021.

AI Summary. The US workforce of employed PhD scientists and engineers has aged, with the mid-career share (ages 40–55) falling from about half to just under 40% and the late-career share (55–75) rising, and the share over 65 more than doubling to 27%. Researchers find a sharp drop in productivity and citations to top papers after 25 years of career experience.

Matt Clancy What's New Under The Sun
Date Posted:

.@mattsclancy notes that American scientist are aging and notes research that found a sharp fall in productivity after 25 years.

How does an aging scientific workforce affect research productivity?

Core argument: The share of employed US PhD scientists and engineers in mid-career (ages 40–55) fell from about 50% to just under 40% between 1993 and 2019, with most of that decline offset by a rising share of late-career (ages 55–75) scientists.

Scientists are getting older. Above is the share of employed US PhD scientists and engineers in three different age ranges: early career (under 40), mid-career (ages 40-55), and late career (ages 55-75). The figure covers the 26 years from 1993-2019. Over this period, the share of mid-career scientists fell from about half to just under 40%. Most (but not all) of that decline has been offset by an increase in the share of late career scientists. And within the late career group, the share older than 65 has more than doubled to 27% over this time period. Yu and coauthors still find a sharp fall off in both productivity and citations to top papers after 25 years of career experience. For a scientist who first published at the age of 25, that’s 50 years old. The share of scientists who fall into this “late career” demographic has been on the rise.

Takeaways by Macro Roundup® AI

  1. The share of employed US PhD scientists and engineers in mid-career (ages 40–55) fell from about 50% to just under 40% between 1993 and 2019, with most of that decline offset by a rising share of late-career (ages 55–75) scientists.
  2. Within the late-career group of US PhD scientists and engineers, the share older than 65 more than doubled to 27% between 1993 and 2019.
  3. Yu and coauthors find a sharp fall-off in both productivity and citations to top papers after 25 years of career experience, which corresponds to age 50 for a scientist who first published at 25.

AI Summary. Vietnam is on track to displace Britain from the US's top seven goods trading partners for the first time in records going back at least to 2004, with the UK's share of US merchandise trade at 2.6% and Vietnam's at 2.7%. China's share stood at 13.2%, down from a full-year peak of 16.4% in 2017.

Brendan Murray Bloomberg
Date Posted:

Vietnam will displace Britain as one of the US’s top seven trading partners. Vietnam’s share of US goods trade is now 2.7%. The US’s largest trading partners are Canada at 15%, Mexico at 14.7%, and China at 13.2%. @Bloomberg

Is Vietnam displacing Britain among top US goods trading partners?

Core argument: Vietnam's share of US merchandise trade rose to 2.7% through the first 10 months of this year while the UK's slid to 2.6%, according to Census Bureau data.

Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year, while Vietnam’s rose to 2.7%, according to Census Bureau data. The numbers reflect trends that both predate the pandemic and were accelerated by it. China’s share of US goods trade, which stood at 13.2% in October, has been edging down since it peaked on a full-year basis at 16.4% in 2017.

Takeaways by Macro Roundup® AI

  1. Vietnam's share of US merchandise trade rose to 2.7% through the first 10 months of this year while the UK's slid to 2.6%, according to Census Bureau data.
  2. Britain is on track to fall out of the US's top seven goods trading partners for the first time in records going back at least to 2004, displaced by Vietnam.
  3. China's share of US goods trade stood at 13.2% in October, edging down since peaking on a full-year basis at 16.4% in 2017.

AI Summary. Germany has opened a floating liquefied natural gas terminal at the North Sea port of Wilhelmshaven as part of its effort to end energy dependence on Russia. The government has contracted five floating storage and regasification units, each able to handle 5bn cubic meters of gas a year, and approved new permanent import terminals.

Guy Chazan Financial Times
Date Posted:

Germany has opened the first of five floating storage and regasification units, each with a capacity of 5B cubic meters per year of gas. Overall, Germany will soon have LNG import capacity of half the total volume of Russian gas imported last year. @FT

Germany has opened the first of five floating storage and regasification units, each with a capacity of 5B cubic meters per...

Can floating gas terminals replace Russian pipeline supplies?

Core argument: Germany opened its floating LNG terminal at the North Sea port of Wilhelmshaven, a milestone in its quest for energy independence from Russia.

Germany has opened its floating liquefied natural gas terminal in the North Sea port of Wilhelmshaven, marking a crucial milestone in its quest for energy independence from Russia. Since the start of the year, the government contracted five floating storage and regasification unit, each with a capacity of 5bn cubic meters a year of gas. It also pushed through the construction of new permanent LNG import terminals, one of which will be built in Wilhelmshaven. Germany would soon have an LNG import capacity of 30B cubic meters per year on its northern coasts. “That is equivalent to more than half of the entire volume of pipeline gas that flowed to Germany from Russia last year,” Olaf Scholz, the chancellor, said.

Takeaways by Macro Roundup® AI

  1. Germany opened its floating LNG terminal at the North Sea port of Wilhelmshaven, a milestone in its quest for energy independence from Russia.
  2. Germany contracted five floating storage and regasification units since the start of the year, each with capacity of 5bn cubic meters of gas annually, and pushed through construction of new permanent LNG import terminals, including one at Wilhelmshaven.
  3. Chancellor Olaf Scholz said Germany's coming LNG import capacity of 30bn cubic meters a year on its northern coasts equals more than half the entire volume of pipeline gas that flowed from Russia to Germany last year.

Tuesday, December 20, 2022

AI Summary. The Bank of Japan doubled its cap on 10-year government bond yields to around 0.5% from 0.25% while leaving short- and long-term interest rates unchanged, sending the yen higher and government bonds lower. Analysts describe the move as a step toward exiting ultra-loose policy.

Toru Fujioka and Sumio Ito Bloomberg
Date Posted:

The Bank of Japan shocked analysts by letting Japanese 10-Year bonds yield rise from 0.25% to 0.5%. The yen strengthened to 132.28 per dollar, compared with 137.16 immediately before the announcement. @Bloomberg

Does doubling the bond yield cap signal a move from ultra-loose policy?

Core argument: The Bank of Japan doubled its cap on 10-year government bond yields to around 0.5% from 0.25%, while leaving both short- and long-term interest rates unchanged, according to its policy statement.

Bank of Japan Governor Haruhiko Kuroda shocked markets by doubling a cap on 10-year yields, sparking a jump in the yen and a slide in government bonds in a move that helps pave the way for possible policy normalization under a new governor. The BOJ will now allow Japan’s 10-year bond yields to rise to around 0.5%, up from the previous limit of 0.25%, while keeping both short- and long-term interest rates unchanged, according to a policy statement Tuesday. “Whatever the BOJ calls this, it is a step toward an exit,” said Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official. “This opens a door for a possible rate hike in 2023 under a new governorship.”

Takeaways by Macro Roundup® AI

  1. The Bank of Japan doubled its cap on 10-year government bond yields to around 0.5% from 0.25%, while leaving both short- and long-term interest rates unchanged, according to its policy statement.
  2. The yen jumped and Japanese government bonds slid after the Bank of Japan's yield-cap decision under Governor Haruhiko Kuroda, a move that helps pave the way for possible policy normalization under a new governor.
  3. Masamichi Adachi, chief Japan economist at UBS Securities and a former Bank of Japan official, called the move "a step toward an exit" that "opens a door for a possible rate hike in 2023 under a new governorship.".

AI Summary. Higher interest rates on Japanese government bonds cast doubt on the yen's role as a cheap funding currency and could prompt Japanese money to shift out of foreign investments and into domestic ones. That reshuffling could add to concerns over who will buy US government debt.

Tracy Alloway Bloomberg
Date Posted:

.@tracyalloway notes that the uptick in Japanese rates risks the cheap funding that has enabled the yen carry trade and could further reduce demand for Treasuries.

.@tracyalloway notes that the uptick in Japanese rates risks the cheap funding that has enabled the yen carry trade and...

Will higher Japanese interest rates pull capital away from US debt?

Core argument: The Bank of Japan's move puts the yen's role as a cheap funding currency in doubt and could set in motion a mass reshuffling of global capital.

The move puts the yen’s role as a cheap funding currency in doubt and potentially sets in motion a mass reshuffling of global capital. With higher rates now on offer from Japanese government bonds, there’s a chance that money is pulled from foreign investments and plowed into domestic ones. That could potentially add to worries over who will be buying US government debt in the midst of higher inflation, new regulatory requirements for big investors, and perhaps new competition from Japanese government bonds.

Takeaways by Macro Roundup® AI

  1. The Bank of Japan's move puts the yen's role as a cheap funding currency in doubt and could set in motion a mass reshuffling of global capital.
  2. With higher rates now on offer from Japanese government bonds, money could be pulled from foreign investments and plowed into domestic ones.
  3. Such a shift could add to worries over who will buy US government debt, amid higher inflation, new regulatory requirements for big investors, and possible competition from Japanese government bonds.

AI Summary. A decline in venture capital dealmaking alongside a closed market for initial public offerings has created a funding crunch for private technology companies, pushing founders toward debt-focused structures such as bridge loans, convertible notes, structured equity and generous liquidation preferences. These deals are designed to avoid a "down round" at a far lower valuation than previously secured.

Tabby Kinder Financial Times
Date Posted:

With the total value of new venture capital funding down 42% to $286B for the first 11 months of 2022, many private technology companies are turning to debt markets to avoid writing down their equity valuations. @ft

Are startups turning to debt deals to avoid lower valuations?

Core argument: New venture capital deals fell 42% to $286bn in the first 11 months of this year versus the same period last year, according to Preqin, amid a closed IPO market and a funding crunch for private technology companies.

A sharp decline in venture capital dealmaking, alongside a closed market for initial public offerings, has resulted in a funding crunch for many private technology companies over the past year. Company founders have entered into debt-focused deals such as bridge loans, structured equity, convertible notes, participating bonds and generous liquidation preferences. These moves are designed to avoid a dreaded “down round” — accepting funding at a far lower valuation than a company had previously secured. New VC deals fell 42% in the first 11 months of this year to $286bn, compared to the same period last year, according to investment data company Preqin. Silicon Valley law firm Cooley said the total value of late-stage VC deals it advised on had slumped almost 80% this year.

Takeaways by Macro Roundup® AI

  1. New venture capital deals fell 42% to $286bn in the first 11 months of this year versus the same period last year, according to Preqin, amid a closed IPO market and a funding crunch for private technology companies.
  2. Silicon Valley law firm Cooley said the total value of late-stage venture capital deals it advised on slumped almost 80% this year.
  3. Start-up founders have turned to bridge loans, structured equity, convertible notes, participating bonds and generous liquidation preferences to avoid a "down round" at a far lower valuation than previously secured.

AI Summary. Immigrants represent 16% of US inventors but produced 23% of total innovation output as measured by patent counts, citations, and the economic value of patents. The authors estimate immigrants account for 36% of aggregate innovation, two-thirds of which comes from their spillover effects on native-born collaborators.

Joey Politano @JosephPolitano
Date Posted:
Is Database:
Database

First generation immigrants make up 16% of American inventors, but are responsible for 23% of total innovation output. Including the spillover effects on native born collaborators, they drive 36% of aggregate innovation. @bibipousada @shaibrn @rebeccardiamond

How much of US innovation do immigrant inventors produce?

Core argument: Immigrants account for 16% of US inventors but produced 23% of total innovation output, measured by patent counts, patent citations, and the economic value of those patents, according to a linkage of patent records to more than 230mm Social Security Numbers.

We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators.

Takeaways by Macro Roundup® AI

  1. Immigrants account for 16% of US inventors but produced 23% of total innovation output, measured by patent counts, patent citations, and the economic value of those patents, according to a linkage of patent records to more than 230mm Social Security Numbers.
  2. A decomposition attributes 36% of aggregate US innovation to immigrants, two-thirds of which is due to their innovation externalities on native-born collaborators.
  3. Immigrant inventors are more likely to rely on foreign technologies, collaborate with foreign inventors, and be cited in foreign markets, contributing to the importation and diffusion of ideas across borders.

A new BLS data series “New Tenant Repeat Rent Index” suggests that the highest housing inflation is behind us, and other indexes should see price deceleration soon.

Researchers at the BLS and Cleveland Fed released a data series today that might be the single most important new inflation indicator. The New Tenant Repeat Rent Index uses the same microdata that goes into the official Consumer Price Index to select only samples with rental turnover and to assign price shifts to when they happened, not when the units were surveyed. The New Tenant Repeat Rent Index, therefore, leads official inflation data in the CPI by 1 year. The good news is that the New Tenant Repeat Rent Index suggests that the worst of housing inflation is likely behind us, and price decelerations should pass through to official inflation data soon. Critically, New Tenant Repeat Rent index also shows lower overall price growth than private data. Joey Politano, “New Tenant Repeat Rent Index,” @JosephPolitano, December 19, 2022, https://twitter.com/JosephPolitano/status/1604971464834568192

Researchers at the BLS and Cleveland Fed released a data series today that might be the single most important new inflation indicator—and I don’t say that lightly. Introducing the New Tenant Repeat Rent Index—a new way of tracking housing inflation.

The Consumer Price Index tracks housing inflation through a large panel of housing units that are surveyed every six months. But because rental turnover is slow and CPI tracks contract rents for all units, CPI data lags current market conditions significantly.

The New Tenant Repeat Rent Index uses the same microdata that goes into the official Consumer Price Index to select only samples with rental turnover and to assign price shifts to when they happened, not when the units were surveyed.

The New Tenant Repeat Rent Index, therefore, leads official inflation data in the CPI by 1 year. The All Tenant Repeat Rent Index, which has a similar methodology to the official CPI but assigns price shifts to when they happened not when they were surveyed, leads by 1 quarter. The New Tenant Repeat Rent Index has several key differences between private data from companies like Zillow/ApartmentList. Namely, the NTRR observes contract rents directly, which private data only imputes from listing prices, and the NTRR is derived from a more robust sample.

The good news is that the New Tenant Repeat Rent Index suggests that the worst of housing inflation is likely behind us and price decelerations should pass through to official inflation data soon. Critically, NTRR also shows lower overall price growth than private data. Image The New Tenant Repeat Rent Index also tracks much closer with movements of Gross Labor Income (aggregate wages) and with much less of a lag than official CPI data. Slowing GLI growth is a key mechanism by which the Fed controls inflation, making NTRR a key indicator to watch.

One key note—since the NTRR is a repeat-rent index, it is revised as new observations are added over time. Recent measurements could change when new CPI data is collected, and data for the most-recent quarters also have the largest confidence intervals.

AI Summary. Apple plans to shift some MacBook production to Vietnam for the first time, tapping supplier Foxconn, as it diversifies manufacturing away from China. The move would give all of Apple's flagship products a production site outside China, with iPhones in India and MacBooks, Apple Watches and iPads in Vietnam.

Cheng Ting-Fang Nikkei Asia
Date Posted:

Apple will start MacBook production in Vietnam this spring as the company seeks to complete an “out of China” option for all major products. @NikkeiAsia

Apple will start MacBook production in Vietnam this spring as the company seeks to complete an “out of China”...

Is Apple moving production of all its flagship products outside China?

Core argument: Apple has tapped Taiwan's Foxconn to begin making MacBooks in Vietnam as early as around May, its first MacBook production outside China, according to sources briefed on the matter.

Apple plans to move some MacBook production to Vietnam for the first time next year as the U.S. tech group continues diversifying its production base away from China amid escalating tech tensions between Washington and Beijing. Apple has tapped its top supplier, Taiwan's Foxconn, to start making MacBooks in the Southeast Asian nation as early as around May, sources briefed on the matter said. Apple has been working to add production sites outside of China for all of its major product lines, but doing so for the final one, the MacBook has taken longer due to the complex supply chain needed for making laptop computers. "After the MacBook production shifts, all of Apple's flagship products basically will have one more production location beyond China ... iPhones in India and MacBooks, the Apple Watch and iPads in Vietnam," one person with direct knowledge of the matter told Nikkei Asia. "What Apple wants now is an 'out of China' option for at least part of production for all of its products."

Takeaways by Macro Roundup® AI

  1. Apple has tapped Taiwan's Foxconn to begin making MacBooks in Vietnam as early as around May, its first MacBook production outside China, according to sources briefed on the matter.
  2. Apple has been adding production sites outside China for all its major product lines, with the MacBook taking longer because of the complex supply chain required for laptop computers.
  3. After the MacBook shift, Apple's flagship products will each have a production location beyond China — iPhones in India and MacBooks, the Apple Watch and iPads in Vietnam — one person with direct knowledge told Nikkei Asia.

AI Summary. Linking patent records to Social Security data, the authors find immigrants are 16% of US inventors but account for 23% of innovation output measured by patent counts, citations, and economic value. They estimate immigrants are responsible for 36% of aggregate innovation, two-thirds of it through spillovers onto their native-born collaborators.

Shai Bernstein, Rebecca Diamond, et al Stanford University
Date Posted:
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Database

First generation immigrants make up 16% of American inventors, but are responsible for 23% of total innovation output. Including the spillover effects on native born collaborators, they drive 36% of aggregate innovation. @bibipousada @shaibrn @rebeccardiamond

How much US innovation do high-skilled immigrants account for?

Core argument: Immigrants represent 16% of US inventors but produced 23% of total innovation output, measured by patent counts, patent citations, and the economic value of those patents, based on patent records linked to the first five digits of more than 230mm Social Security Numbers.

We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators.

Takeaways by Macro Roundup® AI

  1. Immigrants represent 16% of US inventors but produced 23% of total innovation output, measured by patent counts, patent citations, and the economic value of those patents, based on patent records linked to the first five digits of more than 230mm Social Security Numbers.
  2. A simple decomposition finds immigrants are responsible for 36% of aggregate US innovation, two-thirds of which is due to their innovation externalities on native-born collaborators.
  3. Immigrant inventors are more likely to rely on foreign technologies, collaborate with foreign inventors, and be cited in foreign markets, contributing to the importation and diffusion of ideas across borders.

First-generation immigrants make up 16% of American inventors but are responsible for 23% of total innovation output. Including the spillover effects on native-born collaborators, they drive 36% of aggregate innovation.

Description automatically generated We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators. Shai Bernstein, Rebecca Diamond, Abhisit Jiranaphawiboon, Timothy McQuade and Beatriz Pousada, “The Contribution of High-Skilled Immigrants to Innovation in the United States,” Stanford Univeristy, December 17, 2022, https://web.stanford.edu/~diamondr/BDMP.pdf

Core of paper, “…We characterize the contribution of immigrants to US innovation, both through their direct productivity as well as through their indirect spillover effects on their native collaborators. To do so, we link patent records to a database containing the rst ve digits of more than 230 million of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We nd immigrants represent 16 percent of all US inventors, but produced 23 percent of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. Using an identiffcation strategy that exploits premature inventor deaths, we find that immigrant inventors create especially strong positive externalities on the innovation production of their collaborators, while natives have a much weaker impact. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators….”

Contribution to innovation,“…We find that 16% of all US-based inventors, between 1990-2016, have been immigrants that came to the United States when they were 20 years of age or older. The contribution of these immigrants to overall US innovative output, however, has been disproportionate relative to their share of the US inventor population. Immigrant inventors have produced roughly 23% of all patents during this time period, more than a 40% increase relative to their share of the US-based inventor population. These patents, moreover, do not appear to be of lower quality. Using the number of patents weighted by the number of forward citations, which captures the quality of innovation (Hall et al., 2001), we nd that the immigrant contribution is even higher at 24%. Finally, using the Kogan et al. (2017) measure capturing stock market reaction to patent grants available for publicly traded firms and imputed for private firms, we find that the immigrants have generated 25% of the aggregate economic value, an increase of over 50% relative to their share of the inventor population….”

Why?

“…While immigrant inventors in the US may simply be selected based on their innate ability, we do observe them also making choices that complement their productivity. For example, we find immigrants are disproportionately choosing to live in highly productive counties (\innovation hubs”), relative to US born inventors. Immigrants also are disproportionately patenting in technology classes that are experiencing more innovation activity. These two forces can explain about 30% of the raw patenting gap between immigrants and natives. This suggests that immigrants are not only more productive based on ability, but that they are more willing to make choices that further improve their innovative output….”

Spillovers

“…These team interactions between foreign and US-born inventors in the production of patents are of particular interest since they may be a key mechanism through which an inventor’s knowledge spills over onto the knowledge and productivity of his collaborators. These knowledge externalities are exactly why the US may be able to allow high-skilled immigrants in the country and improve the welfare and productivity of US-born workers. We estimate the magnitudes of foreign-born and US born knowledge externalities on their collaborators using the exogenous termination of such relationships. Specifically, to construct causal estimates of these spillovers, we exploit the premature deaths of inventors, defined as deaths that occur before the age of 60.4 We then follow the patenting behavior of inventors who had co-authored a patent with the deceased inventor, at some point prior to the inventor’s death. We compare the change in patenting activity of these co-authors before versus after the inventor death to a matched control group of inventors who did not experience the premature death of a co-author. Overall, we find that premature death leads to a 10 percent decline in the innovative productivity of their co-inventors, as measured by patents and top patents, consistent with Jaravel et al. (2018). This decline takes place gradually and has a long-lasting impact. Most strikingly, we find that the disruption caused by an immigrant death causes a significantly larger decline in the productivity of the co-inventors than that of native inventors. The death of an immigrant lowers co-inventor productivity by approximately 17%, while a US-born inventor’s death lowers productivity by approximately 9%. These gaps are large and persistent, and take place across all of our measures of innovative productivity…”

The Evidence

“…We find that immigrants account for approximately 23% of all patents produced over the time period of our sample. Remarkably, this represents a 43% increase relative to their share of the US-based inventor population. One possibility, though, is that immigrants might be producing more patents of lower quality than their US native counterparts. We find that this is not the case. The fraction of raw future citations attributed to immigrants in our sample is again roughly 23%, suggesting that the higher production of patents by immigrants is not coming at the cost of the lower quality. Yet another concern is that immigrants may select into technologies that have higher citation rates, which could account for these results. Looking at adjusted citations, however, in which we scale citation rates by the average citations of all patents granted in the same year and technology class, we find that the contribution of immigrants is if anything slightly higher, accounting for 24% of the total. Similarly, when we focus on the production of top patents, those patents that are at the top 10% of citations within a technology class and year, we find a similar pattern, with immigrants generating roughly 25% of top patents in our sample period….”

Description automatically generated

“…We next explore the share of total economic value that immigrants have generated over the last four decades. We find that immigrants have generated 25% of the aggregate economic value created by patents in publicly traded and private companies between the years of 1990-2016. We finally explore whether the contribution of immigrants to innovation is concentrated in particular technology categories….” image002.png “…In Figure 2, we construct the relative contribution of immigrants across six technology categories. Immigrants account for about 25% of patents among the four main technological categories that were emerging during our sample period: Computers and Communications, Drugs and Medical, Electronics, and Chemical technologies. In contrast, the presence of immigrants seem to be lower at about 15% in more traditional technologies such as the Mechanical category that involves Metalworking, Transportation, Engines, and the Other category that includes various technologies related to Heating, Agriculture, Furniture, among others….”

AI Summary. Capital spending minus depreciation as a share of sales peaked at 6.9% and bottomed at 0.5%, averaging 1.8% over the past decade. Depreciation is an imperfect proxy for maintenance capital spending because rising prices make replacement costs exceed historical-cost depreciation, and technological obsolescence means depreciation can overstate an asset's useful life.

Michael Mauboussin and Dan Callahan Morgan Stanley
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.@mjmauboussin shows capital expenditures net of depreciation as a percentage of sales peaked in 1988 at 6.9%. Over the past decade it has averaged 1.8% and fell to 0.5% in 2020 during the pandemic.

Has net capital investment as a share of sales declined?

Core argument: Capital expenditures minus depreciation as a share of sales peaked at 6.9% in 1988 and bottomed at 0.5% in 2020 for the studied population, averaging 1.8% over the past decade.

Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life.

Takeaways by Macro Roundup® AI

  1. Capital expenditures minus depreciation as a share of sales peaked at 6.9% in 1988 and bottomed at 0.5% in 2020 for the studied population, averaging 1.8% over the past decade.
  2. Using depreciation as a proxy for maintenance capital expenditures faces two substantial limitations: inflation and the risk of technological obsolescence.
  3. In periods of rising prices such as 2022, capital expenditures needed to replace equipment exceed depreciation because new spending reflects inflation while depreciation is based on historical costs.

Michael Mauboussin and Dan Callahan shows capital expenditures net of depreciation as a percentage of sales peaked in 1988 at 6.9%. Over the past decade it has averaged 1.8% and fell to 0.5% in 2020 during the pandemic. (200)

Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life. Michael Mauboussin and Dan Callahan, "Capital Allocation: Results, Analysis and Assessment," Morgan Stanley, December 15, 2022, https://www.morganstanley.com/im/publication/insights/articles/article_capitalallocation.pdf