Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, January 13, 2023

AI Summary. JPMorgan Chase said it may be forced to pay more for deposits, which analysts called a warning shot for the entire banking industry. The bank reported fourth-quarter deposits of $2.4tn, down 4% from a year earlier and its first year-on-year decline since 2016.

Joshua Franklin Financial Times
Date Posted:

JP Morgan reported deposits in Q4 2022 were down 4% from a year earlier, the first year-on-year decline since 2016. Investors and analysts anticipate that banks will have to pay more for deposits going forward. @ft

JP Morgan reported deposits in Q4 2022 were down 4% from a year earlier, the first year-on-year decline since 2016. ...

Will banks have to pay more to keep deposits?

Core argument: JPMorgan Chase reported fourth-quarter deposits of $2.4tn, down 4% from a year earlier, the bank's first year-on-year decline since 2016.

JPMorgan Chase said it might be forced to pay more for deposits this year in what analysts called “a warning shot for the entire industry”. JPMorgan said deposits in the fourth quarter were $2.4T, down 4% from a year earlier. This was the bank’s first year-on-year decline since 2016. Investors and analysts anticipate that banks will eventually have to reward deposit holders with better rates to retain their business and JPMorgan said it expected that would be the case in 2023.

Takeaways by Macro Roundup® AI

  1. JPMorgan Chase reported fourth-quarter deposits of $2.4tn, down 4% from a year earlier, the bank's first year-on-year decline since 2016.
  2. JPMorgan Chase said it might be forced to pay more for deposits in 2023, which analysts called "a warning shot for the entire industry".
  3. Investors and analysts anticipate that banks will eventually have to reward deposit holders with better rates to retain their business.

AI Summary. The 12-month median wage change has returned to its level in the second half of the 1990s, and if the quarterly Employment Cost Index—widely viewed as the best wage gauge—follows suit, the job market would no longer be a worrying source of inflationary pressure. Inflation may normalize without policymakers pushing the economy into a downturn.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes a broad-based slowdown in wage growth. He highlights that “12-month median wage change is now back to where it was in the second half of the 1990s” He thinks a soft landing is “increasingly likely.”

Can inflation normalize without pushing the economy into a downturn?

Core argument: The 12-month median wage change has returned to its level in the second half of the 1990s, a period that did not feature excessive price increases outside of Beanie Babies and stocks.

The 12-month median wage change is now back to where it was in the second half of the 1990s—not exactly a period of excessive price increases outside of Beanie Babies and stocks. That could soon be corroborated by the Employment Cost Index (ECI), which Fed officials and others regularly view as the single best indicator of wages. The ECI only comes out once a quarter, and the latest data right now are from 2022Q3. If the Q4 number were to move in line with the most recent hourly earnings numbers and the Atlanta Fed’s median wage change tracker, then the job market would no longer a worrying source of inflationary pressure. This could be noise, but it is looking increasingly likely that inflation may in fact normalize without policymakers having to push the economy into a downturn.

Takeaways by Macro Roundup® AI

  1. The 12-month median wage change has returned to its level in the second half of the 1990s, a period that did not feature excessive price increases outside of Beanie Babies and stocks.
  2. The Employment Cost Index, which Fed officials and others regularly view as the single best indicator of wages, is reported only quarterly, with the latest data from 2022Q3.
  3. If the Q4 Employment Cost Index moves in line with recent hourly earnings and the Atlanta Fed's median wage change tracker, the job market would no longer be a worrying source of inflationary pressure.

AI Summary. Even if much wage and price growth proves temporary, the underlying determinants of inflation—supply, demand, and expectations—no longer justify a sanguine outlook, with unemployment at 3.5% and consumers expecting 4.6% inflation over the coming year. This argues the Federal Reserve cannot yet signal an end to interest-rate increases.

Greg Ip Wall Street Journal
Date Posted:

.@greg_ip argues yesterday’s CPI release is consistent with recent inflation being largely transitory in nature, but with consumer expectations of 4.6% inflation in the coming year, “the Fed can’t signal an end to interest rate increases yet.”

Can the Fed signal an end to rate increases yet?

Core argument: Unemployment stands at 3.5% and consumers expect 4.6% inflation over the coming year, according to the University of Michigan, versus 6% unemployment and about 3% expected inflation when Fed officials began calling inflation "transitory" in March 2021.

Still, even if a lot of wage and price growth does prove tran­si­tory, that won’t nec­es­sar­ily com­fort the Fed. When of­fi­cials be­gan us­ing the term “tran­si­tory” in March 2021, the un­em­ploy­ment rate was 6% and con­sumers ex­pected about 3% in­fla­tion in the com­ing year. In other words, the main de­ter­mi­nants of un­der­ly­ing in­fla­tion—ag­gre­gate sup­ply and de­mand and ex­pec­ta­tions—jus­ti­fied a san­guine out­look. Not anymore. Un­em­ployment is now 3.5% and con­sumers ex­pect 4.6% in­fla­tion in the com­ing year, ac­cord­ing to the Uni­ver­sity of Mi­chigan. This is why the Fed can’t sig­nal an end to in­ter­est rate in­creases yet and the risk of a re­ces­sion can’t be dis­missed.

Takeaways by Macro Roundup® AI

  1. Unemployment stands at 3.5% and consumers expect 4.6% inflation over the coming year, according to the University of Michigan, versus 6% unemployment and about 3% expected inflation when Fed officials began calling inflation "transitory" in March 2021.
  2. The main determinants of underlying inflation—aggregate supply and demand and expectations—justified a sanguine outlook in March 2021 but no longer do, even if much wage and price growth proves transitory.
  3. The Federal Reserve cannot yet signal an end to interest rate increases, and the risk of a recession cannot be dismissed.

AI Summary. The decline in the world real interest rate over roughly three decades suggests global demand for financial assets outpaced growth in their supply, driven by faster emerging-market growth, changes in financial structure, and shifts in advanced-economy public debt. Advanced economies' net foreign assets fell from near zero to about -20% of their combined GDP.

Enrique Mendoza and Vincenzo Quadrini National Bureau of Economic Research
Date Posted:
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New @nberpubs notes that the demand for safe assets from 1990-2020 grew even faster than the supply of safe assets, as rapidly growing emerging economies increasing desired to hold safe assets as FX reserves.

Why has the world real interest rate declined for three decades?

Core argument: Net foreign assets of advanced economies fell from near zero at the start of the 1990s to about -20 percent of their collective GDP by 2020, a massive growth in net foreign liabilities.

The sharp, secular decline in the world real interest rate of the past thirty years suggests that the surge in global demand for financial assets outpaced the growth in their supply. This phenomenon was driven by faster growth in emerging markets, changes in the financial structure of both emerging and advanced economies, and changes in demand and supply of public debt issued by advanced economies. The net foreign liabilities of advanced economies grew massively.  The net foreign assets of advanced economies, as a share of their collective GDP, fell from close to zero at the beginning of the 1990s to about -20 percent in 2020.

Takeaways by Macro Roundup® AI

  1. Net foreign assets of advanced economies fell from near zero at the start of the 1990s to about -20 percent of their collective GDP by 2020, a massive growth in net foreign liabilities.
  2. The sharp, secular decline in the world real interest rate over the past thirty years suggests global demand for financial assets outpaced growth in their supply.
  3. Faster emerging-market growth, changes in the financial structure of emerging and advanced economies, and shifts in the demand and supply of advanced-economy public debt drove the surge in demand for financial assets.

AI Summary. Tree-ring records from 572 juniper shrub series at high elevation in the Italian Alps indicate that current snowpack duration is 36 days shorter than the long-term mean, a decline the authors describe as unprecedented over the last six centuries. Snow cover duration in the Alps fell 5.6% per decade over the last 50 years.

Marco Carrer, Raffaella Dibona, et al Nature
Date Posted:

A new @nature study finds that over the past 50 years the snowpack in the Alps has been drawing back 5.6% per decade. The current snowpack cover is 36 days shorter than the long-term mean, a decline that is unprecedented over the last six centuries.

How does current Alpine snowpack duration compare with the last six centuries?

Core argument: Snowpack cover duration in the Alps is 36 days shorter than the long-term mean, a decline the authors find unprecedented over the last six centuries.

Over the last 50 years, the Alps experienced a 5.6% reduction per decade in snow cover duration, which already affects a region where economy and culture revolve, to a large extent, around winter. Here we present evidence from 572 ring-width series extracted from a prostrate shrub (Juniperus communis) growing at high elevation in the Val Ventina, Italy. These ring-width records show that the duration of current snowpack cover is 36 days shorter than the long-term mean, a decline that is unprecedented over the last six centuries.

Takeaways by Macro Roundup® AI

  1. Snowpack cover duration in the Alps is 36 days shorter than the long-term mean, a decline the authors find unprecedented over the last six centuries.
  2. The Alps lost 5.6% of snow cover duration per decade over the last 50 years, in a region whose economy and culture revolve largely around winter.
  3. The evidence comes from 572 ring-width series taken from the prostrate shrub Juniperus communis growing at high elevation in Val Ventina, Italy.

Tuesday, January 17, 2023

AI Summary. U.S. construction sector labor productivity and total factor productivity grew faster than the whole economy in the 1950s and 1960s, then fell, ending 2020 below their 1950 levels while economywide labor productivity and total factor productivity were 290% and 230% higher. Construction labor productivity fell about 1% a year from 1970 to 2020.

Austan Goolsbee and Chad Syverson National Bureau of Economic Research
Date Posted:
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Value-added/full-time employee in the US construction sector was ~40% lower in 2020 than in 1970; had construction productivity grown at 1% a year, aggregate US labor productivity would have been 10% higher. @Austan_Goolsbee @ChadSyverson @nberpubs

Has U.S. construction productivity declined while the overall economy's rose?

Core argument: U.S. construction labor productivity fell at an average rate of about 1% per year from 1970 to 2020, leaving both construction labor productivity and TFP below their 1950 values by 2020.

Figure 1 shows indices of U.S. construction sector labor productivity and TFP from 1950 to 2020. For comparison, it also plots the same indices for the overall economy. Throughout the 1950s and well into the 1960s, both measures of construction sector productivity grew steadily. Indeed, they outpaced their whole-economy counterparts during that period. By 1970, however, the construction sector’s labor productivity and TFP had both begun to fall.  By 2020, while aggregate labor productivity and TFP were 290 percent and 230 percent higher than in 1950, both measures of construction productivity had fallen below their 1950 values. This is stunningly bad productivity performance for a major sector. Construction labor productivity fell at an average rate of about 1% per year from 1970-2020. Had it instead grown at the (relatively modest) rate of 1%per year, aggregate labor productivity (and plausibly, income per capita) being about 10% higher than it actually was.

Takeaways by Macro Roundup® AI

  1. U.S. construction labor productivity fell at an average rate of about 1% per year from 1970 to 2020, leaving both construction labor productivity and TFP below their 1950 values by 2020.
  2. Aggregate U.S. labor productivity and TFP stood 290% and 230% above their 1950 levels by 2020, while both construction sector measures fell below where they began.
  3. Had construction labor productivity instead grown 1% per year from 1970 to 2020, aggregate U.S. labor productivity would have been about 10% higher than it actually was.

AI Summary. Japanese institutional investors have shifted from buying roughly $100bn a year of foreign bonds on average over the past decade to selling close to $200bn. Hedged Japanese investors are likely to keep letting maturing bonds roll off rather than reinvest abroad, shrinking a longstanding source of demand for global fixed income.

Brad Setser and Alex Etra Council on Foreign Relations
Date Posted:

.@Brad_Setser and @EtraAlex note Japanese investors are withdrawing from global debt markets, selling $200B of debt in 2022 relative to buying a mean of $100B a year over the previous decade.

Are Japanese investors withdrawing as a source of demand for global bonds?

Core argument: Japanese investors swung from buying roughly $100 billion a year of foreign bonds on average over the past decade to selling close to $200 billion in 2022.

The global economy has already adjusted to a slowdown in Japanese institutional fixed-income demand—Japanese investors have gone from buying about $100 billion a year of foreign bonds on average over the last ten years to selling close to $200 billion in 2022. The most likely outcome in 2023 is a continuation of the roll down in Japanese holdings of foreign bonds observed in 2022, as the large pool of hedged Japanese investors allow maturing bonds to roll off at par rather than reinvest abroad. That more mundane reality still implies the large flow into global fixed income from Japanese institutional investors over the last decade will dwindle to a relative trickle.

Takeaways by Macro Roundup® AI

  1. Japanese investors swung from buying roughly $100 billion a year of foreign bonds on average over the past decade to selling close to $200 billion in 2022.
  2. The most likely 2023 outcome is a continuation of 2022's roll down in Japanese holdings of foreign bonds, as hedged Japanese investors let maturing bonds roll off at par rather than reinvest abroad.
  3. The global economy has already adjusted to slower Japanese institutional fixed-income demand, and the past decade's large flow into global fixed income from those investors is set to dwindle to a relative trickle.

AI Summary. As the Federal Reserve allowed some bonds to mature under quantitative tightening, new buyers of Treasury debt were needed, and money-market funds shifted from Treasury bills and coupons into reverse repurchase agreements with the Federal Reserve. The entire net issuance was absorbed by two opaque sectors: households and nonprofit organizations, and the rest of the world.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes the major buyer of Treasury debt has shifted from the Federal Reserve to US households and foreign buyers.

Who absorbed the net issuance of Treasury debt under quantitative tightening?

Core argument: The entire net Treasury issuance in the first three quarters of 2022 was covered by the two most opaque sectors of the financial accounts, "households and nonprofit organizations" and "the rest of the world.".

The Fed switched to “quantitative tightening”—an inelegant term for “letting some bonds mature”—which meant that new buyers needed to be found. State and local governments continued their purchases, but money-market funds shed Treasury bills and coupons for reverse repos with the Fed, while other buyers cut back on their purchases. The resulting mix of buyers in the first three quarters of 2022 looked a lot different than in prior periods. The entire net issuance was covered by the two most opaque sectors in the financial accounts: “households and nonprofit organizations” and “the rest of the world”.

Takeaways by Macro Roundup® AI

  1. The entire net Treasury issuance in the first three quarters of 2022 was covered by the two most opaque sectors of the financial accounts, "households and nonprofit organizations" and "the rest of the world.".
  2. The Federal Reserve's shift to quantitative tightening, letting some bonds mature, meant new buyers had to be found.
  3. Money-market funds shed Treasury bills and coupons for reverse repos with the Fed, state and local governments continued their purchases, and other buyers cut back, producing a buyer mix unlike prior periods.

AI Summary. US shale output remains below pre-pandemic highs and is growing slowly by shale standards despite sustained strong oil prices, as high costs, labor shortages, investor demands for payouts over reinvestment, and declining yields from new wells constrain drilling. The country's largest shale producer says shale can no longer act as a swing producer.

Derek Brower and Myles McCormick Financial Times
Date Posted:

As shale fracking costs surge and firms face demands to return capital to shareholders, American shale is no longer the world’s swing producer despite record American oil exports. @ft

Is US shale still able to act as a swing producer?

Core argument: Even with crude at $80 a barrel, far above the long-term average, US shale producers hold back capital spending amid high costs, labor shortages, and Wall Street's demand that profits be returned to investors rather than reinvested in rigs.

High costs and labor shortages now bedevil the shale patch. Wall Street wants profits paid back to investors, not reinvested in new rigs. Even with crude prices at $80 a barrel, a price far above the long-term average, shale producers still fear to splurge capital. To top it off, new wells are yielding less oil. “The aggressive growth era of US shale is over,” says Scott Sheffield, chief executive of Pioneer Natural Resources, the country’s biggest shale producer. “The shale model definitely is no longer a swing producer.” Output today remains well below the pre-Covid highs, and is now growing glacially by shale standards despite 18 months of strong oil prices.

Takeaways by Macro Roundup® AI

  1. Even with crude at $80 a barrel, far above the long-term average, US shale producers hold back capital spending amid high costs, labor shortages, and Wall Street's demand that profits be returned to investors rather than reinvested in rigs.
  2. Scott Sheffield, chief executive of Pioneer Natural Resources, the largest US shale producer, says the aggressive growth era of US shale is over and that the shale model is no longer a swing producer.
  3. US shale output remains well below pre-Covid highs and is growing slowly by shale standards despite 18 months of strong oil prices, with new wells yielding less oil.

AI Summary. China's share of US imports fell from a peak of 22% to under 17%, while other Asian economies and Mexico gained share. Vietnam's exports to the US rose from under $10bn to more than $120bn, Mexico's roughly doubled to over $400bn, and the Philippines, Taiwan, Thailand, India, and Malaysia also grew exports rapidly.

Jon Hilsenrath and Anthony DeBarros Wall Street Journal
Date Posted:

“Friendshoring” is underway: China’s share of US imports falling from 22% in 2017 to < 17% in 2022. Vietnamese exports to the US went from $10B in 2007 to $120B last year. From 2008 to 2022, Mexican exports to the US have doubled to $400B annually. @wsj

Is globalization shifting rather than retreating as China's import share falls?

Core argument: China's share of U.S. imports fell from a peak of 22% in 2017 to under 17% last year, with other Asian economies and Mexico gaining share.

The result is that China’s share of U.S. imports dropped from a peak of 22% in 2017 to less than 17% last year. Other Asian economies and Mexico are gaining share—most notably Vietnam, whose exports to the U.S. rose from less than $10 billion before 2007 to more than $120 billion in 2022. The Philippines, Taiwan, Thailand, India, and Malaysia have also enjoyed rapid export growth to the U.S., while also increasing their exports to China. Mexico’s annual exports to the U.S. have roughly doubled since 2008 to more than $400 billion, and they have increased to China, too.

Takeaways by Macro Roundup® AI

  1. China's share of U.S. imports fell from a peak of 22% in 2017 to under 17% last year, with other Asian economies and Mexico gaining share.
  2. Vietnam's exports to the U.S. rose from less than $10 billion before 2007 to more than $120 billion in 2022, while the Philippines, Taiwan, Thailand, India, and Malaysia also expanded exports to both the U.S. and China.
  3. Mexico's annual exports to the U.S. roughly doubled since 2008 to more than $400 billion, and its exports to China increased as well.

AI Summary. US-China trade is on track to set a record, indicating resilient commercial ties between the two economies despite national security rhetoric in Washington and concerns about "decoupling." China's own full-year figures show record trade of roughly $760bn.

Daniel Flatley Bloomberg
Date Posted:

In absolute terms US-China trade is on track to reach an all-time high in 2022 of just under $700B despite decoupling. @bloomberg

Is US-China trade still growing despite talk of decoupling?

Core argument: Beijing's full-year figures show US-China trade of around $760 billion in 2022, a record, despite heated national security rhetoric in Washington and fears of "decoupling.".

Trade between the US and China is on track to break records, a signal of resilient links between the world’s top economies amid the heated national security rhetoric in Washington and fears of “decoupling.” US government data through November suggest that imports and exports in 2022 will add up to an all-time high, or at least come very close, when the final report comes out Feb. 7. Beijing just published its own full-year figures that show record trade of around $760 billion.

Takeaways by Macro Roundup® AI

  1. Beijing's full-year figures show US-China trade of around $760 billion in 2022, a record, despite heated national security rhetoric in Washington and fears of "decoupling.".
  2. US government data through November indicate that combined US imports and exports with China in 2022 will reach an all-time high, or come close, when the final report is released Feb. 7.
  3. Trade near record levels signals resilient commercial links between the world's two largest economies.

AI Summary. The high-yield corporate bond spread stands at 4.3%, just above its long-term median of 4.2%, indicating credit markets are pricing default risk in the high-yield market as about normal.

Greg Obenshain Verdad
Date Posted:

.@GregObenshain of Verdad Capital argues that narrow high-yield spreads suggest investors are not yet pricing in a recession.

Are credit markets pricing high-yield default risk as normal?

Core argument: The high-yield spread stands at 4.3%, just above its long-term median of 4.2%.

Below we show our historical measure of the high-yield spread. The thin line is where the high-yield spread is today. The current value of 4.3% is just above the long-term median of 4.2%. Right now, credit spreads are suggesting default risk is about normal in the high-yield market.

Takeaways by Macro Roundup® AI

  1. The high-yield spread stands at 4.3%, just above its long-term median of 4.2%.
  2. Credit spreads at their present level suggest default risk in the high-yield market is about normal.

AI Summary. Inflation-adjusted average hourly earnings fell 1.7% year-over-year in one year after declining 2.1% the prior year, meaning worker pay lost ground to inflation despite large nominal wage gains.

David Harrison Wall Street Journal
Date Posted:

Real wages fell over the past year, declining 1.7% year-over-year in December. In 2021, real wages had declined 2.1% through December. @WSJ

Are workers losing ground to inflation despite large nominal wage gains?

Core argument: Inflation-adjusted average hourly earnings fell 1.7% in December 2022 from a year earlier, following a 2.1% decline in December 2021 from a year earlier.

Worker pay actually fell in the past two years after accounting for inflation. Inflation-adjusted average hourly earnings—or real earnings—were down 1.7% in December 2022 from a year earlier, following a 2.1% decline in December 2021 [from a year earlier].

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted average hourly earnings fell 1.7% in December 2022 from a year earlier, following a 2.1% decline in December 2021 from a year earlier.
  2. Worker pay declined over the past two years once adjusted for inflation, despite large wage gains.

AI Summary. Inflation appears to be waning, but this does not vindicate the view that inflation was purely supply shocks, since a supply shock raises prices only temporarily and cannot permanently raise the price level. Cumulative inflation has shifted the price level up by roughly 10–20%, and under the fiscal or demand view that shift is permanent absent fiscal retrenchment.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane argues that cumulative inflation has raised the price level by something like 10-20%. His fiscal theory or “demand” view suggests this price shock is permanent, not “transitory.”

Does falling inflation prove the price surge came from supply shocks?

Core argument: Cumulative inflation has shifted the price level up by roughly 10–20%, depending on assumptions about the earlier trend.

Inflation seems to be waning. Is this not a victory lap for "team transitory," the view that inflation is just "supply shocks" that go away on their own? No. A "supply shock" would raise prices temporarily, and then prices would fall back down to normal once the supply shock is over. A supply shock all on its own cannot permanently raise the price level. How is the price level doing? The cumulative inflation has shifted up the price level by something like 10-20%, depending on what you think about the earlier trend.  The fiscal theory or "demand" view says that this price level shock is permanent, or at least until something else comes along; a fiscal retrenchment would be necessary to lower the price level back to where it was.

Takeaways by Macro Roundup® AI

  1. Cumulative inflation has shifted the price level up by roughly 10–20%, depending on assumptions about the earlier trend.
  2. A supply shock would raise prices temporarily, with prices falling back to normal once the shock ends, so a supply shock alone cannot permanently raise the price level.
  3. The fiscal theory or "demand" view holds that this price level shock is permanent, at least until something else comes along, with fiscal retrenchment necessary to return the price level to where it was.

AI Summary. Traditional core inflation and wage-based measures still indicate inflation running above the Federal Reserve's 2% target, though not by a wide margin. Earlier, price increases had grown steadily more widespread across the economy, making it harder to argue the underlying problem was mild.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues last week’s CPI release was “really, really good news.” While both traditional core and wage core are elevated, fewer sectors are showing >10% inflation. @mtkonczal

Is inflation still running above the Fed's 2 percent target?

Core argument: Traditional core inflation and wage-based core measures still run above the Federal Reserve's 2 percent target, but not by a wide margin.

Traditional core and wage core still suggest inflation running hotter than the Fed’s 2 percent target, but not by all that much. Until mid-2022, inflation just kept getting more widespread, and you had to work ever harder to claim that at some fundamental level it wasn’t that bad. If you want a broader view, Mike Konczal of the Roosevelt Institute has an incredibly cool graphic showing the distribution of price changes across the economy.

Takeaways by Macro Roundup® AI

  1. Traditional core inflation and wage-based core measures still run above the Federal Reserve's 2 percent target, but not by a wide margin.
  2. Until mid-2022, inflation kept growing more widespread, requiring ever greater effort to argue that at a fundamental level price pressures were not severe.
  3. Mike Konczal of the Roosevelt Institute offers a graphic showing the distribution of price changes across the economy, giving a broader view of inflation.

AI Summary. US inflation over the past 5-10 years has closely tracked its behavior in the early 1970s, a pattern that would put inflation back on target by mid-2024. But unlike the early 1970s, when core inflation followed headline inflation both up and down, headline inflation has been falling while core has not, indicating more pronounced underlying inflationary pressures.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid from Copenhagen Business School argues that inflation is on track to normalize over the next 18 months, but the Fed should keep rates elevated while inflation comes down given persistent core inflation. @CBScph

Does today's inflation follow the same path as the 1970s?

Core argument: US inflation over the past 5–10 years has tracked the behavior of inflation in the early 1970s closely enough that, if the pattern continues, inflation would return to target in mid-2024.

The behavior of US inflation during the past 5-10 years has been strikingly similar to the behavior of inflation during the early 1970s. If this continues, inflation should be back on target in mid-2024. Core inflation followed headline inflation during the early 1970s, both when inflation rose and when it fell. Today, headline inflation has been falling for the past six months, while core inflation has not. This is worrying. It indicates that underlying inflationary pressures are more pronounced today than in the early 1970s. If correct, which I think it is, it will be more difficult to get inflation under control than in the early 1970s. Consequently, I believe the Fed should keep interest rates elevated for at least one more year.

Takeaways by Macro Roundup® AI

  1. US inflation over the past 5–10 years has tracked the behavior of inflation in the early 1970s closely enough that, if the pattern continues, inflation would return to target in mid-2024.
  2. In the early 1970s core inflation followed headline inflation both up and down, whereas US headline inflation has fallen over the past six months while core inflation has not.
  3. The author argues that the divergence between headline and core inflation indicates more pronounced underlying inflationary pressures than in the early 1970s and that the Fed should keep interest rates elevated for at least another year.

AI Summary. China's population declined by 850,000 to 1.4118bn, as the birth rate fell to a record low of 6.77 per 1,000 people. Births totaled 9.56m, the country's lowest figure in modern history and the first time annual births fell below 10m.

Luna Sun South China Morning Post
Date Posted:

China’s National Bureau of Statistics confirmed that China’s population dropped by 850,000 in 2022. With 9.56M births, the national birth rate fell to 6.77 per 1,000 people. @scmpeconomy

Is China's population entering a prolonged decline?

Core argument: China's population fell by 850,000 to 1.4118 billion in 2022, down from 1.4126 billion a year earlier, according to the National Bureau of Statistics.

The National Bureau of Statistics confirmed on Tuesday that China’s overall population dropped by 850,000 people to 1.4118 billion in 2022, down from 1.4126 billion a year earlier. The national birth rate fell to a record low of 6.77 for every 1,000 people as Chinese mothers had only 9.56 million babies – the nation’s lowest total in modern history and the first time the figure fell below 10 million.

Takeaways by Macro Roundup® AI

  1. China's population fell by 850,000 to 1.4118 billion in 2022, down from 1.4126 billion a year earlier, according to the National Bureau of Statistics.
  2. China's birth rate dropped to a record low of 6.77 per 1,000 people, with 9.56 million babies born — the country's lowest total in modern history and the first time the figure fell below 10 million.

AI Summary. China's demographic decline is a long-term problem whose effects will be overwhelmed by the country's near-term economic adjustment; if income is redistributed to households without disruption, a shrinking working-age population can still generate sufficient growth in domestic demand. Rising wages would also pressure China to invest in worker productivity rather than unproductive expansion.

Michael Pettis @michaelxpettis
Date Posted:

.@michaelxpettis argues that China’s demographic decline can be offset in the medium term by raising the household share of income.

.@michaelxpettis argues that China’s demographic decline can be offset in the medium term by raising the household...

Can a shrinking working-age population still deliver enough domestic demand growth?

Core argument: Pettis argues China's demographic decline is a long-term problem whose effect will be overwhelmed by the near-term adjustment process.

It is also really a long-term problem whose effect will be overwhelmed by the near-term adjustment process. If Beijing succeeds in redistributing income to households in a non-disruptive way, a declining working population can drive more than enough growth in domestic demand. What is more, as direct and indirect wages rise, this will put pressure on China to invest in increasing worker productivity rather than invest in expanding economic activity and the building of railroads to nowhere. On the other hand, if Beijing doesn't redistribute income to households in a non-disruptive way, China will anyway suffer a brutally difficult transition once unsustainable debt levels force it to cut back on non-productive investment.

Takeaways by Macro Roundup® AI

  1. Pettis argues China's demographic decline is a long-term problem whose effect will be overwhelmed by the near-term adjustment process.
  2. Pettis contends that if Beijing redistributes income to households in a non-disruptive way, a declining working population can drive more than enough growth in domestic demand.
  3. Pettis argues that rising direct and indirect wages would pressure China to invest in raising worker productivity rather than in expanding economic activity and building railroads to nowhere, while failure to redistribute means a brutally difficult transition once unsustainable debt forces cuts to non-productive investment.

AI Summary. Household mortgage debt as a percent of gross domestic product shows a clear run-up during the housing bubble, and its sharp increase was a warning sign. Foreclosures are expected to rise from record lows without a large wave of distressed sales, because most homeowners have significant equity, were well qualified, and hold affordable low-rate mortgages.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk notes that, despite the runup in home prices, household mortgage debt as a percent of GDP isn’t at the elevated levels we saw during the housing bubble.

Does mortgage debt relative to GDP signal another wave of distressed sales?

Core argument: Household mortgage debt as a percent of GDP through Q3 2022, based on the Federal Reserve's Flow of Funds report, shows an obvious bubble, with the sharp increase in mortgage debt having been one of the warning signs.

The graph shows household mortgage debt as a percent of GDP through Q3 2022 (based on the Fed’s Flow of Funds report). The "bubble" is pretty obvious on this graph, and the sharp increase in mortgage debt was one of the warning signs. The blip up in Q2 2020 was related to the collapse in GDP rather than an increase in mortgage debt. The bottom line is there will be an increase in foreclosures over the next year (from record low levels), but there will not be a huge wave of distressed sales as happened following the housing bubble. Most homeowners have significant equity, were well qualified, and have a mortgage with low rates that they can afford. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.

Takeaways by Macro Roundup® AI

  1. Household mortgage debt as a percent of GDP through Q3 2022, based on the Federal Reserve's Flow of Funds report, shows an obvious bubble, with the sharp increase in mortgage debt having been one of the warning signs.
  2. The Q2 2020 uptick in mortgage debt as a percent of GDP reflected the collapse in GDP rather than an increase in mortgage debt.
  3. Foreclosures are expected to rise from record low levels over the next year without a huge wave of distressed sales, since most homeowners have significant equity, were well qualified, and hold affordable low-rate mortgages.