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


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:
Is Database:
Database

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.

Wednesday, January 18, 2023

AI Summary. A decline in total banking system reserves may have been an important factor behind increased borrowing from the Federal Reserve's discount window, as smaller banks' cash balances have fallen sharply relative to their asset size. Smaller banks are generally more willing to use the discount window because they are usually not publicly traded and face less public scrutiny.

Helene Lee and Asani Sarkar Federal Reserve Bank of New York
Date Posted:

2022 saw an uptick in banks accessing the Fed’s discount window, likely driven by declining reserve balances in the banking system. @NewYorkFed

Are falling bank reserves driving increased discount window borrowing?

Core argument: Banks with less than $3 billion in assets visited the Federal Reserve's discount window on average twice as often as other banks in 2019, just before the pandemic.

The notable decline in the total level of reserves in the banking system this year may have been an important factor for the rise in DW [discount window] borrowing. Indeed, as the Fed has gradually shrunk its balance sheet, the cash balances of smaller institutions, particularly those with total assets less than $10 billion, have in aggregate declined sharply relative to their asset size, reducing their liquidity positions.  Smaller banks are generally more willing to come to the DW than their larger counterparts, as they are usually not publicly traded companies and are less subject to public scrutiny. Banks smaller than $3 billion in assets on average visited the DW twice as much as other banks in 2019, just prior to the pandemic.

Takeaways by Macro Roundup® AI

  1. Banks with less than $3 billion in assets visited the Federal Reserve's discount window on average twice as often as other banks in 2019, just before the pandemic.
  2. The decline in total banking system reserves may have been an important factor behind the rise in discount window borrowing, as the Federal Reserve gradually shrank its balance sheet.
  3. Cash balances at institutions with total assets under $10 billion have in aggregate declined sharply relative to their asset size, reducing their liquidity positions.

AI Summary. Male workers who stayed with the same employer averaged 2% annual earnings growth across the lifetime earnings distribution, but among those who changed employers the lowest earners saw no growth while workers at the 65th percentile averaged 3%. More than 35% of job switches by the lowest earners followed a significant unemployment spell, versus about 15% for the top third.

Serdar Ozkan and Cassandra Marks Federal Reserve Bank of St. Louis
Date Posted:
Is Database:
Database

According to a new analysis from the @stlouisfed, job switching is associated with lower earnings growth for lower-earning prime-age male workers but higher earnings growth for their higher-income peers.

Do job switches raise earnings equally across the earnings distribution?

Core argument: Male workers in the bottom two percentiles of the lifetime earnings distribution saw no average earnings growth when switching employers, while 65th-percentile workers averaged 3% growth, though both averaged 2% growth when staying with the same employer.

Let’s consider two male workers, one in the bottom (in the first two percentiles) and the other in the 65th percentile of the lifetime earnings distribution. Both experienced on average a 2% growth in annual earnings if they stayed with the same employer. However, if they changed employers, the bottom earner did not see any growth in his earnings, whereas the 65th-percentile earner enjoyed, on average, 3% growth. This large heterogeneity among switchers indicates that the nature of job switches is very different throughout the lifetime earnings distribution. More than 35% of job switches were a result of a significant unemployment spell for the bottom earners, compared with only around 15% in the top third of earners, suggesting a much higher unemployment risk for bottom earners. Finally, earnings growth for both job stayers and job switchers increases steeply in the top third, reaching around 10% for the highest earners.

Takeaways by Macro Roundup® AI

  1. Male workers in the bottom two percentiles of the lifetime earnings distribution saw no average earnings growth when switching employers, while 65th-percentile workers averaged 3% growth, though both averaged 2% growth when staying with the same employer.
  2. More than 35% of job switches among bottom earners followed a significant unemployment spell, compared with around 15% in the top third of earners, suggesting much higher unemployment risk for bottom earners.
  3. Earnings growth for both job stayers and job switchers rises steeply across the top third of the lifetime earnings distribution, reaching roughly 10% for the highest earners.

AI Summary. US Census Bureau figures show new business applications rose 44% between 2019 and 2022, with the sharpest increases in Southern states. Roughly 5.1m applications were filed in 2022, down from a record 5.4m the prior year but above 3.5m in 2019.

Legs Alexandre Tanzi Bloomberg
Date Posted:

Americans are filing new business applications at higher levels in the aftermath of the pandemic; between 2019 and 2022, new business applications rose by 44%. Business applications are up the most in Florida and Texas. @bloomberg

Has the surge in new US business applications continued?

Core argument: New US business applications rose 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures.

New business applications rose by 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures released Tuesday. About 5.1 million applications were filed last year, down from the record 5.4 million in 2021, but up from 3.5 million in 2019.

Takeaways by Macro Roundup® AI

  1. New US business applications rose 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures.
  2. About 5.1 million US business applications were filed in 2022, down from the record 5.4 million in 2021 but above the 3.5 million filed in 2019.

AI Summary. 40% of global goods trade consists of cases where the importing economy relies on three or fewer supplier nations for a given manufactured good or resource, and about 15% relies on two or fewer. About three-quarters of that concentrated trade reflects choices to source from few countries despite other potential suppliers being available.

Olivia White, Jonathan Woetzel, et ak McKinsey Global Institute
Date Posted:

A @McKinsey_MGI analysis finds that 40% of global trade value is concentrated, in that the importer relies on three or fewer countries for their supply.

How concentrated is global goods trade among few supplier nations?

Core argument: 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for a given manufactured good or resource, and about 15% relies on two or fewer.

For many products, countries rely on a diversified pool of trade partners. This is particularly true for larger economies. For example, China imports crude oil from more than 40 economies, and the United States imports cars from more than 25 nations. A significant portion of global trade is concentrated in the sense that an economy relies on only a handful of nations to source almost all of its imports of a specific product. Indeed, 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for the supply of a given manufactured good or resource. Narrowing the focus further, about 15 percent of global goods trade corresponds to cases where the importing economy relies on only two or fewer nations. Most concentration is due not to a lack of supplier economies. Instead, concentration arises because of specific choices to source products from only a few countries despite the fact that other potential supplying countries are available. In this research, this type of concentration is described as “economy-specific concentration.” Of the 40% of global trade value that relies on three or fewer supplier economies, about three-quarters corresponds to economy-specific concentration.

Takeaways by Macro Roundup® AI

  1. 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for a given manufactured good or resource, and about 15% relies on two or fewer.
  2. About three-quarters of the 40% of global trade value that depends on three or fewer suppliers is "economy-specific concentration," arising from choices to source from a few countries despite other potential suppliers being available.
  3. Many countries, particularly larger economies, rely on a diversified pool of trade partners, with China importing crude oil from more than 40 economies and the United States importing cars from more than 25 nations.

AI Summary. Some supply chain experts argue India's phone manufacturing growth is overstated, noting the 200M phones made there last year are mostly models selling for $250 or less, while iPhones average near $1,000 and require more sophisticated automation and labor. One analyst projects Apple shifts just 10% of iPhone production outside China by 2030, or at most 20%.

Patrick McGee Financial Times
Date Posted:

The iPhone makes up 80% of smartphone operating profits on less than 20% of handset shipments. The sophistication of the product will be a challenge to moving more than 10-20% of manufacturing to countries like India and Vietnam by 2030. @ft

Can Apple move iPhone production out of China?

Core argument: Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects Apple will shift just 10% of iPhone production outside China by 2030, or at most 20% if it moves aggressively.

Some supply chain experts argue that the growth numbers in iPhone “manufacturing” in India are more hype than reality. Although 200M phones were made in India last year, they are not in the same league as Apple’s products. The most popular models typically sell for $250 or less, while average iPhones cost nearly $1,000 and require more sophisticated automation and labor intensity. Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects that Apple will shift just 10% of iPhone production outside of China by 2030, or at most 20% if it moves aggressively.

Takeaways by Macro Roundup® AI

  1. Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects Apple will shift just 10% of iPhone production outside China by 2030, or at most 20% if it moves aggressively.
  2. India produced 200 million phones last year, but some supply chain experts argue those figures are more hype than reality, since the most popular models sell for $250 or less.
  3. Average iPhones cost nearly $1,000 and require more sophisticated automation and labor intensity than the phones typically made in India.

AI Summary. The Supplemental Nutrition Assistance Program (food stamps) has grown from about $20bn a year to more than $100bn a year over two decades, an increase the authors argue cannot be explained by greater economic need. Unemployment was lower in 2017–2019 than at the prior economic peak, yet millions more people received benefits.

Angela Rachidi American Enterprise Institute
Date Posted:

.@AngelaRachidi notes that over the past two decades SNAP has grown from a $20B a year program to $100B a year. @AEIecon

Does economic need explain the fivefold rise in food stamp spending?

Core argument: SNAP spending has risen from about $20 billion per year two decades ago to upwards of $100 billion per year.

In the past two decades, SNAP has transformed from a $20 billion per year safety net program, to upwards of $100 billion per year. Increased economic need cannot explain the upward trend in the SNAP caseload, though. Unemployment rates fluctuated over the past 20 years, but rates were lower in 2017–2019 than they were in the previous economic peak of 2000–2001, yet millions more people received SNAP in 2019 than in the early 2000s.

Takeaways by Macro Roundup® AI

  1. SNAP spending has risen from about $20 billion per year two decades ago to upwards of $100 billion per year.
  2. Increased economic need does not explain the upward trend in the SNAP caseload, since unemployment rates in 2017–2019 were lower than at the previous economic peak of 2000–2001.
  3. Millions more people received SNAP in 2019 than in the early 2000s, despite lower unemployment rates in the later period.

AI Summary. The authors estimate that declines in religious attendance following repeals of laws restricting Sunday commerce explain an important part of the initial increase in middle-aged "deaths of despair" from suicide, liver disease, and poisoning. The effect appears driven by falling formal religious participation rather than by changes in belief or private activities such as prayer.

Tyler Giles, Daniel Hungerman, and Tamar Oostrom National Bureau of Economic Research
Date Posted:
Is Database:
Database

The uptick in so-called “deaths of despair” was preceded by a decline in religious participation. @econburner @D_Hungerman @TamarOostrom offer evidence that the repeal of blue laws is associated with the rise of such deaths.

Does declining religious attendance help explain rising deaths of despair?

Core argument: The authors estimate that a 10-percentage-point effect on religious attendance implies about 10,000 of every 100,000 middle-aged adults stopped attending services weekly following blue law repeals.

Put differently, a 10-percentage-point effect on religious attendance implies that following the blue law repeals, about 10,000 out of every 100,000 middle-aged adults stopped attending services weekly. If mortality grew by 2 per 100,000 as a result, and assuming that the subsequent increase in middle-aged deaths came from this group, about 1 out of 5,000 of these of “marginal attenders” would consequently die from suicide, liver disease, or poisoning annually. Our back-of-the-envelope calculations suggest that declines in religious attendance can explain an important part of the initial increase in mortality due to deaths of despair. Of course, since the introduction of OxyContin in 1996, deaths of despair for middle-aged white Americans have increased dramatically both overall and relative to trend.  The impact that we witness seems to be driven by the decline in formal religious participation rather than in belief or personal activities like prayer.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a 10-percentage-point effect on religious attendance implies about 10,000 of every 100,000 middle-aged adults stopped attending services weekly following blue law repeals.
  2. Back-of-the-envelope calculations by the authors suggest that if mortality rose by 2 per 100,000, roughly 1 in 5,000 of these "marginal attenders" would die annually from suicide, liver disease, or poisoning, explaining an important part of the initial rise in deaths of despair.
  3. The authors attribute the observed impact to declining formal religious participation rather than to belief or personal activities such as prayer, and note that deaths of despair among middle-aged white Americans have increased dramatically since OxyContin's 1996 introduction.