Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…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
  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, April 25, 2023

AI Summary. Data and commentary indicate the banking panic has ended and had only a limited effect on credit availability, with overall bank lending little changed and still growing, reflecting problems at a few poorly managed banks rather than a systemic crisis. Recognition that the banking sector is not collapsing has already prompted some repricing of expected interest rate cuts.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 writes that multiple indicators suggest that the banking sector is largely back to normal, and he cites evidence that loan growth was not meaningfully impacted by the March panic.

Has the banking panic ended with little impact on credit?

Core argument: Overall bank lending activity was little changed in March and continued to grow in April, indicating the banking panic had only a limited impact on credit availability.

A wide range of data and commentary indicate that both the banking panic is over and that it had only a limited impact on credit availability. The March panic was fundamentally a problem of a few poorly managed banks and not a crisis. Investors are no longer running to money funds and now appear comfortable again with the banking system. Overall bank lending activity was little changed in March and continues to grow in April. Out of an abundance of caution, the Fed scuttled a potentially higher rate path and the market priced in aggressive rate cuts in the second half of 2023. The realization that the banking sector is not collapsing has prompted some repricing, and the eventual realization that it is actually healthy may prompt a further repricing.

Takeaways by Macro Roundup® AI

  1. Overall bank lending activity was little changed in March and continued to grow in April, indicating the banking panic had only a limited impact on credit availability.
  2. The March banking panic stemmed from a few poorly managed banks rather than a systemic crisis, and investors are no longer running to money funds and appear comfortable again with the banking system.
  3. The Federal Reserve scuttled a potentially higher rate path out of an abundance of caution and markets priced in aggressive rate cuts for the second half of 2023, with the realization that banks are not collapsing prompting some repricing.

AI Summary. Goldman Sachs estimates that composition-adjusted real wages for the bottom 50% of earners were 6.2% above 2019 levels, implying roughly $150bn a year in added spending power, or $250bn including sources such as social security. Because lower-income consumers spend more of each extra dollar on goods, goods consumption should stay high.

Robert Armstrong and Ethan Wu Financial Times
Date Posted:

.@EthanYWu highlights a research note from GS’s Spencer Hill, which finds that real wage levels for bottom 50 percent earners were almost 10% higher than in 2017, supporting sustainably higher levels of consumer spending.

Are rising real wages for lower earners keeping goods spending high?

Core argument: Goldman Sachs' Spencer Hill estimates that, after adjusting for composition effects, real wage levels for the bottom 50 percent of earners were 6.2 percent higher in the first quarter of this year than in 2019 and 9.6 percent higher than in 2017.

In a note to clients published on Sunday, Spencer Hill of Goldman Sachs argues that something has changed. “Sustainably stronger consumer finances” have created fresh spending power for people at the bottom of the income distribution. After adjusting for composition effects, Hill estimates that real wage levels for the bottom 50 percent of earners were 6.2 percent higher in the first quarter of this year than in 2019 — and 9.6 percent higher than in 2017. That implies something like $150bn per year in additional spending power for the bottom half. The number rises to $250bn once you throw in other disposable income sources such as social security payments. This matters for two reasons: lower-income consumers spend more of each extra dollar earned, and they spend more of each extra dollar earned on goods, specifically. So long as bottom-half consumers have money to spend, goods consumption should stay high.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs' Spencer Hill estimates that, after adjusting for composition effects, real wage levels for the bottom 50 percent of earners were 6.2 percent higher in the first quarter of this year than in 2019 and 9.6 percent higher than in 2017.
  2. Hill estimates those wage gains imply roughly $150bn per year in additional spending power for the bottom half of earners, rising to $250bn once other disposable income sources such as social security payments are included.
  3. Hill argues goods consumption should stay high so long as bottom-half consumers have money to spend, because lower-income consumers spend more of each extra dollar earned and spend more of it on goods.

AI Summary. A study of 5,179 customer support agents finds that access to a generative AI conversational assistant raised issues resolved per hour by 14% on average, with the largest gains for novice and low-skilled workers and minimal effect on experienced, highly skilled ones. The authors also find AI assistance improved customer sentiment, reduced requests for managerial intervention, and improved employee retention.

Erik Brynjolfsson, Danielle Li and Lindsey Raymond National Bureau of Economic Research
Date Posted:

Using evidence from the roll-out of a new AI-based tool for customer support agents, @erikbryn @Danielle__Li @LindseyRRaymond found an overall 14% increase in productivity driven by low-skilled workers, with minimal impact on highly skilled workers.

Does generative AI raise worker productivity most for less-skilled workers?

Core argument: Access to a generative AI conversational assistant raised customer support productivity, measured by issues resolved per hour, by 14 percent on average across 5,179 agents studied under a staggered rollout.

We study the staggered introduction of a generative AI-based conversational assistant using data from 5,179 customer support agents. Access to the tool increases productivity, as measured by issues resolved per hour, by 14 percent on average, with the greatest impact on novice and low skilled workers, and minimal impact on experienced and highly skilled workers. We provide suggestive evidence that the AI model disseminates the potentially tacit knowledge of more able workers and helps newer workers move down the experience curve. In addition, we show that AI assistance improves customer sentiment, reduces requests for managerial intervention, and improves employee retention.

Takeaways by Macro Roundup® AI

  1. Access to a generative AI conversational assistant raised customer support productivity, measured by issues resolved per hour, by 14 percent on average across 5,179 agents studied under a staggered rollout.
  2. The productivity gains from the AI assistant were greatest among novice and low-skilled workers, with minimal impact on experienced and highly skilled agents.
  3. Suggestive evidence indicates the AI model disseminates the potentially tacit knowledge of more able workers, while AI assistance improves customer sentiment, reduces requests for managerial intervention, and improves employee retention.

AI Summary. A shrinking working-age population across rich countries means companies must work harder to attract prime-age workers and tap new demographic pools, while a growing older population raises demand for caregivers and home helpers. Job vacancies in the US reached 11m, most of them frontline roles in retail, health care, hotels, restaurants, and call centers.

Adrian Wooldridge Bloomberg
Date Posted:

.@adwooldridge argues that tighter labor will require management teams to spend more time managing low-skilled workers.

Will shrinking working-age populations force firms to compete for frontline workers?

Core argument: The United States had 11m job vacancies in March 2022, most of them frontline jobs in retail, health care, hotels, restaurants, and call centers, with similar shortages emerging across the rich world.

The shrinking of the working-age population across the rich world means that companies will have to work harder to attract prime-age workers while also finding new demographic pools to fish in. The simultaneous rise in the number of older people will increase demand for caregivers and home helps. In March 2022, the United States suffered from 11 million job vacancies — most of them frontline jobs in retail, health care, hotels, restaurants, call centers, etc. Similar shortages emerged across the rich world. Zeynep Ton reports that in 2019-20 Nissan’s Smyrna, Tennessee, assembly plant suffered from a 38% turnover rate among its technicians; the direct cost of replacing each technician was $15,000.

Takeaways by Macro Roundup® AI

  1. The United States had 11m job vacancies in March 2022, most of them frontline jobs in retail, health care, hotels, restaurants, and call centers, with similar shortages emerging across the rich world.
  2. Zeynep Ton reports that Nissan's Smyrna, Tennessee assembly plant had a 38% turnover rate among technicians in 2019–20, with a direct replacement cost of $15,000 per technician.
  3. The shrinking working-age population across the rich world means companies will have to work harder to attract prime-age workers and find new demographic pools, while the rising number of older people increases demand for caregivers and home helps.

AI Summary. Mexico attracts companies seeking production sites outside Asia because of its proximity to American consumers, relatively cheap labor compared with other North American workers, and free-trade membership with the U.S. and Canada that avoids tariffs on many Asian imports. Importers say shorter shipping distances cut inventory needs, offsetting higher manufacturing costs.

Paul Berger Wall Street Journal
Date Posted:

China’s share of American imports of electrical and electronics declined from 36.1% in 2013 to 26.8% last year. During the same period, Mexico’s share increased 1.3pp and Vietnam’s increased 5.6pp as American firms start to pursue nearshoring strategies.

Does Mexico offer cost advantages for companies moving production out of Asia?

Core argument: Mexico attracts companies seeking production sites outside Asia because of its proximity to American consumers, labor that is relatively cheap compared with other North American workers, and membership in a free-trade agreement with the U.S. and Canada.

Mexico appears to be ideal for some companies seeking sites outside Asia to make goods more cheaply than in the U.S. It is close to American consumers, has a relatively cheap labor force compared with other North American workers and is a member of a free-trade agreement with the U.S. and Canada, saving the cost of tariffs that are imposed on a raft of imports from Asia. Importers say that although the cost of manufacturing in Mexico may be higher than in some parts of Asia, the country also delivers cost savings from shorter shipping distances that reduce the need to carry so much inventory and that offset the risk of production disruptions and lost sales because of freight delays.

Takeaways by Macro Roundup® AI

  1. Mexico attracts companies seeking production sites outside Asia because of its proximity to American consumers, labor that is relatively cheap compared with other North American workers, and membership in a free-trade agreement with the U.S. and Canada.
  2. Mexico's membership in the free-trade agreement with the U.S. and Canada saves the cost of tariffs imposed on a raft of imports from Asia.
  3. Importers say manufacturing costs in Mexico may exceed those in parts of Asia, but shorter shipping distances reduce the need to carry so much inventory and offset the risk of production disruptions and lost sales from freight delays.

AI Summary. China's Ministry of Agriculture and Rural Affairs plans to raise domestic self-sufficiency in grain — mainly rice, wheat, corn and soybeans — to 88.4% within a decade from 82%. The plan would cut grain imports to 122m metric tonnes from 146.9m.

Mia Nulimaimaiti South China Morning Post
Date Posted:

China’s autarky drive continues with China aiming to grow 90% of its grain supply by 2032 up from its current level of 82%. @SCMPNews

China’s autarky drive continues with China aiming to grow 90% of its grain supply by 2032 up from its current level of...

Will China raise grain self-sufficiency and cut imports?

Core argument: China's Ministry of Agriculture and Rural Affairs plans to raise domestic grain self-sufficiency — mainly rice, wheat, corn and soybeans — to 88.4 per cent within a decade, up from 82 per cent, in its Agricultural Outlook Report for 2023-32.

The flagship Agricultural Outlook Report for 2023-32 by the Ministry of Agriculture and Rural Affairs sets out China’s plan to grow 88.4 per cent of the grain – mainly referring to rice, wheat, corn and soybeans – it needs within a decade from the current level of 82 percent. It also plans to reduce grain imports to 122 million metric tonnes from last year’s 146.9 million metric tonnes, according to the report released by the agriculture ministry’s outlook committee on Monday.

Takeaways by Macro Roundup® AI

  1. China's Ministry of Agriculture and Rural Affairs plans to raise domestic grain self-sufficiency — mainly rice, wheat, corn and soybeans — to 88.4 per cent within a decade, up from 82 per cent, in its Agricultural Outlook Report for 2023-32.
  2. China plans to cut grain imports to 122 million metric tonnes from 146.9 million metric tonnes the previous year, according to the report from the agriculture ministry's outlook committee.

AI Summary. US shale investors recovered about 50 cents for each dollar invested from 2010 to 2020, while the boom lowered oil prices, created jobs, and gave the US leverage against oil-rich adversaries. Goldman Sachs estimates publicly listed shale companies cut reinvestment from 120% of operating cash flow in 2012 to 40% a decade later.

Javier Blas Bloomberg
Date Posted:

.@JavierBlas argues that shale investors’ capital losses, 50 cents on the dollar, were a powerful tailwind for the American economy as investors subsidized lower energy prices. Capital discipline and lower investment signal a end to this subsidy.

Are shale investors starting to profit after a decade of losses?

Core argument: US shale investors recovered roughly 50 cents per dollar invested during 2010–2020, a period the author calls the most profitable example of capital destruction the energy industry has ever seen.

Over the last decade, the US shale industry had become a byword for capital destruction. Shale investors recovered about 50 cents for each dollar they invested during the 2010-2020 period. For nearly two decades, shale was ruinous for its shareholders, but it was hugely beneficial for the rest of America. It kept oil prices lower and provided jobs and investment. Just as significantly, shale gave the White House a powerful geopolitical lever to face oil-rich foes like Iran and Russia. Let me say this: The shale boom was the most profitable example of capital destruction the energy industry has ever seen. Investors lost, but the US and most of its allies won. As of last week, 590 rigs were drilling in the US, down from the most recent peak of 627 rigs set in November. That was already significantly lower than the 888 recorded in 2018 and the high point before that — 1,609 rigs in 2014. Goldman Sachs Group Inc. estimates that US publicly listed shale companies reinvested the equivalent of 120% of their operating cash flow into new wells in 2012. Ten years later, that rate plunged to 40%.

Takeaways by Macro Roundup® AI

  1. US shale investors recovered roughly 50 cents per dollar invested during 2010–2020, a period the author calls the most profitable example of capital destruction the energy industry has ever seen.
  2. Goldman Sachs estimates US publicly listed shale companies reinvested the equivalent of 120% of their operating cash flow into new wells in 2012, a rate that fell to 40% ten years later.
  3. US drilling rigs numbered 590, down from a recent peak of 627 in November and below the 888 recorded in 2018 and the 1,609 of 2014.

Wednesday, April 26, 2023

AI Summary. Longer-horizon leading indicators point to a US economic slowdown later in the year despite strong recent data. Excess household savings are being drawn down and are projected to be 60%–70% depleted by year-end.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest argues that despite strong data in Q1/2 many longer horizon indicators are pointing to a slowdown. Excess savings should be down 60-70% by the end of the year. @jpmorgan

Do leading indicators point to a US slowdown later this year?

Core argument: Excess US household savings are being drawn down and should be 60%–70% depleted by the end of the year.

Despite strong US data in Q1 and Q2, the US still appears headed for a slowdown later this year. As shown above, many longer-horizon leading indicators point in that direction. Excess household savings are also being run down and should be 60%-70% depleted by the end of the year.

Takeaways by Macro Roundup® AI

  1. Excess US household savings are being drawn down and should be 60%–70% depleted by the end of the year.
  2. The US still appears headed for a slowdown later this year despite strong Q1 and Q2 data, with many longer-horizon leading indicators pointing in that direction.

AI Summary. US establishment closures spiked and then returned to normal levels, while new establishment openings reached record highs—peaking at 379,000 in a single quarter—and have since cooled but remain far above any pre-2020 level. Much of this may be new businesses replacing those that closed, and it is unclear whether the new entrants are more productive than the firms they replaced.

Aziz Sunderji The Overshoot
Date Posted:

.@AzizSunderji notes record-breaking rates of new business formation since the pandemic but argues that we will not know if this translates into productivity gains for some time.

Are record new business openings raising productivity or just replacing closures?

Core argument: Establishment deaths peaked mid-way through 2020 before dropping back to normal levels, while new establishments were launched, reaching a record 287,000 births in the third quarter of 2020 and peaking at 379,000 in the final quarter of 2021.

After peaking mid-way through 2020, “establishment deaths” rapidly dropped back to normal levels, and new establishments were launched. In the third quarter of 2020, a record-breaking 287,000 establishments were “born”. This rate continued to rise, peaking at 379,000 new establishments in the last quarter of 2021. The pace has cooled since then but remains far higher than anything on record before 2020. Much of this could merely be musical chairs, with new businesses replacing those that closed during the pandemic. Restaurants are a good example. New establishments have proliferated, but many also shuttered in 2020. Only in the past few months have the number of restaurants across the country surpassed the 2019 level. This intra-sector shuffling is part of the process of creative destruction, but it’s not clear that the new entrants are any more productive than the incumbents. We won’t know how many of the pandemic-born infant firms grew into toddlers for several years.

Takeaways by Macro Roundup® AI

  1. Establishment deaths peaked mid-way through 2020 before dropping back to normal levels, while new establishments were launched, reaching a record 287,000 births in the third quarter of 2020 and peaking at 379,000 in the final quarter of 2021.
  2. Much of the surge in new establishments may be new businesses replacing those that closed during the pandemic, with the national restaurant count surpassing its 2019 level only in recent months and no clarity on whether new entrants are more productive than incumbents.

AI Summary. None of the indicators typically used to identify recessions currently suggests a recession is underway.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that none of the indicators used to identify recessions is currently suggesting a recession is underway.

Do recession indicators show a recession is underway?

Core argument: Torsten Sløk of Apollo Global notes that none of the indicators the NBER recession-dating committee normally examines suggests the economy is in a recession at the moment.

None of the indicators the NBER recession committee normally looks at suggest that we are in a recession at the moment, see chart above.

Takeaways by Macro Roundup® AI

  1. Torsten Sløk of Apollo Global notes that none of the indicators the NBER recession-dating committee normally examines suggests the economy is in a recession at the moment.
  2. The indicators tracked by the NBER recession committee, shown in Sløk's chart, give no sign that a recession is underway.

AI Summary. Adjusted for inflation, U.S. national house prices are 4.6% below their recent peak and the 20-city composite is 6.4% below, yet real national prices remain above the housing bubble peak and are historically high. Affordability was essentially unchanged as a slight price increase offset a slight decline in mortgage rates.

Bill McBride Calculated Risk
Date Posted:

In real terms, the Case-Shiller national index (blue line) is 4.6% under its recent peak and 11% above the 2006 bubble peak. @calculatedrisk

Are real house prices still historically high despite falling from peak?

Core argument: Deflated by CPI less Shelter, the national house price index sits 4.6% below its recent peak and the Composite 20 index 6.4% below its 2022 peak.

In real terms (using CPI less Shelter), the National index is 4.6% below the recent peak, and the Composite 20 index is 6.4% below the recent peak in 2022. In real terms, national house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak, but real prices are historically high. Affordability was essentially unchanged in February as a slight increase in prices was offset by a slight decrease in mortgage rates. In October 2022, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%.

Takeaways by Macro Roundup® AI

  1. Deflated by CPI less Shelter, the national house price index sits 4.6% below its recent peak and the Composite 20 index 6.4% below its 2022 peak.
  2. Real national house prices remain above the bubble peak and are historically high, about 17 years after that previous peak, with an upward slope to real prices.
  3. Housing affordability was essentially unchanged in February as a slight price increase was offset by a slight decline in mortgage rates; in October 2022, houses were the least affordable since 1982, when 30-year mortgage rates exceeded 14%.

AI Summary. Inflation is unlikely to return to 2% without an economic downturn, according to the argument. Fallout from banking-sector stress is constricting credit and doing some of the work of the Federal Reserve's rate increases, so fewer rate hikes are needed than if the banking system were functioning smoothly.

Claire Ballentine Bloomberg
Date Posted:

.@LHSummers argues that getting to target inflation will be difficult without a “meaningful” economic downturn. He suggests that the Fed raise rates by 25 basis points at next week’s policy meeting.

.@LHSummers argues that getting to target inflation will be difficult without a “meaningful” economic downturn. ...

Can inflation return to 2% without an economic downturn?

Core argument: Larry Summers argues inflation will not return to 2% without an economic downturn.

Regarding the recent banking crisis, Summers said that the fallout is leading to a “constriction of credit” that is doing some of the work of the Fed’s rate hikes. “We don't need as much interest-rate increases as we would if the banking system were working smoothly,” he said. He's still optimistic about the US economy relative to the rest of the world: “I would rather be playing America’s hand than be playing the hand of any other major country in the world,” he said. “If you look at the collective value of all the American companies relative to all the non-American companies, that is at its highest level ever.”

Takeaways by Macro Roundup® AI

  1. Larry Summers argues inflation will not return to 2% without an economic downturn.
  2. Summers said the banking crisis fallout is producing a "constriction of credit" that does some of the work of the Fed's rate hikes, so fewer interest-rate increases are needed than if the banking system were working smoothly.
  3. Summers said he would rather play America's hand than that of any other major country, noting the collective value of all American companies relative to all non-American companies stands at its highest level ever.

AI Summary. Chinese police made a surprise visit to the Shanghai offices of US consulting firm Bain & Company, questioning employees and taking computers and phones without detaining anyone. The episode has heightened concern among American companies that Beijing may be stepping up retaliatory action against US firms.

Demetri Sevastopulo, Ryan McMorrow and Leo Lewis Financial Times
Date Posted:

Chinese police have visited the Shanghai offices of Bain & Company likely as a retaliatory step against American export controls. @FinancialTimes

Chinese police have visited the Shanghai offices of Bain & Company likely as a retaliatory step against American export...

Is Beijing increasing scrutiny and pressure on American companies operating in China?

Core argument: Chinese police made a surprise visit to Bain & Company's Shanghai office and questioned employees, taking away computers and phones without detaining any team members, according to people familiar with the situation.

Chinese police have visited the Shanghai offices of Bain & Company and questioned employees at the US management consulting group, in the latest case of heightened scrutiny of foreign businesses in China as tensions between Beijing and Washington rise. Six people familiar with the situation said Chinese police had made a surprise visit two weeks ago. Police took away computers and phones but did not detain any team members, according to two people briefed on the incident. The raid has particularly fuelled concern at American companies that were already worried about signs that Beijing may be stepping up retaliatory action because of measures taken against Chinese firms by the administration of Joe Biden. US Treasury secretary Janet Yellen last week voiced concerns about what she described as “a recent uptick in coercive actions targeting US firms.”

Takeaways by Macro Roundup® AI

  1. Chinese police made a surprise visit to Bain & Company's Shanghai office and questioned employees, taking away computers and phones without detaining any team members, according to people familiar with the situation.
  2. The raid on Bain's Shanghai office has fuelled concern at American companies already worried that Beijing may be stepping up retaliatory action over measures the Biden administration has taken against Chinese firms.
  3. US Treasury secretary Janet Yellen voiced concerns about what she described as "a recent uptick in coercive actions targeting US firms.".

AI Summary. Adjusted for purchasing power, the economies of the US and its allies remain about 80% larger than those of China and Russia combined, and China's income per person is still under 30% of the US level. Even so, China's economic weight, trade role, and military make strategic confrontation dangerous, requiring transparency over aims and plans.

Martin Wolf Financial Times
Date Posted:

If China reached the current relative position of South Korea in PPP terms, its economy would be 50% larger than the US and EU combined. @martinwolf_

Do the US and its allies retain an economic edge over China?

Core argument: Measured at purchasing power parity, the economies of the US and its allies remain some 80 per cent bigger than those of China and Russia combined.

Measured in comparable terms (at “purchasing power parity”), the economies of the US and its allies remain some 80 per cent bigger than those of China and Russia together. Yet China is still a poor country: at PPP, China’s GDP per head in 2022 was still less than 30 per cent that of the US. Suppose it managed to reach the current relative position of South Korea. Its economy would then be almost half as big again as those of the US and EU, combined. Will this happen? Probably not. But, given past performance, it cannot be ruled out. In any case, China already has a potent economy, a big role in world trade and a huge military. The era of strategic confrontation we have entered is frightening. Somehow, we have to co-operate and compete, while also avoiding military conflict. Our starting point must be to achieve the greatest possible transparency over our aims and plans. We learnt the necessity of that after the Cuban missile crisis in 1962. But we will need far more than that and probably for longer.

Takeaways by Macro Roundup® AI

  1. Measured at purchasing power parity, the economies of the US and its allies remain some 80 per cent bigger than those of China and Russia combined.
  2. China's GDP per head at purchasing power parity was still less than 30 per cent of the US level in 2022, though reaching South Korea's current relative position would make its economy almost half as big again as those of the US and EU combined.
  3. Such Chinese convergence is judged improbable but cannot be ruled out given past performance, and managing the strategic confrontation requires the greatest possible transparency over aims and plans, a lesson drawn from the 1962 Cuban missile crisis.

AI Summary. Survey data show sizable majorities of U.S. adults expect that by 2050 the economy will be weaker, the country less important in the world, political divisions wider, and the gap between rich and poor larger. Some 58% say life for people like them is worse today than 50 years ago.

Andrew Daniller Pew Research Center
Date Posted:

.@pewresearch survey of U.S. adults finds 60% of Americans have “some” or “quite a lot” of confidence in America’s future, down from 66% in August of 2020.

Do Americans expect the country's economy and standing to decline?

Core argument: Sizable majorities of U.S. adults expect that by 2050 the U.S. economy will be weaker, the United States will be less important in the world, political divisions will be wider and the gap between rich and poor will be larger.

Sizable majorities of U.S. adults say that in 2050 – just over 25 years away – the U.S. economy will be weaker, the United States will be less important in the world, political divisions will be wider and there will be a larger gap between the rich and the poor. Far fewer adults predict positive developments in each of these areas. And when Americans reflect on the country’s past, the present looks worse by comparison. Around six-in-ten (58%) say that life for people like them is worse today than it was 50 years ago, according to the survey, which was conducted from March 27 to April 2. Confidence in the future of the country has declined over the past year. In May 2022, 68% said they had at least some confidence in the country’s future, 8 points higher than the share who say this today. The share expressing at least some confidence in the future of the U.S. changed only modestly between August 2020 and May 2022.

Takeaways by Macro Roundup® AI

  1. Sizable majorities of U.S. adults expect that by 2050 the U.S. economy will be weaker, the United States will be less important in the world, political divisions will be wider and the gap between rich and poor will be larger.
  2. Around six-in-ten U.S. adults (58%) say life for people like them is worse today than it was 50 years ago, according to the survey conducted March 27 to April 2.
  3. The share of Americans expressing at least some confidence in the country's future is 8 percentage points below the 68% recorded in May 2022, after changing only modestly between August 2020 and May 2022.

AI Summary. Real wages for the bottom 50% of earners have risen 9.6% since 2017, adding an estimated $150bn in annual spending power, or $250bn including income sources such as social security. Because lower-income consumers spend more of each extra dollar on goods, goods consumption has remained elevated rather than shifting back toward services.

Ethan Wu Financial Times
Date Posted:
Is Database:
Database

Spencer Hill @GoldmanSachs find bottom 50% wage gains reshape spending patterns: +9.6% real wages since 2017 adds $150-250bn annual purchasing power—sustained goods consumption surge signals structural shift in consumer behavior.

Are rising real wages for low earners keeping goods spending elevated?

Core argument: Real wages for the bottom 50% of earners have risen 9.6% since 2017, adding about $150bn in annual spending power, or $250bn including other income sources such as social security.

Real wage levels for the bottom 50% of earners have increased by 9.6% since 2017, translating to an additional $150bn in annual spending power, rising to $250bn when including other income sources like social security. This increase in disposable income supports higher consumer spending, particularly on goods, as lower-income consumers tend to spend more of each extra dollar earned on goods. Despite expectations of a shift back to services spending post-pandemic, goods consumption remains elevated due to these stronger consumer finances. The sustained increase in disposable income and muted financial distress suggest that the current level of goods spending is sustainable, with implications for economic growth and inflation dynamics.

Takeaways by Macro Roundup® AI

  1. Real wages for the bottom 50% of earners have risen 9.6% since 2017, adding about $150bn in annual spending power, or $250bn including other income sources such as social security.
  2. Goods consumption remains elevated rather than rotating back toward services after the pandemic, supported by stronger finances among lower-income consumers, who spend more of each extra dollar earned on goods.
  3. The sustained rise in disposable income and muted financial distress suggest the current level of goods spending is sustainable, with implications for economic growth and inflation dynamics.

A research note from GS’s Spencer Hill, which finds that real wage levels for bottom 50 percent earners were almost 10% higher than in 2017, supporting sustainably higher levels of consumer spending.

Why goods spending isnt falling: Extended Excerpt Image 1


“…In a note to clients published on Sunday, Spencer Hill of Goldman Sachs argues that something has changed. “Sustainably stronger consumer finances” have created fresh spending power for people at the bottom of the income distribution. After adjusting for composition effects, Hill estimates that real wage levels for the bottom 50 percent of earners were 6.2 percent higher in the first quarter of this year than in 2019 — and 9.6 percent higher than in 2017. That implies something like $150bn per year in additional spending power for the bottom half. The number rises to $250bn once you throw in other disposable income sources such as social security payments. This matters for two reasons: lower-income consumers spend more of each extra dollar earned, and they spend more of each extra dollar earned on goods, specifically. So long as bottom-half consumers have money to spend, goods consumption should stay high….”

Robert Armstrong and Ethan Wu, "Why goods spending isn’t falling,"Financial Times, April 25, 2023, https://www.ft.com/content/47002aa9-18b3-4db4-ba34-3bac45d82268

Why goods spending isn’t falling

There is an enigma at the centre of the US economy: what’s up with goods spending?

The conventional story is well known. Fearing a pandemic depression, Congress and the Federal Reserve unleashed enormous fiscal and monetary stimulus. Everyone was afraid of in-person services businesses, so all that money flooded into the goods sector. At the peak, in March 2021, inflation-adjusted goods consumption had shot up 21 percent from pre-pandemic levels, and goods inflation wasn’t far behind. This, though, was transitory. Eventually everyone had their fill of buying dressers and air fryers. Much ink was spilled about the great goods-to-services rotation: goods spending should return to trend as services spending rises. In the last year or so, it’s been all about inflation and spending in services.

But what if that’s wrong? What if real goods spending never falls back to its pre-pandemic trend, but instead plateaus at a higher level? It’s now been three years since lockdowns began and any trend-reversion is hard to spot:

Why goods spending isnt falling: Extended Excerpt Image 2


In a note to clients published on Sunday, Spencer Hill of Goldman Sachs argues that something has changed. “Sustainably stronger consumer finances” have created fresh spending power for people at the bottom of the income distribution. After adjusting for composition effects, Hill estimates that real wage levels for the bottom 50 percent of earners were 6.2 percent higher in the first quarter of this year than in 2019 — and 9.6 percent higher than in 2017. That implies something like $150bn per year in additional spending power for the bottom half. The number rises to $250bn once you throw in other disposable income sources such as social security payments.

This matters for two reasons: lower-income consumers spend more of each extra dollar earned, and they spend more of each extra dollar earned on goods, specifically. So long as bottom-half consumers have money to spend, goods consumption should stay high.

Is it sustainable, though? Comparing detailed (but less timely) consumer survey data for 2021 to 2019, Hill argues that it is. Consumer financial distress looks muted by historical standards. More than $1tn in excess savings is still out there. On top of that: "While the $1.6tn increase in consumer goods spending over three years is enormous in absolute terms, it may indeed be sustainable in the context of the $3.3tn rise in disposable income and the proportionately smaller spending increases for services categories on net. The increase in goods spending also does not look as outsized when one considers the strong disposable income growth of the bottom 3-4 income quintiles — recall that data imply a high marginal propensity to consume goods for lower- and middle-income consumers."

In other words, consumers are broadly spending no more than what they’re earning. After stripping out certain (misleading) imputed costs, Hill finds that nominal spending has risen by $3.5tn and nominal income by $3.3tn:

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We’ve spent time laying out Hill’s argument because it highlights an important point: the distribution of post-pandemic income gains has macroeconomic implications. If he is right, we’d expect both growth and inflation to be stickier — sharpening the policy trade-off the Fed faces. We’ll have more to say tomorrow, but as a first pass, his case fits with other research finding that inequality hurts demand. This is in part because the rich mostly save their money, and in part because such a “savings glut of the rich” is linked to burdensome consumer debts. That curtailing inequality juices demand seems not too far a leap.