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


Friday, July 7, 2023

AI Summary. The Congressional Budget Office projects federal spending will reach 29.1% of GDP over three decades, with net interest on the national debt rising from 1.9% of GDP to 6.7%, or $5.4tn. Under that projection, interest becomes the largest single federal budget line item, surpassing Social Security, Medicare, and Medicaid.

CRFB Staff Committee for a Responsible Federal Budget
Date Posted:

.@BudgetHawks highlights that in the latest @USCBO forecast Federal interest expenses will exceed defense spending by 2027 and nondefense discretionary by 2029.

Will interest payments become the largest federal budget item?

Core argument: CBO's long-term baseline projects net interest payments will rise from 1.9% of GDP in FY 2022 to a record 3.2% by 2030 and 6.7% by 2053, more than doubling as a share of the economy.

According to the Congressional Budget Office’s (CBO) long-term baseline, federal spending as a percentage of GDP will grow to 29.1% over the next three decades. Driving a large part of that growth is spending on interest payments to service the national debt. Net interest payments hit a nominal dollar record of $475B Fiscal Year (FY) 2022 and will nearly triple by FY 2033 to $1.4T, growing to $2.7T in 2043 and $5.4T 2053. As a share of the economy, net interest will rise from 1.9% of GDP in FY 2022 to hit a record 3.2% by 2030 and more than double to 6.7% by 2053. By 2051, spending on interest will be the single largest line item in the federal budget, surpassing Social Security, Medicare, Medicaid, and all other mandatory and discretionary spending programs.

Takeaways by Macro Roundup® AI

  1. CBO's long-term baseline projects net interest payments will rise from 1.9% of GDP in FY 2022 to a record 3.2% by 2030 and 6.7% by 2053, more than doubling as a share of the economy.
  2. Net interest hit a nominal record of $475 billion in FY 2022, and CBO projects it will nearly triple to $1.4 trillion by FY 2033, then reach $2.7 trillion in 2043 and $5.4 trillion in 2053.
  3. CBO projects interest costs will become the single largest federal budget line item by 2051, surpassing Social Security, Medicare, Medicaid, and all other mandatory and discretionary programs, with federal spending reaching 29.1% of GDP over three decades.

Related Articles:

  • The 2023 Long-Term Budget Outlook — The Congressional Budget Office projects the federal deficit falls from 5.8% of gross domestic product to 5.0% before rising every year to 10% of GDP over three decades, a level exceeded only during World War II and the pandemic. Federal debt held by the public is projected to reach 181% of GDP.
  • American Gothic — US tax increases since 1950 of 2% of GDP or more occurred when overall tax receipts were a much smaller share of GDP than today. Restoring the ratio of entitlement to non-defense discretionary spending to its earlier level of 2.2x would require tax increases larger than those historical precedents.

AI Summary. U.S. shale drilling and fracking costs have fallen 36% since 2014 even as recovered oil volumes have risen, according to J.P. Morgan. One major producer can now earn as much from $42-a-barrel oil as it once did at $86, while Saudi Arabia's budget is estimated to require $81 a barrel.

Bob Henderson Wall Street Journal
Date Posted:

American crude oil production will hit a record in 2023, driven by production improvements that have lowered the cost of drilling and fracking by 36% since 2014, according to @jpmorgan estimates.

Have falling U.S. shale costs weakened OPEC's pricing power?

Core argument: J.P. Morgan estimates U.S. shale drilling and fracking costs have fallen 36% since 2014 even as recovered oil volumes have risen.

Production improvements since 2014 have pushed down the cost of drilling and fracking in the U.S. shale patch by 36%, according to J.P. Morgan, even as recovered oil volumes have increased. A major producer, EOG Resources, said it bored a well over 5 miles deep and nearly 3 miles long in South Texas early this year—a record length for the company. The increased efficiency means EOG can earn as much from oil priced at $42 a barrel today as it would have from oil trading at $86 nine years ago. People familiar with Saudi oil policy have said the government’s budget requires an estimated $81 a barrel. Brent crude is trading around $76 a barrel, down 13% from the start of the year.

Takeaways by Macro Roundup® AI

  1. J.P. Morgan estimates U.S. shale drilling and fracking costs have fallen 36% since 2014 even as recovered oil volumes have risen.
  2. EOG Resources can earn as much from oil priced at $42 a barrel as it would have from $86 oil nine years ago, and it bored a company-record well over 5 miles deep and nearly 3 miles long in South Texas.
  3. Brent crude trades around $76 a barrel, down 13% from the start of the year and below the estimated $81 a barrel that people familiar with Saudi oil policy say the government's budget requires.

Related Articles:

  • Portfolio Nuclear — The US is in its fifth year of net energy independence, with domestic oil and gas production at all-time highs across four consecutive administrations. Wind and solar now supply 15% of the grid, allowing more coal and liquefied natural gas to be exported.
  • Energy and the Presidents — US coal production fell from about 775m short tons to 535m short tons and coal consumption fell over 33%, from roughly 717m to 477m short tons, despite expectations of support for the industry. No major federal legislation has curtailed US oil and gas output, both of which have reached all-time highs.

AI Summary. In the US, unemployment is roughly equal for the native-born and the foreign-born, at about 5.5%, and Black and white employment rates are close to even. In France, unemployment is 7% for the native-born but 12% for immigrants and over 17% for recent arrivals.

John Burn-Murdoch Financial Times
Date Posted:

.@jburnmurdoch notes that immigrants in France significantly underperform native-born citizens; unemployment rates for recent immigrants are significantly higher than in the US.

Do immigrants face wider employment gaps in France than in America?

Core argument: In France, unemployment stands at 7% for those born in the country versus 12% for immigrants, rising above 17% among those who arrived within the past ten years.

In 2021, US unemployment was 5.5% for those born in the country, and 5.6% for those born overseas. Black and white employment rates are now neck and neck. In France, unemployment is 7% among those born in the country, but 12% for immigrants, rising past 17% among those who arrived in the last ten years. Comparisons with Britain, whose demographics and colonial history perhaps make for a fairer benchmark, are similarly damning.

Takeaways by Macro Roundup® AI

  1. In France, unemployment stands at 7% for those born in the country versus 12% for immigrants, rising above 17% among those who arrived within the past ten years.
  2. US unemployment in 2021 was 5.5% for the native-born and 5.6% for the foreign-born, and Black and white employment rates are now neck and neck.
  3. Comparisons between France and Britain, whose demographics and colonial history arguably make for a fairer benchmark, are similarly damning for France.

Related Articles:

  • From Strengh To Strengh — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.
  • France Has Poor Income Mobility Compared To US, Study Shows — France's statistics agency finds a 71% correlation between individuals' positions on the national income scale over a roughly 15-year span, with the richest and poorest groups least likely to change bracket. The authors say this inertia is greater than in the US, where studies have shown a higher probability of moving up or down.

AI Summary. Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.

Karsten Müller and Emil Verner National Bureau of Economic Research
Date Posted:
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.@KarstenMueIIer and @EmilVerner find that credit growth to non-tradable industries like real estate is predictive of a boom-bust output pattern and financial fragility, while credit to the tradable sector is associated with productivity growth.

Does the sectoral allocation of credit predict output and banking crises?

Core argument: Across a sample of 59 systemic banking crises, non-tradable sector credit expands more than twice as rapidly relative to GDP as tradable sector credit, surpassing household debt growth in the three years immediately before crises.

Credit expansions lead to disproportionate credit growth toward non-tradable sector firms and households. This pattern is in line with theories in which these sectors are more sensitive to relaxations in financing conditions and to feedbacks through collateral values and domestic demand. The sectoral allocation of credit, in turn, has considerable predictive power for the future path of GDP and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts a boom-bust pattern in output and elevated financial fragility. Credit to the tradable sector, on the other hand, is less prone to large booms and is associated with higher future productivity growth. Our evidence suggests that previous work, which could not differentiate between different types of corporate credit, has missed an important margin of heterogeneity. Figure 7 plots the average yearly change in sectoral credit-to- GDP for five years before and after a systemic banking crisis, relative to non-crisis times. The sample includes 59 crises. Non-tradable sector credit expands more than twice as rapidly relative to GDP as tradable sector credit, surpassing the growth of household debt in the three years immediately before crises.

Takeaways by Macro Roundup® AI

  1. Across a sample of 59 systemic banking crises, non-tradable sector credit expands more than twice as rapidly relative to GDP as tradable sector credit, surpassing household debt growth in the three years immediately before crises.
  2. Credit growth to non-tradable industries predicts a boom-bust pattern in output and elevated financial fragility, while credit to the tradable sector is less prone to large booms and is associated with higher future productivity growth.
  3. The sectoral allocation of credit has considerable predictive power for the future path of GDP and the likelihood of systemic banking crises, a margin of heterogeneity missed by earlier work that could not differentiate types of corporate credit.

AI Summary. Because many immigrants send remittances home or plan to return, part of their spending occurs in their origin country rather than where they work, so local prices apply to only part of their budget. The authors argue this makes immigrants less deterred by high local costs, concentrating them in expensive cities.

Joan Monras Federal Reserve Bank of San Francisco
Date Posted:
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.@JoanMonrasEcon argues that immigrants cluster in cities with higher wages to support remittances to family members in their native countries, and are deterred less by higher living costs than US-born workers.

Why do immigrants concentrate in the most expensive cities?

Core argument: Because a large share of immigrants send remittances home or plan to return to their birthplace, a substantial part of their spending occurs in their origin country rather than the city where they work.

A large share of immigrants keeps ties with their origin countries. Many send money, known as remittances, to family members in those countries, while others plan to eventually return to their birthplace. In either case, this means that a substantial part of immigrants’ spending, now or in the future, takes place in their origin country rather than in the city where they currently work. Hence, for immigrants, the local prices in the city where they work only matter for the fraction of their total budget spent there. This means, that, relative to native-born workers, immigrants are equally attracted to high wages in select cities but less deterred by high local prices—particularly housing. This simple mechanism can explain why immigrants concentrate so much in a small number of select cities, and why these cities tend to have the highest costs of living.

Takeaways by Macro Roundup® AI

  1. Because a large share of immigrants send remittances home or plan to return to their birthplace, a substantial part of their spending occurs in their origin country rather than the city where they work.
  2. Immigrants are as attracted to high wages in select cities as native-born workers but less deterred by high local prices, particularly housing, since local prices apply only to the fraction of their budget spent locally.
  3. This spending mechanism can explain why immigrants concentrate in a small number of select cities and why those cities tend to have the highest costs of living.

AI Summary. United Nations data show net emigration from China has risen from a low of about 125,000 a year to more than 300,000. Private data on individuals with over $1m in assets show a similar pattern, with net outflows of the wealthy climbing from around 9,000 a year to over 15,000.

Nathaniel Taplin Wall Street Journal
Date Posted:

Net emigration from China in 2022 was 300,000 up from a low of 125,000 in 2012 during China’s post-crisis period of growth.

Is emigration from China rising, including among the wealthy?

Core argument: Net emigration from China fell to as low as 125,000 in 2012 per U.N. data, rebounded to nearly 300,000 by 2018, and the U.N. forecast puts 2022 net emigration above 300,000, after about 200,000 in 2021.

Net emigration from China, which had fallen as low as 125,000 in 2012 according to U.N. data, had rebounded to nearly 300,000 by 2018. The latest U.N. forecast puts net emigration in 2022 at over 300,000 again, after a net drain of about 200,000 in 2021. Strikingly, the U.N. data actually lines up surprisingly well with data from private sources looking at a more specific demographic—the wealthy. Data collated by South Africa-based New World Wealth and Henley & Partners, a London-based investment migration consulting firm, show a similar pattern. Net outflows of high net-worth individuals (with more than $1 million in assets) from China were steady at around 9,000 a year for most of the early 2010s. But in the late 2010s, that number started rocketing up: In 2017, net emigration by the wealthy was over 11,000 individuals, and by 2019 it was more than 15,000. Henley estimate 13,500 wealthy individuals will, on net, leave China this year, following a 10,800 person net drain in 2022.

Takeaways by Macro Roundup® AI

  1. Net emigration from China fell to as low as 125,000 in 2012 per U.N. data, rebounded to nearly 300,000 by 2018, and the U.N. forecast puts 2022 net emigration above 300,000, after about 200,000 in 2021.
  2. Net outflows of high net-worth individuals holding more than $1 million in assets from China held near 9,000 a year through most of the early 2010s, then rose above 11,000 in 2017 and more than 15,000 by 2019, per New World Wealth and Henley & Partners data.
  3. Henley & Partners estimate 13,500 wealthy individuals will leave China on net this year, following a net drain of 10,800 in 2022.

Related Articles:

  • Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom — Singapore's central bank has asked major banks to minimize public discussion of the origins of large inflows of money into the city-state, much of it from wealthy Chinese, an issue that has become politically sensitive domestically. Lawyers and industry groups estimate Singapore hosts roughly 1,500 family offices, a large share of them Chinese.
  • U.S. Bound Migrants Surge at Darien Jungle Crossing in Panama — Panamanian immigration data show 49,291 migrants crossed the Darien Gap rainforest between Colombia and Panama en route to the U.S. over a two-month span, more than a fivefold increase from 8,964 in the same period a year earlier. Chinese nationals accounted for about 2,200 of those crossings, up from 71.

Monday, July 10, 2023

AI Summary. Early retirements during the pandemic cut labor supply, and the resulting wage spike drew in workers who had not been seeking jobs, lifting prime-age labor force participation to multi-year highs near 1990s peaks. With little slack left, moderating employment growth would reflect labor scarcity accompanied by reaccelerating wages.

Joseph Wang Fed Guy Blog
Date Posted:
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.@FedGuy12 argues slowing employment growth is consistent with an American economy that is at full employment and running out of workers. This works against Fed aims, as higher wages are needed to attract marginal workers into the labor force.

Does slowing employment growth reflect labor scarcity and rising wages?

Core argument: The prime-age labor force participation rate has risen to multi-year highs and sits not far below the all-time highs last seen in the 1990s, suggesting very little slack in the labor market and that additional workers will be increasingly difficult and expensive to find.

The pandemic was a significant negative labor supply shock because it led to a wave of early retirements. This sudden labor shortage led to a spike in wages, which appeared to draw in people who were otherwise not looking for a job. The prime-age labor force participation rate has risen to multi-year highs and is not too far from all-time highs last seen in the 1990s. This suggests that there is very little slack in the labor market and additional workers will be increasingly difficult and expensive to find. While that shock has been digested, workers continue to retire and place increasing demand on a stagnant worker pool. In this scenario, moderating employment growth reflects labor scarcity and would be accompanied by reacceleration of wages similar to that seen in the most recent non-farm payroll report.

Takeaways by Macro Roundup® AI

  1. The prime-age labor force participation rate has risen to multi-year highs and sits not far below the all-time highs last seen in the 1990s, suggesting very little slack in the labor market and that additional workers will be increasingly difficult and expensive to find.
  2. The pandemic acted as a negative labor supply shock by triggering a wave of early retirements, and the resulting labor shortage spiked wages, which appeared to draw in people who had not been looking for work.
  3. With workers continuing to retire and placing increasing demand on a stagnant worker pool, moderating employment growth would reflect labor scarcity and be accompanied by a reacceleration of wages like that in the most recent non-farm payroll report.

Related Articles:

  • “The Great Retirement Boom”: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation — An increase in the retired share of the working-age population of nearly 1.5 percentage points above pre-pandemic levels—more than 3.5m additional retirees—accounts for essentially all of the shortfall in the labor force participation rate, while other causes of non-participation such as caregiving have receded.
  • Unions’ Inflation Warning? — The share of people aged 16 and over working or looking for work fell when the pandemic hit and has only partly recovered, with population aging accounting for most of the remaining shortfall. That implies economic activity must run at a lower level to avoid persistent wage and price inflation.

AI Summary. US Bureau of Labor Statistics time-use data show time young American men spent playing games rose by nearly three-quarters of an hour from 2019 to 2022, exceeding the increase over the prior 16 years, with most of the added gaming time coming from work and sports, exercise and recreation.

Justin Fox Bloomberg
Date Posted:

.@foxjust reports that young American men who play video games played for an average of almost four hours a day in 2022.

Are young men gaming more and working less?

Core argument: Time young men spent "playing games" rose by nearly three-quarters of an hour from 2019 to 2022, a larger increase than over the previous 16 years, according to the US Bureau of Labor Statistics' American Time Use Survey.

Statistics released last month by the US Bureau of Labor Statistics from the annual American Time Use Survey show that the time young men spent “playing games” — the survey doesn’t differentiate between electronic and non-electronic games, but most researchers assume it’s chiefly the former — rose by nearly three-quarters of an hour from 2019 to 2022, more than it had increased over the previous 16 years. It does appear that, since the pandemic, most of the additional gaming time has come from work and sports/exercise/recreation. American men 65 and older spent an average of just more than five hours a day watching TV in 2022, up from just more than four in 2003.

Takeaways by Macro Roundup® AI

  1. Time young men spent "playing games" rose by nearly three-quarters of an hour from 2019 to 2022, a larger increase than over the previous 16 years, according to the US Bureau of Labor Statistics' American Time Use Survey.
  2. Most of young men's additional gaming time since the pandemic appears to have come from work and sports, exercise, and recreation, though the survey does not distinguish electronic from non-electronic games.
  3. American men 65 and older watched TV an average of just over five hours a day in 2022, up from just over four hours in 2003.

Related Articles:

AI Summary. US imports from Mexico lost share to China after China joined the World Trade Organization, and Mexico now appears to be benefiting from a retreat from China. On an unsmoothed basis, monthly US imports from Mexico have exceeded those from China for the first time in 20 years.

John Authers Bloomberg
Date Posted:

Mexican exports to the United States exceeded Chinese exports for the first time in two decades reports @Johnauthers

Is Mexico gaining US import share as China loses it?

Core argument: U.S. imports from Mexico exceeded those from China over the last three months on an un-smoothed basis, the first time Mexico has held that lead in 20 years.

This is how the imports to the US from Mexico and China have moved over the last three decades. For both countries, trade agreements made a huge difference, with Mexico suffering grievously from lost share after China entered the World Trade Organization in 2001. Now, it appears to be benefiting from the retreat from China. These numbers are shown as 12-month moving averages to avoid the distortions that come with the Chinese lunar new year holiday. The last three months, on an un-smoothed basis, actually show Mexican imports exceeding those from China for the first time in 20 years.

Takeaways by Macro Roundup® AI

  1. U.S. imports from Mexico exceeded those from China over the last three months on an un-smoothed basis, the first time Mexico has held that lead in 20 years.
  2. Mexico lost substantial share of U.S. imports after China joined the World Trade Organization in 2001, and now appears to be benefiting from the retreat from China.
  3. Trade agreements made a large difference to U.S. imports from both Mexico and China over three decades, with the figures presented as 12-month moving averages to avoid distortions from the Chinese lunar new year holiday.

Related Articles:

  • Global Trade Is Shifting, Not Reversing — Mexico is positioned to gain from shifting U.S.-China trade, with lower wages than China, an established manufacturing base anchored by autos, and proximity to the U.S. market. Bank of America analysts note U.S. imports of Mexican manufactured goods are roughly 60% above pre-pandemic levels, with Mexico gaining U.S. import share in plastics and textiles as China loses share.
  • Globalization Isn’t Dead. But It’s Changing — 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.

AI Summary. Financial investors have shifted away from copper toward cash-generating assets as interest rates rise, with futures positioning implying more bets on falling prices than recovery. Prices remain about $2,500 a tonne above marginal production costs, suggesting the correction removed froth rather than pushing prices too low.

Economist Staff The Economist
Date Posted:

Despite predictions of a ‘train wreck’ of copper supply shortfalls, prices have dropped around 10% since January. EVs and green mandates will boost long-term demand, but short-term financial market interest has been muted. #Copper @TheEconomist

Why are copper prices falling despite tight future supply?

Core argument: Copper prices remain $2,500 a tonne above production costs at the marginal mine, implying the correction has taken froth out of the market rather than pushed prices too low, and that prices could stay subdued for a while.

Financial investors are snubbing copper. As interest rates rise, they prefer to hold cash-generating assets rather than commodities, which yield nothing. For much of this year,, “non-commercial” net positioning on copper-futures markets has been in the red, implying that more investors are betting prices will fall than recover. Yet today’s prices remain $2,500 a tonne above production costs at the marginal mine. This implies that the recent correction has taken froth out of the market, rather than pushed prices too low, suggesting they could stay subdued for a while. Supply may struggle to keep up. The average age of the world’s ten biggest mines is 64, which is forcing miners to dig deep for ores of ever lower quality, making each new tonne of refined copper costlier to produce. New mines are scarce. Assuming all certain and probable projects go ahead, McKinsey, a consultancy, forecasts that supply will hit 30m tonnes by 2031, 7m tonnes short of estimated demand.

Takeaways by Macro Roundup® AI

  1. Copper prices remain $2,500 a tonne above production costs at the marginal mine, implying the correction has taken froth out of the market rather than pushed prices too low, and that prices could stay subdued for a while.
  2. Non-commercial net positioning on copper-futures markets has been negative for much of this year, as rising interest rates push investors toward cash-generating assets over commodities that yield nothing.
  3. McKinsey forecasts copper supply will reach 30m tonnes by 2031, 7m tonnes short of estimated demand, with the average age of the world's ten biggest mines at 64 years forcing miners to dig deeper for lower-quality ores.

Related Articles:

  • Copper Mine Flashes Warning of ‘Huge Crisis’ for World Supply — Analysts at Wood Mackenzie estimate a greener world will be short about 6m tons of copper by next decade, requiring a dozen new mines on the scale of Rio Tinto's Oyu Tolgoi in Mongolia. BloombergNEF projects demand for refined copper will grow 53% by 2040 while mine supply rises only 16%.
  • Glencore Says This Time Is Different for Coming Copper Shortage — Glencore estimates a cumulative gap between projected copper demand and supply of 50m tons through 2030, against current world demand of about 25m tons a year, and argues the industry will not lift supply as it has in previous cycles. The company says copper prices do not yet reflect the coming deficit.

AI Summary. Companies acquired by private equity firms average operating profit margins 0.5% above their industry in the three years before the deal, drop in the transaction year, and afterward recover only to the industry average. The authors argue this pattern reflects buying higher-performing companies that mean-revert rather than post-deal efficiency gains.

Dan Rasmussen, Minje Kwun and Lila Alloula Verdad
Date Posted:
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.@verdadcap Minje Kwun and Lila Alloula argue that there is little evidence to support the claim that the private equity industry as a whole engineers operational improvements.

Does private equity ownership improve the operating margins of acquired companies?

Core argument: Private equity targets run EBITDA margins averaging 0.5% above their industry in the three years before a deal, then settle at exactly the industry standard afterward, 50bps below pre-acquisition levels.

For EBITDA margins, we notice that PE firms tend to target companies outperforming their industries: EBITDA margin is on average 0.5% above industry standard in the three years before the deal. In the year the transaction is completed, the metric drop sharply. We hypothesize that major LBO transactions are distracting to management and lead to suboptimal outcomes from a sales and margin perspective during the deal year. Once the deal has been completed, growth and margins recover, but do not on average return to pre-deal levels. EBITDA margin averages out to exactly the industry standard, 50bps lower than pre-acquisition. While PE firms are typically praised for their efficiency and cost-control, the graph on EBITDA margins shows a negligible difference in actual profitability. The supposed efficiency and cost-cutting isn’t showing up in the numbers. Instead, PE firms appear to be buying slightly higher-performing companies that then experience some mean reversion post-acquisition.

Takeaways by Macro Roundup® AI

  1. Private equity targets run EBITDA margins averaging 0.5% above their industry in the three years before a deal, then settle at exactly the industry standard afterward, 50bps below pre-acquisition levels.
  2. EBITDA margins drop sharply in the year an LBO closes, which the author attributes to major transactions distracting management, with growth and margins recovering afterward but not returning to pre-deal levels on average.
  3. Private equity's reputed efficiency and cost-cutting does not show up in profitability figures, which show a negligible difference; instead, firms appear to buy slightly higher-performing companies that then mean-revert.

Related Articles:

  • Private Equity Fundamentals — An analysis of North American private equity- and venture-backed companies with public stock or debt finds they trade at 22.4x adjusted earnings, in line with small-cap growth stocks, but at 33.4x on standard accounting measures with net debt of 8.8x earnings. The authors describe the group as heavily leveraged and mostly cash-flow negative.

AI Summary. Average global air temperature set new records three times within a single week. Aside from global warming, the biggest influence on Earth's temperature is the El Niño-Southern Oscillation, and because past highs have typically come near the end of a strong El Niño, the recent switch to El Niño is unlikely to explain these records.

Economist Staff The Economist
Date Posted:

The new mean global air temperature record is more than half a degree warmer than the hottest temperature recorded in 1980.

Does the shift to El Niño explain record global temperatures?

Core argument: The average global air temperature set records three times in one week, on July 3rd, July 4th, and July 6th.

On July 3rd the average global air temperature reached a new record. On July 4th the average global air temperature reached a new record. And on July 6th the average global air temperature reached a new record. The biggest influence on the Earth’s temperature, aside from global warming, is the El Niño-Southern Oscillation (ENSO). This is the first El Niño in seven years. Previous highs have often occurred towards the end of a strong El Niño, when the warming pattern has heated the Earth. The recent switch to El Niño, therefore, is unlikely to be the cause of the latest record-breaking temperatures. Its effect should be in full swing next summer, when more records could be set. That would be the first time new records have been attained in two consecutive years.

Takeaways by Macro Roundup® AI

  1. The average global air temperature set records three times in one week, on July 3rd, July 4th, and July 6th.
  2. Aside from global warming, the El Niño-Southern Oscillation is the biggest influence on the Earth's temperature, and the present El Niño is the first in seven years.
  3. Previous temperature highs have often come toward the end of a strong El Niño, so the recent switch to El Niño is unlikely to be the cause of the latest records, with its effect expected in full swing next summer.

Related Articles:

  • Earth Keeps Breaking Temperature Records Due to Global Warming — The average worldwide temperature reached a record 17C (63F), surpassing the prior record of 16.9C, and then climbed to 17.2C a day later, according to data from the US National Centers for Environmental Prediction.
  • Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse — State Farm, California's largest homeowner insurer, stopped accepting applications for most new home insurance policies statewide, citing rapidly growing catastrophe exposure. Florida faced a similar retreat by national carriers after Hurricane Andrew and responded with a market of small insurers backed by a state-mandated company providing windstorm coverage to homeowners who cannot obtain private insurance.

AI Summary. A study in the Chinese Center for Disease Control and Prevention's official journal found the suicide rate among children aged 5 to 14 in China rose from about 0.2 to about 0.8 per 100,000 people over 11 years. Among 15- to 24-year-olds, the rate fell 6.8% annually before rising 19.6% annually through 2021.

Wang Xintong Nikkei Asia
Date Posted:

The suicide rate for 5-14-year-old Chinese quadrupled between 2010-2021 @NikkeiAsia

Is the youth suicide rate in China rising sharply?

Core argument: China's suicide rate among children aged 5–14 rose from about 0.2 to about 0.8 per 100,000 people over an 11-year period, according to a study published June 23 in China CDC Weekly.

During the 11-year period, the suicide rate among children aged 5 to 14 increased from about 0.2 to about 0.8 per 100,000 people, according to the study published June 23 in China CDC Weekly, the official journal of the Chinese Center for Disease Control and Prevention. The study also found that the suicide rate for 15- to 24-year-olds fell by 6.8% per year from 2010 to 2017, but then surged at an annual rate of 19.6% to 2021, the latest available data.

Takeaways by Macro Roundup® AI

  1. China's suicide rate among children aged 5–14 rose from about 0.2 to about 0.8 per 100,000 people over an 11-year period, according to a study published June 23 in China CDC Weekly.
  2. The suicide rate for Chinese 15- to 24-year-olds fell 6.8% per year from 2010 to 2017, then rose at an annual rate of 19.6% through 2021, the latest available data in the study.
  3. China CDC Weekly, the official journal of the Chinese Center for Disease Control and Prevention, published the study on rising youth suicide rates.

Related Articles:

AI Summary. China's unemployment rate for 16- to 24-year-olds reached 20.8%, the highest since the data series began in 2018 and above levels in European countries such as France and Italy. The national civil service examination drew a record 2.6mn applicants, nearly 2x the 2019 figure, with a 1.4% success rate.

Sun Yu and Joe Leahy Financial Times
Date Posted:
Is Database:
Database

While China’s overall unemployment rate is stable at 5.2% in May, but youth unemployment at nearly 21% is above now even higher than Italy. China’s civil service exam had twice as many applicants as in 2019.

Is youth unemployment in China rising to record levels?

Core argument: China's youth unemployment rate reached 20.8% for 16–24-year-olds in May, the largest proportion since the data series began in 2018 and higher than in European countries such as France and Italy.

In May, 20.8% of 16 to 24-year-olds were unemployed, the largest proportion since the data series started in 2018 and higher than in European countries such as France and Italy. China’s grueling national civil service examination, drew a record 2.6mn applicants this year, nearly twice the number in 2019. The success rate was just 1.4%.

Takeaways by Macro Roundup® AI

  1. China's youth unemployment rate reached 20.8% for 16–24-year-olds in May, the largest proportion since the data series began in 2018 and higher than in European countries such as France and Italy.
  2. China's national civil service examination drew a record 2.6mn applicants this year, nearly twice the 2019 number, with a success rate of just 1.4%.

Related Articles:

  • Why Has Youth Unemployment Risen So Much in China? — Young workers aged 15-24 are particularly vulnerable when economic growth slows, and China's youth unemployment rate does not appear to be an outlier relative to its income level among global peers. Mismatches between the skills graduates acquire in higher education and those employers demand may add to labor market frictions.
  • Can China Fix Youth Unemployment Woes With Military Recruitment Drive? — More than 90% of China's military recruitment this year could come from recent graduates and high school students, which analysts say serves both the People's Liberation Army's modernisation targets and the country's record youth unemployment. Military academies remain less attractive to top students than leading public universities.