Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Monday, August 7, 2023

AI Summary. The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.

Ronnie Walker and Sienna Mori Goldman Sachs
Date Posted:

.@GoldmanSachs notes the mean interest rate on corporate debt will rise from 4.2% this year to 4.5% in 2025, adding that “for each additional dollar of interest expense, firms lower their capital expenditures by 10¢ and labor costs by 20¢”

How much do rising corporate interest costs slow capex and hiring?

Core argument: The authors estimate the average interest rate on the stock of corporate debt will rise from 4.20% in 2023 to 4.30% in 2024 and 4.50% in 2025, based on their assumptions about Fed policy and market interest rates.

We estimate that the average interest rate on the current stock of corporate debt will rise from 4.20% in 2023 to 4.30% in 2024 and 4.50% in 2025, based on our assumptions about the future path of Fed policy and market interest rates. This would imply that private sector interest expense as a share of current private sector gross output will rise from 3.35% in 2023 to 3.40% in 2024 and 3.60% in 2025, an increase of 0.25pp from 2023 to 2025. The increase in interest expense that we estimate would therefore reduce capex growth by 0.10pp in 2024 and 0.25pp in 2025 and labor cost growth by 0.05pp in 2024 and 0.15pp in 2025.

Takeaways by Macro Roundup® AI

  1. The authors estimate the average interest rate on the stock of corporate debt will rise from 4.20% in 2023 to 4.30% in 2024 and 4.50% in 2025, based on their assumptions about Fed policy and market interest rates.
  2. Private sector interest expense as a share of current private sector gross output is estimated to climb from 3.35% in 2023 to 3.40% in 2024 and 3.60% in 2025, an increase of 0.25pp.
  3. The estimated rise in interest expense would reduce capex growth by 0.10pp in 2024 and 0.25pp in 2025, and labor cost growth by 0.05pp in 2024 and 0.15pp in 2025.

Related Articles:

  • Data Update 3 for 2023: Interest Rates and Bond Returns — The cost of capital for the median US company rose from 5.77% to 9.63% over a year, while the median global company's rose from 6.33% to 10.60% in US dollar terms. The cost of capital affects nearly every corporate finance decision within a business.

AI Summary. Job churn has been declining while nominal wage growth has remained around 5% a year. Based on the historical relationship between wages, output, and prices, this implies trend nominal gross domestic product growth of roughly 5–6% a year and trend inflation of about 4% a year.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues income growth and credit expansion, along with quits coming down, are consistent with trend inflation of 4%, significantly above its pre-pandemic level.

Does persistent 5% wage growth imply 4% trend inflation?

Core argument: Nominal wage growth has remained stuck around 5% a year even as job churn declines.

Job churn is coming down, yet nominal wage growth has remained stubbornly stuck around 5% a year. Given the rough historical link between wages, output, and prices, the implication is that the trend growth rate of nominal gross domestic product (GDP) is now around 5-6% a year while trend inflation is around 4% a year.

Takeaways by Macro Roundup® AI

  1. Nominal wage growth has remained stuck around 5% a year even as job churn declines.
  2. Applying the rough historical link between wages, output, and prices implies trend nominal GDP growth of roughly 5–6% a year.
  3. The same link between wages and prices implies trend inflation of around 4% a year.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • The Case for “Higher for Longer”: Prices are Disinflating, But Not Wages (Yet) — Occupations with the fastest pay gains have seen wage growth normalize while pay growth elsewhere remains persistently faster, with only modest deceleration from the peak. The author argues the neutral policy rate has risen as an investment drought ends, making 5.5% short-term rates unremarkable and 4% 10-year Treasury yields potentially too low.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.

AI Summary. Historical correlations between equity risk premiums or earnings yields and future stock returns do not translate easily into profitable market timing, because market and economic structures can shift and undercut predictions based on past data. Even when such relationships hold, statistical noise in the estimates can disrupt portfolios before predictions play out.

Aswath Damodaran Musings on Markets
Date Posted:

.@AswathDamodaran argues his implied equity risk premium for the S&P 500 of 4.44% is a better measure than alternatives for predicting future returns.

Can equity risk premiums be used to time the market profitably?

Core argument: High R-squared or correlation between equity risk premiums, earnings yields, and past returns does not translate easily into market-timing profits, because market and economic structures can shift and undercut the use of historical data for prediction.

If you are using equity risk premiums or even earnings yield for market timing, recognize that having a high R-squared or correlation in past returns will not easily translate into market-timing profits, for two reasons. First, the past is not always prologue, and market and economic structures can shift, undercutting a key basis for using historical data to make predictions. Second, even if the correlations and regressions hold, you may still find it hard to profit from them, since you (and your clients, if you are a portfolio manager) may be bankrupt, before your predictions play out. Statistical noise (the standard errors on your regression predictions) can create havoc in your portfolios, even if it eventually gets averaged out.

Takeaways by Macro Roundup® AI

  1. High R-squared or correlation between equity risk premiums, earnings yields, and past returns does not translate easily into market-timing profits, because market and economic structures can shift and undercut the use of historical data for prediction.
  2. Even when correlations and regressions hold, investors and portfolio managers may go bankrupt before their market-timing predictions play out.
  3. Statistical noise, reflected in the standard errors on regression predictions, can create havoc in portfolios even if that noise eventually averages out.

Related Articles:

  • The Benefit of Owning Stocks Over Bonds Keeps Shrinking — The gap between the S&P 500's expected earnings yield and the 10-year U.S. government bond yield has narrowed to about 1.1 percentage points, its smallest since 2002. Measured against the 10-year inflation-protected Treasury yield, the spread is about 3.5 percentage points, the lowest since 2003.
  • The Rasputin Effect: Global Resilience To Higher Rates — The US corporate sector's financial balance remains in surplus, a condition that has never preceded a recession, and central banks have withdrawn only about one third of the $11tn in global liquidity they created. Excess US household savings are projected to run out in the following year, pointing to modestly weaker conditions rather than a significant contraction.
  • Most Global Economies Remain in Disequilibrium, Requiring Policy Action — An investment framework holds that markets and economies are driven by three equilibriums — spending in line with output and capacity, incomes in line with debts, and normal risk premiums across assets — interacting with two policy levers, monetary and fiscal policy. When these conditions are absent, the resulting social, political, and business strains produce changes until equilibrium is restored.

AI Summary. From 1994 to 2013, an annually rebalanced portfolio of the 5 largest US stocks returned about the same as the entire S&P 500, with both trailing a large-cap value portfolio; only in the last decade have returns concentrated in a few technology companies. The authors argue tomorrow's largest companies may differ, favoring diversification.

Chris Satterthwaite Verdad
Date Posted:

Chris Satterthwaite notes the overperformance of the top-5 market cap stocks is historically unusual and speculates that technological advances ranging from AI and superconductors will likely drive significant churn over the next decade.

Do the largest stocks reliably deliver the best long-run returns?

Core argument: From 1994 to 2013, an annually rebalanced portfolio of the largest 5 US stocks returned about the same as the entire S&P 500, while both significantly lagged a large-cap value portfolio per Ken French data.

The phenomenon of the largest stocks delivering the best returns is new, in our opinion. In fact, from 1994 to 2013, an annually rebalanced portfolio of the largest 5 stocks (“Big 5”) in the US had a comparable return to the entire S&P 500. But both portfolios significantly lagged a large-cap value portfolio (per Ken French). The last 10 years have seen a concentration of returns to the tech sector and to a few companies within that sector. This is both notable and unusual. With the advent of exciting new technologies like AI and superconductors, we think it’s plausible that the top 5 largest companies 10 years from now may look quite different from the top 5 today. In which case, a diversified portfolio would likely serve investors better than a highly concentrated size-defined portfolio.

Takeaways by Macro Roundup® AI

  1. From 1994 to 2013, an annually rebalanced portfolio of the largest 5 US stocks returned about the same as the entire S&P 500, while both significantly lagged a large-cap value portfolio per Ken French data.
  2. The authors characterize the concentration of returns into the tech sector and a few companies within it over the past decade as notable and unusual, arguing that the largest stocks delivering the best returns is a new phenomenon.
  3. The authors argue that with technologies such as AI and superconductors emerging, the top 5 largest companies 10 years from now may look quite different from today's, favoring a diversified portfolio over a concentrated size-defined one.

Related Articles:

  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • Mr. Toad’s Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs — Between 40% and 60% of US initial public offerings generate negative returns even in favorable periods, so average IPO returns far exceed median returns and depend on a small set of large winners. Excluding just the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. A debt spiral requires the interest rate on government debt to exceed the economy's growth rate; with inflation-protected 10-year U.S. bond yields near 1.83%, close to most estimates of sustainable growth, any spiral would be slow-moving. Stabilizing debt at 100% of GDP would require a 2% primary surplus.

Paul Krugman Krugman Wonks Out
Date Posted:
Is Database:
Database

.@paulkrugman argues that at the current interest rate of inflation-protected 10-year U.S. bonds of 1.83%, economic growth makes a runaway debt spiral unlikely.

Do current interest rates make a fast US debt spiral likely?

Core argument: The inflation-protected 10-year U.S. Treasury yield stood at 1.83%, close to most estimates of the economy's sustainable growth rate.

You can get a debt spiral if r is significantly larger than g; in that case rising debt leads to faster accumulation of debt, and we’re off to the races. Even after the rate surge of the past few days, the interest rate on inflation-protected 10-year U.S. bonds was 1.83%, which is close to most estimates of the economy’s sustainable growth rate. If you take the low end of such estimates, we could possibly face a debt spiral, but it would be a very slow-motion spiral. Put it this way: If r is 1.8, while g is only 1.6, stabilizing the debt ratio with debt at 100% of G.D.P. would require a primary surplus of 2% of G.D.P.; increase debt to 150%, and that required surplus would increase only to 3%.

Takeaways by Macro Roundup® AI

  1. The inflation-protected 10-year U.S. Treasury yield stood at 1.83%, close to most estimates of the economy's sustainable growth rate.
  2. A debt spiral requires the interest rate r to be significantly larger than the growth rate g, in which case rising debt accelerates further debt accumulation.
  3. With r at 1.8% and g at 1.6%, stabilizing the debt ratio at 100% of G.D.P. would require a primary surplus of 2% of G.D.P., rising only to 3% at 150% of G.D.P.

Related Articles:

  • Summers and Blanchard Debate the Future of Interest Rates — With expected inflation near 2.5%, a real interest rate of 1.5% to 2%, and some risk and term premium, short-term interest rates would average around 4%, one argument in a debate on the future of interest rates holds. If traditional spreads reassert themselves, longer-term rates would run about 1 percentage point higher, near 5%.
  • Interest Costs Will Grow the Fastest Over the Next 30 Years — 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.
  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.

AI Summary. US core inflation measures include the cost of owner-occupied housing by imputing what homeowners would pay to rent from themselves, while Europe's core measure leaves owner-occupied housing out entirely. Measured the European way, US inflation is already back to 2%, while European inflation remains well above target.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane notes that excluding the cost of housing, US inflation is already back at target, consistent with the fiscal theory of the price level.

Does excluding owner-occupied housing put US inflation back at 2%?

Core argument: Measured the way Europe's HICP core does it, excluding owner-occupied housing altogether, US inflation is already back to 2%, according to Jesper Rangvid.

CPI and PCE core inflation (orange and gray) are how the US calculates inflation less food and energy, but including housing. We do an economically sophisticated measure that tries to measure the "cost of housing" by rents for those who rent, plus how much a homeowner pays by "renting" the house to him or herself. You can quickly come up with the plus and minus of that approach, especially for looking at month to month trends in inflation. Europe in the "HICP core" line doesn't even try and leaves owner occupied housing out altogether. Jesper's point: if you measure inflation Europe's way, US inflation is already back to 2%. The Fed can hang out a "mission accomplished" banner. (Or, in my view, an "it went away before we really had to do anything serious about it" banner.) And, since he writes to a European audience, Europe has a long way to go.

Takeaways by Macro Roundup® AI

  1. Measured the way Europe's HICP core does it, excluding owner-occupied housing altogether, US inflation is already back to 2%, according to Jesper Rangvid.
  2. US CPI and PCE core inflation exclude food and energy but include housing, measuring rents paid by renters plus an imputed rent homeowners are treated as paying themselves.
  3. Rangvid argues that by the same HICP core standard that puts US inflation at 2%, European inflation still has a long way to go.

Related Articles:

  • Striking Similarities (and Differences) Between Inflation Today and In the 1970s — 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.

AI Summary. The authors estimate that measurement error has biased construction-sector productivity growth downward by at most 0.75pp a year, raising average growth from -0.5% to 0.2%. Even adjusted, construction productivity growth remains about 1pp below the next-lowest major industry and more than 1.5pp below the nonfarm business sector.

Daniel Garcia and Raven Molloy Federal Reserve Board
Date Posted:

A @FederalReserve working paper argues that the decline in construction productivity is largely a mismeasurement issue and the sector’s productivity was “essentially flat” between 1987 and 2019.

Does measurement error explain weak construction productivity growth?

Core argument: The authors estimate mismeasurement has biased construction-sector productivity growth downward by at most 0.75pp per year, raising average 1987–2019 growth from -0.5% to +0.2%.

We find that mismeasurement error has biased construction-sector productivity growth downward by 3⁄4pp per year at the very most. This brings an estimate of average productivity growth from 1987 to 2019 up to positive territory, but just barely (from negative 0.5% to positive 0.2%), and still about 1pp below productivity growth of the next-lowest major industries and more than 11⁄2pp below the average for the nonfarm business sector. Consequently, we conclude that productivity growth may well have been quite low in the construction industry, even if it has not been as low as implied by the official statistics. While this estimated growth rate is higher than the growth rate of the published data, it does not change the qualitative result that productivity growth in this sector has been quite low. And our estimate of productivity growth in the construction sector remains much lower than in other industries.

Takeaways by Macro Roundup® AI

  1. The authors estimate mismeasurement has biased construction-sector productivity growth downward by at most 0.75pp per year, raising average 1987–2019 growth from -0.5% to +0.2%.
  2. Even after correcting for measurement error, the authors find construction productivity growth remains about 1pp below the next-lowest major industries and more than 1.5pp below the nonfarm business sector average.
  3. The authors conclude that productivity growth in construction may well have been quite low, even if not as low as official statistics imply.

Related Articles:

  • The Strange and Awful Path of Productivity in the U.S. Construction Sector — 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.
  • Construction Industry Has Work, Needs More Workers — U.S. nonresidential construction spending reached $982bn, nearly 17% higher than a year earlier, while nonresidential construction employment rose 3.3%, or 149,100 workers. Contractors are ramping up hiring of entry-level laborers to compensate for shortages of other workers, and these less productive hires are contributing to bigger backlogs and longer job completion times.

AI Summary. Scientists at the Lawrence Livermore National Laboratory achieved net energy gain in a fusion reaction for a second time, with preliminary results indicating the experiment produced a higher energy output than the first ignition.

Tom Wilson and Alice Hancock Financial Times
Date Posted:

American scientists at Lawrence Livermore National Laboratory have repeated their achievement of net energy gain in a fusion reaction.

Can scientists reliably repeat net energy gain from fusion?

Core argument: Scientists at the Lawrence Livermore National Laboratory achieved net energy gain in a fusion reaction for the second time in a July 30 experiment, producing a higher energy output than the December ignition result, according to three people with knowledge of the preliminary results.

US government scientists have achieved net energy gain in a fusion reaction for the second time. Researchers at the federal Lawrence Livermore National Laboratory in California, who achieved ignition for the first time last year, repeated the breakthrough in an experiment on July 30 that produced a higher energy output than in December, according to three people with knowledge of the preliminary results. The improved result at NIF, coming “only eight months” after the initial breakthrough, was a further sign that the pace of progress was increasing, said one of the people with knowledge of the results.

Takeaways by Macro Roundup® AI

  1. Scientists at the Lawrence Livermore National Laboratory achieved net energy gain in a fusion reaction for the second time in a July 30 experiment, producing a higher energy output than the December ignition result, according to three people with knowledge of the preliminary results.
  2. The repeat ignition at the National Ignition Facility came eight months after the first breakthrough, which one person with knowledge of the results said was a further sign that the pace of progress was increasing.

Related Articles:

  • How US Scientists Moved One Step Closer to Dream of Fusion Power — A US fusion experiment produced about 3.15 megajoules of energy from 2.05 megajoules delivered by its lasers, achieving energy gain long seen as a key step toward commercial fusion power. That comparison excludes the 330 megajoules of electricity drawn to power each shot, and scientists estimate commercial fusion requires reactions yielding 30x to 100x the energy put in.
  • When Will Fusion Be Ready for Prime Time? Watch These Three Numbers — Fusion progress is tracked by Q, the ratio of energy released to energy used: one experiment delivered 3.15 megajoules from 2.05 megajoules of laser energy, a Q of about 1.5, but the full reactor consumed roughly 300 megajoules, putting whole-system Q near 0.01, about 1% of break-even.
  • Tech Billionaires Bet on Fusion as Holy Grail for Business — Private fusion companies have raised more than $5bn, with seven firms raising at least $200m each, and roughly 75% of that fundraising occurring since 2021. Improvements in large-scale machine learning have sped up experiments and helped several companies reach or approach the extreme temperatures and pressures fusion reactions require.

AI Summary. China's state broadcaster aired an eight-episode documentary series, Zhu Meng ("chasing dreams"), showing People's Liberation Army personnel pledging readiness to fight "at any second" and to sacrifice themselves, including a stealth fighter pilot vowing to launch a suicide attack if necessary. The series signals Beijing's preparation for an attack on Taiwan.

Liu Zhen South China Morning Post
Date Posted:

.@SCMPNews reports Chinese state media is airing a high-profile documentary that highlights the PLA’s willingness to fight and die in pursuit of “reunification.”

.@SCMPNews reports Chinese state media is airing a high-profile documentary that highlights the PLA’s willingness to fight...

Is China signaling military readiness to attack Taiwan through state television?

Core argument: China's state broadcaster CCTV aired the eight-episode documentary series Zhu Meng ("chasing dreams") to mark the People's Liberation Army's 96th anniversary, portraying military personnel as ready to fight "at any second.".

Beijing is trying to send strong signals about its preparation for an attack on Taiwan, with People’s Liberation Army soldiers pledging to sacrifice themselves. The pledges are part of the eight-episode documentary series Zhu Meng, or “chasing dreams”, aired on state broadcaster CCTV from Tuesday to mark the PLA’s 96th anniversary and show the readiness of military personnel to fight “at any second”. In one instance, a pilot in one of the PLA’s most advanced stealth fighter jets vows to launch a suicide attack if necessary.

Takeaways by Macro Roundup® AI

  1. China's state broadcaster CCTV aired the eight-episode documentary series Zhu Meng ("chasing dreams") to mark the People's Liberation Army's 96th anniversary, portraying military personnel as ready to fight "at any second.".
  2. PLA soldiers pledge in Zhu Meng to sacrifice themselves, with a pilot of one of the PLA's most advanced stealth fighter jets vowing to launch a suicide attack if necessary.
  3. Beijing is seeking to send strong signals through the series about its preparation for an attack on Taiwan.

Tuesday, August 8, 2023

AI Summary. A model forecast based on metro-area data projects that year-over-year shelter inflation will continue to slow and may turn negative, which would be the most severe contraction in shelter inflation since the 2007-09 financial crisis. Shelter is a major component of overall inflation, so such a turnaround would have important implications for headline inflation.

Augustus Kmetz, Schuyler Louie and John Mondragon Federal Reserve Bank of San Francisco
Date Posted:

A model from the @sffed forecasts “year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024.”

Will shelter inflation keep slowing and turn negative?

Core argument: The baseline forecast, built from the average of cumulative shelter inflation forecasts at the CBSA level, projects year-over-year shelter inflation slowing through late 2024 and potentially turning negative by mid-2024.

The dashed line presents our baseline forecast of year-over-year shelter inflation over the next 18 months based on the average of cumulative shelter inflation forecasts at the CBSA level. Blue shading shows the area in which 95% of the model’s out-of-sample forecast errors fall, indicating the range of confidence regarding the accuracy of our model estimates. The solid line plots actual year-over-year shelter inflation. Our baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024. This would represent a sharp turnaround in shelter inflation, with important implications for the behavior of overall inflation. The deflationary component of this forecast would be the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09.

Takeaways by Macro Roundup® AI

  1. The baseline forecast, built from the average of cumulative shelter inflation forecasts at the CBSA level, projects year-over-year shelter inflation slowing through late 2024 and potentially turning negative by mid-2024.
  2. The forecast's deflationary component would mark the most severe contraction in shelter inflation since the Global Financial Crisis of 2007–09, with implications for the behavior of overall inflation.
  3. Blue shading on the forecast chart shows the area in which 95% of the model's out-of-sample forecast errors fall, indicating the range of confidence regarding the accuracy of the model estimates.

Related Articles:

  • Rangvid On Housing Inflation — US core inflation measures include the cost of owner-occupied housing by imputing what homeowners would pay to rent from themselves, while Europe's core measure leaves owner-occupied housing out entirely. Measured the European way, US inflation is already back to 2%, while European inflation remains well above target.
  • New Tenant Repeat Rent Index — Immigrants represent 16% of US inventors but produced 23% of total innovation output as measured by patent counts, citations, and the economic value of patents. The authors estimate immigrants account for 36% of aggregate innovation, two-thirds of which comes from their spillover effects on native-born collaborators.

AI Summary. Internal Revenue Service migration data show net migration subtracted more than $68bn of taxable income from large urban counties in a single year, about 2% of their total, while adding to taxable income in all other county types. Manhattan lost over $16bn and San Francisco over $8bn, or 20%.

Connor O’Brien Economic Innovation Group
Date Posted:

Since the start of the pandemic major urban counties’ federal tax base has declined by at least $68B, with large declines in San Francisco and New York City. @cojobrien

How much taxable income did large urban counties lose to migration?

Core argument: IRS data show net migration subtracted more than $68 billion of Adjusted Gross Income from large urban counties' aggregate taxable income between 2020 and 2021, equivalent to nearly 2% of those counties' total taxable incomes.

The country’s large urban areas were hit hard by the pandemic and subsequent economic recovery on a number of fronts. Between 2020 and 2021, IRS data shows that net migration subtracted more than $68 billion (Adjusted Gross Income, or AGI) from large urban counties’ aggregate taxable income. Meanwhile migration added to taxable income in all other types of counties, even smaller urban peers. The scale of decline in large urban areas was equivalent to nearly two percent of total taxable incomes in such counties. In contrast, newcomers to rural counties have added more than 1.5% to taxable income in each of 2020 and 2021. Manhattan alone lost more than $16 billion in federally-taxable income (spread across more than 37,000 returns) through net migration, equivalent to more than 13% of remaining residents’ combined taxable incomes. Net migration out of San Francisco left that city’s federal income tax base more than $8 billion—or 20% —smaller between 2020 and 2021 alone.

Takeaways by Macro Roundup® AI

  1. IRS data show net migration subtracted more than $68 billion of Adjusted Gross Income from large urban counties' aggregate taxable income between 2020 and 2021, equivalent to nearly 2% of those counties' total taxable incomes.
  2. Manhattan lost more than $16 billion in federally-taxable income across more than 37,000 returns through net migration, equivalent to more than 13% of remaining residents' combined taxable incomes.
  3. Net migration left San Francisco's federal income tax base more than $8 billion, or 20%, smaller between 2020 and 2021, while newcomers added more than 1.5% to rural counties' taxable income in each of 2020 and 2021.

Related Articles:

  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.
  • Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets — An assessment of about 380 U.S. metro areas ranked Nashville, Tennessee as the country's hottest job market, followed by Austin, Texas and Jacksonville, Florida. The rankings were based on five factors: the unemployment rate, labor-force participation rate, changes in employment levels, labor-force size, and wages.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

AI Summary. The US Treasury plans to issue somewhat more debt at each auction and use part of the proceeds to buy back older securities, tilting the outstanding stock toward more liquid new issues. Such a program could later be used to influence financial conditions, for example by issuing short-dated debt to buy longer-dated debt.

Joseph Wang Fed Guy Blog
Date Posted:

Treasury’s new buyback program will allow the Treasury to “add and remove duration into the market,” an ability previously only held by the Fed. @FedGuy12

Can Treasury buybacks become a tool for influencing financial conditions?

Core argument: Treasury plans to issue slightly more debt at each auction and use a portion of the proceeds to buy back older securities, tilting the composition of outstanding Treasuries toward more liquid new issues.

Treasury plans to issue a bit more debt at each auction with the understanding a portion of the proceeds would be used to purchase old debt. In effect, the composition of Treasuries outstanding would be tilted towards the more liquid new issues. The program could one day be deployed to influence monetary conditions. For example, Treasury could effectively ease financial conditions by issuing short dated debt to purchase longer dated debt. There is no indication of this today, but treasuries and the central banks do not always have the same goal, and conflicts between the two are common in history.

Takeaways by Macro Roundup® AI

  1. Treasury plans to issue slightly more debt at each auction and use a portion of the proceeds to buy back older securities, tilting the composition of outstanding Treasuries toward more liquid new issues.

AI Summary. Denying Trump the Republican presidential nomination could alienate the roughly one-third of Republican voters who strongly support him and depress their turnout in Senate races, while the quarter who vehemently oppose him would likely still back Republicans down ballot. A different nominee might improve presidential odds but imperil Republican hopes of retaking the Senate.

Chris Stirewalt American Enterprise Institute
Date Posted:

.@ChrisStirewalt argues that MAGA base turnout may be key to 10 competitive 2024 Senate races: only 2 are currently held by Republicans and half are in states Trump won in 2020.

Does changing the presidential nominee threaten a party's Senate chances?

Core argument: Denying Trump the Republican nomination risks alienating the one-third of Republican voters who strongly support him, who might not turn out for Senate races with Trump off the ballot.

To deny Trump the nomination, even if unsuccessful, could alienate the 1/3 of Republican voters who are strong supporters of Trump. They might not show up for Senate races without Trump on the ballot. Even if the quarter of Republicans who vehemently opposed Trump vote against Trump, they will [likely] revert to the GOP down ballot. That’s what happened in 2020. A nominee other than Trump might have a better chance of winning the presidency but could imperil hopes of winning back the Senate. A lot of Republicans would be okay with that outcome: Trump gets his comeback shot, loses, but does so with enough clout in Congress to rein in the Democratic president. And if Trump pulls off an upset, he does so with a Republican Senate and probably the House. But, given the narrowness of the current GOP House majority, if Trump gets thrashed in the general election, it could deliver both chambers of Congress and the White House for Democrats.

Takeaways by Macro Roundup® AI

  1. Denying Trump the Republican nomination risks alienating the one-third of Republican voters who strongly support him, who might not turn out for Senate races with Trump off the ballot.
  2. The quarter of Republicans who vehemently oppose Trump would likely vote against him but revert to the GOP down ballot, as happened in 2020.
  3. A non-Trump nominee might have a better chance of winning the presidency but could imperil Republican hopes of retaking the Senate, while a lopsided Trump defeat could hand Democrats both chambers and the White House given the narrow GOP House majority.

Related Articles:

  • For Some Key Voters, Trump Has Become Toxic — The number of white Americans without college degrees, a group that backed Donald Trump by 67% to 32%, has fallen by 2.1m, while the number of white college graduates, a constituency that narrowly favored Joe Biden, has grown by 13.3m. These demographic shifts work against Republican candidates.
  • The Road to A Political Realignment in American Politics — College-educated voters are now more likely to identify as Democrats while those without degrees back Republicans, with educational attainment increasingly correlated with views on abortion, LGBTQ+ rights, and religion's relationship to government. This sorting leaves most states politically uncompetitive, with eight states near the national average in education levels holding 97 electoral votes in play.
  • What Happened In 2022 — Young voters aged 18–29 backed Democrats by 65%, and in heavily contested states turnout among those eligible in two consecutive elections rose 6%. Women voters, for whom abortion rights were often the top issue, favored Democrats in close races, while "MAGA" Republicans underperformed in contested Senate, gubernatorial, and congressional contests.

AI Summary. Chipmakers have announced more than $200bn of investments in America, including $40bn from TSMC in Arizona, $17bn from Samsung in Texas, and $40bn from Intel in Arizona and Ohio. Even if all planned investments materialize, American output of cutting-edge chips would meet barely a third of domestic demand.

Economist Staff The Economist
Date Posted:

If all planned investment in domestic chipmaking comes online, by 2025 the US will produce enough cutting-edge chips to meet only 1/3 of domestic demand.

Will billions in new chip plants cover America's advanced chip demand?

Core argument: Chipmakers have announced more than $200bn of investments in the United States, with American factories set to produce 18% of the world's leading-edge chips by 2025.

Chipmakers have announced more than $200bn-worth of investments in America. By 2025 American chip factories will be churning out 18% of the world’s leading-edge chips. TSMC is splurging $40bn on two fabs in Arizona. Samsung of South Korea is investing $17bn in Texas. Intel, America’s chipmaking champion, will spend $40bn on four fabs in Arizona and Ohio. If all the planned investments materialise, America will produce enough cutting-edge chips to meet barely a third of domestic demand for these. Apple will keep sourcing high-end processors for its iPhones from Taiwan. So, in all likelihood, will America’s nascent AI-industrial complex.

Takeaways by Macro Roundup® AI

  1. Chipmakers have announced more than $200bn of investments in the United States, with American factories set to produce 18% of the world's leading-edge chips by 2025.
  2. TSMC is spending $40bn on two Arizona fabs, Intel $40bn on four fabs in Arizona and Ohio, and Samsung of South Korea $17bn in Texas.
  3. If all planned investments materialise, America will produce enough cutting-edge chips to meet barely a third of domestic demand, with Apple continuing to source high-end iPhone processors from Taiwan.

Related Articles:

  • Can Intel Become The Chip Champion The US Needs? — The US Chips Act committed $52bn in direct semiconductor manufacturing and research subsidies plus an estimated $24bn in tax credits over eight years, with Intel potentially receiving up to $12bn for new US facilities. Intel's planned plants in Arizona, Ohio and Germany have already reached around $60bn in first-phase costs.
  • TSMC Delays Start of First Arizona Chip Factory, Citing Worker Shortage — Taiwan Semiconductor Manufacturing Company said a shortage of skilled workers is hampering construction of its first Arizona chip factory, pushing mass production of 4-nanometer chips to 2025 from a previously stated 2024, and may require temporarily bringing in experienced technicians from Taiwan. The company expects to invest $40bn in Arizona.
  • The Extreme Shortage of High IQ Workers — Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.

AI Summary. Average global sea surface temperatures have risen by just over 0.1C (0.2F) per decade since 1970, about half the pace of the atmosphere, with the increase over the past year closer to 0.2C (0.4F) and far more intense marine heatwaves in some regions. Europe's Copernicus Climate Change Service reported a record average sea surface temperature just short of 21C (70F).

Clive Cookson Financial Times
Date Posted:

Heatwaves are currently impacting 44% of the oceans up from a 10% mean. NOAA forecasts 50% of the oceans will be experiencing heatwave conditions during September and October.

Are ocean temperatures rising faster than their long-term trend?

Core argument: Global average sea surface temperatures have risen by just over 0.1C/0.2F per decade since 1970, about half the pace of atmospheric warming, with the increase over the past year closer to 0.2C/0.4F.

Average sea surface temperatures across the globe have been rising by just over 0.1C/0.2F per decade since 1970 — about half as fast as the atmosphere. The overall increase in the past year is closer to 0.2C/0.4F, with much more intense marine heatwaves in some regions. On August 1, average global sea surface temperatures reached an all-time high just short of 21C/70F, Europe’s Copernicus Climate Change Service says. This record is particularly disconcerting because March is usually the hottest month for the world’s oceans.

Takeaways by Macro Roundup® AI

  1. Global average sea surface temperatures have risen by just over 0.1C/0.2F per decade since 1970, about half the pace of atmospheric warming, with the increase over the past year closer to 0.2C/0.4F.
  2. Europe's Copernicus Climate Change Service reports that average global sea surface temperatures hit an all-time high just short of 21C/70F on August 1, a record made more disconcerting because March is usually the oceans' hottest month.
  3. Marine heatwaves have been much more intense in some regions than the global rise in sea surface temperatures.

Related Articles:

  • What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet — The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.
  • Warming Could Push the Atlantic Past a ‘Tipping Point’ This Century — New research projects that the Atlantic Meridional Overturning Circulation, the network of ocean currents shaping North Atlantic climate, could collapse around midcentury as human-driven warming slows it. A much weaker circulation could cool much of the Northern Hemisphere, speed sea-level rise along North American and European coasts, and reduce rainfall in Africa's Sahel and Asian monsoon regions.
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.

AI Summary. A volcanic eruption that injected large amounts of water vapor — a strong greenhouse gas — into the stratosphere is estimated to have raised surface temperatures by more than 1.5°C across large regions for several years, while cooling some areas by close to 1°C. The authors suggest a possible link to tropical Pacific sea surface temperatures that warrants further investigation.

Martin Jucker, Chris Lucas and Deepashree Dutta Preprint
Date Posted:

New research suggests water vapor from a recent volcanic eruption is a major factor in the recent uptick in global temperature. The research suggests the impact will persist over a decade.

Can a volcanic water vapor injection warm surface temperatures for years?

Core argument: The study finds that a Hunga Tonga-Hunga Ha'apai-like injection of water vapor into the stratosphere raised surface temperatures by over 1.5°C across large regions for several years, while some areas cooled by close to 1°C.

Volcanic eruptions typically cool the Earth's surface by releasing aerosols which reflect sunlight. However, a recent eruption released a significant amount of water vapor-a strong greenhouse gas-into the stratosphere with unknown consequences. This study examines the aftermath of the eruption and reveals that surface temperatures across large regions of the world increased by over 1.5°C for several years, although some areas experience cooling close to 1°C. Additionally, the research suggests a potential connection between the eruption and sea surface temperatures in the tropical Pacific, which warrants further investigation.

Takeaways by Macro Roundup® AI

  1. The study finds that a Hunga Tonga-Hunga Ha'apai-like injection of water vapor into the stratosphere raised surface temperatures by over 1.5°C across large regions for several years, while some areas cooled by close to 1°C.
  2. Unlike volcanic eruptions that typically cool the surface by releasing sunlight-reflecting aerosols, the Hunga Tonga-Hunga Ha'apai eruption released a significant amount of water vapor, a strong greenhouse gas, into the stratosphere.
  3. The research suggests a potential connection between the Hunga Tonga-Hunga Ha'apai eruption and sea surface temperatures in the tropical Pacific that warrants further investigation.

Related Articles:

  • What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet — The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.
  • Warming Could Push the Atlantic Past a ‘Tipping Point’ This Century — New research projects that the Atlantic Meridional Overturning Circulation, the network of ocean currents shaping North Atlantic climate, could collapse around midcentury as human-driven warming slows it. A much weaker circulation could cool much of the Northern Hemisphere, speed sea-level rise along North American and European coasts, and reduce rainfall in Africa's Sahel and Asian monsoon regions.
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.