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 14, 2023

AI Summary. The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

David Mericle Goldman Sachs
Date Posted:

.@GoldmanSachs baseline forecast includes a rate cut in Q2 2024 with a terminal fed funds rate of 3-3.25% but notes a rising likelihood the Fed holds rates steady.

Why might the Fed hold off on cutting interest rates?

Core argument: The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.

Why might the FOMC not cut? The simplest reason is that inflation might not come down quite enough. Another possible reason is that even if it does, if GDP growth is above potential, the unemployment rate is pushing below its 50-year low, and financial conditions have eased further on enthusiasm about a soft landing, then stimulating an already-strong economy by cutting might seem like an unnecessary risk, especially with the memory of the recent inflation surge still fresh. In that scenario, the FOMC could say that the short-run neutral rate is higher than common estimates of the medium-run neutral rate, and as a result the monetary policy stance is actually not so restrictive and the need to cut is not so immediate.

Takeaways by Macro Roundup® AI

  1. The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.
  2. Even if inflation falls, GDP growth above potential, unemployment pushing below its 50-year low, and financial conditions eased on soft-landing enthusiasm could make cutting rates for an already-strong economy seem an unnecessary risk after the recent inflation surge.
  3. The FOMC could say the short-run neutral rate is higher than common estimates of the medium-run neutral rate, making the policy stance less restrictive and the need to cut less immediate.

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 Evolution of Short-Run r* After The Pandemic — A model estimates that the short-run neutral real interest rate — the rate consistent with the economy operating at potential — has increased notably, to some extent outpacing the large increase in the policy rate. The model attributes this change mainly to financial shocks, reflecting financial conditions such as corporate spreads remaining resilient despite the higher policy rate.
  • 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.

AI Summary. Higher costs of capital following Federal Reserve rate increases have pushed more companies into bankruptcy, as some firms cannot obtain new loans or refinance existing debt. The author argues this rise in bankruptcies will continue as long as interest rates stay high, which is the intended mechanism for slowing the economy to return inflation to 2%.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes an uptick in bankruptcy filings since the start of the hiking cycle, consistent with his view that a default cycle is underway.

Are higher interest rates driving more companies into bankruptcy?

Core argument: Since the Federal Reserve began raising rates in March 2022, higher costs of capital have pushed a growing number of companies into bankruptcy, the intended effect of slowing the economy to return inflation to 2%.

The Fed started raising rates in March 2022, and the effects are clear. Higher costs of capital have pushed more and more companies into bankruptcy. This is the idea behind raising rates: to slow the economy down with the ultimate goal of getting inflation back to 2%. Every day there are companies that cannot get new loans or refinance, and this trend higher in bankruptcies will continue as long as interest rates stay high.

Takeaways by Macro Roundup® AI

  1. Since the Federal Reserve began raising rates in March 2022, higher costs of capital have pushed a growing number of companies into bankruptcy, the intended effect of slowing the economy to return inflation to 2%.

Related Articles:

  • A Default Cycle Has Started — Default rates on high-yield bonds and leveraged loans are rising as more companies default under a higher cost of capital, with the Federal Reserve signaling interest rates will stay at these levels for a couple of years. Tighter financing conditions are the channel through which monetary policy restrains the economy and capital markets.
  • 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.
  • Furman On Jobs Report — The unemployment rate fell to 3.5% and has stayed within a 3.4%–3.7% band for 17 consecutive months, while recovery in the age-adjusted participation rate has pushed the employment-population ratio for prime-age workers aged 25–54 above its pre-pandemic level. Average hourly earnings growth has picked back up from a 3.5% annual rate to about 5%.

AI Summary. Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that the “slight deterioration” in credit quality is a story of mean reversion, not the start of a default cycle.

Do weaker credit metrics signal normalization rather than financial distress?

Core argument: Excluding Treasuries, over $30t of debt securities are outstanding, and credit spreads have widened from their 2021 lows while remaining within historical ranges.

Excluding Treasuries, there are over $30t of debt securities outstanding. Credit spreads have widened since the lows of 2021, but remain within historical ranges. The slight deterioration seen recently in credit quality across a range of metrics most likely indicates normalization rather than the beginning of financial distress. Looking at bankruptcy filings, filings notably increased in 2023 but only from historically low levels. Given elevated inflation, nominal GDP growth remains high that thus supportive of further revenue growth to support interest expense payments. Interest expense burdens may also further ease next year as the Fed potentially cuts rates next year in line with declining inflation. The overall picture thus suggests a continued benign credit environment.

Takeaways by Macro Roundup® AI

  1. Excluding Treasuries, over $30t of debt securities are outstanding, and credit spreads have widened from their 2021 lows while remaining within historical ranges.
  2. The slight deterioration in credit quality across a range of metrics most likely indicates normalization rather than the onset of financial distress, with bankruptcy filings rising notably in 2023 only from historically low levels.
  3. Elevated inflation keeps nominal GDP growth high and supportive of revenue growth to cover interest expense, and interest burdens may ease further if the Fed cuts rates in line with declining inflation.

Related Articles:

  • A Default Cycle Has Started — Default rates on high-yield bonds and leveraged loans are rising as more companies default under a higher cost of capital, with the Federal Reserve signaling interest rates will stay at these levels for a couple of years. Tighter financing conditions are the channel through which monetary policy restrains the economy and capital markets.
  • How Is the Corporate Bond Market Functioning as Interest Rates Increase? — The Investment Grade Corporate Bond Market Distress Index has risen only modestly during the current interest-rate tightening cycle and has recently trended sideways, with its peak not substantially above the level reached during the earlier 2015 tightening cycle.
  • Settling Into 4% Inflation? — 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.

AI Summary. Just 16 of the 100 commuter zones hit hardest by Chinese import competition have hosted any newly announced industrial projects, and those areas are projected to receive 11.4% of project value, or $57.4bn, of which a single IBM announcement accounted for $20bn. The White House counters that those zones hold only 4% of the US population.

Shawn Donnan Bloomberg
Date Posted:

A Bloomberg analysis shows the recent boom in American manufacturing investment is largely bypassing areas that bore the brunt of the “China Shock.” @sdonnan

Is the new factory boom reaching the communities hurt by import competition?

Core argument: Only 16 of the 100 US commuter zones hit hardest by the China Shock have been sites of any newly announced industrial projects over the past two years.

The new industrial boom has mostly bypassed the areas hit hardest by the China Shock. Just 16 of the 100 most affected commuter zones have been the sites of any newly announced projects over the past two years. These areas are projected to receive just 11.4% of the value of those projects, or $57.4 billion. And, of that sum, a lone IBM announcement accounted for $20 billion. White House spokesman Michael Kikukawae says those zones represent only 4% of the US population, so the analysis understates their impact.

Takeaways by Macro Roundup® AI

  1. Only 16 of the 100 US commuter zones hit hardest by the China Shock have been sites of any newly announced industrial projects over the past two years.
  2. The 100 commuter zones most affected by the China Shock are projected to receive 11.4% of announced project value, or $57.4 billion, of which a single IBM announcement accounts for $20 billion.
  3. White House spokesman Michael Kikukawae says the hardest-hit zones contain only 4% of the US population, so the analysis understates the boom's impact on them.

Related Articles:

  • The Geography of Work — Evidence presented here challenges the widely accepted view that deindustrialization drove the postwar decline in U.S. male labor force participation, and suggests the manufacturing job losses tied to China's entry into the World Trade Organization were temporary rather than lasting.
  • Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock — U.S. local labor markets more exposed to import competition from China saw substantially larger net reductions in their foreign-born populations, with no significant reduction among native-born residents. Within exposed areas, foreign-born and native-born workers had comparably sized declines in employment-to-population ratios.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. A Financial Times analysis found that more than 80% of pledged investment in large-scale clean energy and semiconductor manufacturing is destined for Republican congressional districts. The analysis attributes this partly to those districts' available land and cheap labor, and to state-level tax breaks and subsidies in states such as Georgia and Ohio.

Amanda Chu, Oliver Roeder, and Myles McCormick Financial Times
Date Posted:

.@FT finds that over 80% of large-scale clean energy and semiconductor manufacturing investment pledged since last year’s Inflation Reduction and Chips Acts is destined for Republican congressional districts.

Are Republican districts capturing most clean energy and semiconductor investment?

Core argument: More than 80% of investment pledged for large-scale clean energy and semiconductor manufacturing since passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, according to a Financial Times analysis.

More than 80% of investment in large-scale clean energy and semiconductor manufacturing pledged since last year’s passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, a Financial Times analysis found. Republicans’ success in attracting investment is partly due to their districts often having large swaths of available land and cheap labour, but states such as Georgia and Ohio have also rolled out their own hefty tax breaks and subsidies to attract developers, including through roadshows in Europe and Asia.

Takeaways by Macro Roundup® AI

  1. More than 80% of investment pledged for large-scale clean energy and semiconductor manufacturing since passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, according to a Financial Times analysis.
  2. Republican districts' success in attracting clean technology investment stems partly from their large swaths of available land and cheap labour.
  3. States including Georgia and Ohio have offered their own tax breaks and subsidies to attract developers, including through roadshows in Europe and Asia.

Related Articles:

  • Small Towns Chase America’s $3 Trillion Climate Gold Rush — About $1tn in US federal tax incentives and loans for green energy is drawing a flood of corporate investment into rural counties and reshaping local economies. Estimates of the total private and public spending driven over the next decade range from several hundred billion dollars to roughly $3tn.
  • ‘Transformational Change’: Biden’s Industrial Policy Begins to Bear Fruit — Financial Times research identified more than 75 large-scale US manufacturing announcements following the passage of American semiconductor and clean-energy subsidy laws, with companies committing roughly $204bn to boost semiconductor and clean-tech production and promising at least 82,000 jobs. That is almost double the capital spending commitments made in those sectors two years earlier.
  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

AI Summary. China's share of U.S. goods imports fell to 13.3% in the first half of the year, down from a 2017 peak of 21.6% and the lowest since 2003. A group of 25 other Asian nations supplied 24.6% of U.S. imports, and Mexico and Canada now rank as the top U.S. trading partners.

Anthony DeBarros and Yuka Hayashi Wall Street Journal
Date Posted:

China accounted for 13.3% of U.S. goods imports during the first six months of 2023, below a peak of 21.6% for 2017. China’s share is currently at the lowest level since 2003.

Is China's share of U.S. goods imports declining?

Core argument: China accounted for 13.3% of U.S. goods imports in the first six months of this year, down from a 21.6% peak for all of 2017 and the lowest share since 12.1% in 2003.

China accounted for 13.3% of U.S. goods imports during the first six months of this year, below a peak of 21.6% for all of 2017. The current level is the lowest since 12.1% for the year in 2003, two years after China’s accession to the WTO. Starting in early 2019, China’s share of U.S. imports fell below the total share from a basket of 25 other Asian nations including India, Thailand, and Vietnam. That group of nations accounted for 24.6% of U.S. imports in the 12 months ending in June, compared with 14.9% for China, according to census data. When the dollar values of exports and imports are combined, Mexico is now the U.S.’s No. 1 trading partner, followed by Canada, pushing China to third place.

Takeaways by Macro Roundup® AI

  1. China accounted for 13.3% of U.S. goods imports in the first six months of this year, down from a 21.6% peak for all of 2017 and the lowest share since 12.1% in 2003.
  2. A basket of 25 other Asian nations including India, Thailand, and Vietnam accounted for 24.6% of U.S. imports in the 12 months ending in June, versus 14.9% for China, according to census data.
  3. Mexico is the U.S.'s largest trading partner by combined export and import values, followed by Canada, with China in third place.

Related Articles:

  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • Setser On China’s Trade Surplus — China's trade data show manufacturing exports sharply higher, pushing its trade surplus up even as its commodity import bill hit record levels. The author argues China's currency remains managed, so a weaker yuan alongside a large surplus reflects policymakers' judgment that they must sustain export growth relative to GDP to offset domestic weakness.
  • Sester On Kearney Reshoring Index — US imports from Southeast Asia have risen, but China's reported exports to the US exceed recorded US imports from China by about 10%, reflecting incentives to shift final assembly and to avoid tariffs. Trade data cannot show how much Chinese content is embedded in rising Southeast Asian imports.

AI Summary. The authors argue that with large marginal propensities to consume and low substitutability between energy and domestic goods, higher energy prices depress real incomes and cause a recession even without monetary tightening. Energy price subsidies can shield individual importers but raise world energy demand and prices, imposing negative externalities on other economies.

Adrien Auclert, Hugo Monnery, Matthew Rognlie and Ludwig Straub National Bureau of Economic Research
Date Posted:

Using a model of energy price shocks, @ludwigstraub @a_auclert find that an increase in energy prices for energy-importing economies lowers aggregate demand and depresses real incomes.

Do energy price subsidies shift costs onto other economies?

Core argument: When marginal propensities to consume are large and the elasticity of substitution between energy and domestic goods is low, higher energy prices depress real incomes and cause a recession even without monetary tightening.

When MPCs [marginal propensities to consume] are realistically large and the elasticity of substitution between energy and domestic goods is realistically low, there is a direct link between high energy prices and aggregate demand: increases in energy prices depress real incomes and cause a recession, even if the central bank does not tighten monetary policy. When nominal and real wage rigidities are both present, imported energy inflation can spill over to wage inflation through a wage-price spiral; this, however, does not mitigate the decline in real wages.. Fiscal policy, especially energy price subsidies, can isolate individual energy importers from the shock, but it raises world energy demand and prices, imposing large negative externalities on other economies.

Takeaways by Macro Roundup® AI

  1. When marginal propensities to consume are large and the elasticity of substitution between energy and domestic goods is low, higher energy prices depress real incomes and cause a recession even without monetary tightening.
  2. With both nominal and real wage rigidities present, imported energy inflation can spill over into wage inflation through a wage-price spiral, which does not mitigate the decline in real wages.
  3. Energy price subsidies can isolate an individual energy importer from the shock, but they raise world energy demand and prices, imposing large negative externalities on other economies.

Related Articles:

  • The Many Channels Of Firms’ Adjustments To Energy Shocks: Evidence From France — Using French firm data, the authors estimate that a 10% rise in electricity prices lowers production by 1.6% and employment by 1.5%, while firm-level energy efficiency rises and profits fall modestly or only among the most gas-intensive firms. These negative effects diminish over time as firms adapt.
  • Europe: Well-Positioned To Get Through Next Winter Without Major Gas Shortages — Under three scenarios — maintaining current import levels, a historically cold winter, or non-Russian imports falling back to their 2015–2021 average — Europe is projected to get through the coming winter without major natural gas shortages.
  • How Europe is Decoupling from Russian Energy — The European Union now imports more natural gas — and slightly more total energy by value, including oil, petroleum products and coal — from the United States than from Russia, following a buildout of US liquefied natural gas export capacity and a collapse in Russian gas supplies to Europe. The US became the world's largest exporter of liquefied natural gas.

AI Summary. Europe's trade surplus that emerged after the euro crisis has returned, with its distribution shifted as Germany's investment slump and flat consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since 1999, net fixed investment in Spain has exceeded Germany's despite Spain having half Germany's population.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes that Europe’s large current account surpluses are largely due to chronic German underinvestment in housing, public goods, and productive capacity.

How has the distribution of Europe's trade surplus shifted?

Core argument: Since the start of 1999, Spain has recorded more net fixed capital investment — buildings, equipment, R&D — than Germany, despite having half Germany's population and almost no net investment since 2010.

Trade surplus that had emerged in the wake of the euro crisis has returned with a vengeance, although the distribution of the surplus has shifted somewhat. At the European aggregate level, Germany’s investment slump and stagnant consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since the beginning of 1999, there has been more investment in fixed capital (buildings, equipment, R&D, etc) net of depreciation in Spain than in Germany, even though Spain has only half of Germany’s population and has had almost no net investment since 2010. There was just as much net investment in Italy from 1999 through 2011 as in Germany—and Italy was far from booming in the 2000s, as well as far smaller.

Takeaways by Macro Roundup® AI

  1. Since the start of 1999, Spain has recorded more net fixed capital investment — buildings, equipment, R&D — than Germany, despite having half Germany's population and almost no net investment since 2010.
  2. Europe's trade surplus, which emerged in the wake of the euro crisis, has returned with a shifted distribution, as Germany's investment slump and stagnant consumption were offset by building booms in Spain, Greece, and central and eastern Europe.
  3. Italy matched Germany's net fixed capital investment from 1999 through 2011, even though Italy is far smaller and was far from booming during the 2000s.

Related Articles:

  • The New Geopolitics of Global Finance — Trade surpluses of energy-exporting autocracies and China are projected to total roughly $1tn, with Russia's topping $250bn and Saudi Arabia's topping $200bn. Because these surplus countries are not adding to official foreign exchange reserves, private financial intermediaries globally must absorb U.S. Treasury bonds and the associated interest rate risk.
  • Germany’s Industrial Slowdown — German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.
  • Pettis On Pozsar — China's record trade surplus makes it more, not less, dependent on the world's willingness to hold dollars, since currency dominance requires allowing transparent foreign ownership of domestic assets and giving up control of capital and trade accounts. Because China's reserve accumulation runs indirectly through state-bank dollar purchases, whether its dollar holdings have fallen is unclear.

AI Summary. China has set a target of maintaining 120mn hectares of cultivated land, a level Beijing views as necessary for food self-sufficiency, and has reclaimed more than 170,000 hectares of farmland in a drive to cut reliance on imported food. Analysts say the effort reflects preparation for a scenario in which confrontation with the US disrupts global food supply chains.

Sun Yu Financial Times
Date Posted:

China has reclaimed at least 170,000 hectares of land since 2021 as part of a campaign to gain self-sufficiency in food supplies. Currently, ¾ of Chinese soybean supply comes from the US and Brazil.

Is China expanding farmland to reduce its reliance on imported food?

Core argument: Xi Jinping called for "hard measures that grow teeth" to maintain 120mn hectares of cultivated land in China, the level Beijing widely views as necessary to secure food self-sufficiency.

Xi Jinping said authorities must take “hard measures that grow teeth” to maintain 120mn hectares of cultivated land across the country — the level widely seen by Beijing as necessary to secure self-sufficiency. Authorities have reclaimed more than 170,000 hectares since 2021 as Beijing tries to reduce its reliance on imported food amid fears confrontation between China and the US could disrupt global supply chains. "China is preparing for the worst-case scenario in which it couldn’t buy any food from abroad”, said Yu Xiaohua, an agricultural economics professor at the University of Göttingen. “The authority is counting on the reclamation drive to improve the country’s grain self-sufficiency.”

Takeaways by Macro Roundup® AI

  1. Xi Jinping called for "hard measures that grow teeth" to maintain 120mn hectares of cultivated land in China, the level Beijing widely views as necessary to secure food self-sufficiency.
  2. Chinese authorities have reclaimed more than 170,000 hectares of farmland since 2021 as Beijing seeks to cut reliance on imported food amid fears that US-China confrontation could disrupt global supply chains.
  3. Yu Xiaohua, an agricultural economics professor at the University of Göttingen, said China is preparing for a worst-case scenario in which it could buy no food from abroad and is counting on reclamation to raise grain self-sufficiency.

Related Articles:

AI Summary. Researchers at the Chinese Academy of Sciences calculate that the extremely low frequency magnetic signal generated by the bubble trail of an advanced submarine could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude. The authors argue this offers a new approach to detecting and tracking submarines from long distances.

Stephen Chen South China Morning Post
Date Posted:

A well-regarded Chinese research center claims to have developed a new method of tracking American submarines. @SCMPNews

A well-regarded Chinese research center claims to have developed a new method of tracking American submarines. @SCMPNews

Can submarine bubble trails be detected from long distances?

Core argument: Researchers at the Chinese Academy of Sciences' Fujian Institute of Research on the Structure of Matter calculated that the extremely low frequency signal from a submarine's bubbles could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude.

Researchers from the Chinese Academy of Sciences’ Fujian Institute of Research on the Structure of Matter, found an ultra-sensitive magnetic detector could pick up traces of the most advanced submarine from long distances away. The result “provides a new solution for the detection and tracking of submarines”, according to the paper published on August 1 by the Chinese Journal of Ship Research. The journal is run by the China Ship Scientific Research Centre, which has a long and respected history of cutting-edge developments in ship and ocean engineering. The researchers calculated that the extremely low frequency (ELF) signal produced by a submarine’s bubbles could be stronger than the sensitivities of advanced magnetic anomaly detectors by three to six orders of magnitude.

Takeaways by Macro Roundup® AI

  1. Researchers at the Chinese Academy of Sciences' Fujian Institute of Research on the Structure of Matter calculated that the extremely low frequency signal from a submarine's bubbles could exceed the sensitivity of advanced magnetic anomaly detectors by three to six orders of magnitude.
  2. A paper published August 1 in the Chinese Journal of Ship Research found that an ultra-sensitive magnetic detector could pick up traces of the most advanced submarine from long distances, offering "a new solution for the detection and tracking of submarines".
  3. The Chinese Journal of Ship Research is run by the China Ship Scientific Research Centre, which has a long history of developments in ship and ocean engineering.

Related Articles:

  • Aukus Allies Unveil Plan to Supply Australia With Nuclear-Powered Submarines — The US, UK and Australia have unveiled a decades-long plan to supply Australia with nuclear-powered submarines, with the UK and Australia co-building a new design and each planning at least eight boats. Australia will also invest in US and UK shipyards to boost strained manufacturing capacity.
  • Nearly 40% of US Attack Submarines Are Out of Commission for Repairs — US Navy data show 18 of its 49 attack submarines — 37% — are out of commission for repairs because of naval shipyard delays, up from 28% and well above the 20% industry best practice. The report argues this leaves the US at a disadvantage against China's numerically larger fleet.
  • UK and Australia Urge Washington to Ease Secrecy Rules in Security Pact — The UK and Australia are pressing the US to ease secrecy rules that officials say are slowing cooperation on undersea capabilities and electronic warfare within their trilateral security pact. The obstacles include technology-transfer and arms-export licensing requirements and a classification barring information sharing with non-US nationals.

Tuesday, August 15, 2023

AI Summary. An analysis finds San Antonio, Dallas, and Orlando have the most constrained housing supply as strong labor markets attract residents, while St. Louis, Detroit, and Miami have the highest housing stock relative to population. Cities with lower housing supply are already seeing higher construction trends.

Anna Zhou Bank of America
Date Posted:

.@BankofAmerica reports that in Q2 ‘23 San Antonio, Dallas, and Orlando have the most constrained housing supplies as buoyant labor markets continue to attract people.

Which cities have the most constrained housing supply relative to population?

Core argument: Bank of America's analysis suggests San Antonio, Dallas, and Orlando had the most constrained housing supply in 2Q, as buoyant labor markets continue to attract people, while St. Louis, Detroit, and Miami appear to have the highest housing stock relative to population.

Our analysis suggests that in 2Q, San Antonio, Dallas, and Orlando have the most constrained housing supply as buoyant labor markets continue to attract people. St. Louis, Detroit, and Miami seem to have the highest housing stock relative to their population. The good news is that cities with lower housing supply are already seeing higher construction trends but if the current population dynamics are maintained there will continue to be a strong housing need in the growing parts of the country. Looking more broadly at population flow, Bank of America internal data suggests that in 2Q, 13 out of the 27 Metropolitan Statistical Areas (MSAs) we track continue to see positive year-over-year growth in population with Jacksonville and Columbus leading the gain. Charlotte, Nashville, and Las Vegas saw accelerating pace of increase in residents than in 1Q.

Takeaways by Macro Roundup® AI

  1. Bank of America's analysis suggests San Antonio, Dallas, and Orlando had the most constrained housing supply in 2Q, as buoyant labor markets continue to attract people, while St. Louis, Detroit, and Miami appear to have the highest housing stock relative to population.
  2. Bank of America internal data suggest 13 of the 27 Metropolitan Statistical Areas tracked saw positive year-over-year population growth in 2Q, led by Jacksonville and Columbus, with Charlotte, Nashville, and Las Vegas accelerating from 1Q.
  3. Cities with lower housing supply are already seeing higher construction trends, but Bank of America expects continued strong housing need in growing parts of the country if current population dynamics are maintained.

Related Articles:

  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.
  • What’s the Matter With Miami? — A significant share of Florida's population inflow is retirees, and while the overall U.S. population grew 7.4% from 2010 to 2020, the population aged 65 and older grew 38.6%. Because retirees spend money on local services, the influx of seniors creates jobs for younger adults as well.
  • 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.

AI Summary. Homelessness counts across more than 300 U.S. tracking entities are up roughly 11% from the prior year, which would be the largest recorded increase since comparable federal tracking began in 2007. Advocates for the homeless say high housing costs remain the biggest driver, taking a heavier toll as pandemic-era relief spending and eviction moratoriums wind down.

Jon Kamp and Shannon Najmabadi Wall Street Journal
Date Posted:

A @WSJ analysis finds that the number of homeless people in America jumped 11% vs. 2022. According to homeless advocates, this was driven by rising housing costs and the winding down of pandemic-era relief policies.

Are high housing costs driving a record rise in homelessness?

Core argument: U.S. homeless counts so far this year are running roughly 11% above 2022 levels, an increase that would be by far the biggest since the government began tracking comparable numbers in 2007; the next highest was a 2.7% jump in 2019.

The [homeless] data so far this year are up roughly 11% from 2022, a sharp jump that would represent by far the biggest recorded increase since the government started tracking comparable numbers in 2007. The next highest increase was a 2.7% jump in 2019, excluding an artificially high increase last year caused by pandemic counting interruptions. The Journal reviewed available data from more than 300 entities that count homeless people in areas ranging from cities to entire states, accounting for eight of every nine homeless people counted last year. The Journal’s tally thus far includes more than 577,000 homeless people. The biggest driver remains high housing costs, which are now taking a heavier toll following the wind down of pandemic-era relief spending and policies such as eviction moratoriums, according to advocates for the homeless.

Takeaways by Macro Roundup® AI

  1. U.S. homeless counts so far this year are running roughly 11% above 2022 levels, an increase that would be by far the biggest since the government began tracking comparable numbers in 2007; the next highest was a 2.7% jump in 2019.
  2. The Wall Street Journal reviewed available data from more than 300 entities counting homeless people in areas ranging from cities to entire states, covering eight of every nine homeless people counted last year and tallying more than 577,000 people.
  3. Advocates for the homeless attribute the increase chiefly to high housing costs, which are taking a heavier toll following the wind-down of pandemic-era relief spending and policies such as eviction moratoriums.

AI Summary. The share of Americans working or looking for work stands at 62.6%, nearly a percentage point below its pre-pandemic level, and the authors project the trend will decline another 1 percentage point over a decade. They attribute the projected decline to population composition, with more people entering older age groups that have low participation rates, outweighing rising educational attainment.

Andreas Hornstein, Marianna Kudlyak, Brigid Meisenbacher, and David Ramachandran Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database

Labor force participation is down 1pp since the start of the pandemic. A @sffed analysis finds that two-thirds of the decline was driven by changes in population, largely aging, and forecasts a further 1pp decline between 2022 and 2032.

Does an aging population drive labor force participation lower?

Core argument: The U.S. labor force participation rate stood at 62.6% in July 2023, almost 1 percentage point below its February 2020 pre-pandemic level.

The labor force participation (LFP) rate remains persistently low at 62.6% as of July 2023, almost a percentage point below its pre-pandemic level in February 2020. We project that the trend in the aggregate LFP rate will decline an additional 1pp btw 2022 and 2032. The projected decline comes entirely from changes in the population composition. Population aging looms large in this projection: we project the aggregate trend will decline as more of the population enters age groups with low participation rates. This is expected to more than offset the positive effect on LFP from the projected growth for people with higher educational attainment, as LFP tends to increase with education.

Takeaways by Macro Roundup® AI

  1. The U.S. labor force participation rate stood at 62.6% in July 2023, almost 1 percentage point below its February 2020 pre-pandemic level.
  2. The authors project the trend in aggregate labor force participation will decline an additional 1 percentage point between 2022 and 2032, coming entirely from changes in population composition.
  3. Population aging figures large in the projected decline as more of the population enters low-participation age groups, expected to more than offset the positive effect of projected growth in higher educational attainment, as participation tends to rise with education.

Related Articles:

  • Labor Market Indicators Are Historically Strong After Adjusting for Population Aging — After adjusting for population aging and gender composition, the U.S. employment-to-population ratio has returned to its pre-pandemic trend and the age-adjusted labor force participation rate matches rates last seen in 2001. The authors argue that on this basis the labor market is historically strong, with elevated and even record participation and employment measures.
  • Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men — Among US prime-age men without college degrees, a 10% rise in expected earnings is associated with a 0.12 percentage point lower labor force exit rate, while a 10% rise in peers' reference earnings is associated with a 0.13 percentage point higher exit rate, fully offsetting the earnings effect.
  • Where Are the Missing Gen Z Workers? — US labor-force participation for ages 25 to 54 reached 83.1%, surpassing its pre-pandemic peak, while participation rates for those ages 20 to 24 and over 55 remain well below pre-pandemic levels. More than 400,000 Americans in their 20s are missing from the labor force, a decline not explained by shifts in age composition.
  • “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.

AI Summary. Underlying US inflation has fallen by about one percentage point, far less than the roughly six-point decline in headline inflation, even as labor markets loosened mainly through fewer job openings rather than higher unemployment. If inflation does not fall painlessly to 2%, the Federal Reserve will need to be prepared to do more.

Jason Furman Project Syndicate
Date Posted:

.@jasonfurman argues that underlying inflation has fallen from 4-4.5% to 3-3.5% over the past year, driven by the fading of idiosyncratic pandemic-related factors, though a decline in labor market tightness is also contributing.

.@jasonfurman argues that underlying inflation has fallen from 4-4.5% to 3-3.5% over the past year, driven by the fading of...

Has underlying inflation fallen as much as headline inflation?

Core argument: Underlying US inflation has fallen by only about one percentage point, much less than the six-percentage-point decline in headline inflation.

Underlying inflation has fallen by only about one pp – much less than the six pp decline in headline inflation. Moreover, this has happened while labor markets – understood broadly – have loosened considerably, although in a relatively benign manner, with job openings falling instead of unemployment rising. It is not clear how much further this cost-free disinflation can go. And, in fact, today many of the temporary factors appear to be mitigating inflation rather than fueling it. If inflation does painlessly fall to 2%, we should celebrate – and engage in more serious soul-searching regarding the standard economic models. But if it does not, the US Federal Reserve will need to be prepared to go further to bring inflation down to an acceptable range.

Takeaways by Macro Roundup® AI

  1. Underlying US inflation has fallen by only about one percentage point, much less than the six-percentage-point decline in headline inflation.
  2. US labor markets have loosened considerably in a relatively benign manner, with job openings falling rather than unemployment rising, and it is unclear how much further this cost-free disinflation can go.
  3. Many temporary factors appear to be mitigating US inflation rather than fueling it, and the Federal Reserve will need to be prepared to go further if inflation does not fall painlessly to 2%.

Related Articles:

  • 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.
  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

AI Summary. Persistent per-worker income growth of about 5% a year is difficult to reconcile with forecasts of 2% inflation, since inflation reflects the gap between nominal spending growth and real production, and wages are the largest source of financing for consumer spending. Interest rates may therefore fall more slowly than market prices imply.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that current per-worker income growth of ~5% a year is inconsistent with ~2% inflation.

Is 5% income growth consistent with 2% inflation?

Core argument: Persistent per-worker income growth of ~5% a year is difficult to reconcile with any credible forecast of ~2% inflation, according to the author.

It remains extremely difficult for me to reconcile persistent per-worker income growth of ~5% a year with any credible forecast of ~2% inflation. Just as investors and policymakers were right to look through the “transitory” inflation of 2021-2022, they should also strip out the “transitory” disinflation of 2022-2023 to get a handle on where such pressures will settle in the years ahead. Since inflation is just the difference between changes in nominal spending and real production, that means focusing on wage trends: the largest and most reliable source of financing for consumer spending…This explains Fed officials’ continued focus on “softening” the job market via higher interest rates. That presents a risk that interest rates may not come down as quickly as implied by market prices, which in turn could affect other asset valuations.

Takeaways by Macro Roundup® AI

  1. Persistent per-worker income growth of ~5% a year is difficult to reconcile with any credible forecast of ~2% inflation, according to the author.
  2. Because inflation is the difference between changes in nominal spending and real production, the author argues the focus belongs on wage trends, the largest and most reliable source of financing for consumer spending.
  3. The author argues that investors and policymakers should strip out the "transitory" disinflation of 2022-2023, as they rightly looked through the "transitory" inflation of 2021-2022, and warns interest rates may not fall as quickly as market prices imply, which could affect other asset valuations.

Related Articles:

  • 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.
  • 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.
  • Rate Cuts — The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

AI Summary. China has said it will stop publishing youth unemployment data, which reached 21.3% and was omitted from a subsequent broader data release, alongside other data pointing to weakness in its economic recovery.

Thomas Hale Financial Times
Date Posted:

After reporting record 21.3% youth unemployment in June, China did not report the July figure in a wider data release on Tuesday and will stop publishing data on youth unemployment.

Is China halting youth unemployment reporting as its recovery weakens?

Core argument: China's youth unemployment rate hit 21.3% in June, a record, and the figure was omitted from the broader July data release.

China has said it will stop publishing data on youth unemployment, weeks after the gauge hit a record level, in a sign of mounting pressure on policymakers as new data pointed to weakness in the recovery of the world’s second-largest economy. Youth unemployment, which China began reporting in 2018, hit 21.3% in June, but the figure was not included in a wider data release for July on Tuesday.

Takeaways by Macro Roundup® AI

  1. China's youth unemployment rate hit 21.3% in June, a record, and the figure was omitted from the broader July data release.
  2. China will stop publishing youth unemployment data, a series it began reporting in 2018, weeks after the gauge reached its record level.
  3. China's halt to youth unemployment reporting coincides with data pointing to weakness in the recovery of the world's second-largest economy and signals mounting pressure on policymakers.

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.
  • Chinese Professor Says Youth Jobless Rate Might Have Hit 46.5% — A Peking University economist estimated in the financial magazine Caixin that China's youth jobless rate could have been as high as 46.5% if 16m non-students idle at home or dependent on parents were counted. The official rate, which counts only those actively seeking work, reached a record 21.3%.