Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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%.

Wednesday, August 16, 2023

AI Summary. The gap between jobs and available workers is trending down on fewer job openings even as unemployment stays low. A Goldman Sachs wage tracker has slowed from a peak of nearly 6% to a 4.5–5% range, with the Employment Cost Index and the Federal Reserve Bank of Atlanta's wage growth measure coming in soft.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius argues the labor market is softening via reduced job openings which should slow wage growth. @GoldmanSachs wage tracker has slowed to 4.5-5% from almost 6% in 2022.

Is wage growth slowing as job openings decline?

Core argument: Goldman Sachs's wage tracker has slowed from a peak of nearly 6% in 2022 to a 4½–5% range now.

Despite continued low unemployment, our jobs-workers gap is trending down on the back of reduced job openings. And while average hourly earnings grew a faster-than-expected 0.4% in July, other wage indicators such as the Q2 ECI and the Atlanta Fed wage growth tracker measure came in on the softer side; all told, our GS wage tracker has slowed from a peak of nearly 6% in 2022 to the 4½-5% range now.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs's wage tracker has slowed from a peak of nearly 6% in 2022 to a 4½–5% range now.
  2. Average hourly earnings grew a faster-than-expected 0.4% in July, while the Q2 Employment Cost Index and the Atlanta Fed wage growth tracker came in softer.
  3. Goldman Sachs's jobs-workers gap is trending down on reduced job openings, even as unemployment remains low.

Related Articles:

  • The Unresolved Tension Between Prices and Incomes — 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.
  • 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%.
  • Soft Landing Optimism Is Everywhere. That’s Happened Before — Analysts argue the historical record offers limited guidance because this has not been a typical business cycle: pandemic shutdowns abruptly halted growth and widespread government stimulus fueled a rapid rebound, producing shortages, bottlenecks and unusually strong demand in unexpected parts of the economy. That disruption contributed to inflation, and the slow return to normal is helping it fade.

AI Summary. Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.

Aswath Damodaran Musings on Markets
Date Posted:

.@AswathDamodaran argues that central banks are rate takers, not rate makers. Rates, in his view, are ultimately set by inflation and real growth. He notes, “The fundamentals will win.”

Do central banks actually set interest rates, or do fundamentals?

Core argument: The annual US Treasury bond rate plotted against a crude fundamental risk-free rate, computed as that year's actual inflation plus real GDP growth, is offered as a counter to the argument that the Federal Reserve sets rates.

There is no better way to show the emptiness of "the Fed did it" argument than to plot out the US treasury bond rate each year against a crude version of the fundamental risk-free rate, computed by adding the actual inflation in a year to the real GDP growth rate that year. No one (including central banks) cannot fight fundamentals: Central banks and governments that think that they have the power to raise or lower interest rates by edict, and the investors who invest on that basis, are being delusional. While they can nudge rates at the margin, they cannot fight fundamentals (inflation and real growth), and when they do, the fundamentals will win.

Takeaways by Macro Roundup® AI

  1. The annual US Treasury bond rate plotted against a crude fundamental risk-free rate, computed as that year's actual inflation plus real GDP growth, is offered as a counter to the argument that the Federal Reserve sets rates.
  2. Central banks and governments that believe they can raise or lower interest rates by edict, along with investors who invest on that basis, are delusional.
  3. Central banks can nudge interest rates at the margin but cannot fight the fundamentals of inflation and real growth, which win out when challenged.

Related Articles:

  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • 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.

AI Summary. The United Auto Workers union sought authorization to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slowly. Its demands include pay raises of more than 40%, inflation protection, and equal wages across jobs, which Bloomberg has reported would cost carmakers $80bn over four years.

David Welch Bloomberg
Date Posted:

The United Auto Workers are coming closer to a strike in September. Their demands would cost carmakers $80 billion over the four years of the deal.

The United Auto Workers are coming closer to a strike in September. Their demands would cost carmakers $80 billion over the...

Will autoworkers strike over slow-moving contract talks with carmakers?

Core argument: The UAW's demands on the three Detroit carmakers include pay raises of more than 40%, inflation protection, better treatment of temporary workers, and improved retiree perks, which Bloomberg has reported would cost carmakers $80 billion over the four-year deal.

The leader of the United Auto Workers union on Tuesday asked members to grant him the ability to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slowly. Earlier this year, the UAW gave each carmaker a list of demands that included pay raises of more than 40%, inflation protection, better treatment of temporary workers, and improved perks for retirees. The UAW also wants all workers paid the same wage, regardless of the job they do or whether they work on electric vehicles. If the union got everything it demanded it would cost carmakers $80 billion over the four years of the deal, Bloomberg has reported.

Takeaways by Macro Roundup® AI

  1. The UAW's demands on the three Detroit carmakers include pay raises of more than 40%, inflation protection, better treatment of temporary workers, and improved retiree perks, which Bloomberg has reported would cost carmakers $80 billion over the four-year deal.
  2. The United Auto Workers' leader asked members to authorize him to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slowly.
  3. The UAW is seeking a single wage for all workers regardless of the job they do or whether they work on electric vehicles.

Related Articles:

  • The ‘Summer of Strikes’ Isn’t Living Up to the Hype — Recent strike waves differ in composition: earlier ones were dominated by teachers and other state and local government workers, while current strikers are mostly private-sector employees, often organizing location-by-location in stoppages too small to appear in Bureau of Labor Statistics counts. The Cornell-ILR Labor Action Tracker recorded 224,000 workers in stoppages versus the Bureau's 120,600.
  • Unions’ Inflation Warning? — The share of people aged 16 and over working or looking for work fell when the pandemic hit and has only partly recovered, with population aging accounting for most of the remaining shortfall. That implies economic activity must run at a lower level to avoid persistent wage and price inflation.
  • Everyone Wants to Work at UPS After Teamsters Deal — UPS lowered its full-year profit forecast, citing the volume impact from labor negotiations and costs tied to its tentative labor agreement. Under the five-year contract, full-time drivers are set to earn about $170,000 in annual pay and benefits by its end, while part-time union employees earn at least $25.75 an hour plus full health care and pension benefits.

AI Summary. Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk notes that a rise in the neutral rate vs. the pre-pandemic period would imply that 30-year fixed mortgage rates “will be in current range for some time.”

Will mortgage rates settle in the mid 6% range?

Core argument: Goldman Sachs economists argued the neutral rate will likely be higher than the Fed currently expects, projecting the federal funds rate to eventually stabilize at 3–3.25%.

Goldman Sachs economists argued the neutral rate will likely be higher than the Fed currently expects. "We expect the funds rate to eventually stabilize at 3-3.25%." If the neutral rate is in that range then the 30-year fixed mortgage rate will be in the low to mid 6% range. With a 3.25% Fed Funds rate, a 4.45% 10-year yield, we’d expect 30-year mortgage rates around 6.45%. Recent buyers, with 7%+ mortgage rates, might be able to refinance, but most buyers will be locked into their current rate. The bottom line is it appears 30-year mortgage rates will be in current range for some time (barring a crisis).

Takeaways by Macro Roundup® AI

  1. Goldman Sachs economists argued the neutral rate will likely be higher than the Fed currently expects, projecting the federal funds rate to eventually stabilize at 3–3.25%.
  2. With a 3.25% federal funds rate and a 4.45% 10-year yield, Goldman Sachs would expect 30-year fixed mortgage rates around 6.45%, in the low-to-mid 6% range.
  3. Buyers who took mortgages above 7% might be able to refinance, though most buyers would stay locked into their current rate, with 30-year mortgage rates appearing likely to hold their present range for some time barring a crisis.

Related Articles:

  • Could 6% to 7% 30-Year Mortgage Rates be the “New Normal”? — Goldman Sachs economists estimate that if inflation is brought down without a recession, the federal funds rate will stabilize near 3–3.25% rather than the Federal Reserve's 2.5% longer-run median projection. At that neutral rate, 30-year fixed mortgage rates would sit in the low-to-mid 6% range, around 6.45% with a 4.45% 10-year Treasury yield.
  • 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. More than 40% of high-quality U.S. scientific papers involve collaboration with researchers abroad, and China and the U.S. are each other's largest research partners, with their joint work consistently among the most-cited across fields. In some strategic areas, analysis of publication data finds the U.S. depends on China more than China depends on the U.S.

Karen Hao and Sha Hua Wall Street Journal
Date Posted:

40% of America’s high-quality scientific papers involve international collaborations, and China is the #1 partner in producing scientific research, though security concerns threaten the relationship going forward.

Does the US depend on Chinese scientific collaboration more than China does?

Core argument: More than 40% of U.S. scientific production, measured by high-quality papers from U.S.-based scientists, involves collaboration with researchers abroad, according to Clarivate, a London-based firm tracking global scientific research.

More than 40% of America’s scientific production—measured by the number of high-quality papers that U.S.-based scientists produce—involves cooperation with researchers abroad, according to Clarivate, a London-based data firm that tracks global scientific research. China and the U.S. are each other’s No. 1 partner in producing scientific research, with collaborative research between the two consistently among the most-cited papers across fields, according to an analysis of Clarivate’s data by Caroline Wagner, a professor of public policy at Ohio State University. The U.S. depends more heavily on China than China does on the U.S. in some strategic areas, according to an analysis by Clarivate of studies in respected journals shared exclusively with The Wall Street Journal.

Takeaways by Macro Roundup® AI

  1. More than 40% of U.S. scientific production, measured by high-quality papers from U.S.-based scientists, involves collaboration with researchers abroad, according to Clarivate, a London-based firm tracking global scientific research.
  2. China and the U.S. are each other's No. 1 partner in producing scientific research, and their collaborative papers are consistently among the most-cited across fields, according to Ohio State public policy professor Caroline Wagner's analysis of Clarivate data.
  3. The U.S. depends more heavily on China than China does on the U.S. in some strategic areas, according to a Clarivate analysis of studies in respected journals shared exclusively with The Wall Street Journal.

Related Articles:

  • Creating and Connecting US and China Science: Chinese Diaspora and Returnee Researchers — The authors estimate that China-born researchers working in the US contributed to 27% of US-addressed scientific papers, while China-born researchers with US experience who returned home contributed to 38% of China-addressed papers. Papers with these authors averaged more citations and appeared more often in high-impact journals than other papers.
  • Xie Xiaoliang Is Latest Chinese Scientist to Give Up US Citizenship — A joint Princeton, Harvard and MIT study found more than 1,400 US-based ethnic Chinese scientists switched their academic affiliation from American to Chinese institutions in a single year, a 22% increase over the prior year. OECD data show the US lost 896 scientific authors that year while China gained 3,108, reversing an earlier pattern.
  • Award-Winning Chinese Mathematician Sun Xin Returns from US to Work at Peking University — An award-winning mathematician is leaving a US assistant professorship at the University of Pennsylvania for an appointment at Peking University's Beijing International Centre for Mathematical Research. Academics from Harvard, Princeton, and MIT report that at least 1,400 US-based ethnic Chinese scientists switched their affiliation from American to Chinese institutions in 2021.

AI Summary. China's central bank and other banks sold more foreign currency and foreign-exchange forwards in a single month than in any month since January 2017. Because Chinese entities have been large buyers of mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae, a shift toward selling or buying less could affect those spreads and interest rate volatility.

Matt Klein The Overshoot
Date Posted:

The American economy is now growing faster than China’s. @M_C_Klein notes agency debt might come under pressure as China moves to support the yuan.

Does Chinese selling of foreign currency affect mortgage-backed securities spreads?

Core argument: In July the People's Bank of China and other banks collectively sold more foreign currency and FX forwards than in any month since January 2017.

In July the PBOC and other banks collectively sold more foreign currency and FX forwards than in any month since January 2017. Is this meaningful? It depends on perspective. One potentially interesting question is how this might affect spreads on mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. After all, Chinese entities have been big buyers of agency MBS even when they were reducing (maybe) their holdings of U.S. Treasury notes and bonds. If they have now switched to selling reserve assets, or are simply buying less than before, that could have potential ramifications for convexity premiums and interest rate volatility.

Takeaways by Macro Roundup® AI

  1. In July the People's Bank of China and other banks collectively sold more foreign currency and FX forwards than in any month since January 2017.
  2. Chinese entities have been big buyers of agency mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae even as they may have been reducing their holdings of U.S. Treasury notes and bonds.
  3. A Chinese shift to selling reserve assets, or simply buying less than before, could have ramifications for convexity premiums and interest rate volatility.

Related Articles:

  • Can China’s Long-Term Growth Rate Exceed 2–3 Percent? — China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.
  • The Neoclassical Growth of China — China's per capita GDP growth path closely tracks those of Japan, South Korea, and Taiwan from similar starting income levels, indicating nothing unusual about its growth rate. The authors' model projects China's per capita GDP will level off at about 41% of the US level, reflecting a slowdown in productivity catch-up.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.

AI Summary. Most of the Inflation Reduction Act's climate spending takes the form of uncapped tax credits rolled out over 10 years, making its cost hard to pin down. The Congressional Budget Office estimated $391bn over a decade, while Wharton researchers working with Goldman Sachs raised their estimate from $385bn to over $1tn.

Leslie Kaufman Bloomberg
Date Posted:

Researchers at Wharton project the true cost of the Inflation Reduction Act will be over $1T, with the uptake of uncapped tax credits higher than initial CBO projections.

Why is the cost of climate legislation so hard to estimate?

Core argument: Wharton School researchers working with Goldman Sachs raised their estimate of the Inflation Reduction Act's clean energy and climate cost from $385 billion to more than $1 trillion, citing newer implementation details and more optimistic assumptions about private capital inflows, particularly into electric vehicles.

Most of the [IRA’s] spending comes in the form of tax credits that are uncapped, and those unlimited credits are designed to be rolled out over a 10-year span. In September 2022 CBO estimated the clean energy and climate portions of the bill would cost about $391 billion between 2022 and 2031. A team of researchers at the University of Pennsylvania’s Wharton School, working with Goldman Sachs, updated their own earlier estimate of $385 billion with a staggering new figure in excess of $1 trillion. The report’s authors cited “newer implementation” details and more optimistic assumptions about how much private capital will pour into the economy, particularly electric vehicles, in response to the promise of leveraging tax credits.

Takeaways by Macro Roundup® AI

  1. Wharton School researchers working with Goldman Sachs raised their estimate of the Inflation Reduction Act's clean energy and climate cost from $385 billion to more than $1 trillion, citing newer implementation details and more optimistic assumptions about private capital inflows, particularly into electric vehicles.
  2. The Congressional Budget Office estimated in September 2022 that the Inflation Reduction Act's clean energy and climate provisions would cost about $391 billion between 2022 and 2031.
  3. Most of the Inflation Reduction Act's spending takes the form of uncapped tax credits designed to roll out over a 10-year span.

Related Articles:

  • Making Manufacturing Great Again — US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.
  • Republican Districts Dominate US Clean Technology Investment Boom — 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.
  • Unpacking the Boom in U.S. Construction of Manufacturing Facilities — The computer and electronics segment is the dominant component of U.S. manufacturing facility construction, and its boom has not come at the expense of other segments, with chemical, transportation, and food and beverage construction also up, though by much less. Roughly comparable data show no similar surge in other advanced economies.