Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

Thursday, August 17, 2023

AI Summary. Research on U.S. household savings after the pandemic recession points to rapid accumulation and then drawdown of excess savings, with cumulative drawdowns exceeding $1.9tn and less than $190bn of excess savings remaining in the aggregate economy. The authors estimate that if recent drawdown rates persist, aggregate excess savings would be depleted.

Hamza Abdelrahman and Luiz Oliveira Federal Reserve Bank of San Francisco
Date Posted:

Analysts at @sffed argue that as of June households have spent 90% of $2.1T in excess savings accumulated during the pandemic. They estimate that excess savings will be fully depleted by the end of Q3 2023.

Are households running out of pandemic-era excess savings?

Core argument: Cumulative U.S. household drawdowns of pandemic-era excess savings reached more than $1.9 trillion as of June 2023, leaving less than $190 billion of excess savings in the aggregate economy, according to the authors' updated estimate.

Overall, despite differing methodologies and assumptions, the existing body of work on household savings following the pandemic recession firmly points to the rapid accumulation and drawdown of excess savings in the United States. The red area in Figure 1 shows our updated estimate for cumulative drawdowns, which reached more than $1.9 trillion as of June 2023. This implies that there is less than $190 billion of excess savings remaining in the aggregate economy. Should the recent pace of drawdowns persist—for example, at average rates from the past 3, 6, or 12 months—aggregate excess savings would likely be depleted in the third quarter of 2023.

Takeaways by Macro Roundup® AI

  1. Cumulative U.S. household drawdowns of pandemic-era excess savings reached more than $1.9 trillion as of June 2023, leaving less than $190 billion of excess savings in the aggregate economy, according to the authors' updated estimate.
  2. The authors project that aggregate U.S. excess savings would likely be depleted in the third quarter of 2023 if drawdowns continue at average rates from the past 3, 6, or 12 months.
  3. The existing body of work on U.S. household savings after the pandemic recession points to rapid accumulation and drawdown of excess savings, despite differing methodologies and assumptions.

Related Articles:

  • The Rise and Fall of Pandemic Excess Savings — Researchers estimate US households accumulated about $2.1tn in excess savings above the pre-pandemic trend before drawing them down, with cumulative drawdowns of $1.6tn leaving roughly $500bn remaining. If recent drawdown rates persist, the authors project remaining excess savings would continue supporting household spending for several more months.
  • Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective — The authors construct measures of excess household savings accumulated during the COVID-19 pandemic and find they have been unwound in the United States, declined in advanced foreign economies, and slowed in emerging market economies. Past recessions featured smaller increases in excess savings and greater persistence in the accumulated stock.
  • The Trickling Up of Excess Savings — The authors argue that excess savings created by debt-financed government transfers do not disappear as households spend them down; instead they "trickle up" to wealthier households with lower propensities to spend, so the boost to aggregate demand fades only slowly. Their benchmark estimate puts this at roughly 5 years rather than a few quarters.

AI Summary. Goods with strong positive externalities—such as lower carbon emissions, supply chain resilience, and national security—can be underprovided by markets because private producers do not capture all the social benefits. Government support that lowers firms' production costs can correct this shortfall, de-risk new technologies, and make domestic manufacturing cost-competitive.

Heather Boushey Council of Economic Advisors
Date Posted:

.@hboushey46 of President Biden’s CEA argues public spending is “crowding in” private investment by “de-risking” ventures through tax credits and direct government support.

Can public investment correct underprovision of goods with positive externalities?

Core argument: Goods with strong positive externalities—reducing carbon emissions, improving supply chain resilience, and promoting national security—can be underprovided by the market because private actors do not experience all the social benefits of their production.

When goods have strong positive externalities—such as decreasing our carbon emissions, improving supply chain resilience, or promoting national security—the market can underprovide, as private actors do not experience all of the social benefits of their production. In these instances, government action, such as by lowering the cost of production for the firm, can correct the failure of the market to provide sufficient supply and improve overall welfare. These funding streams, combined, are designed to de-risk new technologies, support the development of necessary infrastructure, and more, making new technologies and domestic manufacturing cost-competitive.

Takeaways by Macro Roundup® AI

  1. Goods with strong positive externalities—reducing carbon emissions, improving supply chain resilience, and promoting national security—can be underprovided by the market because private actors do not experience all the social benefits of their production.
  2. Government action that lowers a firm's cost of production can correct the market's failure to provide sufficient supply and improve overall welfare.
  3. The combined public funding streams are designed to de-risk new technologies and support development of necessary infrastructure, making new technologies and domestic manufacturing cost-competitive.

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.
  • Factory Boom Sweeps US With Construction at Record $190 Billion — US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.
  • 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.

AI Summary. Reinsurance prices rose as much as 40% year over year, according to a report by brokerage Gallagher Re, prompting insurers to change where and what they cover. State Farm and Allstate cited reinsurance market conditions and costs in curtailing some California business, and agricultural reinsurers announced exits from Iowa.

Emily Flitter New York Times
Date Posted:

In January reinsurance prices in the United States rose as much as 40% year-over-year as the industry repriced risk.

In January reinsurance prices in the United States rose as much as 40% year-over-year as the industry repriced risk.

Are rising reinsurance prices reshaping where insurers offer coverage?

Core argument: Reinsurance prices rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals.

Prices for reinsurance rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals. The price increases jolted insurers, who then made changes to where and for what they offered coverage. When State Farm announced in May that it would stop accepting new applications for certain policies in California, it cited “a challenging reinsurance market.” Allstate also cited reinsurance costs when it paused some of its activities in California. Last month, reinsurers specializing in agriculture insurance announced that they were pulling out of Iowa, where, three years ago, a severe windstorm caused nearly $4 billion in damage.

Takeaways by Macro Roundup® AI

  1. Reinsurance prices rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals.
  2. State Farm cited "a challenging reinsurance market" when it stopped accepting new applications for certain California policies, and Allstate cited reinsurance costs in pausing some of its California activities.
  3. Reinsurers specializing in agriculture insurance announced they were pulling out of Iowa, where a severe windstorm caused nearly $4 billion in damage three years earlier.

Related Articles:

  • Why California and Florida Have Become Almost Uninsurable — Wildfires in California and hurricanes in Florida have generated large volumes of insurance claims, while higher housing prices and construction and repair costs have made each claim more expensive. Insurers have also faced costlier reinsurance, with worldwide average reinsurance rates up about a quarter in one year and another third the next, according to reinsurance broker Howden Tiger.
  • Home Insurers Are Charging More and Insuring Less — Arizona, Texas, North Carolina, Oregon, Illinois and Utah approved the largest home-insurance rate increases, ranging from 20% to 30%, while some insurers have stopped selling new policies in states such as California and pulled back from disaster-prone areas. Reinsurance premiums, which insurers buy to offload risk, rose 33% to 50% at recent renewals.
  • Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse — State Farm, California's largest homeowner insurer, stopped accepting applications for most new home insurance policies statewide, citing rapidly growing catastrophe exposure. Florida faced a similar retreat by national carriers after Hurricane Andrew and responded with a market of small insurers backed by a state-mandated company providing windstorm coverage to homeowners who cannot obtain private insurance.
  • Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks — Farmers Insurance is limiting homeowners policy sales in Florida and California, hurricane- and wildfire-prone states, joining other large insurers in pulling back. In Florida it is ending sales of home, auto, and umbrella policies under its own brand — about 30% of the policies it sells there, affecting roughly 89,000 policies.

AI Summary. The 30-year US Treasury yield rose to about 4.42% and the 10-year approached 4.31%, near their prior peaks, with 30-year yields having been below 4% weeks earlier. Higher yields continue to attract buyers, with Bank of America reporting $127bn flowing into Treasury funds this year, on pace for a record.

Garfield Reynolds and Michael Mackenzie Bloomberg
Date Posted:

Yields on 30-year T-bills rose to 4.42% and the 10-year rose to 4.3%. The higher yields are attracting investors: according to @BankofAmerica, $127B has moved into funds that invest in Treasuries.

Are rising Treasury yields still attracting record inflows from investors?

Core argument: The 30-year Treasury yield rose as much as seven basis points to 4.42% in early US trading, slightly exceeding last year's high, after sitting below 4% as recently as July 31.

In early US trading Thursday the 30-year Treasury yield rose as much as seven bps to 4.42%, slightly exceeding last year’s high. It was below 4% as recently as July 31. The US 10-year yield approached 4.31%, within a few basis points of its 2022 peak. The higher yields in the US continue to draw in buyers. Investors pumped $127 billion this year into funds that invest in Treasuries, on pace for a record year, Bank of America said last week.

Takeaways by Macro Roundup® AI

  1. The 30-year Treasury yield rose as much as seven basis points to 4.42% in early US trading, slightly exceeding last year's high, after sitting below 4% as recently as July 31.
  2. The US 10-year Treasury yield approached 4.31%, within a few basis points of its 2022 peak, as global yields reached 15-year highs.
  3. Bank of America said investors pumped $127 billion this year into funds that invest in Treasuries, a pace on track for a record year, as higher US yields continue to draw buyers.

Related Articles:

  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — 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.
  • 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.

AI Summary. Ten-year US Treasury yields are projected to average about 4.75% over the coming decade, built from inflation trending near 2.5%, a real return of 1.5%–2%, and a term premium of roughly 0.75–1 percentage point. Rising government borrowing needs underpin the higher real return.

Chris Anstey Bloomberg
Date Posted:

.@LHSummers forecasts 10-year T-bills yielding an average of 4.75% over the next decade relative to an average of 2.9% over the last 20 years.

Will 10-year Treasury yields average near 4.75% over the coming decade?

Core argument: Larry Summers expects the 10-year Treasury yield to average about 4.75% over the coming decade, and says it could end up higher than that.

Inflation is likely to trend at a faster pace than in the past, perhaps 2.5%. A real return, which could be 1.5% to 2% over time when thinking of the government’s increasing borrowing needs — driven by the need for more defense spending, the likelihood of some Trump administration tax cuts getting extended, and higher average interest costs on outstanding debt. A term premium, which is the compensation investors get for buying a longer-term security rather than rolling over investments in short-term ones. Typically this has averaged about 0.75 to 1 percentage point. Adding up the three components, then it’s likely investors over the next decade will be “looking at 4.75 on the 10-year — and it obviously could end up being higher than that.”

Takeaways by Macro Roundup® AI

  1. Larry Summers expects the 10-year Treasury yield to average about 4.75% over the coming decade, and says it could end up higher than that.
  2. Summers builds the 4.75% figure from three components: inflation trending faster than in the past, perhaps 2.5%, a real return of 1.5% to 2%, and a term premium that has typically averaged 0.75 to 1 percentage point.
  3. Summers links the real return to the government's increasing borrowing needs, driven by the need for more defense spending, the likelihood that some Trump administration tax cuts get extended, and higher average interest costs on outstanding debt.

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 2023 Long-Term Budget Outlook — The Congressional Budget Office projects the federal deficit falls from 5.8% of gross domestic product to 5.0% before rising every year to 10% of GDP over three decades, a level exceeded only during World War II and the pandemic. Federal debt held by the public is projected to reach 181% of GDP.
  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.

AI Summary. China's population aged over 60 is projected to grow by an average of 10m per year over the next decade, reaching 520m by 2050, or 37.8% of the population. A Renmin University of China demographer says this will add strain to the state pension fund, elderly care facilities, and medical services.

Mia Nulimaimaiti South China Morning Post
Date Posted:

By 2050 at least 38% of China’s population will be older than 60.

How fast will China's senior population grow over the next decade?

Core argument: China's population aged over 60 will grow by an average of 10 million per year over the next decade, reaching 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng.

China’s aging society problem will accelerate over the next decade, with the number of citizens aged over 60 expanding by an average of 10 million per year, according to a leading demographer, adding further strain to the state pension fund, elderly care facilities, and medical services. The acceleration will push the number of senior citizens to 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng. China had 209.78 million people aged over 65 last year, accounting for 14.9% of the population, up from 200 million in 2021, according to official data. Last year, 29.1% of Japan’s population were aged over 65, with 17% in the United States and South Korea and 7% in India, according to World Bank data.

Takeaways by Macro Roundup® AI

  1. China's population aged over 60 will grow by an average of 10 million per year over the next decade, reaching 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng.
  2. China counted 209.78 million people aged over 65 in the most recent year of official data, 14.9% of the population, up from 200 million in 2021.
  3. The accelerating aging of Chinese society will add further strain to the state pension fund, elderly care facilities, and medical services.

Related Articles:

  • China Is Facing a Moment of Truth About Its Low Retirement Age — China has one of the lowest retirement ages among major economies, letting women retire at 50 and men at 60 under a policy unchanged since the 1950s. Its labor ministry estimates more than 40m Chinese will retire over a five-year period while the working-age population falls by 35m.
  • China Is Dying Out — The author estimates China's population is now below 1.28bn, versus the United Nations' figure of 1.43bn, and projects it will fall to 1.08bn by 2050 and 440m by 2100 even if fertility rises to 1.1 births per woman. The share aged 65 and older is projected to rise from 14% to 35% by 2050, leaving 1.6 workers per senior.
  • China’s Population Likely Fell in 2022 as Births Hit New Low — An independent demographer estimates China's annual births fell to a record low of about 10m, down from 10.6m the prior year — itself the sixth straight decline and the lowest since 1949. Deaths likely exceeded the prior year's 10.1m, partly due to the spread of Covid infections.

AI Summary. Urban Chinese unemployment among those aged 16 to 24 has run above 20%, about double the pre-pandemic level for that age group, with over 70% of unemployed youth in one year calculated to be graduates. Sentiment analysis of social media indicates the mood of young Chinese is growing darker.

Economist Staff The Economist
Date Posted:

Analysis of Chinese social media posts by @TheEconomist shows increasingly negative sentiment among people born in the 1990s.

Is youth unemployment in China darkening the mood of young people?

Core argument: Urban Chinese unemployment among those aged 16–24 has exceeded 20% for months, roughly double the age group's pre-pandemic level, and calculations indicate over 70% of those unemployed youngsters in 2021 were graduates.

Unemployment among urban Chinese aged 16 to 24 has been running at over 20% for months, about double the age group’s pre-pandemic level. Our calculations show that in 2021 over 70% of those unemployed youngsters were graduates. To get a sense of how young people feel, we have interviewed dozens of them. Their message is strikingly consistent. “We have no hope,” says a 27-year-old in Huizhou. The malaise felt by him and his cohort has led to the emergence of a new nihilistic vocabulary, featuring phrases such as tangping (lying flat) and bailan (letting it rot). Using sentiment-analysis tools to extract feelings from text on social media, we found that the mood of young Chinese is growing ever darker. A surprising number of young couples are not even having sex. In a survey conducted in 2020, 14.6% and 10.1% of partnered men and women born between 1995 and 2003 reported having had no sex in the past year.

Takeaways by Macro Roundup® AI

  1. Urban Chinese unemployment among those aged 16–24 has exceeded 20% for months, roughly double the age group's pre-pandemic level, and calculations indicate over 70% of those unemployed youngsters in 2021 were graduates.
  2. Sentiment-analysis of Chinese social media text indicates the mood of young Chinese is growing darker, alongside a nihilistic vocabulary featuring tangping ("lying flat") and bailan ("letting it rot").
  3. In a survey conducted in 2020, 14.6% of partnered men and 10.1% of partnered women born between 1995 and 2003 reported having had no sex in the past year.

Related Articles:

  • China Urges Jobless Graduates To ‘Roll Up Their Sleeves’ and Try Manual Work — Youth unemployment in China among those aged 16 to 24 has reached 19.6%, remaining above 16% for a year, while the broader jobless rate has hovered around 5%. With a record 11.6mn college graduates entering a tight labour market, Beijing is urging graduates to lower their ambitions and take up manual work.
  • Chinese Youth Suicide Rate Quadruples In Over A Decade — A study in the Chinese Center for Disease Control and Prevention's official journal found the suicide rate among children aged 5 to 14 in China rose from about 0.2 to about 0.8 per 100,000 people over 11 years. Among 15- to 24-year-olds, the rate fell 6.8% annually before rising 19.6% annually through 2021.
  • China’s Singles Fight Family Pressure to Get Married as Population Declines — An estimated 200mn unmarried Chinese face family pressure to marry, with young people marrying later and the pool of marriageable youth shrinking each year. The number of Chinese women of childbearing age, defined as 15 to 49, fell by more than 4mn in a year.
  • China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism — China recorded about 9.6m births, roughly half the 17.9m recorded six years earlier, and millions of young people have joined movements expressing alienation from work ("lying flat") and from Chinese society itself ("let it rot"). A viral video of a man telling pandemic enforcers "we are the last generation" spread the despairing hashtag #Lastgeneration.
  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.