Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Wednesday, September 13, 2023

AI Summary. Core consumer price inflation grew at a 3.4% annual rate after two months below 2%, making the latest report only qualifiedly good. A single month of data should not change the Federal Reserve's next decision, but two more similar months would warrant another rate hike.

Jason Furman @jasonfurman
Date Posted:

Core CPI grew at an annual rate 3.4% in August relative to <2% in the prior two months. @jasonfurman argues if September and October are in line with August the Fed should hike in December.

Should one month of faster core inflation change the Fed's next move?

Core argument: Core CPI grew at a 3.4% annual rate after two months below 2%, which Jason Furman calls only qualifiedly good following two consecutive unqualifiedly good reports.

We had 2 consecutive unqualifiedly good CPI reports. I was hoping for a 3rd but this one is only qualifiedly good. Not a huge concern but some. I'm focused on core CPI which grew at a 3.4% annual rate after 2 months <2%. Here is swapping new rents instead of all rents for core. The most reassuring of the bunch because new rents are actually falling. Is a useful gut check but I would not actually assume that we're going to see substantial falls in all rents anytime soon. Overall I still feel better than I did a few months ago about the possibility of a soft landing. But I feel a bit worse than I did yesterday. And if you over-updated based on the noisy June and July data you should probably be over-updating back again based on the August data. One month of data will not and should not change what the Fed does next week. But if we get two more months like this then I would hope they hike again at the December meeting.

Takeaways by Macro Roundup® AI

  1. Core CPI grew at a 3.4% annual rate after two months below 2%, which Jason Furman calls only qualifiedly good following two consecutive unqualifiedly good reports.
  2. Furman calls substituting new rents for all rents in core CPI the most reassuring measure because new rents are falling, though he would not assume substantial falls in all rents soon.
  3. Furman argues one month of data will not and should not change the Fed's decision next week, but hopes for another hike at the December meeting if two more months look like this one.

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.
  • Has the Fed Tightened Enough? Guideposts to Consider — Wage growth of about 2.5% would be consistent with 2% inflation given low recent-trend productivity growth, but wage growth is running near 4.5%. On this view inflation is more likely to level out at its current rate than keep falling, pushing the Federal Reserve toward further tightening through rate rises or holding rates high.

AI Summary. A debt accounting exercise finds that sustained reductions in government debt are typically driven by strong primary budget balances and above-average growth, with inflation playing little role, while current fiscal projections and market interest rates do not point to falling debt-to-GDP ratios across developed economies. The authors estimate market-implied real interest rates now exceed growth rates in many countries.

George Cole and Sara Grut Goldman Sachs
Date Posted:

A @GoldmanSachs analysis argues that high interest rates are likely to continue given current high inflation and wider deficits, and notes that “the US and UK are the most obvious candidates for a duration risk premium repricing.”

What drives sustained reductions in government debt-to-GDP ratios?

Core argument: A debt accounting exercise finds that sustained debt reductions in developed markets are typically driven by strong primary balances and above-average growth, with inflation playing little role after 1980.

Using a debt accounting exercise, we show that periods of sustained debt reduction are typically driven by strong primary balances and above-average growth. Following 1980, inflation has played little role in debt reductions. Current fiscal projections and current market interest rates on average do not point to declines in debt-to-GDP ratios across developed markets. We estimate that market implied r - g, the difference between real interest rates and growth rates, is now positive for many countries. Japan provides an example of high debt peaceably coexisting with low interest rates. However, given current high inflation, wider deficits, and rising interest costs, we think it unlikely that we return to the era of structurally low interest rates in the US, UK, or Europe. As a result, we see the risks to term premia skewed higher as fiscal risks simmer.

Takeaways by Macro Roundup® AI

  1. A debt accounting exercise finds that sustained debt reductions in developed markets are typically driven by strong primary balances and above-average growth, with inflation playing little role after 1980.
  2. Fiscal projections and market interest rates on average do not point to declines in debt-to-GDP ratios across developed markets, with market-implied r – g, the gap between real interest rates and growth, now estimated to be positive for many countries.
  3. Given high inflation, wider deficits, and rising interest costs, a return to structurally low interest rates in the US, UK, or Europe appears unlikely and risks to term premia look skewed higher, though Japan shows high debt coexisting with low interest rates.

Related Articles:

  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.
  • American Gothic — US tax increases since 1950 of 2% of GDP or more occurred when overall tax receipts were a much smaller share of GDP than today. Restoring the ratio of entitlement to non-defense discretionary spending to its earlier level of 2.2x would require tax increases larger than those historical precedents.
  • Is a U.S. Debt Crisis Looming? Is it Even Possible? — A debt spiral requires the interest rate on government debt to exceed the economy's growth rate; with inflation-protected 10-year U.S. bond yields near 1.83%, close to most estimates of sustainable growth, any spiral would be slow-moving. Stabilizing debt at 100% of GDP would require a 2% primary surplus.

AI Summary. The decline in marriage and the rise in children raised in one-parent homes have occurred predominantly outside the college-educated class, whose members continue to marry, often to each other, while earnings for adults without a college degree have stagnated or risen only slightly. These divergent family-structure trends mean household inequality has widened by more than earnings inequality alone would imply.

David Price and Melissa Kearney Federal Reserve Bank of Richmond
Date Posted:
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Database

.@kearney_melissa argues that the rise of single-parent households is leading to lower social mobility for children raised in those households relative to two-parent households.

Does diverging family structure widen household inequality beyond earnings gaps?

Core argument: Melissa Kearney notes that the decline in marriage and the rise in the share of children raised in one-parent homes has occurred predominantly outside the college-educated class.

The decline in marriage and the rise in the share of children being raised in a one-parent home has happened predominantly outside the college-educated class. Over the past 40 years, while college-educated men and women have experienced rising earnings, they continue to get married, often to one another, and to raise their children in a home with married parents. Meanwhile at the same time, the earnings among adults without a college degree have stagnated or risen only a bit. And these groups have become much less likely to marry and more likely to set up households by themselves.So just mechanically, these divergent trends in marriage and family structure mean that household inequality has widened by more than it would have just from the rise in earnings inequality.

Takeaways by Macro Roundup® AI

  1. Melissa Kearney notes that the decline in marriage and the rise in the share of children raised in one-parent homes has occurred predominantly outside the college-educated class.
  2. Over the past 40 years, college-educated men and women have seen rising earnings and continue to marry, often to one another, and to raise children in homes with married parents, while earnings for adults without a college degree have stagnated or risen only slightly.
  3. Kearney argues that divergent trends in marriage and family structure mean household inequality has widened by more than the rise in earnings inequality alone would produce.

Related Articles:

  • US Births Are Down Again, After the COVID Baby Bust and Rebound — US births declined steadily for years before the pandemic, with almost 600,000 fewer annual births in 2019 than in 2007, a 13% drop. The pandemic-related baby bust and subsequent rebound were short-term deviations from that longer trend, and 2022 birth counts remained below 2019 levels.
  • 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.
  • Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family? — Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.

AI Summary. The Census Bureau reported that US inflation-adjusted median household income fell 2.3% to $74,580, a 4.7% decline from its peak. Wage growth for the typical worker subsequently outstripped inflation, with inflation-adjusted wages rising about 3%, according to Atlanta Federal Reserve and Labor Department data.

Gwynn Guilford and Paul Overberg Wall Street Journal
Date Posted:
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US median household income fell in real terms by 2.1% in 2022 for the third straight year, as inflation outpaced wage gains. Since its pre-pandemic peak, real household income has fallen by almost 5%.

Have real household incomes fallen even as real wages have risen?

Core argument: U.S. inflation-adjusted median household income fell 2.3% to $74,580 in 2022 from $76,330 in 2021, the Census Bureau said, a third straight annual decline.

Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019. Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to data from the Atlanta Fed Wage Tracker and the Labor Department.

Takeaways by Macro Roundup® AI

  1. U.S. inflation-adjusted median household income fell 2.3% to $74,580 in 2022 from $76,330 in 2021, the Census Bureau said, a third straight annual decline.
  2. U.S. median household income has fallen 4.7% since its 2019 peak, according to the Census Bureau.
  3. Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to the Atlanta Fed Wage Tracker and Labor Department data.

Related Articles:

  • Jason Furman On Employment Cost Index — The Employment Cost Index shows private wages and compensation rising at annual rates of roughly 4.7%–5.1%, higher than any point in the previous cycle, supporting the argument that wage growth is not slowing and that the measured slowdown in average hourly earnings reflected shifts in workforce composition. Real wages and salaries remain 5% below their pre-pandemic trend.
  • Real Wage Growth at the Individual Level in 2022 — Both the mean and median worker saw wages fail to keep pace with prices in their consumption baskets, a decline in real wages affecting 54% of workers. Workers under 25 saw real wage growth of 4.3%, while older age groups saw declines that grew larger with age.
  • The Unexpected Compression: Competition at Work in the Low Wage Economy — Wage inequality is falling for the first time in four decades as pay rises at the bottom, with real wages increasing among young high school graduates and workers in the lowest quartile. The authors argue this reflects intensified employer competition for workers rather than simply a tight labor market, implying wages better reflect productivity and higher aggregate productivity.

AI Summary. The European Union is opening an anti-subsidy investigation into Chinese electric vehicles it says are distorting the EU market, one of its largest trade cases. Manufacturers found in breach of trade rules could face punitive tariffs, as the EU seeks to avoid a repeat of the insolvencies in its solar panel industry caused by cheap Chinese imports.

Alice Hancock, Henry Foy, Hudson Lockett and Peter Campbell Financial Times
Date Posted:

The EU is launching an anti-subsidy investigation into Chinese electric vehicles; the investigation will likely result in significant tariffs on Chinese manufacturers.

The EU is launching an anti-subsidy investigation into Chinese electric vehicles; the investigation will likely result in...

Will Europe impose tariffs on subsidized Chinese electric vehicles?

Core argument: Brussels will open an anti-subsidy investigation into Chinese electric vehicles that it says are "distorting" the EU market, in what could be one of the largest trade cases the EU has launched.

Brussels will launch an anti-subsidy investigation into Chinese electric vehicles that are “distorting” the EU market. The probe could constitute one of the largest trade cases launched as the EU tries to prevent a replay of what happened to its solar industry in the early 2010s when photovoltaic manufacturers undercut by cheap Chinese imports went into insolvency. If found to be in breach of trade rules, manufacturers could be hit with punitive tariffs.

Takeaways by Macro Roundup® AI

  1. Brussels will open an anti-subsidy investigation into Chinese electric vehicles that it says are "distorting" the EU market, in what could be one of the largest trade cases the EU has launched.
  2. Chinese electric vehicle manufacturers found in breach of trade rules could face punitive tariffs in the EU.
  3. The EU casts the probe as an effort to avoid a replay of its solar industry's experience in the early 2010s, when photovoltaic manufacturers undercut by cheap Chinese imports went into insolvency.

Related Articles:

  • China Set to Overtake Japan as World’s Biggest Car Exporter — China is set to overtake Japan as the world's biggest car exporter, driven in part by a mismatch between factory output and domestic demand. Analysts attribute the overcapacity to misjudged forecasts of declining internal combustion engine sales, surging electric vehicle demand, and reduced need for privately owned cars as shared mobility grows.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.

AI Summary. Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

Matt Klein The Overshoot
Date Posted:

Contrasting Demark’s Novo Nordisk and China’s car exporters, @M_C_Klein distinguishes “positive-sum” trade which is driven by something new and valuable from “negative-sum” trade which is driven by overcapacity.

How do new-product export booms differ from overcapacity-driven ones?

Core argument: Novo Nordisk's weight-loss drugs illustrate a positive-sum export boom in which scientists invented something new and valuable that created supply and demand simultaneously, rather than shifting sales from Danes to Americans.

The positive-sum vision of global economic integration is that rising production in one place does not need to displace existing production elsewhere because demand and living standards will rise commensurately. Novo Nordisk’s scientists invented something new and valuable, simultaneously creating both supply and demand. They did not pivot from selling to Danes to selling to Americans. The negative-sum vision is the one of businesses burdened by persistent “overcapacity” (really, underconsumption) are forced to fight for market share in a world without growth. The U.S. effectively preempted the influx of Chinese-made electric vehicles with the Inflation Reduction Act, which boosts total demand while reserving a share for local producers. Europe is far more exposed and has yet to formulate a response. The common belief in certain circles that Europeans are more “open to trade” than Americans may not survive this experience.

Takeaways by Macro Roundup® AI

  1. Novo Nordisk's weight-loss drugs illustrate a positive-sum export boom in which scientists invented something new and valuable that created supply and demand simultaneously, rather than shifting sales from Danes to Americans.
  2. The negative-sum vision of trade is one in which businesses burdened by persistent overcapacity, really underconsumption, fight for market share in a world without growth.
  3. The Inflation Reduction Act effectively preempted an influx of Chinese-made electric vehicles by boosting total demand while reserving a share for local producers, while Europe remains far more exposed and has yet to formulate a response.

Related Articles:

  • How Weight Loss Drugs Stopped a Danish Recession — Strong demand for the weight-loss and diabetes drugs Ozempic and Wegovy has kept Denmark out of recession: GDP is up about 1.1% over the past year but down 0.9% excluding pharmaceuticals, meaning drugmakers added roughly 2% to growth. Booming exports let Denmark's central bank hold rates lower while maintaining its euro peg.
  • China Set to Overtake Japan as World’s Biggest Car Exporter — China is set to overtake Japan as the world's biggest car exporter, driven in part by a mismatch between factory output and domestic demand. Analysts attribute the overcapacity to misjudged forecasts of declining internal combustion engine sales, surging electric vehicle demand, and reduced need for privately owned cars as shared mobility grows.

AI Summary. The author estimates that transferring roughly 1.5% of GDP a year to Chinese households could lift household income and consumption growth to around 7% annually, supporting GDP growth of 4-5% even with sharply slower investment growth. The argument is that China cannot sustain its current investment share of GDP while growing faster than the rest of the world.

Michael Pettis South China Morning Post
Date Posted:

China is facing a choice between low GDP growth or encouraging more domestic consumption. @michaelxpettis calculates that transferring 1.5% of GDP to the household sector annually might enable a 4-5% growth rate.

Can China grow 4-5% by shifting income to households?

Core argument: The author calculates that transferring roughly 1.5% of GDP annually to Chinese households, directly or indirectly, could lift household income and consumption growth to about 7% a year.

By my calculations, if the government could directly or indirectly transfer roughly 1.5% of GDP every year to households, it could drive growth in household income – and with it, household consumption – to around 7% annually. This, in turn, could generate GDP growth of 4-5% even as investment growth dropped sharply. The arithmetic of rebalancing is unassailable. Given its status as the world’s second-largest economy, and by far the world’s largest investor, China simply cannot maintain its current investment share of GDP while continuing to grow relative to the rest of the world.

Takeaways by Macro Roundup® AI

  1. The author calculates that transferring roughly 1.5% of GDP annually to Chinese households, directly or indirectly, could lift household income and consumption growth to about 7% a year.
  2. Such transfers could generate Chinese GDP growth of 4-5% even as investment growth dropped sharply, according to the author's rebalancing arithmetic.
  3. The author argues that China, the world's second-largest economy and by far its largest investor, cannot maintain its current investment share of GDP while continuing to grow relative to the rest of the world.

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.
  • 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%.
  • China Cannot Allow Jobless Young To ‘Lie Flat’ — China's job mix has shifted toward low-pay, low-skill, informal work at the expense of higher-paid, high-skill manufacturing and construction jobs, with the informal-to-formal ratio flipping from 40:60 to 60:40 over 15 years, according to a Stanford University estimate. Younger workers are over-represented in low-pay sectors and gig work.

AI Summary. Apple plans to make India-assembled iPhones available in India and some other regions on the first day of global sales, the first time an India-built device of the latest generation is offered at launch. The vast majority of the new iPhones will still come from China.

Sankalp Phartiyal Bloomberg
Date Posted:

For the first time, Apple is selling a new generation iPhone manufactured in India on launch day. Apple is trying to move at least 25% of its iPhone production out of China by next year.

For the first time, Apple is selling a new generation iPhone manufactured in India on launch day. Apple is trying to move...

Is India becoming a launch-day manufacturing base for new smartphones?

Core argument: Apple plans to offer India-assembled iPhone 15 units in India and some other regions on the global launch day, the first time an India-built device of the latest generation is available on the first day of sale, according to people familiar with the matter.

For the first time, the new iPhone model you buy on the launch day could be made in India. Apple plans to make the India-built iPhone 15 available in the South Asian country and some other regions on the global sales debut day, people familiar with the matter said. While the vast majority of iPhone 15s will come from China, that would be the first time the latest generation, India-assembled device is available on the first day of sale, they said, asking not to be identified as the matter is private.

Takeaways by Macro Roundup® AI

  1. Apple plans to offer India-assembled iPhone 15 units in India and some other regions on the global launch day, the first time an India-built device of the latest generation is available on the first day of sale, according to people familiar with the matter.
  2. The vast majority of iPhone 15s will come from China, people familiar with the matter said, even as Apple adds India-built units to launch-day availability.

Related Articles:

  • Apple India iPhone Output Soars to $7 Billion in China Shift — Apple assembled more than $7bn of iPhones in India in a fiscal year, tripling output and lifting India's share to almost 7% of global iPhone production from an estimated 1%, as the company expands assembly partners including Foxconn and Pegatron beyond China.
  • Top Apple Supplier Foxconn Plans Major India Expansion — Foxconn, Apple's main manufacturer, plans to expand iPhone production in India as it diversifies beyond China, aiming for roughly 20m units annually at its Chennai-area plant and up to 100,000 workers. It is also considering a new site in Hyderabad and semiconductor facilities in India.
  • Apple’s Complex, Secretive Gamble to Move Beyond China — Apple is shifting some production out of China—iPhones and accessories to India, AirPods and Mac assembly to Vietnam, some Mac output to Malaysia, and simpler products to Ireland—while planning to retain extensive Chinese operations. Its leadership is concerned that moving too much capacity too quickly could prompt Chinese retaliation or nationalist consumer backlash.

Thursday, September 14, 2023

AI Summary. The authors estimate that resuming student loan payments will subtract 0.5 percentage point from quarterly annualized GDP growth, with a government shutdown cutting roughly 0.2pp and an auto workers' strike 0.05–0.10pp for each week it lasts. They project growth slowing to +1.3% before rebounding to +1.9% as these temporary drags fade and income growth reaccelerates.

Ronnie Walker and Alec Phillips Goldman Sachs
Date Posted:

.@GoldmanSachs argues that the US economy is facing three headwinds in Q4: a resumption of student loan payments, a UAW strike, and a potential government shutdown, slowing quarterly annualized growth from 3.1% in Q3 to 1.3% in Q4.

How much do temporary drags slow quarterly GDP growth?

Core argument: Quarterly annualized GDP growth is expected to slow from +3.1% in Q3 to +1.3% in Q4, compared with consensus forecasts of +2.9% and +0.6%.

First, we expect the resumption of student loan payments to subtract 0.5pp from quarterly annualized GDP growth. Second, the federal government looks more likely than not to temporarily shut down. A government-wide shutdown would reduce quarterly annualized growth by around 0.2pp for each week it lasted. Third, we estimate that reduced auto production from a potential UAW strike would reduce quarterly annualized growth by 0.05-0.10pp for each week it lasted, if all three companies currently undergoing contract negotiations are impacted. We expect quarterly annualized GDP growth to slow from +3.1% in Q3 to +1.3% in Q4 (vs. consensus of +2.9% and +0.6%). We expect the slowdown to be shallow and short-lived, with GDP growth rebounding to +1.9% in Q1 (vs. consensus of +0.1%) as these temporary drags abate and income growth reaccelerates on the back of continued solid job growth and rising real wages.

Takeaways by Macro Roundup® AI

  1. Quarterly annualized GDP growth is expected to slow from +3.1% in Q3 to +1.3% in Q4, compared with consensus forecasts of +2.9% and +0.6%.
  2. The resumption of student loan payments is expected to subtract 0.5pp from quarterly annualized GDP growth, with a government-wide shutdown cutting around 0.2pp per week and a UAW strike affecting all three companies in contract negotiations 0.05–0.10pp per week.
  3. The Q4 slowdown is expected to be shallow and short-lived, with GDP growth rebounding to +1.9% in Q1 versus consensus of +0.1% as temporary drags abate and income growth reaccelerates on continued solid job growth and rising real wages.

Related Articles:

  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.
  • Autoworkers Have Good Reason to Demand a Big Raise — Inflation-adjusted average hourly pay for US production and nonsupervisory workers has risen 13% over 20 years, about 0.6% a year, while the average hourly wage for auto production-line workers has fallen 30%. General Motors, Ford and Stellantis earned a combined $42bn in net income over 12 months.
  • The Economic Impact of the Student Loan Restart — 46m Americans owe student loan debt to the Department of Education, with three-quarters owing less than $40k and half owing under $20k. Borrowers with balances above $60k make up 16% of borrowers but hold the majority of outstanding student loan debt.

AI Summary. The US government has funded essentially all of its increased deficit by issuing short-term Treasury bills and drawing down cash reserves rather than selling longer-dated debt, limiting the effect on market liquidity so far. The authors expect that pressure is delayed rather than eliminated, with issuance shifting toward longer maturities as the deficit stays elevated.

Karen Karniol-Tambour and Shane Murphy Bridgewater Associates
Date Posted:

Bridgewater writes that fiscal deficits have thus far helped keep the economy from slowing, but as net Treasury issuance ramps up, deficits are likely to result in “higher interest rates and lower asset prices.”

Has short-term debt issuance delayed the deficit's impact on market liquidity?

Core argument: The US government funded essentially all of the increase in its deficit over the past year by issuing T-bills and drawing down its cash reserves rather than significantly increasing issuance of duration.

The impact on markets of the government’s expanded financing need is largely still ahead of us. Over the past year, the government has funded essentially all of the increase in its deficit by issuing T-bills and spending down its cash reserves rather than significantly ramping up the issuance of duration to the market. As a result, Treasury issuance hasn’t needed to entice money out of other cash and asset markets, and thus the impact of the expanded deficit on liquidity has been minimal thus far. We think this pressure is delayed rather than eliminated: looking forward, we expect that the Treasury will shift its mix of issuance toward more duration, as the budget deficit remains elevated and the share of bills outstanding rises through the range that the Treasury generally prefers to target (though there is plenty of flexibility around the precise proportion).

Takeaways by Macro Roundup® AI

  1. The US government funded essentially all of the increase in its deficit over the past year by issuing T-bills and drawing down its cash reserves rather than significantly increasing issuance of duration.
  2. Because Treasury issuance has not needed to entice money out of other cash and asset markets, the expanded deficit's impact on liquidity has been minimal thus far.
  3. Treasury is expected to shift its issuance mix toward more duration as the budget deficit remains elevated and the share of bills outstanding rises through the range Treasury generally prefers, delaying rather than eliminating the pressure on markets.

Related Articles:

  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.
  • Has the Fed Tightened Enough? Guideposts to Consider — Wage growth of about 2.5% would be consistent with 2% inflation given low recent-trend productivity growth, but wage growth is running near 4.5%. On this view inflation is more likely to level out at its current rate than keep falling, pushing the Federal Reserve toward further tightening through rate rises or holding rates high.
  • DM Debt – How to Move Mountains — A debt accounting exercise finds that sustained reductions in government debt are typically driven by strong primary budget balances and above-average growth, with inflation playing little role, while current fiscal projections and market interest rates do not point to falling debt-to-GDP ratios across developed economies. The authors estimate market-implied real interest rates now exceed growth rates in many countries.

AI Summary. Inflation-adjusted Census income data show the share of Black families with incomes under $35,000 fell from half in 1967 to about a quarter, while the share earning over $100,000 rose from 5% to over 30%. The middle group, $35,000 to $100,000, has remained in the mid-40% range.

Jeremy Horpedahl Economist Writing Every Day
Date Posted:
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Database

Median family incomes have declined every year since 2019; however, @jmhorp notes that median black household income is now the highest it’s ever been.

Have Black families' incomes risen substantially over recent decades?

Core argument: The share of Black families with inflation-adjusted incomes under $35,000 fell from half in 1967 to one quarter in 2022, the lowest on record and below 2019, a drop of 10 percentage points from a decade earlier.

The chart shows the % of Black families that are in three income groups, using total money income data. The data is adjusted for inflation. The progress is dramatic. In 1967, the first year available, half of Black families had incomes under $35,000. By 2022 that number had been cut in half to just one quarter of families (the 2022 number is the lowest on record, even beating 2019). Twenty-five percent is still very high, especially when compared to White, Non-Hispanics (it’s about 12 percent), but it’s still massive progress. It’s even a 10-percentage point drop from just 10 years ago. And Black families haven’t just moved up a little bit: the “middle class” group (between $35,000 and $100,000) has been pretty stable in the mid-40 percentages, while the number of rich (over $100,000) Black families has grown dramatically, from just 5% to over 30%.

Takeaways by Macro Roundup® AI

  1. The share of Black families with inflation-adjusted incomes under $35,000 fell from half in 1967 to one quarter in 2022, the lowest on record and below 2019, a drop of 10 percentage points from a decade earlier.
  2. The share of Black families with incomes above $100,000 grew from 5% to over 30%, while the $35,000–$100,000 group held steady in the mid-40% range.
  3. The 25% of Black families with incomes under $35,000 compares with about 12% among White, non-Hispanic families.

Related Articles:

  • U.S. Incomes Fall for Third Straight Year — The Census Bureau reported that US inflation-adjusted median household income fell 2.3% to $74,580, a 4.7% decline from its peak. Wage growth for the typical worker subsequently outstripped inflation, with inflation-adjusted wages rising about 3%, according to Atlanta Federal Reserve and Labor Department data.
  • Who Won the Cold War? Part I — The Federal Reserve puts American households' net worth at nearly $140tn, an average of over $400,000 per person and over $1m per household of 2.5 people. Estimates of median wealth per adult in current US dollars across 170 countries and places allow this record to be compared with America's Cold War treaty allies in Europe and Asia.

AI Summary. A teardown of Huawei's Mate 60 Pro smartphone found its main chip is made with technology comparable to a 7nm process, possibly by Chinese foundry SMIC, still generations behind leaders such as TSMC, which is mass-producing 3nm chips. SMIC lacks the most advanced lithography machines and likely used older equipment with multipatterning.

Jacky Wong Wall Street Journal
Date Posted:

Huawei’s new G5 phone demonstrates that the Chinese semiconductor industry can deliver advanced chips even without access to US, Dutch, and Japanese technologies blocked by sanctions, potentially enabling Huawei to regain lost market share.

Does a domestic chip breakthrough close China's gap with leading chipmakers?

Core argument: A TechInsights teardown found the main chip in Huawei's Mate 60 Pro, a smartphone that apparently has 5G capabilities, is made using technology comparable to a 7nm process, possibly by Chinese foundry SMIC.

Last week Huawei quietly unveiled the Mate 60 Pro—its new smartphone that apparently comes with 5G capabilities. According to a teardown by industry research firm TechInsights, the main chip inside this new phone is made using technology comparable to the so-called 7nm process. It is possibly made by China’s leading chip foundry Semiconductor Manufacturing International (SMIC). That is still generations behind the market leaders. For example, TSMC has already been mass-producing more advanced 3nm chips. But that nonetheless is still a big step forward, especially given the limitations China’s chip makers are facing. While SMIC has no access to the most cutting-edge extreme ultraviolet lithography machines, it could use some older equipment to make advanced chips, likely using a process called multipatterning.

Takeaways by Macro Roundup® AI

  1. A TechInsights teardown found the main chip in Huawei's Mate 60 Pro, a smartphone that apparently has 5G capabilities, is made using technology comparable to a 7nm process, possibly by Chinese foundry SMIC.
  2. The 7nm-comparable chip remains generations behind market leaders, with TSMC already mass-producing more advanced 3nm chips.
  3. SMIC lacks access to the most cutting-edge extreme ultraviolet lithography machines but could make advanced chips with older equipment, likely using a process called multipatterning.

Related Articles:

  • China Imports Record Amount of Chipmaking Equipment — Chinese customs data show semiconductor production tool imports reached nearly $5bn over two months, up 70% from $2.9bn a year earlier, a record high. Most of the equipment came from the Netherlands and Japan, which have imposed export restrictions on chipmaking equipment alongside the US.
  • Japan to Join US Effort to Tighten Chip Exports to China — Japan and the Netherlands agreed in principle to join the US in restricting exports of advanced chipmaking equipment to China, creating what would amount to a near-total blockade on China's ability to buy the tools needed for leading-edge chips. Japan's Tokyo Electron and Dutch lithography maker ASML are critical suppliers alongside US firms Applied Materials, Lam Research and KLA.

AI Summary. China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.

Dylan Patel, Afzal Ahmad, and Myron Xie Semi Analysis
Date Posted:

Citing Huawei’s new flagship chip, @dylan522p argues that US export controls on China’s semiconductor sector are failing and suggests several steps the US could take that “could stop the Chinese semiconductor industry in its tracks.”

Have export controls failed to stop China's advanced chip development?

Core argument: The Kirin 9000S is a better-designed chip than the West realizes, with solid power and performance that would have placed it near the front of the pack in 2021, according to the authors' assessment.

Put simply, Kirin 9000S is a better-designed chip than the West realizes. It has solid power and performance. Even with the lackluster export controls, this is a leading-edge chip that would be near the front of the pack in 2021, yet was done with no access to EUV, no access to cutting-edge US IP, and intentionally hampered. We cannot overstate how scary this is. There are steps that could be taken to ensure that China does not develop the ability to mass-manufacture the sorts of chips needed for high-end military applications in the coming year. Half measures will not work, but a full-scale assault will make it so the cost of replicating the semiconductor supply chain domestically is neigh on impossible. While we aren’t advocating for any of these specifically, it is clear the West can still stop China’s rise if decisive action is taken.

Takeaways by Macro Roundup® AI

  1. The Kirin 9000S is a better-designed chip than the West realizes, with solid power and performance that would have placed it near the front of the pack in 2021, according to the authors' assessment.
  2. The authors note the Kirin 9000S was produced with no access to EUV and no access to cutting-edge US intellectual property, and describe existing export controls as lackluster.
  3. The authors argue that half measures will not prevent China from mass-manufacturing chips needed for high-end military applications, and that the West can still stop China's rise if decisive action is taken.

Related Articles:

  • Huawei Building Secret Network for Chips, Trade Group Warns — Huawei has entered chip production, acquiring at least two existing plants and building at least three more, part of at least 23 fabrication facilities underway in China with planned investments of more than $100bn by 2030, according to the Semiconductor Industry Association. China is on track to hold more than half of global capacity in older-generation semiconductors by around 2030.
  • China Imports Record Amount of Chipmaking Equipment — Chinese customs data show semiconductor production tool imports reached nearly $5bn over two months, up 70% from $2.9bn a year earlier, a record high. Most of the equipment came from the Netherlands and Japan, which have imposed export restrictions on chipmaking equipment alongside the US.
  • Japan to Join US Effort to Tighten Chip Exports to China — Japan and the Netherlands agreed in principle to join the US in restricting exports of advanced chipmaking equipment to China, creating what would amount to a near-total blockade on China's ability to buy the tools needed for leading-edge chips. Japan's Tokyo Electron and Dutch lithography maker ASML are critical suppliers alongside US firms Applied Materials, Lam Research and KLA.