Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a 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
  • “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
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, September 28, 2023

AI Summary. The US buys at least 80% of industrial inputs domestically, so aggregate foreign supply chain exposure is limited, but disruptions occur at the sector level rather than the macro level. Accounting for Chinese inputs embedded in goods bought from other foreign suppliers, US exposure to China is almost 4x larger than it appears at face value.

Richard Baldwin, Rebecca Freeman, and Angelos Theodorakopoulos Brookings Papers on Economic Activity
Date Posted:
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After accounting for Chinese inputs into industrial imports from other countries, US exposure to China in 2018 was 4x the headline level. @BaldwinRE @freeman_reb @Angel__Theo

How large is US supply chain exposure to China really?

Core argument: Accounting for Chinese inputs embedded in goods US manufacturers buy from other foreign suppliers, "look through" exposure to China is almost four times larger than it appears at face value.

US exposure to foreign supply chains is much bigger than it appears at face value, but it is not that big on the macro level. By any measure, the US buys at least 80% of all industrial inputs from domestic sources. Thus, at an aggregate level, its foreign exposure is hardly alarming. However, while this may be reassuring, it is important to note that supply chain disruptions rarely occur at the macro level. The 80% figure was not relevant when the US auto sector shuttered factories due to a lack of semiconductors, or when buying home office electronics became problematic due to a demand surge and logistic snarls. Taking account of the Chinese inputs into all the inputs that American manufacturers buy from other foreign suppliers – what we call look through exposure – we see that US exposure to China is almost four times larger than it appears to be at face value.

Takeaways by Macro Roundup® AI

  1. Accounting for Chinese inputs embedded in goods US manufacturers buy from other foreign suppliers, "look through" exposure to China is almost four times larger than it appears at face value.
  2. The US buys at least 80% of all industrial inputs from domestic sources by any measure, leaving aggregate foreign exposure limited.
  3. Supply chain disruptions rarely occur at the macro level, as when the US auto sector shuttered factories for lack of semiconductors and home office electronics became hard to buy amid a demand surge and logistics snarls.

Related Articles:

  • Setser On Rumors Of Decoupling — Chinese data show US imports from China as a share of GDP slightly higher than before the trade war, and G-7 imports from China have boomed, indicating little shift of global supply chains out of China. Decoupling is a forecast rather than a current reality.
  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • US-China Trade is Close to a Record, Defying Talk of Decoupling — US-China trade is on track to set a record, indicating resilient commercial ties between the two economies despite national security rhetoric in Washington and concerns about "decoupling." China's own full-year figures show record trade of roughly $760bn.

AI Summary. The rise in long-term interest rates is attributed less to shifting Federal Reserve expectations than to the US sovereign credit downgrade, Japan's exit from yield curve control, the Federal Reserve shrinking its balance sheet, fewer dollars for China to recycle as exports fall, the US budget deficit, and larger Treasury auctions.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that the Treasury market is suffering from poor supply/demand dynamics. He writes that “the employment report next week will be very important and will likely set the tone for markets in Q4.”

Are long-term rates rising from supply factors rather than Fed expectations?

Core argument: The term premium has risen one percentage point since late July, with the rise in long rates driven less by shifting Fed expectations than by other factors.

The term premium is up one percentage point since late July. The ongoing rise in long rates is driven less by changing Fed expectations and more by: 1) The US sovereign downgrade 2) Japan exiting YCC 3) Fed QT 4) Fewer dollars for China to recycle in a falling exports environment 5) The US budget deficit 6) The large stock of T-bills and the Treasury’s intention to increase auction sizes. Looking ahead, the real risk to the economy, including financial stability, is if weak economic data doesn’t result in falling long-term interest rates.

Takeaways by Macro Roundup® AI

  1. The term premium has risen one percentage point since late July, with the rise in long rates driven less by shifting Fed expectations than by other factors.
  2. The drivers of higher long rates include the US sovereign downgrade, Japan's exit from yield curve control, Fed quantitative tightening, fewer dollars for China to recycle as exports fall, the US budget deficit, and the large stock of T-bills alongside the Treasury's intention to increase auction sizes.
  3. The real risk to the economy, including financial stability, is that weak economic data fails to produce falling long-term interest rates.

Related Articles:

  • Maxing Out — Hedge funds became a major buyer of US Treasuries after the Federal Reserve and commercial banks stepped back, financing those purchases through dealer repurchase agreements that grew rapidly and then stalled. If these leveraged buyers are hitting financing limits set by dealer balance sheet costs, a new marginal buyer must emerge to absorb upcoming issuance.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • 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.

AI Summary. Large and accumulating US deficits and debt pose a substantial threat to national security and national power, with budget prospects far worse than during past deficit-reduction efforts. Deficits a decade out could reasonably reach double digits as a share of GDP, with primary deficits around 5% of GDP.

Larry Summers Peterson Institute for International Economics
Date Posted:
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.@LHSummers issues a warning that America’s fiscal trajectory is leaving it little slack for meeting contingencies, “military or non-military.”

.@LHSummers issues a warning that America’s fiscal trajectory is leaving it little slack for meeting contingencies,...

Do rising deficits and debt threaten national security and power?

Core argument: Summers projects U.S. budget deficits a decade out comfortably in double digits as a share of GDP, with primary deficits quite likely around 5% of GDP, without assuming vast mobilization for military or non-military contingencies.

I would suggest that substantial and accumulating deficits and debts are a substantial threat to national security and national power. A reasonable calculation would suggest that our budget prospects are vastly worse than they were at the time of the Clinton administration's successful budget actions and substantially worse than they were at the time of the Simpson-Bowles efforts. The budget deficits a decade out comfortably in double digits as a share of GDP now seem a reasonable projection with primary deficits quite likely in the 5% of GDP range. This is without the assumption of the need for vast mobilization for meeting contingencies, military or non-military. And I think it is reasonable to ask the question. How long can or will the world's greatest debtor be able to maintain its position as the world's greatest power?

Takeaways by Macro Roundup® AI

  1. Summers projects U.S. budget deficits a decade out comfortably in double digits as a share of GDP, with primary deficits quite likely around 5% of GDP, without assuming vast mobilization for military or non-military contingencies.
  2. Summers argues that substantial and accumulating deficits and debts pose a substantial threat to U.S. national security and national power, and asks how long the world's greatest debtor can maintain its position as the world's greatest power.
  3. By Summers's calculation, U.S. budget prospects are vastly worse than at the time of the Clinton administration's successful budget actions and substantially worse than at the time of the Simpson-Bowles efforts.

Related Articles:

  • Summers and Blanchard Debate the Future of Interest Rates — With expected inflation near 2.5%, a real interest rate of 1.5% to 2%, and some risk and term premium, short-term interest rates would average around 4%, one argument in a debate on the future of interest rates holds. If traditional spreads reassert themselves, longer-term rates would run about 1 percentage point higher, near 5%.
  • Interest Rates Hit 16-Year Record — Interest rates across the Treasury yield curve stand roughly 75 basis points above Congressional Budget Office baseline projections, with the ten-year note at 4.30%, its highest in 16 years. If that gap persists, the authors estimate it would add $2.3tn (6% of GDP) to the debt over ten years.
  • 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. Revised US government data show households saved about $1.1tn less than previously estimated over a six-year period, with the personal saving rate averaging 8.3% of disposable income annually instead of 9.4%. The Bureau of Economic Analysis attributes the reduction to an accounting adjustment that lowered personal income from mutual funds and real estate investment trusts.

Rich Miller and Reade Pickert Bloomberg
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Revised @BEA_News numbers show Americans saved $1.1T less over the last six years than previous estimates.

Have revised data lowered estimates of how much American households saved?

Core argument: Revised Bureau of Economic Analysis data show US households saved about $1.1 trillion less from 2017 through 2022 than previously estimated.

US households saved some $1.1 trillion less than previously thought over the past six years, according to revised government data released Thursday. The Bureau of Economic Analysis now calculates that Americans stashed away an average 8.3% of their disposable income annually from 2017 through 2022, down from a previously estimated 9.4%. The reduction stems from an accounting adjustment that lowered personal income from mutual funds and real estate investment trusts.

Takeaways by Macro Roundup® AI

  1. Revised Bureau of Economic Analysis data show US households saved about $1.1 trillion less from 2017 through 2022 than previously estimated.
  2. The Bureau of Economic Analysis now puts the average annual personal saving rate at 8.3% of disposable income over 2017-2022, down from a prior estimate of 9.4%.
  3. The downward revision stems from an accounting adjustment that lowered personal income from mutual funds and real estate investment trusts.

AI Summary. Europe's high taxes fund social transfers rather than public sector investment, leaving innovators with a capital market not fit for purpose, high taxes, and low public investment. A capital-markets-driven innovation system would require replacing pay-as-you-go pensions with pension funds, ending subsidies for old industries, cutting corporate taxes and social transfers, and raising public investment.

Euro Intelligence Staff Euro Intelligence
Date Posted:

The 5 largest American firms were all founded within the last 50 years, vs. only one firm in the German Dax 30. Euro Intelligence staff argues that this is driven by government policies.

What changes would a capital-markets-driven innovation system require in Europe?

Core argument: European high taxes fund social transfers rather than public sector investment, leaving innovators with a capital market not fit for purpose, high taxes, and low public investment.

Europeans are using our high taxes to fund social transfers, not public sector investments. Innovators are therefore confronted with the worst of all worlds: a capital market not fit for purpose, high taxes, and low public sector investments. For a capital-markets driven system of innovation, you require a complete reboot of your entire socio-economic system. You would need to replace your pay-as-you go pension systems with pension funds. You would have to stop subsidising old industries and let them fall over the cliff. You would need lower rates of corporate taxes, which you can only have through cuts in social transfers. You would also need to raise public investment spending. It is safe to predict that this will not happen, not even during a long-lasting period of economic decline. We know the politics of decline.

Takeaways by Macro Roundup® AI

  1. European high taxes fund social transfers rather than public sector investment, leaving innovators with a capital market not fit for purpose, high taxes, and low public investment.
  2. Shifting Europe to a capital-markets driven system of innovation would require replacing pay-as-you-go pensions with pension funds, ending subsidies to old industries, cutting corporate tax rates alongside social transfers, and raising public investment spending.
  3. Such a reboot of Europe's socio-economic system will not happen, even during a long-lasting period of economic decline, given the politics of decline.

Related Articles:

  • How The US Is Crushing Europe’s Domestic Exchanges — US equities make up nearly 70% of the MSCI World index, and its 10 largest constituents — all US companies — exceed the combined market capitalization of Japan, the UK, France, Canada, and Germany. That depth and liquidity attracts new listings from both US and overseas issuers.
  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.
  • Europe Has Fallen Behind America and the Gap is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.

AI Summary. China's annual births fell from 18.83m in 2016 to 9.56m, with yearly declines ranging from 3.81% to 17.95%. Census-based projections indicate the number of women of childbearing age is declining by about 4m annually over a five-year period.

He Yafu Caixin
Date Posted:

China’s birth rate has halved since 2016. The majority of the decline took place prior to the pandemic.

Will China's birth numbers rebound as childbearing-age women decline?

Core argument: China's annual births fell from 18.83 million in 2016 to 9.56 million last year, with year-on-year declines of 6.27%, 13.71%, 3.81%, 17.95%, 11.65%, and 9.98% from 2017 to 2022.

Annual births fell from 18.83 million in 2016 to 17.65 million, 15.23 million, 14.65 million, 12.02 million in 2020, 10.62 million, and 9.56 million last year. Therefore, the rate of decline each year from 2017 to 2022 was 6.27%, 13.71%, 3.81%, 17.95%, 11.65%, and 9.98%, respectively. The number of women of childbearing age is decreasing. Based on the seventh national census data, the number of women of childbearing age is expected to decline by about 4 million annually from 2020 to 2025.

Takeaways by Macro Roundup® AI

  1. China's annual births fell from 18.83 million in 2016 to 9.56 million last year, with year-on-year declines of 6.27%, 13.71%, 3.81%, 17.95%, 11.65%, and 9.98% from 2017 to 2022.
  2. China recorded 12.02 million births in 2020, a 17.95% drop from the prior year and the largest annual decline between 2017 and 2022.
  3. Based on the seventh national census data, China's number of women of childbearing age is expected to decline by about 4 million annually from 2020 to 2025.

Related Articles:

  • China’s Fertility Rate Dropped Sharply, Study Shows — A study by a unit of China's National Health Commission estimates the country's total fertility rate fell to 1.09 from 1.30 in 2020, below Japan's 1.26. Annual births in China have fallen below 10m, down from around 18m when the one-child policy was scrapped.
  • 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.
  • China’s Defeated Youth — 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.

Friday, September 29, 2023

AI Summary. The mortality gap between American adults with and without a four-year college degree widened across three periods—falling mortality for both with larger gains for graduates, then diverging, then rising faster for the less educated during the pandemic—reaching an 8.5-year difference in adult life expectancy. Americans with a degree, treated as a separate country, would rank just below Japan.

Anne Case and Angus Deaton Brookings Papers On Economic Activity
Date Posted:

As of 2021, US adults with a college degree have a life expectancy at age 25 on par with Japan, but US adults without a BA have a life expectancy that’s 8.5 years lower, significantly below rich country norms.

How large is the mortality gap between college and noncollege Americans?

Core argument: The adult life expectancy gap between Americans with and without a four-year college degree reached 8.5 years by the end of 2021, after widening in each of three periods: 1992–2010, 2010–2019, and the COVID pandemic.

From 1992 to 2010, American adults with and without a four-year college degree saw falling mortality, but with greater improvements for the more educated; from 2010 to 2019, mortality continued to fall for those with a BA while rising for those without; during the COVID pandemic, mortality rose for both groups, but markedly more rapidly for the less educated. In consequence, the mortality gap between the two groups expanded in all three periods, leading to an 8.5-year difference in adult life expectancy by the end of 2021. One remarkable finding here is that Americans with a college degree, if they were a separate country, would be one of the best performers, just below Japan, though there was some decline in 2020 and 2021 during the pandemic.

Takeaways by Macro Roundup® AI

  1. The adult life expectancy gap between Americans with and without a four-year college degree reached 8.5 years by the end of 2021, after widening in each of three periods: 1992–2010, 2010–2019, and the COVID pandemic.
  2. From 2010 to 2019, mortality continued to fall for American adults with a BA while rising for those without one, and during the COVID pandemic mortality rose for both groups but markedly faster for the less educated.
  3. Americans with a college degree, treated as a separate country, would be one of the best performers, just below Japan, though their performance declined somewhat in 2020 and 2021.

Related Articles:

  • Why Are Americans Dying So Young? — One in 25 American five-year-olds is projected not to reach age 40, making deaths among the young a defining feature of US mortality. These deaths are overwhelmingly caused by external factors such as drug overdoses, gun violence, and dangerous driving.
  • Who Won the Cold War? Part II — Americans born around 1990 had higher death rates in their 20s than peers in affluent allied countries, and the gap widened across young adulthood. By age 29, US mortality for that cohort was about 2x New Zealand's, 2.5x France's, 3x Japan's, and 4x Italy's or Spain's.
  • Who Won the Cold War? Part III — In the US, death rates at age 39 for the cohort born in 1980 exceeded those of cohorts born in 1970 and 1960, and death rates at age 29 for the 1990 cohort were indistinguishable from the 1950 cohort's. In Japan, mortality at 29 fell over 80% across comparable cohorts versus under 8% in the US.

AI Summary. Nominal bank lending growth has slowed from 10% to 2% on a three-month annualized basis, which the authors attribute to deposit outflows and higher deposit rates alongside recession fears, noting that banks building larger loan-loss provisions slowed lending more. The authors expect the growth drag from tighter lending standards to fade.

Manuel Abecasis Goldman Sachs
Date Posted:

.@GoldmanSachs estimates that tighter financial conditions and lending standards will generate “a roughly 0.2pp drag on GDP growth next year, down from around 1.0pp in 2023 and 1.2pp in 2022.”

Why has bank lending growth slowed, and will the drag fade?

Core argument: Nominal bank lending growth has slowed from 10% to 2% on a 3-month annualized basis since the start of this year, attributed mainly to deposit outflows with higher deposit rates and to recession fears.

Nominal bank lending growth has slowed from 10% to 2% since the start of this year on a 3-month annualized basis, for two main reasons. First, deposit outflows and higher deposit rates have led banks to reduce lending to a degree roughly in line with the usual historical relationships. Second, recession fears have likely led banks to reduce lending, and we find that banks that built up more provisions for loan losses over the last year have slowed lending by more. We expect the drag on growth from tighter bank lending standards to fade because we expect bank lending standards to remain roughly unchanged in Q3—as fading recession fears and modestly higher bank stock prices roughly offset higher interest rates—and to start to normalize gradually next year.

Takeaways by Macro Roundup® AI

  1. Nominal bank lending growth has slowed from 10% to 2% on a 3-month annualized basis since the start of this year, attributed mainly to deposit outflows with higher deposit rates and to recession fears.
  2. Banks that built up more provisions for loan losses over the past year slowed lending by more, while the reduction tied to deposit outflows and higher deposit rates is roughly in line with usual historical relationships.
  3. The drag on growth from tighter bank lending standards is expected to fade, with standards roughly unchanged in Q3 as fading recession fears and modestly higher bank stock prices roughly offset higher interest rates, and normalizing gradually next year.

Related Articles:

  • All Clear — Data and commentary indicate the banking panic has ended and had only a limited effect on credit availability, with overall bank lending little changed and still growing, reflecting problems at a few poorly managed banks rather than a systemic crisis. Recognition that the banking sector is not collapsing has already prompted some repricing of expected interest rate cuts.
  • Outlook for Regional Banks — Small banks account for 30% of banking-sector assets and 40% of lending, and face higher funding costs, lower asset prices from higher interest rates, and greater regulatory scrutiny. Tightening bank credit conditions are argued to impose a significant drag on the economy.
  • Real-Estate Doom Loop Threatens America’s Banks — A Wall Street Journal analysis estimates banks' total commercial real-estate exposure at $3.6tn—about 20% of their deposits—including indirect lending, foreclosed properties, commercial mortgage-backed securities, and loans to nonbank mortgage lenders. Losses on these loans risk triggering a doom loop in which banks cut lending, pushing property prices down further and generating additional losses.

AI Summary. Bank of America internal data show average credit card balances for middle- and higher-income households at levels equivalent to 2019, while balances for lower-income households have risen more steeply and exceed their pre-pandemic range. Lower-income households continue to see faster wage growth, which offsets some of that pressure.

David Michael Tinsle, Anna Zhou, Taylor Bowley, and Liz Everett Krisberg Bank of America
Date Posted:

Bank of America transaction data suggests that consumer spending is broadly stable; faster wage growth for lower-income households helps offset pressure from higher credit card balances.

Are credit card balances rising faster for lower-income households?

Core argument: Bank of America internal data through August 2023 show average credit card balances for middle- and higher-income households at levels equivalent to 2019, after a dip in 2020 and increases over the last few years.

While stimulus was an important factor in limiting credit card-financed spending earlier in the pandemic, in recent times the strength of the labor market and the associated wage gains are likely a major reason why consumers have not had to resort to hitting their credit cards harder. Exhibit 7 shows that according to Bank of America internal data, average credit card balances have risen over the last few years, after a dip in 2020. The latest reading through August 2023 suggests that for middle- and higher-income households, credit card balances are at levels equivalent to that in 2019. However, card balances for lower-income households have seen a steeper rise and have exceeded their pre-pandemic range. The good news is that lower-income households continue to see faster wage growth, as suggested by Exhibit 8, which helps offset some of the pressure that the group is facing from higher card balances.

Takeaways by Macro Roundup® AI

  1. Bank of America internal data through August 2023 show average credit card balances for middle- and higher-income households at levels equivalent to 2019, after a dip in 2020 and increases over the last few years.
  2. Credit card balances for lower-income households have risen more steeply and exceeded their pre-pandemic range, according to Bank of America internal data.
  3. Lower-income households continue to see faster wage growth, which helps offset some of the pressure from higher card balances, and labor market strength with associated wage gains is likely a major reason consumers have not resorted to using credit cards harder.

Related Articles:

  • The Pandemic Has Broken a Closely Followed Survey of Sentiment — A statistical model using 13 economic variables including inflation, unemployment, and petrol prices explained 86% of the variation in the monthly US consumer-sentiment index between 1980 and 2016, but the correlation between sentiment and both current and future spending has vanished since the pandemic began. The same variables retain their power to forecast consumer spending.
  • What Has Policy Tightening Accomplished So Far? — Nominal consumer spending has slowed only modestly, from roughly 7% annualized to about 6%, a negligible change compared with the slowdown in inflation. The author argues most disinflation so far reflects improvements in businesses' ability to produce the real goods and services consumers want rather than a shift in monetary policy.
  • The Q4 Pothole: Student Loans, Shutdown, and Strikes — 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.

AI Summary. The US, long the world's top exporter of corn, soy, and wheat, is facing persistent agricultural trade deficits, with the Agriculture Department estimating a $19bn shortfall for one fiscal year and projecting nearly $28bn the next. The trend is attributed in part to greater US consumption of imported produce alongside stagnating grain and oilseed exports.

Isis Almeida, Gerson Freitas, and Michael Hirtzer Bloomberg
Date Posted:

A new paper documents weaker technological diffusion in the economy and relates

Is the US shifting to persistent agricultural trade deficits?

Core argument: The US agricultural trade deficit is estimated at $19 billion for the fiscal year ending Sept. 30 and is forecast by the Agriculture Department to reach almost $28 billion in fiscal 2024.

The world’s top exporter of corn, soy, and wheat for much of the past seven decades, the US is now facing a future of persistent agricultural trade deficits. The shortfall for the fiscal year ending Sept. 30 is estimated at $19 billion and is expected to balloon to almost $28 billion in fiscal 2024, according to Agriculture Department forecasts. The trend is driven in part by a shift in Americans’ eating habits—for instance, households today consume more imported produce, such as Mexican avocados and Indian mangoes—but stagnating grain and oilseed exports are also a factor. Since 1974 the only other annual deficits were in 2019 and 2020, during President Donald Trump’s trade war with China.

Takeaways by Macro Roundup® AI

  1. The US agricultural trade deficit is estimated at $19 billion for the fiscal year ending Sept. 30 and is forecast by the Agriculture Department to reach almost $28 billion in fiscal 2024.
  2. Since 1974 the US recorded annual agricultural trade deficits only in 2019 and 2020, during President Donald Trump's trade war with China.
  3. The US shortfall is driven in part by American households consuming more imported produce such as Mexican avocados and Indian mangoes, alongside stagnating grain and oilseed exports.

Related Articles:

  • China Expands Farmland In Bid To Cut Foreign Food Reliance — China has set a target of maintaining 120mn hectares of cultivated land, a level Beijing views as necessary for food self-sufficiency, and has reclaimed more than 170,000 hectares of farmland in a drive to cut reliance on imported food. Analysts say the effort reflects preparation for a scenario in which confrontation with the US disrupts global food supply chains.
  • Could Economic Indicators Signal China’s Intent To Go To War? — China imports nearly three-quarters of the oil it consumes and holds reserves sufficient for about three months at current consumption, so a sustained buildup of those reserves would be among the clearest signals it is preparing for war. China is also the world's largest agricultural importer, with wheat reserves an official described as covering 18 months of demand.

AI Summary. The European Union's widening trade deficit with China reflects a surge in imports rather than a decline in exports, with EU exports to China roughly stable and import growth visible across broad manufacturing categories. Import volumes have since fallen about 10% from their peak and the total import bill about a quarter.

Martin Sandbu Financial Times
Date Posted:

A surge in imports caused the EU’s trade deficit with China to roughly triple from 2018 to 2022 to almost €400B, but the deficit has declined by about 25% this year.

Is Europe's widening trade deficit with China driven by rising imports?

Core argument: The EU's widening bilateral deficit with China is driven entirely by rising imports rather than falling exports, with EU exports to China roughly stable after the first lockdown-related swings while imports soared.

The ballooning bilateral deficit is entirely driven by a rise in imports rather than a fall in exports; the two grew more or less in parallel at the end of the last decade. Then, after the first lockdown-related swings, EU exports to China remained more or less stable, while imports soared. The change in imports is visible across broad categories of manufacturing, although machinery and transport equipment (think of China’s electric car boom) may be contributing more than its proportionate share. [In 2023] all of these changes have recently been going into reverse. Import volumes have fallen by about 10% since the peak in August last year; import prices by about 15%. The total import bill, consequently, is down by about quarter since a year ago.

Takeaways by Macro Roundup® AI

  1. The EU's widening bilateral deficit with China is driven entirely by rising imports rather than falling exports, with EU exports to China roughly stable after the first lockdown-related swings while imports soared.
  2. EU import volumes from China have fallen about 10% since their peak and import prices about 15%, leaving the total import bill down roughly a quarter from a year earlier.
  3. The rise in EU imports from China spans broad manufacturing categories, though machinery and transport equipment, including China's electric car boom, may be contributing more than its proportionate share.

Related Articles:

  • The Chinese Carmakers Planning to Shake Up The European Market — Chinese carmakers are expanding in Europe, with Chery planning up to 15,000 UK car sales and 50 UK showrooms, and Germany's largest car rental company agreeing to buy 100,000 BYD vehicles for its European operations. KPMG estimates Chinese groups could take a 15% share of new car sales in Europe, exceeding Renault's.
  • 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.
  • Europe Can’t Decide How to Unplug from China — Europe is more economically exposed to China than the US: about 8% of listed European firms' revenues come from China versus 4% for American firms, and multinational investment in China equals 2% of Europe's GDP versus 1% for America. Total China exposure for Europe's big six reached 5.6% of combined GDP, up from 3.9%.