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
  • “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
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, October 18, 2023

AI Summary. A second stage of the monetary tightening cycle is led by long-term interest rates: after a period when short-term rate hikes continued but bond yields traded sideways, long-term yields resumed rising. The earlier reprieve reflected market expectations of future easing and Treasury issuance shifted toward short-term bills funded by excess central bank reserves.

Bob Prince, Greg Jensen, and Karen-Karniol Tambour Bridgewater Associates
Date Posted:

Bridgewater argues we are in a second tightening cycle driven by long rates as expectations for short-term rate cuts fade.

Are long-term interest rates now leading the tightening cycle?

Core argument: The chief investment officers describe a second stage of the tightening cycle led by long-term interest rates, a shift visible in market action beginning in the third quarter.

The second stage of the tightening cycle can be clearly seen in the market action. Earlier in the tightening cycle, short-term interest rates rose and dragged long-term interest rates higher. Then, beginning in October 2022 and lasting almost a year, there was a reprieve. Hikes in short-term interest rates continued, but bond yields traded sideways, reflecting market expectations for future easing, combined with the Treasury circumventing the pressure on long rates by issuing T-bills funded by excess central bank reserves. In the third quarter, both conditions shifted as described above, initiating the next stage of the tightening cycle, led by long rates.

Takeaways by Macro Roundup® AI

  1. The chief investment officers describe a second stage of the tightening cycle led by long-term interest rates, a shift visible in market action beginning in the third quarter.
  2. From October 2022 for nearly a year, bond yields traded sideways even as short-term rate hikes continued, reflecting market expectations for future easing and Treasury issuance of T-bills funded by excess central bank reserves.
  3. Earlier in the tightening cycle, rising short-term interest rates dragged long-term interest rates higher, before both conditions behind the sideways-yield reprieve shifted in the third quarter.

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.
  • Why No Recession (Yet)? — Real interest rates have risen by almost 10 percentage points, compared with 4 points during the 2004–2006 tightening, yet activity has held up because households entered the episode with large savings accumulated during the pandemic. As those surplus savings are used up and borrowers refinance at higher rates, the full impact of tightening has not yet been felt.
  • Fool Me Once — Market pricing repeatedly resisted the Federal Reserve's "higher for longer" path, betting on low terminal rates and aggressive cuts, which eased financial conditions and made further rate hikes more likely. Pricing now aligns with Federal Reserve guidance for one more hike, while rising long-dated yields and a stronger dollar raise the prospect of overly tight financial conditions.

AI Summary. The price-to-earnings ratio of the largest seven S&P 500 stocks rose from 29 to 45 while the other 493 fluctuated around 19, with index returns driven by those seven. The author argues that, given higher long-term interest rates, either stock prices or those rates must fall.

Torsten Sløk Apollo
Date Posted:
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Torsten Sløk @apolloglobal argues that the “Magnificent Seven” stocks that have led the S+P higher have become “more and more overvalued” given their high P-E ratio (45) and the recent run-up in rates.

Are the largest stocks' valuations inconsistent with higher long-term interest rates?

Core argument: The P/E ratio of the seven largest S&P 500 stocks rose from 29 to 45 in 2023, while the P/E ratio of the other 493 stocks fluctuated around 19.

The P/E ratio for the S&P493 has fluctuated around 19 in 2023. And the P/E ratio for the S&P7 has increased from 29 to 45. The bottom line is that returns this year in the S&P500 have been driven entirely by returns in the seven biggest stocks, and these seven stocks have become more and more overvalued. What is particularly remarkable is that the ongoing overvaluation of tech stocks has happened during a year when long-term interest rates have increased significantly. Remember, tech companies have cash flows far out in the future, which should be more negatively impacted by increases in the discount rate. In short, something has to give. Either stocks have to go down to be consistent with the current level of interest rates. Or long-term interest rates have to go down to be consistent with the current level of stock prices.

Takeaways by Macro Roundup® AI

  1. The P/E ratio of the seven largest S&P 500 stocks rose from 29 to 45 in 2023, while the P/E ratio of the other 493 stocks fluctuated around 19.
  2. Returns in the S&P 500 this year have been driven entirely by the seven biggest stocks, which have become increasingly overvalued.
  3. Tech stock valuations rose during a year of significantly higher long-term interest rates, implying that either stock prices must fall or long-term rates must decline for the two to be consistent.

Related Articles:

  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • 7 or 493 Stocks: What Matters for the S&P 500? — The combined market value of the S&P 500's 500 companies rose $5tn, or 15.3%, while the 493 stocks outside the "Magnificent Seven" — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — returned only 4.5%. Those seven stocks accounted for about 71% of the index's return.
  • A Few Stocks Drive the Stock Market: Dot.com Vs. Today Vs. the Last 100 Years — Seven large technology stocks account for nearly 30% of the S&P 500's total value, but the rise of both hyped stocks and the broader market was more extreme during the dot-com era. Historically, only a few stocks have generated most of the stock market's value creation in the US and internationally.

AI Summary. Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.

Benjamin Glasner Economic Innovation Group
Date Posted:

According to an @InnovateEconomy analysis the Sun Belt, led by Florida and Texas, saw the largest net income gains during the pandemic period driven by internal migration from California and New York. @cojobrien

Where did income move during the pandemic?

Core argument: Manhattan recorded $16.5 billion of income outflows to other states, the largest of any county, with 27.7 cents of every dollar leaving — $4.6 billion in total — going to Florida.

Manhattan was the biggest loser at $16.5 billion of outflows to other states, with nearly 28 cents of every dollar—equaling $4.6 billion in total going to the state of Florida. California saw the greatest losses at the state level, while Florida was the biggest beneficiary with a net gain of $39 billion from other states. Meanwhile, Manhattan saw huge outflows to surrounding suburbs and out-of-state destinations, the largest of which being Florida’s coast. Those seeking warmer weather and sunny beaches led the pack, as former New Yorkers took more than $2.9 billion to Miami-Dade County and $1.1 billion in taxable income decamped for Palm Beach County, FL. In fact, 27.7 cents of every dollar leaving Manhattan went to the state of Florida, equaling $4.6 billion in total.

Takeaways by Macro Roundup® AI

  1. Manhattan recorded $16.5 billion of income outflows to other states, the largest of any county, with 27.7 cents of every dollar leaving — $4.6 billion in total — going to Florida.
  2. Florida was the biggest state-level beneficiary with a net gain of $39 billion in income from other states, while California saw the greatest state-level losses.
  3. Former New Yorkers took more than $2.9 billion of taxable income to Miami-Dade County and $1.1 billion to Palm Beach County, alongside large Manhattan outflows to surrounding suburbs.

Related Articles:

  • Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic — Internal Revenue Service migration data show net migration subtracted more than $68bn of taxable income from large urban counties in a single year, about 2% of their total, while adding to taxable income in all other county types. Manhattan lost over $16bn and San Francisco over $8bn, or 20%.
  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

AI Summary. France's proposed budget implies a deficit of 4.4% of national output, above the European Union's 3% target, with the government expecting to fall below that level only by 2027 — among the last EU countries to comply. The government estimates debt-servicing costs will reach about €75bn a year by then, exceeding spending on education or defense.

Sam Fleming and Leila Abboud Financial Times
Date Posted:

The French government is expanding their planned spending cuts in the face of rising yields. Finance Minister Le Maire noted, “The social welfare state as it stands is not sustainable anymore.”

The French government is expanding their planned spending cuts in the face of rising yields. Finance Minister Le Maire...

Will France's deficits keep debt costs above education and defense spending?

Core argument: France's proposed 2024 budget implies a deficit of 4.4% of national output, well above the EU's 3% target, with the government expecting to fall below that level by 2027, among the last EU countries to comply.

France’s proposed budget for 2024 will lead to a deficit of 4.4% of national output — well above the EU’s 3% target. The government expects the deficit to fall below that level by 2027, making it one of the last EU countries to comply. By the government’s own estimates, the cost of servicing the debt will rise to around €75bn annually in 2027, which would be the single biggest expense in the budget and more than is spent on education or defence. While France has shortened unemployment compensation from 24 months to 18 months in some cases and tweaked other aspects of the unemployment insurance programme, Finance Minister Le Maire said there was a “legitimate question” as to whether the country should go further as it seeks to induce people to go back to work.

Takeaways by Macro Roundup® AI

  1. France's proposed 2024 budget implies a deficit of 4.4% of national output, well above the EU's 3% target, with the government expecting to fall below that level by 2027, among the last EU countries to comply.
  2. By the French government's own estimates, debt-servicing costs will rise to around €75bn annually in 2027, which would be the single biggest budget expense, more than is spent on education or defence.
  3. France has shortened unemployment compensation from 24 months to 18 months in some cases, and Finance Minister Le Maire said there is a "legitimate question" as to whether the country should go further to induce people back to work.

Related Articles:

  • 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.
  • 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.
  • Productivity Has Grown Faster in Western Europe than in America — Adjusted for purchasing power, the EU's GDP is roughly 95% of America's, the same share as a decade earlier, while at market exchange rates US prices went from 5.4% above EU levels to 46% higher, largely because of a strong dollar. GDP per person has still grown faster in America than in most of Western Europe.

AI Summary. City-level violent crime statistics in the US are inconsistent and of questionable reliability, though at the national level Federal Bureau of Investigation data usually show trends similar to the Bureau of Justice Statistics' annual crime victimization surveys. In one year, however, the FBI data showed a decline in violent crime while the victimization survey showed a substantial increase.

Justin Fox Bloomberg
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Compared to violent crime rates in other large US cities, New York City is relatively safe, but not as much as it once was. @foxjust

Is US crime data reliable enough to judge public safety?

Core argument: Across the three non-homicide violent crimes, Minneapolis ranks worst for robbery, New Orleans worst for rape, and Detroit worst by a wide margin for aggravated assault.

Here are the rates for the three non-homicide violent crimes. I’ve kept the cities in the safest-to-least-safe order determined by the Gallup poll. New York City is no longer such a standout on the safe side, although it still is on the safe side by every measure. Minneapolis is worst for robbery, New Orleans for rape, and Detroit — by a mile — for aggravated assault. After my experience compiling these statistics I have to say I’m not super-confident in their reliability. At the national level the errors seem mostly to cancel out, with the FBI data usually showing similar trends to those found in the Bureau of Justice Statistics’ annual crime victimization surveys. Then again, in 2022 the FBI statistics showed a decline in violent crime and the BJS survey a substantial increase, and the local data can be a mess.

Takeaways by Macro Roundup® AI

  1. Across the three non-homicide violent crimes, Minneapolis ranks worst for robbery, New Orleans worst for rape, and Detroit worst by a wide margin for aggravated assault.
  2. New York City is no longer a standout on the safe side of the non-homicide violent crime rankings, though it remains on the safe side by every measure.
  3. FBI crime statistics usually show trends similar to those in the Bureau of Justice Statistics' annual crime victimization surveys, but in 2022 the FBI data showed a decline in violent crime while the BJS survey showed a substantial increase.

Related Articles:

  • New York’s Subways Have Less Crime but More Violence — Major crime on New York's subways is on track to run 13.4% below 2019 levels, but ridership remains down about a third, so crime per rider is much higher this year than from 2006 through 2019. Property crime has not risen; violent incidents account for the increase.
  • The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 — Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.
  • “New York, Just Like I Pictured It” — New York City retains advantages in sheer size, business diversification, and global financial dominance, with its labor force, airport use, and seated diners back to pre-pandemic levels and low residential and industrial vacancy rates. But mass transit use is 73% of prior levels, office vacancy is 18%, and about 35% of workdays are done from home.

AI Summary. A Nature study tracking bird flu genome changes and reported outbreaks found the virus spread three times faster among wild birds than farmed poultry, attributed to mutations letting it adapt to diverse species. Outbreaks, once seasonal with Northern Hemisphere bird migration, have become persistent, killing millions of birds across five continents.

Miryam Naddaf Nature
Date Posted:

A @Nature study notes a new H5N1 bird flu strain is driving the record worldwide outbreak.

How did the bird flu virus become more deadly and persistent?

Core argument: A Nature study published October 18th found that in 2020 the bird flu virus spread among wild birds three times faster than among farmed poultry, attributing the gap to mutations that let the virus adapt to diverse species.

The study, published in Nature on October 18th, looked at changes to the virus’s genome over time and used data on reported outbreaks to track how it spread. In 2020, the rate of spread among wild birds was three times faster than that in farmed poultry, because of mutations that allowed the virus to adapt to diverse species. Outbreaks are usually seasonal, synchronizing with bird migration in Northern Hemisphere autumn. But since November 2021, they have become persistent. In 2022, the virus killed millions of birds across five continents and seeded outbreaks among farmed mink and various marine mammals.

Takeaways by Macro Roundup® AI

  1. A Nature study published October 18th found that in 2020 the bird flu virus spread among wild birds three times faster than among farmed poultry, attributing the gap to mutations that let the virus adapt to diverse species.
  2. Bird flu outbreaks, which typically followed a seasonal pattern synchronized with Northern Hemisphere autumn bird migration, have been persistent since November 2021.
  3. The bird flu virus killed millions of birds across five continents in 2022 and seeded outbreaks among farmed mink and various marine mammals.

Related Articles:

  • Bird Flu’s Surge Has Scientists Seeking Clues to Prevent the Next Pandemic — A bird flu infection in a Cambodian village took a week to reach the attention of the government health system, as villagers attributed dead chickens to hot weather and hospital doctors initially assumed a schoolgirl had seasonal flu. Health officials deemed the eventual response a success.
  • Bird Flu Sample from Chilean Man Showed Some Signs of Adaptation to Mammals — The U.S. Centers for Disease Control and Prevention reported that an H5N1 bird flu sample from a hospitalized Chilean man carried two mutations shown in animal studies to help the virus replicate in mammalian cells. Officials said public risk remains low and the sample lacked other changes needed for efficient human-to-human spread.

Thursday, October 19, 2023

AI Summary. Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.

Pablo Hevia-Koch, Brent Wanner, and Rena Kuwahata Energy Information Administration
Date Posted:

An @EIAgov analysis notes global electrical production needs to grow 20% faster this decade than it did in the previous decade. They estimate that 80mm kilometers of grid (the equivalent of the current grid) needs to be built by 2040.

How much will global electricity demand grow by 2050?

Core argument: Global electricity demand is projected to grow 2.7% per year in the Announced Pledges Scenario (APS), more than doubling from just under 25,000 TWh in 2021 to nearly 54,000 TWh in 2050.

Global electricity demand is projected to increase at a rate of 2.7% per year in the APS, more than doubling from just under 25,000 TWh in 2021 to nearly 54,000 TWh in 2050. The buildings sector continues to consume the most electricity, followed closely by industry, each accounting for more than one-third of total demand throughout the period. Transport makes up just 2% of global electricity demand currently, but this rises to 15% in 2050. Hydrogen production via electrolysis adds significantly to electricity demand growth, from less than 2 TWh in 2021 to over 5,700 TWh in 2050 in the APS. More rapid electrification of end uses in the NZE Scenario further accelerates electricity demand growth to 3.2% per year to 2050, reaching over 62,000 TWh in 2050. Demand growth is expected to be accompanied by improvements in efficiency. Hydrogen production and EVs account for more than half the growth in electricity demand to 2050.

Takeaways by Macro Roundup® AI

  1. Global electricity demand is projected to grow 2.7% per year in the Announced Pledges Scenario (APS), more than doubling from just under 25,000 TWh in 2021 to nearly 54,000 TWh in 2050.
  2. Hydrogen production and electric vehicles account for more than half the growth in global electricity demand to 2050, with electrolysis-based hydrogen rising from less than 2 TWh in 2021 to over 5,700 TWh in 2050 in the APS.
  3. Buildings and industry each account for more than one-third of global electricity demand throughout the period, while transport rises from 2% to 15% in 2050; in the Net Zero Emissions Scenario demand grows 3.2% per year to over 62,000 TWh.

Related Articles:

  • Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables — A study led by Lawrence Berkeley National Laboratory found nearly 2,000GW of solar, wind and storage projects waiting in queues to connect to US long-distance transmission grids, more than the installed capacity of the entire US power plant fleet. The authors find only about a fifth of such requested projects are typically built.
  • Elon Musk’s Latest Mission: Rev Up the Electricity Industry — U.S. electricity demand has grown at an average of 1% a year over the past 20 years, but McKinsey projects it will double by 2050 and PG&E expects a 70% rise over the next 20 years. Deloitte estimates the largest U.S. electric companies will together spend as much as $1.8tn by 2030.
  • 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. Structural renormalization has occurred globally as market economies move toward a long-run tendency of surplus, while budget constraints have not had to harden and financial conditions are no tighter—if anything slightly looser—than a year earlier. That combination has lifted optimism and economic expectations and underpins the Federal Reserve's greater confidence in keeping rates higher for longer.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano argues many pandemic-era supply constraints have resolved themselves as market economics “move towards their long-run tendency of surplus.”

How does a shift toward surplus support higher rates for longer?

Core argument: Market economies worldwide have undergone structural renormalization toward their long-run tendency of surplus, while budget constraints have not had to harden significantly.

A large amount of structural renormalization has occurred across the globe as market economies move towards their long-run tendency of surplus. Meanwhile, budget constraints haven’t had to harden significantly—financial conditions aren’t meaningfully much tighter than they were this last time last year, if anything they’re a tad looser. That powerful combination is what has allowed optimism and economic expectations to improve so much over the last year—and is a large part of why the Fed feels more confident in keeping rates “higher for longer.”

Takeaways by Macro Roundup® AI

  1. Market economies worldwide have undergone structural renormalization toward their long-run tendency of surplus, while budget constraints have not had to harden significantly.
  2. Financial conditions are not meaningfully tighter than a year earlier and are, if anything, slightly looser, a factor in the Federal Reserve's greater confidence in keeping rates "higher for longer.".
  3. The combination of structural renormalization and unhardened budget constraints is credited for the improvement in optimism and economic expectations over the past year.

Related Articles:

  • Supply-Side Expansion Has Driven the Decline in Inflation — A decomposition of price and quantity growth across items indicates that most of the decline in inflation came from supply-side expansion, where price increases slowed while quantity growth picked up. The author argues that resolving supply shocks combined with a modest easing of demand brought inflation down without a cost to the level of employment.
  • The “Easy Disinflation” Is (Mostly) Over. The Fed Grapples With What Comes Next — Most consumers' nominal incomes continue to rise faster than before the pandemic without commensurate increases in output or offsetting changes in saving. Excluding volatile pay changes for managerial workers and lower-paid workers in the industries hit hardest by the pandemic, hourly pay has risen at about a 5% annual rate in almost every month.

AI Summary. Small business payments to hiring firms, a leading indicator for payrolls, are gradually returning to 2019 levels, consistent with a labor market normalizing toward trend growth. Bank of America internal data show US consumer spending holding up, pointing to healthy small business revenues, while higher interest rates and labor quality have become greater concerns.

Anna Zhou and Taylor Bowley Bank of America
Date Posted:

According to @BankofAmerica internal data small business hiring remains strong though owners are expressing greater concern over the quality of labor relative to a year ago. Inflation remains their largest concern.

Is the small business labor market normalizing toward trend growth?

Core argument: Small business payments to hiring firms, a leading indicator for payrolls, are gradually returning to 2019 levels, consistent with a labor market normalizing to trend growth.

Small business payments to hiring firms, a leading indicator for payrolls, are gradually returning to 2019 levels. This is in line with the view that the labor market is normalizing to its trend growth. Overall, small businesses continue to face crosscurrents. On the positive side, US consumer spending has held up well, according to Bank of America internal data, which, in turn, points to healthy revenues for small businesses. However, higher interest rates and quality of labor have become more of a concern relative to a year ago.

Takeaways by Macro Roundup® AI

  1. Small business payments to hiring firms, a leading indicator for payrolls, are gradually returning to 2019 levels, consistent with a labor market normalizing to trend growth.
  2. US consumer spending has held up well, according to Bank of America internal data, which points to healthy revenues for small businesses.
  3. Higher interest rates and quality of labor have become more of a concern for small businesses relative to a year ago.

Related Articles:

  • The Impact of Higher Rates on Small Businesses — Analysts estimate higher interest rates will raise small businesses' interest burden from roughly 5.8% of revenues to about 7%, and eventually to just under 8% as term loans mature—above the pre-pandemic 6.8% but similar to the mid-1990s. Because small businesses are about 15% of private-sector gross output, they project a drag on economywide GDP growth of about 0.1pp.
  • Business Formation Boom — U.S. high-propensity business applications — those more likely to become employers — ran 40% above their 2019 average, according to Census Bureau data, with the elevated pace persisting after the pandemic. Business deaths also rose, but the net effect still points to strong growth in business formation.
  • Surging Business Formation in the Pandemic: Causes and Consequences? — Shifts in consumer demand and in preferences for work and lifestyle during the pandemic created entrepreneurial opportunities, and applications to start businesses produced new firms and establishments that hired workers in large numbers. The authors argue these new businesses drew in quitting workers as founders or hires, implying economic restructuring across industry, geography, and firm size and age.

AI Summary. India has averaged real GDP growth above 6% a year for three decades, and unlike China's growth, it has translated into equity returns, with the Sensex matching or beating the S&P 500 over 30-, 20-, 10-, and five-year spans. Analysis attributes the growth to rising total factor productivity, with contributions from services exports and improved basic infrastructure.

Robert Armstrong, Ethan Wu, and Adam Tooze Financial Times
Date Posted:

The Indian stock market’s strong performance has been driven by robust total factor productivity growth of 1.3% from 2007-2022 vs. 0.9% for 1990-2006, stemming mainly from improvements in basic infrastructure. @rbrtrmstrng @EthanYWu

Has India's economic growth translated into stock market returns?

Core argument: India has averaged real GDP growth of more than 6% a year for the past 30 years, and unlike China's growth, that expansion has translated into stock market returns.

The strongest reason for weighing this slice towards India is not just that the country has averaged real GDP growth of more than 6% a year for the past 30 years; that growth has also translated into stock market returns in a way that China’s growth, for example, has not. Over the past 30, 20, 10, and five years, the Sensex has performed as well or better than the S&P 500, leaving other big markets far behind. India’s growth story is built on its remarkable increase in total factor productivity, the economy’s ability to generate output from a given amount of labour and capital. Aditya Suresh of Macquarie notes that TFP’s contribution to headline growth has averaged 1.3% between 2007 and 2022, against 0.9% in 1990-2006, far outpacing other EMs. Partly, the TFP boost has come from efficiency improvements in certain sectors, such as services exports (think ecommerce or consulting). But the biggest improvement is undoubtedly from better basic infrastructure.

Takeaways by Macro Roundup® AI

  1. India has averaged real GDP growth of more than 6% a year for the past 30 years, and unlike China's growth, that expansion has translated into stock market returns.
  2. Over the past 30-, 20-, 10-, and five-year horizons, India's Sensex has performed as well as or better than the S&P 500, leaving other large markets far behind.
  3. Aditya Suresh of Macquarie notes that total factor productivity's contribution to India's headline growth averaged 1.3% in 2007–2022 versus 0.9% in 1990–2006, far outpacing other emerging markets, with the largest improvement coming from better basic infrastructure.

Related Articles:

  • Indian Stock Market Surges as Foreign Funds Buy Into National Growth Story — Indian equities rose $440bn to more than $3.5tn in value, making India the world's fifth-largest stock market after the US, China, Japan, and Hong Kong, ahead of France and the UK. Foreign portfolio investors added a net $9.4bn to Indian shares in the quarter, with analysts attributing the bulk of this year's inflows to passive index buying.
  • India Equity: An Unsung Long-Term Performance Story — Cumulative total returns for Indian equities have been comparable to or better than US equities over roughly three decades, while Chinese equities have lagged both, according to index data for the MSCI India, S&P 500, and MSCI China indexes.
  • The Path to 2075 — Capital Market Size and Opportunity — Projections see the US share of global equity market value falling from 42% to 35% by 2030, 27% by 2050 and 22% by 2075, while India's share rises from about 2.5-3% to 8% by 2050 and 12% by 2075. China's share is projected to rise from 10% to 15% by 2050 before easing to about 13.5% by 2075.

AI Summary. The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.

Damien Ma and Houze Song Macro Polo
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According to @damienics and @hzsong, China is heading toward a protracted debt crisis which will see 40% of local government financing vehicles default with total losses of $5T or ~30% of China’s GDP. @MacroPoloChina

How large are China's local government debt losses likely to be?

Core argument: The authors project that around 40% of China's local government financing vehicles will default, producing roughly $5 trillion in total losses for LGFV creditors, or about 30% of China's GDP.

China is likely heading into a messy and protracted debt debacle that will be at least equal in magnitude to the state-owned enterprises (SOEs) debt drama in the late 1990s. Except the outcome this time will likely be a prolonged economic malaise. At a fundamental level, most if not all economic crises are essentially debt crises in various guises. China’s is no exception. We believe the property sector crisis, which has largely peaked, is just a preview of the main event, which will see around 40% of local government financing vehicles (LGFVs) default on their debt. Defaults of this magnitude will affect regional banks that are most exposed to LGFV lending. We estimate total loss for LGFV creditors (including financial institutions such as banks and LGFV supplier/contractors) to be in the neighborhood of $5 trillion, or ~30% of China’s GDP.

Takeaways by Macro Roundup® AI

  1. The authors project that around 40% of China's local government financing vehicles will default, producing roughly $5 trillion in total losses for LGFV creditors, or about 30% of China's GDP.
  2. The authors argue China is heading into a messy and protracted debt debacle at least equal in magnitude to the state-owned enterprise debt drama of the late 1990s, with prolonged economic malaise the likely outcome.
  3. The authors describe China's property sector crisis as having largely peaked and as a preview of LGFV defaults expected to affect regional banks most exposed to LGFV lending.

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AI Summary. Declining contributions from labor and capital are projected to hold China's income growth below 4% unless total factor productivity growth accelerates, which the authors argue is unlikely given that China's productivity growth has already averaged 1.8% since 2009. Only five of the 43 countries that previously reached China's income level sustained that pace over the following 13 years.

Hunter Clark and Matthew Higgins Federal Reserve Bank of New York
Date Posted:

Citing research suggesting China’s TFP growth may have fallen to “about zero,” a @NewYorkFed analysis argues China is unlikely to reach mid-level developed country GDP per capita by 2035.

Will slowing labor and capital growth hold China's income growth below 4%?

Core argument: Reduced contributions from labor and capital are expected to hold China's income growth below 4% unless total factor productivity (TFP) growth accelerates enough to offset the decline.

We expect reduced contributions from labor and capital to hold income growth below 4% absent an offsetting acceleration in TFP (total factor productivity) growth. A surge in TFP growth, however, seems unlikely, since productivity growth in China is already quite high, averaging 1.8% since 2009. Only five of the forty-three countries that reached China’s current income level in the past saw TFP growth that high over the subsequent thirteen years. Not one managed to exceed this pace by more than a few tenths of a percentage point. In short, China will need to achieve TFP growth in excess of the fastest historical precedents to meet official income goals. Moreover, these estimates assume that the official growth figures are accurate. If the lower growth rates of Harry Wu's work are correct, TFP growth has already fallen to about zero.

Takeaways by Macro Roundup® AI

  1. Reduced contributions from labor and capital are expected to hold China's income growth below 4% unless total factor productivity (TFP) growth accelerates enough to offset the decline.
  2. China's TFP growth has averaged 1.8% since 2009, and only five of the 43 countries that previously reached China's current income level matched that pace over the following 13 years, none exceeding it by more than a few tenths of a percentage point.
  3. Meeting China's official income goals would require TFP growth beyond the fastest historical precedents, and if Harry Wu's lower growth estimates are correct, China's TFP growth has already fallen to about zero.

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