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


Wednesday, October 25, 2023

AI Summary. The S&P 500 delivered an annualized total shareholder return of 16.6% over a ten-year period, composed of 14.3% price appreciation and 2.3% from dividends and dividend reinvestment. Earnings-per-share growth contributed 44% of the total, price-to-earnings multiple expansion 42%, and dividends 14%.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:
Is Database:
Database

Between 2012-21, the total shareholder return for the S&P 500 was 16.6%, with 44% of the return driven by earnings per share growth, and multiple expansion contributing 42%. @mjmauboussin

What drives total shareholder returns for large U.S. stocks?

Core argument: The S&P 500 delivered an annualized total shareholder return of 16.6% from 2012 through 2021, composed of 14.3% price appreciation plus 2.3% from dividends and dividend reinvestment.

Exhibit 2 shows the total shareholder return (TSR) for the S&P 500, an index that tracks the results of the stocks of the 500 largest companies listed in the U.S., on an annualized basis from 2012 through 2021. The annual TSR over that period was 16.6%. We can see how the drivers contribute to the total. Net income growth was 6.7% and the reduction in shares outstanding was 0.7%, leading to EPS growth of 7.4%. The P/E multiple expanded during this period, adding 6.9pp. The combination of EPS growth and multiple expansion led to price appreciation of 14.3%. The dividend yield averaged 2.0% and reinvesting the dividend chipped in an additional 0.3pp. The sum of 14.3 percent from price appreciation and 2.3% from dividends and dividend reinvestment is 16.6%. The right column in Exhibit 2 shows the percentage contributions of each of the drivers. Earnings per share growth was 44%, multiple expansion 42%, and dividends and dividend reinvestment 14%.

Takeaways by Macro Roundup® AI

  1. The S&P 500 delivered an annualized total shareholder return of 16.6% from 2012 through 2021, composed of 14.3% price appreciation plus 2.3% from dividends and dividend reinvestment.
  2. EPS growth of 7.4% over 2012–2021 came from 6.7% net income growth plus 0.7% from the reduction in shares outstanding, while P/E multiple expansion added 6.9 percentage points.
  3. EPS growth contributed 44% of the S&P 500's total shareholder return over 2012–2021, multiple expansion 42%, and dividends with dividend reinvestment 14%.

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.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.

AI Summary. The average monthly new mortgage payment is 52% higher than the average apartment rent, the widest gap since at least 1996, according to CBRE analysis, versus rough parity from 1996 to mid-2003. The ownership premium reflects 30-year mortgage rates reaching 8% alongside high house prices.

Carol Ryan Wall Street Journal
Date Posted:
Is Database:
Database

Carol Ryan @wsj reports that the cost of homeownership exceeds the cost of renting by 52%, as compared to 33% in the second quarter of 2006.

How much more does buying a home cost than renting?

Core argument: The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis, the most extreme buy-versus-rent gap since at least 1996.

The cost of buying a home versus renting one is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis. In theory, buying and renting costs should be roughly matched, according to Matt Vance, head of multifamily research at CBRE. Although owners benefit when house prices go up, they also put more cash into their homes than tenants for things such as repairs and refurbishments. From 1996 to mid-2003, the average cost to buy or rent did indeed work out more or less equal. The current hefty ownership premium reflects the surging cost of debt, as rates on a 30-year mortgage reach 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.

Takeaways by Macro Roundup® AI

  1. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis, the most extreme buy-versus-rent gap since at least 1996.
  2. The ownership premium reflects the surging cost of debt, with rates on a 30-year mortgage reaching 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.
  3. From 1996 to mid-2003 the average cost to buy or rent worked out more or less equal, matching the theory cited by Matt Vance, head of multifamily research at CBRE, that buying and renting costs should be roughly matched.

Related Articles:

  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • US Housing Market Crash Turns Not-So-Sweet 16 — The median existing-home sale price exceeds what a buyer spending 25% of gross household income with a 15% down payment and a 30-year fixed mortgage could afford, leaving affordability more strained than in 2004-07. With for-sale supply very low and most existing mortgages carrying below-market rates, the authors expect home prices to rise slowly.

AI Summary. Retail sales at stores, bars, and restaurants rose 0.7% in a month, equivalent to a 9% yearly rate, with 7% average yearly growth over six months. A decline in risk premiums on assets relative to cash has more than offset higher default-free discount rates, keeping borrowing near pre-pandemic norms.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein writes that the economy is remarkably buoyant despite tight monetary policy, and sees little reason to expect the Fed to loosen policy imminently.

How are consumer spending and borrowing holding up despite higher interest rates?

Core argument: U.S. retail sales rose 0.7% in September from August on a seasonally-adjusted basis, equivalent to a 9% annual growth rate, following monthly gains of 0.6% in July and 0.8% in August.

The uptick in default-free discount rates has been more than offset by a substantial decline in the risk premiums available on assets relative to cash. This helps explain why consumer and corporate borrowing is still roughly in line with pre-pandemic norms. It is certainly possible that the recent run of rapid growth is a one-off that will peter out on its own. It is difficult to overstate the (apparent) strength of consumer spending in the retail sales data. While these numbers may be revised in the future, the current reading is that total spending at stores, bars, and restaurants in September was 0.7% higher than in August on a seasonally-adjusted basis, which is equivalent to a yearly growth rate of 9%. Moreover, monthly growth rates in July and August were 0.6% and 0.8%. Over the past 6 months, retail sales have been growing at a yearly average rate of 7%.

Takeaways by Macro Roundup® AI

  1. U.S. retail sales rose 0.7% in September from August on a seasonally-adjusted basis, equivalent to a 9% annual growth rate, following monthly gains of 0.6% in July and 0.8% in August.
  2. Total spending at stores, bars, and restaurants has grown at a yearly average rate of 7% over the past six months, though these readings are subject to future revision.
  3. The rise in default-free discount rates has been more than offset by a substantial decline in risk premiums on assets relative to cash, helping explain why consumer and corporate borrowing remains roughly in line with pre-pandemic norms.

Related Articles:

  • An Update from Our CIOs: Entering the Second Stage of Tightening — 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.
  • 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.

AI Summary. Japanese corporate ordinary profits as a share of GDP have roughly doubled compared with the "lost decades," with rising dividends and a further decline in household saving each accounting for about 40% of the improvement. The analysis attributes the fall in household saving to corporate deleveraging, which reduced firms' interest payments and thus household interest income.

James Montier GMO
Date Posted:

James Montier @GMOInsights notes a decline in household savings rates has improved Japanese firms’ profitability.

What drove the doubling of Japanese corporate profits relative to GDP?

Core argument: Japanese ordinary profits as a share of GDP have nearly doubled relative to the lost decades, according to the author's measure.

We see a near doubling of profits (ordinary, as defined above, as a percent of GDP). The key drivers of this increase (compared to the lost decades) were a rise in dividends and a further decline in household savings (each accounting for roughly 40% of the difference in profits performance). The decline in household savings is perfectly consistent with the argument used previously (that deleveraging has reduced the interest expense for Japanese corporates). Recall that interest expenses are paid to someone – ultimately a household as a form of income. Hence, given a fall in income (due to lower interest expenses paid by firms), to keep consumption levels unchanged, a fall in household savings would be required. So once again we see the very clear impact of the role of deleveraging in improving Japanese profitability.

Takeaways by Macro Roundup® AI

  1. Japanese ordinary profits as a share of GDP have nearly doubled relative to the lost decades, according to the author's measure.
  2. A rise in dividends and a further decline in household savings each account for roughly 40% of the improvement in Japanese profits performance.
  3. The author argues corporate deleveraging cut Japanese firms' interest expenses, which reduced household interest income and required lower household savings to sustain consumption, improving corporate profitability.

Related Articles:

  • The Curious Incident of the Elevated Profit Margins — The US fiscal deficit averaged just under 3% of gross national product from 1950 to 2011 but 6.6% from 2012 to 2022, driven mainly by health and social security spending, a pattern that holds excluding pandemic years. Even assuming permanently elevated profit margins, US equity valuations imply low long-run returns.
  • Slow Burn Minsky Moments (And What To Do About Them) — The author describes "slow burn Minsky moments" as unsustainable processes or systemic vulnerabilities that accumulate during good times and either collapse of their own accord or amplify external shocks. A private-sector-debt-to-GDP ratio above 150% has been proposed as an important threshold, and the US has been at or above that level for most of the past 20 years.
  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.

AI Summary. Toyota says it is close to producing next-generation solid-state batteries at the same rate as existing electric-vehicle batteries, which would allow mass production by 2027 or 2028. The carmaker expects solid-state-powered cars to travel 1,200km on a charge, more than twice its current electric vehicles, and charge in 10 minutes or less.

Kana Inagaki Financial Times
Date Posted:

Toyota plans to mass-produce solid-state batteries by 2027, allowing EVs to charge in 10 minutes or less and have ranges of up to 750 miles.

Toyota plans to mass-produce solid-state batteries by 2027, allowing EVs to charge in 10 minutes or less and have ranges of...

Are solid-state batteries nearing mass production for electric vehicles?

Core argument: Toyota says it is close to manufacturing solid-state batteries at the same rate as existing EV batteries, which would allow mass production by 2027 or 2028.

Toyota says it is close to being able to manufacture next-generation solid-state batteries at the same rate as existing batteries for electric vehicles, marking a milestone in the global race to commercialise the technology. Its headway in manufacturing technology follows a “breakthrough” in battery materials recently claimed by the world’s largest carmaker by vehicles sold. It would allow Toyota to mass-produce solid-state batteries by 2027 or 2028. Solid-state batteries have long been heralded by industry experts as a potential “game-changer” that could address EV battery concerns such as charging time, capacity, and the risk of catching fire. If successful, Toyota expects its electric cars powered by solid-state batteries to have a range of 1,200km — more than twice the range of its current EVs — and a charging time of 10 minutes or less.

Takeaways by Macro Roundup® AI

  1. Toyota says it is close to manufacturing solid-state batteries at the same rate as existing EV batteries, which would allow mass production by 2027 or 2028.
  2. Toyota expects electric cars powered by its solid-state batteries to have a range of 1,200km, more than twice the range of its current EVs, and a charging time of 10 minutes or less.
  3. Toyota's manufacturing headway follows a "breakthrough" in battery materials claimed by the company, the world's largest carmaker by vehicles sold, in a technology industry experts call a potential "game-changer" for EV charging time, capacity and fire risk.

Related Articles:

  • Toyota Says Solid-State Battery Breakthrough Can Halve Cost And Size — Toyota says it has achieved a technological breakthrough resolving durability issues in solid-state batteries, enabling an electric vehicle range of 1,200km (746 miles) and charging times of 10 minutes or less. The company says cutting the number of processes needed to make battery materials could bring solid-state battery costs to levels similar to or below liquid-based lithium-ion batteries.
  • Your Next Electric Vehicle Could Be Made in China — China has overtaken Japan as the world's largest auto exporter, shipping 1.07m vehicles in a quarter, a 58% year-over-year increase, versus Japan's 950,000. China is also the largest exporter of electric vehicles, accounting for about 35% of global electric vehicle exports, up from 25% two years earlier.
  • 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 International Monetary Fund projects Germany's nominal gross domestic product at $4.43tn versus Japan's $4.23tn, which would make Germany the third-largest economy behind the United States and China. Germany's projected output per person is $52,824 compared with $33,950 in Japan, with the yen near multi-decade lows against the dollar and euro.

Yoshiaki Nohara Bloomberg
Date Posted:

According to the IMF, Germany will likely pass Japan as the third largest economy this year. Primary drivers have been sluggish Japanese growth and a weak yen.

Does a weak currency change which country ranks as third-largest economy?

Core argument: The IMF projects Germany's nominal GDP at $4.43 trillion this year versus Japan's $4.23 trillion, which would leave Germany behind only the United States and China in economic size.

The International Monetary Fund’s latest projections estimate Germany’s nominal gross domestic product at $4.43 trillion this year, compared with $4.23 trillion for Japan. That would leave Germany lagging only the United States and China in terms of economic size. The projections come as the yen teeters close to the 160 mark against the euro and remains within striking distance of the 33-year low against the dollar that sparked a second round of currency intervention in October last year. The euro last reached 160 yen in August 2008. The IMF figures show that Germans are likely feeling a lot better off than Japanese, too. Average gross domestic product per person in Germany is projected at $52,824 compared with $33,950 in Japan.

Takeaways by Macro Roundup® AI

  1. The IMF projects Germany's nominal GDP at $4.43 trillion this year versus Japan's $4.23 trillion, which would leave Germany behind only the United States and China in economic size.
  2. The yen sits near 160 to the euro, a level last reached in August 2008, and remains within striking distance of the 33-year low against the dollar that sparked a second round of currency intervention in October last year.
  3. IMF projections put average GDP per person at $52,824 in Germany against $33,950 in Japan.

Related Articles:

  • Germany’s Industrial Slowdown — German output remains barely above pre-pandemic levels, with cumulative GDP growth of less than 0.5% over roughly five years. German industrial investment has not recovered to pre-pandemic levels, and real fixed investment in equipment remains below its 2018 level, even as the US devotes record resources to factory construction and equipment purchases.
  • Germany Is Losing Its Mojo. Finding It Again Won’t Be Easy — The International Monetary Fund projects Germany will be the only major economy to contract this year, while even sanctioned Russia grows. German exports long depended on a rapidly industrializing China buying its capital goods, but Chinese growth and import demand have faltered, and German industry still faces higher energy costs than U.S. and Asian competitors.
  • Japan Demographic Woes Deepen as Birthrate Hits Record Low — Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.

AI Summary. China's State Administration of Foreign Exchange reported a net outflow of $53.9bn in monthly international financial transactions handled by domestic banks for businesses and households, the largest since a $55.8bn outflow tied to a sudden yuan devaluation. Outflows linked to direct investment, such as building manufacturing plants, were notable.

Iori Kawate Nikkei Asia
Date Posted:

Net outflows of investment capital from China hit a 7-year high in September as foreign firms scaled back operations and rich Chinese shifted assets abroad.

Net outflows of investment capital from China hit a 7-year high in September as foreign firms scaled back operations and...

Are funds flowing out of China at the fastest pace in years?

Core argument: China's net outflow of funds reached $53.9 billion in September, the largest since January 2016's $55.8 billion outflow, according to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks for businesses and households.

According to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks on behalf of businesses and households, the net outflow reached $53.9 billion in September. This is the largest amount since January 2016, when China logged a net outflow of $55.8 billion triggered by a sudden devaluation of the yuan called the "renminbi shock," among other factors. The exodus of funds related to direct investment, such as construction of manufacturing plants, was noticeable in the September figures. Wealthy Chinese are also shifting their assets abroad out of concern over the future of China, according to many analysts.

Takeaways by Macro Roundup® AI

  1. China's net outflow of funds reached $53.9 billion in September, the largest since January 2016's $55.8 billion outflow, according to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks for businesses and households.
  2. The January 2016 net outflow of $55.8 billion was triggered by a sudden devaluation of the yuan known as the "renminbi shock," among other factors.
  3. Outflows tied to direct investment, such as construction of manufacturing plants, were noticeable in China's September figures, and many analysts say wealthy Chinese are shifting assets abroad out of concern over China's future.

Related Articles:

  • Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom — Singapore's central bank has asked major banks to minimize public discussion of the origins of large inflows of money into the city-state, much of it from wealthy Chinese, an issue that has become politically sensitive domestically. Lawyers and industry groups estimate Singapore hosts roughly 1,500 family offices, a large share of them Chinese.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.
  • The Mysterious $300 Billion Flow Out of China — Unexplained financial flows in China's balance of payments, which generally correspond to capital flight and other surreptitious efforts to move money abroad, have been relatively low in recent years, but that may be an illusion created by official reporting. Corresponding flows are hard to locate elsewhere, though the UK has experienced a surge in such unexplained flows.

AI Summary. More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

Evan Osnos The New Yorker
Date Posted:

Reporting from Beijing, @eosnos found a changed country, in which cultural innovation has ground to a standstill, the young are not motivated to work or have kids, and there is a strong desire among the wealthy to leave.

Is emigration from China rising sharply?

Core argument: More than 300,000 Chinese emigrated last year, more than double the pace of migration a decade earlier, with some traveling arduous routes through a half-dozen countries in hope of reaching the U.S.

More than three hundred thousand Chinese moved away last year, more than double the pace of migration a decade ago. Some are resorting to extraordinary measures. In August, a man rode a Jet Ski, loaded with extra fuel, nearly two hundred miles to South Korea. According to rights activists, he had served time in prison for wearing a T-shirt that called China’s leader “Xitler.” Others have followed arduous routes through a half-dozen countries, in the hope of reaching the U.S. This summer, authorities at America’s southern border reported a record 17,894 encounters with Chinese migrants in the previous ten months—a thirteenfold increase from a year earlier.

Takeaways by Macro Roundup® AI

  1. More than 300,000 Chinese emigrated last year, more than double the pace of migration a decade earlier, with some traveling arduous routes through a half-dozen countries in hope of reaching the U.S.
  2. U.S. authorities reported a record 17,894 encounters with Chinese migrants at the southern border over a ten-month period, a thirteenfold increase from a year earlier.
  3. A man rode a Jet Ski loaded with extra fuel nearly 200 miles from China to South Korea, having served prison time, according to rights activists, for wearing a T-shirt calling China's leader "Xitler.".

Related Articles:

  • China’s Brain Drain Threatens Its Future — United Nations data show net emigration from China has risen from a low of about 125,000 a year to more than 300,000. Private data on individuals with over $1m in assets show a similar pattern, with net outflows of the wealthy climbing from around 9,000 a year to over 15,000.
  • Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom — Singapore's central bank has asked major banks to minimize public discussion of the origins of large inflows of money into the city-state, much of it from wealthy Chinese, an issue that has become politically sensitive domestically. Lawyers and industry groups estimate Singapore hosts roughly 1,500 family offices, a large share of them Chinese.
  • The Mysterious $300 Billion Flow Out of China — Unexplained financial flows in China's balance of payments, which generally correspond to capital flight and other surreptitious efforts to move money abroad, have been relatively low in recent years, but that may be an illusion created by official reporting. Corresponding flows are hard to locate elsewhere, though the UK has experienced a surge in such unexplained flows.

Thursday, October 26, 2023

AI Summary. Within the same metropolitan-area income quartile, denser neighborhoods have a higher share of jobs that can be done remotely. The authors argue this pattern suggests increased telework raises willingness to pay for housing in high-density places, where leisure amenities and nonwork social interaction are more available.

Leah Brooks, Philip Hoxie, and Stan Veuger American Enterprise Institute
Date Posted:

Remote work is more prevalent in denser neighborhoods according to new research by @stanveuger @phoxie58 @AEIecon.

Does remote work increase demand for housing in dense neighborhoods?

Core argument: Among neighborhoods within the same metropolitan-area income quartile, denser block groups have a higher share of teleworkable jobs, a finding the authors describe as surprising.

We find that, for neighborhoods in the same metropolitan-area income quartile, the denser the block group, the higher the share of teleworkable jobs. This surprising finding could arise for a number of reasons. First, if workers in industries with greater telework potential enjoy more leisure time in equilibrium, their willingness to pay for amenities that complement leisure increases, and such amenities may not be available in lower-density areas. Second, if workers value social interactions and interactions at work are less frequent, they may seek out social interactions in nonwork settings. Nonwork social interactions are more readily found in population dense areas. Third, and similarly, if in-person contact drives agglomeration effects, a shift to remote work makes such contact outside the workplace more valuable. Again, in-person contact is easier in more population dense areas. All these explanations point toward increased telework leading to a greater willingness to pay for housing in high-density places.

Takeaways by Macro Roundup® AI

  1. Among neighborhoods within the same metropolitan-area income quartile, denser block groups have a higher share of teleworkable jobs, a finding the authors describe as surprising.
  2. One proposed explanation holds that workers in industries with greater telework potential enjoy more leisure in equilibrium, raising their willingness to pay for leisure-complementing amenities that may be unavailable in lower-density areas.
  3. The authors argue that if workers seek social interaction and in-person contact outside the workplace, increased telework would raise willingness to pay for housing in high-density places.

Related Articles:

  • Remote Work Is Less Common Than We Thought — New Bureau of Labor Statistics estimates show hybrid remote work is substantially less common than other surveys indicated, while fully remote work matches other estimates at about one in ten workers, making fully remote slightly more common than hybrid. Nearly one in five college-educated workers are fully remote, and nearly 40% of advanced-degree holders work hybrid or fully remote.
  • Remote Work, Three Years Later — Remote work has reduced office utilization but not yet office occupancy, because most firms are locked into long-duration leases. Baseline estimates suggest remote work will exert 0.8 percentage points of upward pressure on the office vacancy rate near-term, 2.3 more over the following five years, and 1.8 thereafter.
  • The Geography of Working From Home Begins to Shift Again — Areas with the highest shares of people working from home are mostly central cities of metropolitan areas or places hosting large corporate headquarters, including Cupertino, California and Redmond, Washington, home to Apple and Microsoft. Working from home appears most popular in places close to concentrations of offices and other workplaces.

AI Summary. The Census Bureau's customary homeownership rate is measured by household, showing 52.7% of 25-to-34-year-old household heads own homes, but only 32.6% of all Americans in that age group do — down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s. Young-adult homeownership has seen a modest resurgence since 2016.

Justin Fox Bloomberg
Date Posted:

.@foxjust writes that after accounting for the increasing percentage of young people who live at home, the homeownership rate of young Americans has been in almost continuous decline for 50 years.

Has young-adult homeownership fallen since the late 1970s?

Core argument: Only 32.6% of all US 25-to-34-year-olds own their homes, down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s.

The homeownership rate as customarily reported by the Census Bureau is measured by household. Of the 25-to-34-year-olds who are heads of a household, 52.7% own their own homes. But of all the 25-to-34-year-olds in the US, only 32.6% do, down 20 percentage points from the late 1970s and almost 10 points since the mid-2000s. However you measure or slice it, there has been a modest resurgence in young-adult homeownership since 2016. It appears to have stalled earlier this year amid rising interest rates. A recession would almost certainly throw it into reverse. Let’s hope that doesn’t happen.

Takeaways by Macro Roundup® AI

  1. Only 32.6% of all US 25-to-34-year-olds own their homes, down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s.
  2. The Census Bureau's customary household-based measure puts homeownership at 52.7% among 25-to-34-year-olds who head a household, well above the 32.6% share of all Americans in that age group who own homes.
  3. Young-adult homeownership has seen a modest resurgence since 2016 that appears to have stalled amid rising interest rates, and a recession would almost certainly throw it into reverse.

Related Articles:

  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.
  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • There’s Never Been a Worse Time to Buy Instead of Rent — The average monthly new mortgage payment is 52% higher than the average apartment rent, the widest gap since at least 1996, according to CBRE analysis, versus rough parity from 1996 to mid-2003. The ownership premium reflects 30-year mortgage rates reaching 8% alongside high house prices.

AI Summary. The United Auto Workers reached a tentative agreement with Ford in which the carmaker agreed to a 25% hourly wage increase over a contract lasting more than four years. Including cost-of-living allowances, the union says the top wage rate is expected to rise 33% to over $40 an hour.

Keith Naughton, David Welch, Gabrielle Coppola, and Josh Eidelson Bloomberg
Date Posted:

The UAW and Ford have a tentative deal that will see a 25% hourly wage increase over 4 years; including cost-of-living allowances, the rate will increase by 33%. Ford’s labor costs will rise by $900mm in the first year of the deal.

The UAW and Ford have a tentative deal that will see a 25% hourly wage increase over 4 years; including cost-of-living...

Did an autoworkers strike end with a 25% wage increase?

Core argument: Ford agreed to a record 25% hourly wage increase over a contract life exceeding four years in a tentative deal with the United Auto Workers to end the strike.

The United Auto Workers reached a tentative labor agreement with Ford Motor Co., putting pressure on the carmaker’s two chief rivals to end a protracted strike that has cost the industry billions of dollars. Ford agreed to a record 25% hourly wage hike over the life of the contract, which exceeds four years. With cost-of-living allowances, the top wage rate is expected to increase by 33%. The top pay will be over $40 an hour, the union said.

Takeaways by Macro Roundup® AI

  1. Ford agreed to a record 25% hourly wage increase over a contract life exceeding four years in a tentative deal with the United Auto Workers to end the strike.
  2. With cost-of-living allowances, Ford's top wage rate is expected to rise by 33%, bringing top pay to over $40 an hour, according to the union.
  3. The Ford tentative agreement puts pressure on the carmaker's two chief rivals to end a protracted strike that has cost the auto industry billions of dollars.

Related Articles:

  • 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.
  • Auto Union Boss Wants 46% Raise, 32-Hour Work Week in ‘War’ Against Detroit — The United Auto Workers union has demanded a 46% raise, a return to traditional pensions, and a 32-hour work week from the three Detroit automakers. The companies say meeting those demands would raise labor costs by $80bn and lift total pay and benefit expenses to more than $150 an hour from about $64.
  • Kaiser Workers Launch Largest-Ever US Health Care Strike — Kaiser Permanente health care workers launched the largest health care strike in US history, a three-day walkout that could stall services for nearly 13mm people across at least six states. The strike is one of several high-profile US labor disputes attributed to a tight labor market, high inflation, and record corporate profits.

AI Summary. Copper producers warn that existing and planned mines are insufficient to meet expected demand, which is projected to climb as the world electrifies and as living standards rise in India and other developing nations. Anglo American estimates Western living standards require 200-250kg of copper per person, versus a global average of 60kg.

Harry Dempsey and Euan Healy Financial Times
Date Posted:

S&P Global forecasts that copper demand will double to 50mm metric tons by 2035 compared with 2021 levels, and predicts a “chronic gap” between supply and demand.

Will existing and planned copper mines meet rising global demand?

Core argument: Copper prices have fallen 4% this year to about $8,000 a tonne, down from more than $10,000 at last year's peak, as world economic growth cooled and output rose at new mines in Peru and Chile.

Copper prices have dropped 4% this year to about $8,000 a tonne, down from more than $10,000 at their peak last year, as the growth in the world economy has cooled off and production at new mines in Peru and Chile has been increasing. Yet demand for the commodity is expected to take off to supply the green economy, as well as to support the economic rise of India and other developing nations. The living standards of the average westerner requires 200-250 kilogrammes of copper per person, versus 60kg on average globally, according to Anglo American, one of the world’s largest miners. It is used in everything from electrical wiring and household appliances to infrastructure such as trains. Its use will become ever greater as the world goes green, resulting in it being dubbed the “metal of electrification.”

Takeaways by Macro Roundup® AI

  1. Copper prices have fallen 4% this year to about $8,000 a tonne, down from more than $10,000 at last year's peak, as world economic growth cooled and output rose at new mines in Peru and Chile.
  2. Anglo American estimates that western living standards require 200–250 kg of copper per person, versus a global average of 60 kg, with demand expected to take off as India and other developing nations grow richer.
  3. Copper producers warn that too few mines exist to meet expected demand for the metal, whose use in wiring, appliances and infrastructure such as trains has earned it the label "metal of electrification.".

Related Articles:

  • How to Avoid a Green-Metals Crunch — The International Energy Agency projects a carbon-neutral world in 2050 will need 35m tonnes of green metals annually, with demand by 2030 rising 50-70% for copper and nickel, 150% for cobalt and neodymium, and six- to sevenfold for graphite and lithium. Industry forecasters anticipate copper supply gaps of 2m-4m tonnes and a lithium shortfall of 50,000-100,000 tonnes by 2030.
  • Copper Is Unexpectedly Getting Cheaper — Financial investors have shifted away from copper toward cash-generating assets as interest rates rise, with futures positioning implying more bets on falling prices than recovery. Prices remain about $2,500 a tonne above marginal production costs, suggesting the correction removed froth rather than pushing prices too low.
  • Glencore Says This Time Is Different for Coming Copper Shortage — Glencore estimates a cumulative gap between projected copper demand and supply of 50m tons through 2030, against current world demand of about 25m tons a year, and argues the industry will not lift supply as it has in previous cycles. The company says copper prices do not yet reflect the coming deficit.

AI Summary. The authors estimate US-China trade is likely to expand to around $855bn under a scenario where trade grows at the same rate as nominal GDP. They argue that despite US efforts to shift supply chains toward friendly countries, aggregate US imports from alternative sources are unlikely to increase dramatically.

Megan Hogan and Gary Clyde Hufbauer Peterson Institute for International Economics
Date Posted:

Megan Hogan and Gary Hufbauer @PIIE note that the US-China trade relationship has always faced challenges, and, although the challenges are more severe this time, there are few signs that US imports from China will decrease between now and 2025.

Will US-China trade keep growing despite efforts to shift supply chains?

Core argument: The authors estimate US-China trade will expand to roughly $855 billion by 2025 under a scenario in which trade grows at the same rate as nominal GDP, noting trade growth has historically outpaced GDP growth.

We first survey the pattern of trade changes between 2019 and 2022 (skipping the acute pandemic years of 2020 and 2021) and then define assumptions to estimate potential trade changes and decoupling between 2022 and 2025 under two scenarios: (1) no real trade growth and (2) trade growth at the same rate as nominal GDP growth. As trade growth has historically outpaced GDP growth, we estimate that US-China trade will likely expand between now and 2025, to around $855 billion (under the second scenario). Despite potential US “friendshoring”—reducing investments and supply dependencies in China and channeling them instead to “friendly” countries—it is not likely that aggregate US imports from alternative sources will increase dramatically over the next three years.

Takeaways by Macro Roundup® AI

  1. The authors estimate US-China trade will expand to roughly $855 billion by 2025 under a scenario in which trade grows at the same rate as nominal GDP, noting trade growth has historically outpaced GDP growth.
  2. The analysis surveys US-China trade changes between 2019 and 2022, skipping the acute pandemic years of 2020 and 2021, and estimates trade changes and decoupling from 2022 to 2025 under two scenarios: no real trade growth and growth at the pace of nominal GDP.
  3. Despite US "friendshoring"—reducing investments and supply dependencies in China and channeling them to friendly countries—the authors judge that aggregate US imports from alternative sources are not likely to increase dramatically over the next three years.

Related Articles:

  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • Breaking Down China’s Manufacturing — About 40–45% of China's manufacturing output comes from exports and 55–60% from domestic demand, making the sector mainly domestically oriented while still relying substantially on external demand. Estimates extending the data beyond the available database suggest the export share has picked up, reflecting a pandemic-era export boom.
  • Mexico Seeks to Solidify Rank As Top U.S. Trade Partner, Push Further Past China — Mexico is the top U.S. trading partner, accounting for 15.4% of all U.S. goods trade versus 15.2% for Canada and 12.0% for China, with four-month bilateral trade of $263bn. Manufactured goods made up $234.2bn of that total, with $157bn of Mexican imports and $107bn of U.S. exports.

AI Summary. US trade policy actions have had no significant effect on China's overall trade, which runs substantial surpluses with every large economic region, including North America. China's share of world exports has stopped rising but remains far above that of the US or the European Union excluding internal trade.

Martin Wolf Financial Times
Date Posted:

Martin Wolf points out that China’s share of global exports is up over the past five years despite restrictive US trade policies. He argues that the greatest threat to Chinese prosperity is the CCP’s increasing intolerance of markets.

Have US trade policy actions significantly reduced China's exports?

Core argument: Trade policy actions introduced under Donald Trump and continued under Joe Biden have had no significant effect on China's overall trade, which ran substantial surpluses with every big economic region in 2022, including North America.

The trade policy actions introduced under Donald Trump and continued under Joe Biden have had no significant effect on China’s overall trade. In 2022, it ran substantial trade surpluses with every big economic region, including North America. Its ratio of trade to GDP has fallen, but is still high for such a large economy. Its share of world exports has stopped rising. But it is still far higher than those of the EU (excluding internal trade) or the US. Lack of export earnings will not stop China from buying what it needs.

Takeaways by Macro Roundup® AI

  1. Trade policy actions introduced under Donald Trump and continued under Joe Biden have had no significant effect on China's overall trade, which ran substantial surpluses with every big economic region in 2022, including North America.
  2. China's share of world exports has stopped rising but remains far higher than that of the EU, excluding internal trade, or the US.
  3. China's ratio of trade to GDP has fallen yet stays high for an economy of its size, and a lack of export earnings will not stop China from buying what it needs.

Related Articles:

  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • China’s Surplus Again Topped 10% Of GDP — China's manufacturing trade surplus again exceeded 10% of its GDP, with its overall goods surplus approaching its pre-global-financial-crisis peak and far larger in dollar terms. Net of processing imports, exports run about 14% of GDP while manufactured imports are under 4%, meaning the rest of the world supplies China with net demand.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

AI Summary. China's Semiconductor Manufacturing International Corp. used ASML immersion deep ultraviolet machines, combined with tools from other companies, to produce an advanced Huawei smartphone processor that alarmed the US, according to people familiar with the matter. There is no suggestion the equipment sales violated export restrictions.

Cagan Koc and Diederik Baazil Bloomberg
Date Posted:

ASML‘s Chinese sales have yet to be significantly impacted by the sanctions regime, however, stricter American restrictions will increasingly have an impact.

Can China make advanced chips with legally purchased Western equipment?

Core argument: China's Semiconductor Manufacturing International Corp. used ASML immersion deep ultraviolet machines, combined with tools from other companies, to produce the advanced Huawei Technologies Co. smartphone processor that alarmed the US, according to people familiar with the matter.

China’s Semiconductor Manufacturing International Corp. used equipment from ASML to manufacture an advanced processor for a Chinese smartphone that alarmed the US, according to people familiar with the matter. In a suggestion that export restrictions on Europe’s most valuable tech company may have come too late to stem China’s advances in chipmaking, ASML’s so-called immersion deep ultraviolet machines were used in combination with tools from other companies to make the Huawei Technologies Co. chip, the people said, asking not to be identified discussing information that’s not public. ASML declined to comment. There is no suggestion that their sales violated export restrictions.

Takeaways by Macro Roundup® AI

  1. China's Semiconductor Manufacturing International Corp. used ASML immersion deep ultraviolet machines, combined with tools from other companies, to produce the advanced Huawei Technologies Co. smartphone processor that alarmed the US, according to people familiar with the matter.
  2. The use of ASML equipment in the Huawei chip suggests export restrictions on Europe's most valuable technology company may have come too late to stem China's advances in chipmaking, with no suggestion that the sales violated those restrictions.

Related Articles:

  • China AI & Semiconductors Rise: US Sanctions Have Failed — 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.
  • 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.
  • 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.