Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “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
  • “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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, November 15, 2023

AI Summary. The authors conclude that the natural rate of unemployment declined during the expansion that began in 2009, when unemployment fell from 10% to 3.5% with near-constant inflation. Their reasoning is that with inflation anchored at the Federal Reserve's 2% target over such a long stable period, New Keynesian theory implies the observed unemployment rate equals the natural rate.

Robert Hall and Marianna Kudlyak National Bureau of Economic Research
Date Posted:

Robert Hall and @MariannaKudlyak argue the natural rate of unemployment has fallen in the aftermath of the financial crisis to 3.5%.

Does the natural rate of unemployment decline during long recoveries?

Core argument: Unemployment fell from 10% to 3.5% during the decade-long expansion beginning in 2009 while inflation remained nearly constant, a combination the authors argue makes Phillips curves with constant natural rates and constant slopes untenable.

The decade-long expansion starting in 2009 combined near constant inflation with continuing declines in unemployment from 10% to 3.5%. Phillips curves constructed with constant natural rates and constant slopes became untenable as this process unfolded. Our investigation of the recovery starting in 2009 concludes in favor of a declining natural rate. The logical basis for this conclusion is that the anchored inflation rate must have converged to the Fed’s target rate of 2% over such a long period of stable inflation so close to that target. A bedrock principle of the New Keynesian model is that in an economy with actual inflation equal to its anchor, the observed unemployment rate must equal the natural rate.

Takeaways by Macro Roundup® AI

  1. Unemployment fell from 10% to 3.5% during the decade-long expansion beginning in 2009 while inflation remained nearly constant, a combination the authors argue makes Phillips curves with constant natural rates and constant slopes untenable.
  2. The authors conclude that the natural rate of unemployment declined over the recovery starting in 2009, reasoning that anchored inflation must have converged to the Fed's 2% target over such a long period of stable inflation close to that target.
  3. A bedrock principle of the New Keynesian model, cited by the authors, holds that when actual inflation equals its anchor, the observed unemployment rate must equal the natural rate.

Related Articles:

  • How Far Is Labor Force Participation from Its Trend? — The share of Americans working or looking for work stands at 62.6%, nearly a percentage point below its pre-pandemic level, and the authors project the trend will decline another 1 percentage point over a decade. They attribute the projected decline to population composition, with more people entering older age groups that have low participation rates, outweighing rising educational attainment.
  • The Dual U.S. Labor Market Uncovered — The authors identify a dual U.S. labor market in which a primary segment of about 55% of the population is almost always employed, while a secondary segment of about 14% absorbs most seasonal and business-cycle fluctuations. Workers in the secondary segment have 6x higher turnover and are 10x more likely to be unemployed than primary-segment workers.

AI Summary. Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.

Ryan Cummings and Neale Mahoney Briefing Book
Date Posted:

When the opposing party holds the White House, Republicans have 2.5 times more negative sentiment than Democrats. Adjusting for this asymmetry closes 30% of the current gap between predicted and reported economic sentiment. @nealemahoney

Does partisan bias in survey responses explain the consumer sentiment gap?

Core argument: Republican survey respondents' consumer sentiment swings about +/-15 index points relative to predicted levels depending on whether a Republican or Democrat holds the White House, while Democrats' views swing only about +/-6 points.

When a Republican is in the White House, Republican survey respondents feel about 15 index points better than predicted about the economy, whereas Democrats feel around 6 index points worse. When a Democrat is President, Republicans feel about 15 index points worse than the economy, but Democrats only feel around 6 index points better. This roughly +/- 15 point swing for Republicans versus the +/- 6 point swing for Democrats is what we term asymmetric amplification. (Independents’ views are roughly halfway between those of Republicans and Democrats.) We find that adjusting for asymmetric amplification shrinks the current gap between observed and predicted consumer sentiment by 30 percent.

Takeaways by Macro Roundup® AI

  1. Republican survey respondents' consumer sentiment swings about +/-15 index points relative to predicted levels depending on whether a Republican or Democrat holds the White House, while Democrats' views swing only about +/-6 points.
  2. The authors term the gap between Republicans' +/-15 point swing and Democrats' +/-6 point swing "asymmetric amplification," with independents' views falling roughly halfway between the two parties.
  3. Adjusting for asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30 percent, according to the authors.

Related Articles:

  • The Economy Is Great. Why Are Americans in Such a Rotten Mood? — Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.
  • The Pandemic Has Broken a Closely Followed Survey of Sentiment — A statistical model using 13 economic variables including inflation, unemployment, and petrol prices explained 86% of the variation in the monthly US consumer-sentiment index between 1980 and 2016, but the correlation between sentiment and both current and future spending has vanished since the pandemic began. The same variables retain their power to forecast consumer spending.
  • Why Less Engaged Voters Are Biden’s Biggest Problem — Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.

AI Summary. Even as inflation eases and gasoline prices fall by about a third from their peak, the University of Michigan's consumer sentiment index keeps declining. Housing costs stand apart: home prices are up 29% and mortgage rates have nearly tripled, leaving the typical buyer with a monthly principal and interest payment of nearly $2,200, more than double its earlier level.

Greg Ip Wall Street Journal
Date Posted:

Since January 2021, CPI has increased 17%, but the monthly principal and interest cost of owning the median US home is up 113%. @greg_ip

Why does consumer sentiment keep falling as inflation eases?

Core argument: U.S. home prices have risen 29% since January 2021 despite a late-2022 dip, according to the S&P/Case-Shiller national home price index, while mortgage rates have nearly tripled.

Inflation, we just learned, eased in October, extending a two-week rally in stocks and bonds. And yet the University of Michigan’s index of consumer sentiment keeps falling. Gasoline is down about a third since its mid-2022 peak. Grocery prices haven’t fallen, but they are only up 2% in the past year; dairy, eggs, chicken, and meat are flat. Even if they don’t drop, maybe a long spell of not going up will loosen their grip on our psyche. Housing is an entirely different matter. Since January 2021, home prices, despite a late 2022 dip, have risen 29%, according to the S&P/Case-Shiller national home price index, and mortgage rates have nearly tripled. The buyer of the typical home thus faces a monthly principal and interest payment of nearly $2,200, more than double the level of early 2021, the National Association of Realtors calculates.

Takeaways by Macro Roundup® AI

  1. U.S. home prices have risen 29% since January 2021 despite a late-2022 dip, according to the S&P/Case-Shiller national home price index, while mortgage rates have nearly tripled.
  2. The National Association of Realtors calculates that the buyer of a typical home faces a monthly principal and interest payment of nearly $2,200, more than double the level of early 2021.
  3. Inflation eased in October and gasoline prices are down about a third from their mid-2022 peak, with grocery prices up 2% over the past year and dairy, eggs, chicken, and meat flat, yet the University of Michigan's consumer sentiment index keeps falling.

Related Articles:

  • Inflation Adjusted House Prices 3.1% Below Peak — Inflation-adjusted US house prices are 3.1% below their peak. On an affordability index using the Case-Shiller National Index and Freddie Mac 30-year fixed mortgage rates, the monthly principal-and-interest payment on an equivalent home is up 25% over a year and 88% over two years as rates rose from 2.84% to 7.07%.
  • 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. Annual growth of broad money is negative, and it looks increasingly plausible that the monetary tightening cycle has ended and that loosening is closer than central banks suggest. Waiting too long risks a costly slowdown and a return to too-low inflation, though the outlook remains uncertain.

Martin Wolf Financial Times
Date Posted:

Martin Wolf predicts that the hiking cycle is likely over.  He thinks the central banks, especially in the US, have largely achieved their inflation goals.

Should central banks start loosening sooner than they now suggest?

Core argument: Annual growth of broad money (M3) is firmly negative, and monetary data, while it cannot be targeted, should not be ignored by central banks.

Central banks must look ahead and remember the lags between their actions and economic activity. In doing so, they might also cast one eye on monetary data. Annual growth of broad money (M3) is firmly negative. Monetary data cannot be targeted. But it must also not be ignored. In brief, it looks increasingly plausible that this tightening cycle has come to an end. It also looks quite likely that the beginning of the subsequent loosening is closer than central banks are suggesting. If that turns out not to be the case, there is some risk that it will come too late to avoid a costly slowdown and even a return to too low inflation. Yet none of this is certain: policymaking is now at a truly difficult point in the cycle.

Takeaways by Macro Roundup® AI

  1. Annual growth of broad money (M3) is firmly negative, and monetary data, while it cannot be targeted, should not be ignored by central banks.
  2. It looks increasingly plausible that the tightening cycle has ended and that the start of the subsequent loosening is closer than central banks are suggesting.
  3. If loosening does not come sooner, it risks arriving too late to avoid a costly slowdown and even a return to too low inflation, leaving policymaking at a truly difficult point in the cycle.

Related Articles:

  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • U.S. Wage Growth Is Slowing, Somewhat — U.S. wage growth has slowed substantially without a large rise in joblessness, though wages are still rising faster than in the decade before the pandemic, at a pace comparable to the late 1990s and 2006-2007. The author argues much of the earlier outsized pay gains reflected one-off job market churn and sectoral shifts.

AI Summary. Long-running nationally representative surveys of U.S. 12th graders show the share saying they want to do their best at a job "even if this sometimes means working overtime" fell from 54% to 36%, a relative drop of 33% in two years, after work ethic measures had recovered among Gen Z in the 2010s.

Jean Twenge Generation Tech
Date Posted:

The self-reported work ethic of US high school seniors has plummeted: 54% of 18-year-olds were willing to work overtime at the start of 2020. This dropped to 36% by 2022, the lowest level in the 46-year history of the survey. @jean_twenge

Has the willingness of young workers to work overtime declined?

Core argument: The share of U.S. 18-year-olds saying they wanted to do their best in their job "even if this sometimes means working overtime" fell from 54% in early 2020 to 36% in 2022, a relative drop of 33%.

What was each generation’s work ethic like when they were young? Nationally representative surveys like Monitoring the Future can show us this – it has asked U.S. 12th graders, most of whom are 18 years old, about their work attitudes since 1976. Up until a few years ago, the work ethic news was positive for Gen Z (those born 1995-2012, and 18 years old 2013-2030). After declining from Boomers to Millennials, work ethic made a comeback among Gen Z 18-year-olds in the 2010s. Until it didn’t. The number of 18-year-olds who said they wanted to do their best in their job “even if this sometimes means working overtime” suddenly plummeted in 2021 and 2022. In early 2020, 54% of 18-year-olds said they were willing to work overtime. By 2022, it was 36%. That’s a (relative) drop of 33% in just two years.

Takeaways by Macro Roundup® AI

  1. The share of U.S. 18-year-olds saying they wanted to do their best in their job "even if this sometimes means working overtime" fell from 54% in early 2020 to 36% in 2022, a relative drop of 33%.
  2. Monitoring the Future, which has surveyed U.S. 12th graders about work attitudes since 1976, shows work ethic declining from Boomers to Millennials before rebounding among Gen Z 18-year-olds during the 2010s.
  3. The rebound in work ethic among Gen Z, defined as those born 1995–2012 and turning 18 between 2013 and 2030, reversed in 2021 and 2022.

Related Articles:

  • Young Men Are Gaming More. Are They Working Less? — US Bureau of Labor Statistics time-use data show time young American men spent playing games rose by nearly three-quarters of an hour from 2019 to 2022, exceeding the increase over the prior 16 years, with most of the added gaming time coming from work and sports, exercise and recreation.
  • Is Technology Changing the Value of Leisure? — Is Technology Changing the Value of Leisure?
  • Do 60 Percent Of American Workers Have Insecure Jobs? — A survey by American Compass concludes that only 40% of American workers have secure jobs, a finding critics dispute on methodological grounds. On one of the survey's own criteria, 96% of workers reported either a regular weekly schedule or satisfaction with their control over a varying one.

AI Summary. Private equity firms that built more than $1.5tn of assets in China face difficulty exiting investments, with secondary buyers demanding discounts of 30% to more than 60% versus roughly 15% in Europe and the US. Weak public markets and unattractive valuations have pushed buyout firms toward private sales.

Cathy Chan and Preeti Singh Bloomberg
Date Posted:

Private equity firms have assets of at least $1.5T in China; currently, secondary buyers are demanding extreme discounts, in some cases exceeding 60%, to take on these assets.

Are private equity firms struggling to exit their Chinese investments?

Core argument: Private equity firms that built more than $1.5 trillion of assets in China over two decades are struggling to exit once-promising investments they were counting on for hefty returns.

Private equity firms that amassed more than $1.5 trillion of assets in China in just two decades are now struggling to offload once-promising investments they were counting on for hefty returns. With public markets in a slump and offering unattractive valuations, buyout firms are exploring private sales. But mounting concerns about the risks of investing in mainland China have left so-called secondary buyers demanding discounts of 30% to more than 60%, according to people familiar with the market. Haircuts in Europe and the US are closer to 15%.

Takeaways by Macro Roundup® AI

  1. Private equity firms that built more than $1.5 trillion of assets in China over two decades are struggling to exit once-promising investments they were counting on for hefty returns.
  2. Secondary buyers are demanding discounts of 30% to more than 60% on Chinese private equity stakes, versus closer to 15% in Europe and the US, according to people familiar with the market.
  3. With public markets in a slump and offering unattractive valuations, buyout firms holding Chinese assets are exploring private sales.

Related Articles:

  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • China Suffers Plunging Foreign Direct Investment Amid Geopolitical Tensions — Foreign direct investment into China is falling across multiple measures, with one month showing a 34% year-on-year drop to Rmb72.8bn ($10bn), the steepest decline since monthly figures became available in 2014. After rising 15% year on year early in the year, inflows have posted double-digit percentage declines each month since.
  • 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.

Thursday, November 16, 2023

AI Summary. Greater exposure to labor-saving automation technologies is associated with lower worker earnings and a higher probability of involuntary job loss over the following five years, with effects largely unrelated to observable worker skill. Exposure to labor-augmenting technologies is associated with smaller earnings declines, concentrated among white-collar, older, and higher-paid workers.

Leonid Kogan, Dimitris Papanikolaou, Lawrence Schmidt and Bryan Seegmiller National Bureau of Economic Research
Date Posted:
Is Database:
Database

An @NBERpubs study finds that, unlike labor-saving technologies that drive earnings declines and job losses for all affected workers, labor-augmenting technologies disproportionately impact white-collar, older, and higher-paid workers. @DimitrisPapan20

How does exposure to new technologies affect worker earnings and job loss?

Core argument: Moving from the median to the 90th percentile of exposure to labor-saving (automation) patents is associated with a 2.5 pp decline in workers' total earnings over the next five years and a 1.2 pp rise in the probability of involuntary job loss.

Improvements in labor-saving (automation) technologies are negatively related to the wage earnings of workers in affected occupation–industry cells. For instance, an increase in our exposure measure from the median to the 90th percentile is associated with a 2.5 pp decline in the total earnings of the average worker over the next five years. These earnings losses are concentrated on a subset of workers, since exposed workers experience a 1.2pp increase in the probability of involuntary job loss over the next five years. Importantly, the magnitude of these wage declines or job loss probabilities are essentially unrelated to observable measures of worker skill—measured by age, level of wage earnings relative to other workers in the same industry and occupation, and college education. Perhaps surprisingly, but consistent with our model, new labor-augmenting technologies also lead to a decline in earnings for exposed workers, though the average magnitudes are smaller. An increase in our exposure measure from the median to the 90th percentile is associated with a 1.3pp decline in earnings growth and a 0.5pp increase in the likelihood of involuntary job loss. However, unlike in the case of labor-saving technology, the effects of exposure to labor-augmenting technologies are fairly heterogeneous: it disproportionately affects white-collar workers (defined as those with college degrees, or those employed in non-manufacturing industries or in occupations emphasizing cognitive tasks); older workers; and workers that are paid more relative to their peers (other workers with similar characteristics in the same industry and occupation).

Takeaways by Macro Roundup® AI

  1. Moving from the median to the 90th percentile of exposure to labor-saving (automation) patents is associated with a 2.5 pp decline in workers' total earnings over the next five years and a 1.2 pp rise in the probability of involuntary job loss.
  2. The earnings and job-loss effects of labor-saving technology exposure are essentially unrelated to observable worker skill measures, including age, college education, and wage earnings relative to peers in the same industry and occupation.
  3. Labor-augmenting technologies also lower earnings for exposed workers, with a median-to-90th-percentile exposure increase associated with a 1.3 pp decline in earnings growth and a 0.5 pp rise in involuntary job loss, disproportionately affecting white-collar, older, and higher-paid workers.

Related Articles:

  • Perspectives on the Labor Share — The share of US income going to labor fell roughly 5 percentage points between 1929 and 2022, with declines across most US industries and in most countries of Europe, Asia, and emerging markets. The author argues the most plausible causes are technological, including the information age and automation.
  • AI Isn’t Good Enough — The US labor force is roughly 5M workers smaller than if it had grown in line with history and GDP, down from a gap of about 7M, and retirements, aging, and skill mismatches make closing it quickly unlikely. The author argues the current wave of artificial intelligence is near its end and has displaced workers without delivering matching productivity gains.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Nearly all lending in the federal funds market comes from Federal Home Loan Banks, which cannot earn interest on reserves and use the market to earn a return on cash. Regulators are encouraging these banks to shift cash into interest-bearing deposit accounts, which would shrink the federal funds market.

Joseph Wang Fed Guy Blog
Date Posted:

New rules will likely effectively end the relevance of the Fed funds market leaving the Secured Overnight Financing Rate as the official policy rate. @FedGuy12

Will regulatory pressure on home loan banks shrink the federal funds market?

Core argument: Almost all lending in the federal funds market comes from Federal Home Loan Banks, which are ineligible for interest on reserves and lend in the funds market to earn a return on their cash.

The Federal Funds market has been in an undead state for over a decade, but may now finally wither away and allow Secured Overnight Funding Rate to become the official policy rate. Almost all lending in the funds market is from Federal Home Loan Banks, who are ineligible for interest on reserves and lend in the funds market to earn a return on their cash. Regulators are encouraging Federal Home Loan Banks to shift the composition of their cash investments away from fed funds and into interest bearing deposit accounts. The Fed funds market will likely shrink as Federal Home Loan Banks shift their cash investments towards interest bearing deposit accounts.

Takeaways by Macro Roundup® AI

  1. Almost all lending in the federal funds market comes from Federal Home Loan Banks, which are ineligible for interest on reserves and lend in the funds market to earn a return on their cash.
  2. Regulators are encouraging Federal Home Loan Banks to shift their cash investments out of fed funds and into interest-bearing deposit accounts, a move that would likely shrink the federal funds market.
  3. The federal funds market, in an undead state for over a decade, may finally wither away and allow the Secured Overnight Financing Rate to become the official policy rate.

Related Articles:

  • Neutralizing QT — Declining balances in the Federal Reserve's reverse repurchase facility are projected to eventually outweigh the Fed's balance-sheet runoff and produce a net increase of money in the financial system. As money market funds lend to the Treasury, that cash flows through government spending into the banking system, mechanically increasing bank reserves and deposits.
  • Probing LCLoR — Bank reserves stand around $3.2t versus a common Federal Reserve estimate of roughly $2.2t (8% of GDP) for the lowest comfortable level, and reserves are on track to approach that level within months. Growth in reverse repo balances and rebuilding of the Treasury's cash account would draw reserves down.

AI Summary. Bank of America data show a "Payroll Disruptions Rate" — the share of customers with 12 consecutive months of payroll deposits who then go three months without any — that has been rising and sits above its level in the two years before the pandemic. The authors note a persistent rise likely indicates a weakening labor market.

David Michael Tinsley Bank of America
Date Posted:

According to @BankofAmerica microtransaction data, the proportion of customers with a 3-month gap in payroll deposits is now above its level during 2018-19, suggesting a weakening labor market.

Do rising payroll disruptions signal a weakening labor market?

Core argument: Bank of America's "Payroll Disruptions Rate" — the share of customers with 12 straight months of payroll deposits who then go three months without any — rose over most of 2023 and stands above its level in the two pre-pandemic years.

Pay disruptions have been rising over most of 2023 Using Bank of America data, we define the ‘Payroll Disruptions Rate’ as the proportion of customers who previously had 12 months of regular payroll payments into their accounts, but then had three months of no payments, relative to the total number of customers with 12 consecutive months of payroll. The rate has been rising over most of 2023. Even with a drop back in the latest October data, the Payroll Disruptions Rate is higher than the two years prior to the pandemic. Pay disruptions will likely occur for a number of reasons. Most obviously if someone loses their job and takes over three months to find another. If someone exited their job for other reasons, such as the need to take care of children, this would also increase the Payroll Disruptions Rate, as would someone taking over three months to set up a direct payment into their account. But a persistent rise in the rate, is likely to indicate a weakening labor market. It remains to be seen if the October drop is just noise, or a more consequential break in the upward trend.

Takeaways by Macro Roundup® AI

  1. Bank of America's "Payroll Disruptions Rate" — the share of customers with 12 straight months of payroll deposits who then go three months without any — rose over most of 2023 and stands above its level in the two pre-pandemic years.
  2. Bank of America notes that pay disruptions can arise from job loss lasting over three months, exits for reasons such as childcare, or delays in setting up a direct payment, but a persistent rise in the rate is likely to indicate a weakening labor market.
  3. The Payroll Disruptions Rate dropped back in Bank of America's October data, leaving open whether the decline is noise or a more consequential break in the upward trend.

Related Articles:

  • Gig Work Back In Favor As Wages Slide — Bank of America internal data show the share of its customers receiving income from gig platforms rose to 3% from 2.7%, an increase concentrated in ridesharing and younger workers. An increased supply of ridesharing gig workers has driven average monthly ridesharing gig pay down.
  • The Low-Wage Pay Surge Is Over, Threatening the Consumer Boom — Wage growth for workers in the bottom quarter of the wage distribution slowed from 7.2% to 5.9%, according to Federal Reserve Bank of Atlanta data based on a 12-month moving average of median hourly wage growth. Wage growth for workers overall declined by less, from 6.3% to 5.8%.
  • U.S. Wage Growth Is Slowing, Somewhat — U.S. wage growth has slowed substantially without a large rise in joblessness, though wages are still rising faster than in the decade before the pandemic, at a pace comparable to the late 1990s and 2006-2007. The author argues much of the earlier outsized pay gains reflected one-off job market churn and sectoral shifts.

AI Summary. China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.

Greg Ip Wall Street Journal
Date Posted:

China’s “large and adaptive manufacturing base” is an increasingly important military advantage versus the atrophied US defense industrial base. @greg_ip @danwwang

How does China's manufacturing scale translate into military advantage over America?

Core argument: China's shipyards build 46% of the world's ships and turn out several new warships and submarines a year, while U.S. shipbuilding holds less than 1% of world capacity despite a century of protection.

China’s manufacturing prowess is also a formidable military asset. Its gigantic and modernized shipyards already build 46% of the world’s ships, enabling it to churn out several new warships and submarines a year. By contrast the U.S. shipbuilding industry, despite a century of protection, has less than 1% of world capacity, leaving the Navy to rely on just a handful of shipyards that lack the necessary workforce to handle rising demand. Deliveries are consistently late and over budget. The shift in warfare toward cheaper, unmanned vehicles also favors China, the world’s largest producer of drones. Dan Wang, a visiting scholar at Yale Law School’s Tsai China Center said the U.S. leads mainly in knowledge-intensive technologies such as artificial intelligence and biotech rather than physical products. “Imagine a future scenario in which these countries are in serious conflict and trade stops, who do you want to bet on: the country with all the large language models and biotech and business software, or the country with large and adaptive manufacturing base? My money would be on the latter.”

Takeaways by Macro Roundup® AI

  1. China's shipyards build 46% of the world's ships and turn out several new warships and submarines a year, while U.S. shipbuilding holds less than 1% of world capacity despite a century of protection.
  2. The U.S. Navy depends on a handful of shipyards that lack the workforce to meet rising demand, with deliveries consistently late and over budget.
  3. Dan Wang, a visiting scholar at Yale Law School's Tsai China Center, argues the U.S. leads mainly in knowledge-intensive fields such as artificial intelligence and biotech, and that in a serious conflict halting trade he would bet on China's large, adaptive manufacturing base.

Related Articles:

  • Pentagon Plan to Buy Thousands of Drones Faces Looming Snags — The US Department of Defense aims to buy thousands of low-cost drones within as little as 18 months and up to 2,000 larger uncrewed jets, while one of its primary drone suppliers produced 38 aircraft last year. Booming commercial aerospace demand has left shortages of skilled labor, raw materials, and parts such as advanced electronics and fasteners.
  • U.S. Weapons Industry Unprepared for a China Conflict, Report Says — A Center for Strategic and International Studies report argues the U.S. defense industrial base is not prepared for the current security environment and operates in a manner better suited to peacetime. The study recommends reassessing total munitions requirements and stockpile replenishment needs, creating a strategic munitions reserve, and setting a sustainable procurement plan.
  • 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.

AI Summary. China's leadership has called Taiwan the most dangerous issue in US-China relations, urging the US to stop arming the island and denying that Beijing has imminent plans for military aggression. According to a senior US official, China stated a preference for peaceful reunification while also describing conditions under which force could be used.

Jack Lau and Lawrence Chung South China Morning Post
Date Posted:

Noting Taiwan is the “most dangerous” issue in the Sino-American relationship, Xi told Biden, “China will eventually be reunified and inevitably be reunified” and highlighted the conditions under which the CCP would use force to do so. @SCMPNews

Noting Taiwan is the “most dangerous” issue in the Sino-American relationship, Xi told Biden, “China will...

Is Taiwan the most dangerous issue in US-China relations?

Core argument: In a four-hour meeting with Joe Biden in California, Xi Jinping told Biden to stop arming Taiwan, described by the two sides as the "most dangerous" issue in the bilateral relationship.

Chinese President Xi Jinping has told his US counterpart Joe Biden to stop arming Taiwan and denied Beijing has imminent plans for military aggression, in a candid exchange on the “most dangerous” issue in the bilateral relationship. During his four-hour meeting with Biden on Wednesday in California, Xi said Beijing’s preference was for peaceful reunification with Taiwan, but went on to talk about conditions in which force could be used, according to a senior US official.

Takeaways by Macro Roundup® AI

  1. In a four-hour meeting with Joe Biden in California, Xi Jinping told Biden to stop arming Taiwan, described by the two sides as the "most dangerous" issue in the bilateral relationship.
  2. Xi Jinping denied Beijing has imminent plans for military aggression against Taiwan and said China's preference is peaceful reunification, according to a senior US official.
  3. Xi Jinping went on to describe conditions in which force could be used against Taiwan, according to a senior US official.

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