Edward Conard

Top Ten New York Times Bestselling Author

  • “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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, January 10, 2024

AI Summary. Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.

Marc Goldwein Committee for a Responsible Federal Budget
Date Posted:
Is Database:
Database
Is Important:
Important

A @budgethawks analysis finds rising new spending relative to GDP drove about 2/3 of the growth in annual budget deficits since 2001 while declining revenue explains 1/3. Absent these policy choices debt would have been fully paid off.

What drove federal debt from 32% to 98% of GDP?

Core argument: Federal debt held by the public rose from 32% of GDP at the end of FY 2001 to 98% at the end of FY 2023, after CBO projected in 2001 that the debt would be effectively paid off by the end of FY 2009.

In 2001, the Congressional Budget Office (CBO) projected that the national debt would effectively be paid off in full by the end of Fiscal Year (FY) 2009. Instead, federal debt held by the public grew from 32% of Gross Domestic Product (GDP) at the end of FY 2001 to 98% of GDP at the end of FY 2023. Reviewing major deficit-increasing legislation and executive actions over the past 22 years, we find that major tax cuts are responsible for 37 percentage points of debt-to-GDP, net discretionary spending increases and major Medicare expansions are responsible for 33 percentage points, and response measures to the Great Recession and the COVID-19 pandemic and recession – before accounting for economic feedback – explain 28 percentage points. Absent any two of these sets of policies, the debt-to-GDP ratio would be near the FY 2001 level. Debt would be fully paid off without tax cuts, spending increases, and recession responses.

Takeaways by Macro Roundup® AI

  1. Federal debt held by the public rose from 32% of GDP at the end of FY 2001 to 98% at the end of FY 2023, after CBO projected in 2001 that the debt would be effectively paid off by the end of FY 2009.
  2. The analysis attributes 37 percentage points of the debt-to-GDP increase to major tax cuts, 33 points to net discretionary spending increases and major Medicare expansions, and 28 points to Great Recession and COVID-19 response measures before economic feedback.
  3. The analysis finds that absent any two of these three sets of policies, the debt-to-GDP ratio would be near its FY 2001 level, and absent all three the debt would be fully paid off.

Related Articles:

  • Olivier Blanchard on Debt Explosions — The author argues that rising long-term US Treasury yields reflect a term premium driven by heavy bond supply and weaker demand, including the Federal Reserve shrinking its holdings, rather than a risk premium, since inflation-indexed yields have also risen. Risks include a failed auction or debt monetization producing high inflation.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.
  • Did the U.S. Grow Out of Its World War II Debt? — Decomposing U.S. debt-to-GDP movements, the authors find the post-World War II decline from 106% to a trough of 23% was explained mostly by primary budget surpluses and interest-rate distortions from surprise inflation and pegged nominal rates; absent those, the ratio would have fallen only to 74%.

AI Summary. Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.

John Cochrane The Grumpy Economist
Date Posted:
Is Database:
Database

.@JohnHCochrane revisits 2008-2020 and argues the Fiscal theory of the price level has been more consistent with inflation’s behavior than Keynesians’ warnings about deflation spirals or monetarist’s predictions of hyperinflation.

How can falling real interest costs on government debt produce deflation?

Core argument: U.S. inflation fell to -2% during the 2008 recession, yet the "deflation spiral" many commenters predicted at the zero bound, in which deflation raises real interest rates and causes further deflation, never materialized.

In 2008, with a huge recession, inflation went down, hitting -2%. Why did inflation decline? Once started, why didn’t it keep going down? Many commenters, armed with standard models, predicted a “deflation spiral” at the zero bound. Deflation means high real interest rates, which causes more deflation. It didn’t happen. Fiscal theory explains. Why was there deflation? Why, especially given the large deficits, which superficially look like they ought to cause inflation? In the recession, though deficits rose, the real interest rate fell. Real interest costs on the debt fell. This “discount rate” effect overwhelmed the deficits to make government debt more valuable. A decade of 2% lower real interest costs has, with 100% debt/GDP, exactly the same disinflationary force as a decade of 2% higher surplus to GDP ratio. Throughout the zero bound era, Keynesian economists warned of the incipient deflation spiral, Monetarists warned of hyperinflation from massive quantitative easing. None of these predictions happened. Fiscal theory is the only theory transparently consistent with steady quiet inflation at a pegged interest rate, including the zero bound, and in which immense open market operations have no effect on inflation.

Takeaways by Macro Roundup® AI

  1. U.S. inflation fell to -2% during the 2008 recession, yet the "deflation spiral" many commenters predicted at the zero bound, in which deflation raises real interest rates and causes further deflation, never materialized.
  2. Fiscal theory attributes the 2008 deflation to a decline in real interest rates that cut real interest costs on government debt, a discount-rate effect that overwhelmed rising deficits and made government debt more valuable.
  3. In the fiscal theory account, a decade of 2% lower real interest costs on debt at 100% debt/GDP exerts the same disinflationary force as a decade of a 2% higher surplus-to-GDP ratio.

Related Articles:

  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • Fiscal Arithmetic and the Global Inflation Outlook — Across advanced economies, core inflation is significantly positively associated with growth in government debt since the start of the pandemic, and the authors expect this decade's fiscal expansions to shift price levels permanently higher. They argue this differs from permanently higher inflation, projecting inflation to diminish as temporary deficits normalize, with medium-term inflation expectations still anchored near central bank targets.
  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

AI Summary. Views of the economy have become increasingly partisan, and the partisanship is asymmetric: Republicans are much more likely than Democrats to rate the economy as good when their party holds the White House and bad when it does not. Survey data do not clearly show the overall price level as an explanation.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues that overall negative economic sentiment is largely a function of GOP voters’ negative feelings when a Democrat is in the White House.

Is partisanship, not prices, driving negative views of the economy?

Core argument: Civiqs charts show Republicans rated the economy more favorably during the pandemic recession, when unemployment rose to almost 15%, than they did during the Obama years.

It has been obvious for a while that views of the economy have become increasingly partisan. It’s also clear that this partisanship is asymmetric: Republicans are much more likely than Democrats to say that the economy is good when their party holds the White House and bad when it doesn’t. Civiqs charts show this asymmetric partisanship especially clearly. Republican assessments of the economy soared when Donald Trump took office. Even during the pandemic recession, when unemployment rose to almost 15%, Republicans had a more favorable view of the economy than they did in the Obama years. And when Joe Biden came in, almost all Republicans declared that the economy was bad — a view that has barely budged in the face of good macroeconomic news. I’m not prepared to completely dismiss the issue of the overall price level, which is backed by academic research as well as anecdotes. But as I said, it’s not obvious in the survey data.

Takeaways by Macro Roundup® AI

  1. Civiqs charts show Republicans rated the economy more favorably during the pandemic recession, when unemployment rose to almost 15%, than they did during the Obama years.
  2. Republican assessments of the economy soared when Donald Trump took office and turned almost uniformly negative when Joe Biden came in, barely budging in the face of good macroeconomic news.
  3. Partisanship in economic views is asymmetric, with Republicans much more likely than Democrats to say the economy is good when their party holds the White House and bad when it does not.

Related Articles:

  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • Asymmetric Amplification and the Consumer Sentiment Gap — 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%.
  • What’s Behind the Recent Slump in Consumer Sentiment? — Since 1980, annual real income growth and consumer sentiment have generally peaked and troughed in step, and real personal income growth has run below its long-term average since early 2020, which may have weighed on sentiment. As inflation slowed and real income growth picked up, sentiment showed signs of improving.

AI Summary. Higher returns are drawing capital into reinsurance, which is likely to ease pressure on coverage pricing. Catastrophe bond issuance hit a record $15bn, global property catastrophe reinsurance pricing rose about 5% at January renewals versus closer to 30% a year earlier, and risk-adjusted prices for reinsurance bought by reinsurers fell as much as 15%.

Telis Demos Wall Street Journal
Date Posted:

Global reinsurers saw a return on equity of 21% in the first 9 months of 2023. The return is attracting capital leading some investors to project slowing pressure on insurance premiums.

Global reinsurers saw a return on equity of 21% in the first 9 months of 2023. The return is attracting capital leading...

Is new capital flowing into reinsurance easing coverage prices?

Core argument: Global property catastrophe reinsurance pricing rose about 5% at the Jan. 1 renewals, as measured by Guy Carpenter's Global Rate on Line Index, down from an increase closer to 30% a year earlier.

As higher returns draw in more capital to reinsurance, it will likely take some pressure off the pricing of coverage. Already, a surge in returns for catastrophe bonds—or securities that pay premium interest rates, but can lose their principal in the event of a stated event or loss—helped spur issuance last year, which hit a record $15 billion. Overall, pricing for global property catastrophe reinsurance, as measured by Guy Carpenter’s Global Rate on Line Index, was up about 5% for the Jan. 1 renewals. That was down from a jump closer to 30% this time last year. Some of the capital coming back into the market is in the form of reinsurance for reinsurers. This is known as retrocession, or “retro.” The risk-adjusted prices for retro declined by as much as 15% for the January 1 renewals.

Takeaways by Macro Roundup® AI

  1. Global property catastrophe reinsurance pricing rose about 5% at the Jan. 1 renewals, as measured by Guy Carpenter's Global Rate on Line Index, down from an increase closer to 30% a year earlier.
  2. Catastrophe bond issuance hit a record $15 billion last year, spurred by a surge in returns on securities that pay premium interest rates but can lose principal upon a stated event or loss.
  3. Risk-adjusted prices for retrocession, or reinsurance for reinsurers, fell by as much as 15% at the Jan. 1 renewals.

Related Articles:

  • Buying Home and Auto Insurance Is Becoming Impossible — Car insurance premiums rose 19.2% over 12 months, about six times the rise in overall consumer prices, marking the 15th consecutive month of double-digit year-over-year increases and the longest such stretch since the mid-1980s. Reinsurance prices rose 30%–50%, leaving home insurers to absorb more risk themselves.
  • Parts of America are Becoming Uninsurable — Florida's average home insurance premium reached about $6,000, over 3x the national average and up 42% year-on-year, yet insurers are exiting, leaving the state-backed insurer of last resort with the largest market share and $608bn of insured assets. In California, consumer-protection rules prevent premiums from covering rising wildfire and reinsurance costs.
  • Analyzing State Resilience to Weather and Climate Disasters — The real annual cost of U.S. weather and climate disasters has risen from about $20bn per year in the 1980s to nearly $95bn per year in 2010–19, reaching roughly $153bn in one year. Property insurers absorbed 48% of these costs, uninsured or underinsured homeowners, businesses and farms 37%, the federal government 11%, and state and local governments 4%.

AI Summary. Industrial robot repeatability improved little between 1972 and 1984, with a typical 1-meter reach, 10kg payload arm accurate to about 1 mm in both years, but a comparable 2023 robot achieves roughly 0.01–0.02 mm, 50 to 100x more precise. Such a robot cost 2 to 3x more in the 1980s than today, before accounting for cheap Chinese robot arms.

Brian Potter Construction Physics
Date Posted:

Since the 1980s industrial robot costs have fallen substantially while their precision has increased; controlling for size robot cost has decreased by 50-66% while simultaneously getting 50-100x more precise. @_brianpotter

How much have industrial robots improved in precision and cost?

Core argument: A 1-meter reach, 10kg payload robot averaged roughly 1 mm repeatability in both 1972 and 1984, with wide variation, as some 1984 models evidently achieved 0.1 mm.

The 1984 robots are not that much more repeatable than the 1972 robots. Our 1-meter reach, 10kg payload robot would on average have a repeatability of around 1 mm in both years (with a lot of variation, as some 1984 robots could evidently achieve 0.1mm of repeatability). But since then, there’s been a huge improvement. Our 2023 1-meter reach, 10kg payload robot will have a repeatability closer to 0.01 or 0.02 millimeters, or 50 to 100 times more precise than the robots in the 70s and 80s. Overall, robots have fallen substantially in cost since the 1980s, while simultaneously getting more precise. A robot with a 1-meter reach and 10 kg payload capacity would cost anywhere from 2 to 3 times as much in the 1980s as it does today, even before considering the rise of cheap Chinese robot arms, which seem poised to make prices fall even more.

Takeaways by Macro Roundup® AI

  1. A 1-meter reach, 10kg payload robot averaged roughly 1 mm repeatability in both 1972 and 1984, with wide variation, as some 1984 models evidently achieved 0.1 mm.
  2. A 1-meter reach, 10kg payload robot cost 2 to 3 times as much in the 1980s as it does today, before accounting for cheap Chinese robot arms that seem poised to push prices lower.

Related Articles:

  • The Characteristics and Geographic Distribution of Robot Hubs in U.S. Manufacturing Establishments — Establishment-level U.S. Census data on roughly 35,000 manufacturing plants show that those using robots tend to be larger, pay higher earnings per worker, employ a larger share of production workers, and spend more on capital including information technology. Robots are highly concentrated geographically even after accounting for industry mix.
  • Making Manufacturing Great Again — US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.
  • Factory Boom Sweeps US With Construction at Record $190 Billion — US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.

AI Summary. U.S. battery storage capacity is projected to rise 89%, to more than 30 gigawatts, if developers bring all planned energy storage systems online as scheduled — a total that would exceed capacity from petroleum liquids, geothermal, wood waste, or landfill gas. California leads all states with 7.3 gigawatts installed, followed by Texas with 3.2 gigawatts.

Katherine Antonio and Alex Mey Energy Information Administration
Date Posted:

The @EIAgov forecasts that American battery storage capacity will almost double in 2024 largely driven by California and Texas.

Is U.S. battery storage capacity on track to nearly double?

Core argument: U.S. battery storage capacity could rise 89% by the end of 2024 if developers bring all planned energy storage systems on line by their intended commercial operation dates, continuing growth underway since 2021.

U.S. battery storage capacity has been growing since 2021 and could increase by 89% by the end of 2024 if developers bring all of the energy storage systems they have planned on line by their intended commercial operation dates. Developers currently plan to expand U.S. battery capacity to more than 30 gigawatts (GW) by the end of 2024, a capacity that would exceed those of petroleum liquids, geothermal, wood and wood waste, or landfill gas. Two states with rapidly growing wind and solar generating fleets account for the bulk of the capacity additions. California has the most installed battery storage capacity of any state, with 7.3 GW, followed by Texas with 3.2 GW.

Takeaways by Macro Roundup® AI

  1. U.S. battery storage capacity could rise 89% by the end of 2024 if developers bring all planned energy storage systems on line by their intended commercial operation dates, continuing growth underway since 2021.
  2. Developers plan to expand U.S. battery capacity to more than 30 GW by the end of 2024, exceeding the capacity of petroleum liquids, geothermal, wood and wood waste, or landfill gas.
  3. California holds the most installed battery storage capacity of any state at 7.3 GW, followed by Texas at 3.2 GW, and two states with rapidly growing wind and solar fleets account for the bulk of capacity additions.

Related Articles:

  • Elon Musk’s Latest Mission: Rev Up the Electricity Industry — U.S. electricity demand has grown at an average of 1% a year over the past 20 years, but McKinsey projects it will double by 2050 and PG&E expects a 70% rise over the next 20 years. Deloitte estimates the largest U.S. electric companies will together spend as much as $1.8tn by 2030.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.
  • Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables — A study led by Lawrence Berkeley National Laboratory found nearly 2,000GW of solar, wind and storage projects waiting in queues to connect to US long-distance transmission grids, more than the installed capacity of the entire US power plant fleet. The authors find only about a fifth of such requested projects are typically built.

Thursday, January 11, 2024

AI Summary. Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.

Nicholas Eberstadt American Enterprise Institute
Date Posted:
Is Database:
Database

Nicholas Eberstadt notes that the labor force participation rate for prime-age women is up 5pp since the pandemic to an all-time high, while the rate for prime-age men was up by 1pp to a level that matches the trough of the 1983 recession. @AEIecon

Why have prime-age men's work rates lagged women's recovery?

Core argument: Indexing 2019 pre-pandemic levels to 100, prime-age female labor force participation stood 5 points higher at the end of 2023 than a decade earlier, while prime-age male participation rose by barely 1 point.

Figure 4, scales labor force participation rates for prime-age men and prime-age women against their 2019 pre-pandemic levels. In the decade from late 2013 to late 2023, female workforce participation rates witnessed a roaring comeback: pushing well above the pre-pandemic ceiling from significantly depressed pre-Trump levels. For prime-age men, the snap-back might be described as tepid: barely recovering to 2019 levels. If we scale 2019 at 100, prime-age female LFPRs were five points higher at the end of 2023 than a decade earlier—while prime-male rates were up by barely a point. Work rates for prime-age men today—after an economic recovery, during an economic expansion, and in the midst of a labor shortage—are barely as high as they were at the bottom of the trough after the severe Reagan-era recession. Yes: that 1983 floor for prime male work rates in the wake of what had been the worst postwar downturn to date is now, forty years later, the new normal for “full or near-full employment” for American men.

Takeaways by Macro Roundup® AI

  1. Indexing 2019 pre-pandemic levels to 100, prime-age female labor force participation stood 5 points higher at the end of 2023 than a decade earlier, while prime-age male participation rose by barely 1 point.
  2. Prime-age women's participation pushed well above pre-pandemic levels from significantly depressed earlier levels, while prime-age men's participation barely recovered to its 2019 level.
  3. Work rates for prime-age American men, after a recovery and amid an expansion and a labor shortage, are barely as high as at the 1983 trough following the Reagan-era recession, the worst postwar downturn to that point.

Related Articles:

  • Men’s Falling Labor Force Participation Across Generations — Each successive generation of prime-age men has shown higher rates of not participating in the labor force, with millennials starting at a higher level and declining more steeply into their mid-30s, a pattern driven by school enrollment. Given rising educational attainment, the authors suggest the sustained rise in male nonparticipation may slow, which could benefit economic growth.
  • Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men — Among US prime-age men without college degrees, a 10% rise in expected earnings is associated with a 0.12 percentage point lower labor force exit rate, while a 10% rise in peers' reference earnings is associated with a 0.13 percentage point higher exit rate, fully offsetting the earnings effect.
  • Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family? — Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.

AI Summary. The author argues the economy avoided a slowdown for two reasons: post-pandemic demand for consumer services such as restaurants, hotels, and air travel kept spending strong, and easier financial conditions boosted growth. The author expects the economy to reaccelerate, renewing upward pressure on inflation and prompting a more hawkish Federal Reserve.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal argues that the cyclical components of the economy have been rebounding as financial conditions eased in the aftermath of SVB, and expects a reacceleration of GDP growth which may require further rate hikes.

Why did the economy avoid a slowdown despite rate hikes?

Core argument: Easing financial conditions following SVB boosted U.S. GDP growth to 4.9% in the third quarter of 2023, one reason the economy did not slow under Fed rate hikes.

Why did the economy not slow down more, and why did Fed hikes not result in a rise in unemployment? There are two reasons. First, the post-Covid economy saw surprising strength in the non-cyclical components of the economy, such as eating at restaurants, staying at hotels, and flying on airplanes, etc. Consumers wanted to travel and go to concerts and sporting events after Covid, and this has kept consumer spending strong. Second, financial conditions eased significantly following SVB, and this boosted GDP growth to 4.9% in the third quarter of 2023. Similarly, the rally in the stock market, credit markets, and Treasury markets since October and after the Fed pivot in December have also eased financial conditions significantly, likely boosting the cyclical components of GDP over the coming months. The bottom line is that the non-cyclical components continue to grow steadily because of post-Covid strong demand for consumer services, and the cyclical components are rebounding because of easier financial conditions. The likely scenario is that the economy will reaccelerate over the coming months, which will put renewed upward pressure on inflation and, hence, bring back a more hawkish Fed.

Takeaways by Macro Roundup® AI

  1. Easing financial conditions following SVB boosted U.S. GDP growth to 4.9% in the third quarter of 2023, one reason the economy did not slow under Fed rate hikes.
  2. Post-Covid demand for consumer services — restaurants, hotels, flights, concerts, and sporting events — kept the non-cyclical components of the economy growing steadily and consumer spending strong.
  3. The rally in stock, credit, and Treasury markets since October and the Fed's December pivot are argued to lift cyclical GDP, reaccelerating the economy, renewing upward pressure on inflation, and bringing back a more hawkish Fed.

Related Articles:

  • The Grind Ahead — Higher short-term and long-term interest rates are flowing through to credit and interest costs, which the authors expect to produce "the grind" — a gradual decline in growth and in the health of corporate and household balance sheets — as a dominant driver of economies and markets over the next 12–18 months.
  • 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%.
  • Global Views: The Great Disinflation — Across advanced and emerging economies that experienced a large post-Covid price surge, core inflation is estimated to have run at a 2.2% annualized pace over three months, and 1.3% in the latest month. On that basis, the authors now expect earlier and more aggressive interest-rate cuts from several major developed-market central banks.

AI Summary. US oil and natural gas production has been setting records, yet industry employment is 128,700 below its mid-2014 peak and 41,200 below pre-pandemic levels, with job gains stalling after rising from an early-2021 low. Productivity in the US oil and gas industry has risen dramatically.

Justin Fox Bloomberg
Date Posted:

Rising oil and gas labor productivity has allowed production to hit all-time highs while the sector has reduced employment by 41,200 since February 2020 and by 128,700 since 2014. @foxjust

Does record oil and gas production still mean more industry jobs?

Core argument: US oil and gas industry employment is down 128,700 from its mid-2014 peak and down 41,200 from February 2020, even as the country breaks production records for both fuels this year.

The US is the world’s top producer of oil and natural gas, and its production of both has been breaking records this year. It doesn’t feel like a boom in the places where oil and gas is produced. Even amid those production records, industry employment is down 128,700 from its mid-2014 peak and down 41,200 from just before the pandemic in February 2020. And while employment has risen from its early 2021 low, the job gains seem to have stalled last summer. The productivity of the US oil and gas industry has exploded.

Takeaways by Macro Roundup® AI

  1. US oil and gas industry employment is down 128,700 from its mid-2014 peak and down 41,200 from February 2020, even as the country breaks production records for both fuels this year.
  2. The US is the world's top producer of oil and natural gas, yet oil- and gas-producing regions do not feel like they are in a boom, as the industry's productivity has exploded.
  3. US oil and gas employment has risen from its early 2021 low, but those job gains appear to have stalled last summer.

Related Articles:

  • Oil Market Caught By Surprise As US Output Surges — US crude oil production reached an all-time high of 13.2mn barrels a day, more than any other country and about one in eight barrels of global output, outpacing official forecasts. The International Energy Agency attributes 80% of this year's growth in global oil supply to the US, complicating OPEC+ efforts to prop up prices through output cuts.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.
  • America’s Energy Export Boom — The US produces more crude oil than any other country and, counting total petroleum products, more than Saudi Arabia and Russia combined, with crude and natural gas output at record highs and gas production up 7% from its 2019 peak. Net US energy exports reached $70bn over 12 months despite falling oil and gas prices.

AI Summary. Microsoft overtook Apple as the world's most valuable company, reaching a market value of $2.87tn. Investor enthusiasm for generative artificial intelligence has fueled a rally in shares of Microsoft, the biggest backer of OpenAI.

Tim Bradshaw Financial Times
Date Posted:

Microsoft overtook Apple as the world’s largest firm by market value as investors price in MSFT artificial intelligence growth potential. MSFT is the largest backer of OpenAI, the developer of ChatGPT.

Has AI enthusiasm made Microsoft the world's most valuable company?

Core argument: Microsoft's shares rose about 1% in early Thursday trading to lift its market value to $2.87tn, overtaking Apple as the world's most valuable company as Apple's shares fell by almost 1%.

Microsoft usurped Apple to become the world’s biggest company by market value, as the boom in artificial intelligence brought a new twist to the decades-long rivalry between the two Big Tech groups. The software company’s shares climbed around 1% in early trading on Thursday to take its market value to $2.87tn, just ahead of the iPhone maker, whose shares fell by almost 1%. Investors’ excitement about the new wave of generative AI has fuelled a rally in the shares of Microsoft, which is the biggest backer of OpenAI, the maker of the popular AI-powered chatbot ChatGPT.

Takeaways by Macro Roundup® AI

  1. Microsoft's shares rose about 1% in early Thursday trading to lift its market value to $2.87tn, overtaking Apple as the world's most valuable company as Apple's shares fell by almost 1%.
  2. Investors' excitement about generative AI has fuelled a rally in Microsoft shares, with Microsoft the biggest backer of OpenAI, maker of the chatbot ChatGPT.
  3. The artificial intelligence boom has brought a new twist to the decades-long rivalry between Microsoft and Apple.

Related Articles:

  • Top 10 Charts of 2023 — Goldman Sachs projects that artificial intelligence could drive a capital investment cycle reaching almost 2.5% of US GDP by 2032, up from 0.5% of GDP.
  • Microsoft Infrastructure – AI & CPU Custom Silicon Maia 100, Athena, Cobalt 100 — Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.
  • Assessing the Implications of a Productivity Miracle — If artificial intelligence can perform economically valuable cognitive tasks at very low marginal cost, consumers would buy far more of the cheapened goods and spend the savings in other categories, expanding activity and employment in sectors facing new demand. Where supply is inherently limited, such as real estate, those savings could bid up prices and produce inflation.

AI Summary. Private-sector funding of space-related companies has topped $10bn, close to a tenfold rise over the past decade, though the US government remains the largest source of space funding. If current momentum continues, commercial funding for space ventures could surpass government funding within 20 years.

Ryan Brukardt, Jesse Klempner, Bob Sternfels, and Brooke Stokes McKinsey & Company
Date Posted:

Private capital is flowing into the space sector; according to @McKinsey there was $10 billion of private space funding in 2021, close to a tenfold increase over the last decade.

Will commercial funding of space ventures overtake government funding?

Core argument: Private-sector funding in space-related companies topped $10 billion in 2021, close to a tenfold increase over the prior decade, with 2022 recording the second-most inflows in history.

Capital inflows are increasing. While the US government remains the primary source of funding, private companies, especially new space players, have substantially increased their investment in recent years. Private-sector funding in space-related companies topped $10 billion in 2021—close to a tenfold increase over the past decade (2022, despite much angst, had the second-most inflows in history). If the current momentum continues, commercial funding for space ventures could surpass government funding in the next 20 years. We have seen this same trend occur during the early days of mass commercial air travel (enabled by government investment in aviation during World War II) and the internet (originally conceived as a national-security network in the United States).

Takeaways by Macro Roundup® AI

  1. Private-sector funding in space-related companies topped $10 billion in 2021, close to a tenfold increase over the prior decade, with 2022 recording the second-most inflows in history.
  2. The US government remains the primary source of space funding, though commercial funding for space ventures could surpass government funding within the next 20 years if current momentum continues.
  3. Space's funding trajectory echoes the early days of mass commercial air travel, enabled by World War II government investment in aviation, and the internet, originally conceived as a US national-security network.

Related Articles:

  • SpaceX Launches 15 Starlink Satellites, Lands Rocket At Sea — SpaceX launched 15 more Starlink internet satellites aboard a Falcon 9 rocket from California's Vandenberg Space Force Base, with the rocket's first stage landing on a drone ship at sea about 9.5 minutes after liftoff. SpaceX has launched 4,918 Starlink spacecraft to date, more than 4,500 of which are currently functional.
  • Despite An Explosion, Elon Musk Is Closer to His New Space Age — SpaceX says it is producing Super Heavy boosters and Starships at a healthy pace, though damage to the launch support structure may require a significant redesign and cause delays. A Starship launched by a Super Heavy would lift 100-150 tonnes to orbit, against 64 tonnes for Falcon Heavy and 24 for the space shuttle.

AI Summary. Chinese firms are developing artificial intelligence tools using processors stripped from Nvidia consumer gaming graphics cards and remounted on new circuit boards, after US export controls blocked sales of high-performance chips. Industry experts describe the practice as a rough workaround for China's shortage of high-end processors.

Qianer Liu Financial Times
Date Posted:

To circumvent American export controls Chinese firms are repurposing Nvidia gaming graphics cards at scale in an effort to support their AI sector.

To circumvent American export controls Chinese firms are repurposing Nvidia gaming graphics cards at scale in an effort to...

Are export controls pushing Chinese firms to repurpose gaming chips for AI?

Core argument: Thousands of Nvidia gaming graphics cards are stripped of their core components each month in Chinese factories and workshops and reinstalled on new circuit boards, according to two factory managers and two chip buyers familiar with the situation.

Chinese companies are resorting to chips repurposed from standard PC gaming products to develop artificial intelligence tools after Washington blocked US exports of high-performance processors. Thousands of Nvidia gaming graphics cards are being stripped of their core components in factories and workshops every month, before being installed on new circuit boards, according to two factory managers and two chip buyers familiar with the situation. Industry experts said the repurposing of chips from cards designed to be slotted into consumer PC motherboards to improve gaming graphics amounted to a rough workaround to tackle the lack of high-end processors in China.

Takeaways by Macro Roundup® AI

  1. Thousands of Nvidia gaming graphics cards are stripped of their core components each month in Chinese factories and workshops and reinstalled on new circuit boards, according to two factory managers and two chip buyers familiar with the situation.
  2. Chinese companies are developing artificial intelligence tools using chips repurposed from standard PC gaming products after Washington blocked US exports of high-performance processors.
  3. Industry experts described the repurposing of consumer gaming cards as a rough workaround for China's lack of high-end processors.

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.
  • Raimondo Says Commerce Needs More Money to Halt China Chip Drive — The US Commerce Department says its roughly $200m budget is inadequate to enforce semiconductor export controls aimed at limiting China's access to artificial intelligence chips, and has called for greater funding. It has warned that chips redesigned to fall just below existing thresholds will themselves be restricted, arguing national security outweighs chipmakers' short-term revenue.
  • US Restricts Nvidia Made-for-China Chips in New Export Rules — The US is restricting sales of Nvidia's A800 and H800 chips, designed specifically for the Chinese market, and curbing exports to two Chinese artificial-intelligence chip firms. The export controls aim to block China's access to advanced semiconductor technology with military uses.