Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 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
  • “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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, January 16, 2024

AI Summary. Americans filed 5.5m applications to start new businesses in a single year, nearly 1.8m of them highly likely to hire employees — both series highs in U.S. Census Bureau Business Formation Statistics. Likely-employer applications ran 37% above pre-pandemic levels, evidence that startup activity has settled at a higher baseline.

Kenan Fikri and Daniel Newman Economic Innovation Group
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An @InnovateEconomy analysis of @uscensusbureau data finds that new business applications from firms that are likely employers hit 1.8mm in 2023, a new record high.

Has US startup activity settled at a higher baseline?

Core argument: Americans filed 5.5 million applications to start new businesses in 2023, nearly 1.8 million of them highly likely to hire employees — both series highs, slightly surpassing 2021's prior record.

Americans filed 5.5 million applications to start new businesses in 2023, nearly 1.8 million of which are highly likely to hire employees. Both figures are series highs, slightly surpassing 2021’s banner year when the disruptions wrought by the pandemic pushed early-stage entrepreneurial activity to its prior record. The latest data from the U.S. Census Bureau’s Business Formation Statistics through December 2023 provide further evidence that the background rate of startup activity in the U.S. economy has settled at much higher levels than before COVID-19 struck. In total, 484,000 more likely employer business applications were filed in 2023 than in 2019, an increase of 37 percent. Last year’s haul was also 8 percent higher than 2022’s.

Takeaways by Macro Roundup® AI

  1. Americans filed 5.5 million applications to start new businesses in 2023, nearly 1.8 million of them highly likely to hire employees — both series highs, slightly surpassing 2021's prior record.
  2. Likely employer business applications in 2023 exceeded 2019 by 484,000, an increase of 37 percent, and ran 8 percent above 2022, according to the U.S. Census Bureau's Business Formation Statistics through December 2023.
  3. The U.S. Census Bureau data provide further evidence that the background rate of U.S. startup activity has settled at much higher levels than before COVID-19 struck.

Related Articles:

  • Surging Business Formation in the Pandemic: Causes and Consequences? — Shifts in consumer demand and in preferences for work and lifestyle during the pandemic created entrepreneurial opportunities, and applications to start businesses produced new firms and establishments that hired workers in large numbers. The authors argue these new businesses drew in quitting workers as founders or hires, implying economic restructuring across industry, geography, and firm size and age.
  • Creative Destruction After the Pandemic — US establishment closures spiked and then returned to normal levels, while new establishment openings reached record highs—peaking at 379,000 in a single quarter—and have since cooled but remain far above any pre-2020 level. Much of this may be new businesses replacing those that closed, and it is unclear whether the new entrants are more productive than the firms they replaced.
  • Business Formation Boom — U.S. high-propensity business applications — those more likely to become employers — ran 40% above their 2019 average, according to Census Bureau data, with the elevated pace persisting after the pandemic. Business deaths also rose, but the net effect still points to strong growth in business formation.

AI Summary. The share of US workers employed by young firms is rising for the first time in decades, with 11.3% of jobs at firms less than 5 years old and 8.6% at firms 6–10 years old. Gains in the share of jobs at firms under 5 years old were larger in transportation and warehousing, management and information, and manufacturing.

Joseph Politano Apricitas Economics
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The pandemic-era entrepreneurship boom has driven an increase in the share of workers employed by firms less than 5 years old to 11.3%, the highest since 2010. @JosephPolitano

Is the share of US jobs at young firms rising again?

Core argument: In 2022, 11.3% of U.S. jobs were at firms less than 5 years old, the highest share since 2010, while 8.6% were at firms 6–10 years old, the highest since 2014.

The end result of this boom in new businesses has been that, for the first time in decades, the share of workers employed by young firms is rising. In 2022, 11.3% of jobs were in firms less than 5 years old, the highest share since 2010, and 8.6% of jobs were in firms 6-10 years old, the highest share since 2014. Plus, in several key sectors, the rise in employment at young firms has been even more pronounced, with the share of jobs in companies below 5 years old or younger rising 1.3 pp in transportation/warehousing, 0.9 pp in Management and Information, and half a pp in Manufacturing. Of course, that still means the vast majority of Americans are employed at firms that are more than a decade old, highlighting just how prolonged the decline in business dynamism has been, but that trend is now finally beginning to be reversed.

Takeaways by Macro Roundup® AI

  1. In 2022, 11.3% of U.S. jobs were at firms less than 5 years old, the highest share since 2010, while 8.6% were at firms 6–10 years old, the highest since 2014.
  2. The share of workers employed by young firms is rising for the first time in decades, with jobs at firms under 5 years old up 1.3 points in transportation and warehousing, 0.9 points in management and information, and 0.5 points in manufacturing.
  3. The vast majority of Americans remain employed at firms more than a decade old, reflecting how prolonged the decline in U.S. business dynamism has been, even as that trend begins to reverse.

Related Articles:

  • Business Applications Eked Out a New Record in 2023 — Americans filed 5.5m applications to start new businesses in a single year, nearly 1.8m of them highly likely to hire employees — both series highs in U.S. Census Bureau Business Formation Statistics. Likely-employer applications ran 37% above pre-pandemic levels, evidence that startup activity has settled at a higher baseline.
  • Creative Destruction After the Pandemic — US establishment closures spiked and then returned to normal levels, while new establishment openings reached record highs—peaking at 379,000 in a single quarter—and have since cooled but remain far above any pre-2020 level. Much of this may be new businesses replacing those that closed, and it is unclear whether the new entrants are more productive than the firms they replaced.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. US foreign-born employment has returned to its pre-pandemic trend while native-born employment remains about 6m jobs below trend, leaving roughly 5m native-born workers missing even after accounting for about 1m Covid deaths. The author argues these missing workers explain the tight labor market and that wage inflation is likely to remain elevated.

Torsten Sløk Apollo
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Native-born employment is 6mm jobs under the pre-pandemic trend while foreign-born employment is back at trend. Netting out 1mm Covid deaths Torsten Sløk @apolloglobal finds 5mm native-born workers are “missing.”

Do missing native-born workers explain the tight labor market?

Core argument: Native-born US employment remains about 6 million jobs below its pre-pandemic trend while foreign-born employment has returned to trend, indicating the post-Covid normalization in labor force participation has been driven mainly by immigration.

Foreign-born employment in the US is back at the pre-pandemic trend, and native-born employment is still 6 million jobs below the pre-pandemic trend. In other words, the post-Covid normalization in the labor force participation rate has mainly been driven by immigration. At the same time, the number of retired individuals has remained on trend. The bottom line is that even taking into account that about 1 million died from Covid, there are still around 5 million native-born workers missing. These 5 million missing workers are the reason why the labor market is tight and why wage inflation is likely to remain elevated. Put differently, there is still plenty of room for job growth.

Takeaways by Macro Roundup® AI

  1. Native-born US employment remains about 6 million jobs below its pre-pandemic trend while foreign-born employment has returned to trend, indicating the post-Covid normalization in labor force participation has been driven mainly by immigration.
  2. Accounting for the roughly 1 million Covid deaths, around 5 million native-born workers are still missing, which the author identifies as the reason the labor market is tight and wage inflation is likely to remain elevated.
  3. The number of retired individuals in the US has remained on trend, and the missing native-born workers leave plenty of room for further job growth.

Related Articles:

  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.
  • Growth in Working-Age Population Ends. That’s Not All Bad — Immigration is the only factor keeping the US working-age population from shrinking, as about 4 million baby boomers turn 65 each year and more than 820,000 Americans aged 15–64 died last year. Forecasts project immigration will hold the US 15-to-64 population roughly constant through 2100, versus projected declines of 20% across high-income countries and 62% in China.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. The employment rate for women aged 25–54 reached an all-time high of 75.3%, about 1pp above prior peaks and 6pp above a decade earlier. Rising educational attainment — with the college-educated share of prime-age women climbing from below 30% to more than 45% — added 2.7pp to their employment rate, and employment among college-educated mothers of young children rose 10pp.

Alex Arnon, Aidan O'Connell, Jesús Villero, and Youran Wu University of Pennsylvania
Date Posted:

A record prime-age female employment rate of 75.3% is being driven by two trends: rising female educational attainment and greater participation of college-educated mothers with young children.

Does rising educational attainment explain record prime-age women's employment?

Core argument: The share of prime-age women employed reached an all-time high of 75.3%, nearly 1pp above its prior peaks in spring 2000 and just before the pandemic, and 6pp above a decade ago.

The share of prime-age women employed reached an all-time high of 75.3% over the last few months. This is almost 1pp higher than its previous peaks in the spring of 2000 and just before the pandemic, and 6pp higher than a decade ago. One reason for the high level of women’s employment is increased educational attainment. Over the last two decades, the share of prime-age women with a college degree rose from below 30% to more than 45%. Since college graduates are more likely to work, this raised the overall employment rate of prime-age women, adding 2.7pp since 2000. Another reason is that college-educated mothers of young children are more likely to be employed. The share of college graduates with a child under 10 who worked rose 10pp from the early 2000s to 2023. These changes were largest for mothers of infants and toddlers and were only briefly interrupted by the pandemic.

Takeaways by Macro Roundup® AI

  1. The share of prime-age women employed reached an all-time high of 75.3%, nearly 1pp above its prior peaks in spring 2000 and just before the pandemic, and 6pp above a decade ago.
  2. The share of prime-age women with a college degree rose from below 30% to more than 45% over two decades, and because college graduates are more likely to work, this added 2.7pp to prime-age women's employment rate since 2000.
  3. The share of college graduates with a child under 10 who worked rose 10pp from the early 2000s to 2023, with the largest changes for mothers of infants and toddlers and only a brief interruption during the pandemic.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — 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.
  • 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.

AI Summary. Federal Reserve policymakers' median estimate of the equilibrium real policy rate is 0.5%; on that basis, repeating the past decade's equity returns over cash would require a real equity total return of 12.4%. With a dividend yield of 1.5%, the author argues that under even extreme earnings-growth scenarios valuations would have to exceed the Tech Bubble peak.

Jordan Brooks AQR
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Jordan Brooks argues the S&P 500’s 11.9% CAGR for the last decade is unlikely to be repeated as it would require “exceptional real earnings growth and all-time high valuations…at least 80% more per dollar of earnings than at present.”

Can the past decade's equity returns over cash be repeated?

Core argument: Repeating the past decade's 11.9% excess-of-cash equity return would require a 12.4% real total return, given the FOMC median r-star estimate of 0.5% as the expected real cash return over the next decade.

The median estimate of the equilibrium real funds rate (often called “r-star”) by FOMC members is 0.5%. Let’s use that as our best guess of real cash returns over the next decade. If real cash returns average 0.5% per year, then hitting an 11.9% excess-of-cash return requires a real equity market total return of 12.4%. The current dividend yield is 1.5%.12 That leaves 12.4% – 1.5% = 10.9% to be explained by a combination of real earnings growth and multiple expansion. Intuitively, the lower (higher) real earnings growth, the more (less) valuations must richen. Exhibit 3 plots the combination of real earnings growth and terminal CAPE ratios required to match last decade’s return. In even the most extreme real earning scenarios, stock market valuations would need to pop to all-time highs, levels meaningfully higher than the Tech Bubble peak.

Takeaways by Macro Roundup® AI

  1. Repeating the past decade's 11.9% excess-of-cash equity return would require a 12.4% real total return, given the FOMC median r-star estimate of 0.5% as the expected real cash return over the next decade.
  2. With a dividend yield of 1.5%, 10.9 percentage points of the required 12.4% real return would have to come from real earnings growth and multiple expansion combined.
  3. Across even the most extreme real earnings growth scenarios plotted, matching last decade's return would require stock market valuations to reach all-time highs, meaningfully above the Tech Bubble peak.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • 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%.
  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

AI Summary. Federal Reserve officials aim both to shrink the central bank's bond holdings, especially mortgage bonds, on the view that portfolio size and composition affect how others price risky assets, and to reduce bank reserves to "ample" rather than "abundant" levels. Aggregate reserve estimates may overstate ampleness by ignoring concentration across institutions.

Matt Klein The Overshoot
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.@M_C_Klein writes that, although the Fed would dub current reserves as “ample,” the Fed may nonetheless taper its balance sheet reduction early because the distribution of reserves is tilted towards a few big banks.

Do aggregate reserve measures overstate how ample bank reserves really are?

Core argument: Fed officials pursue two distinct goals: shrinking the central bank's bond holdings, especially mortgage bonds, because they believe portfolio size and composition affect how others price risky assets, and separately reducing the supply of bank reserves.

Fed officials have two related but distinct objectives. First, they want the central bank to hold fewer bonds (especially mortgage bonds), because they believe that the size and composition of the Fed’s portfolio affects how everyone else prices risky assets.At the same time, Fed officials also want to reduce the supply of reserves in the banking system independent of what happens to the asset side of the balance sheet. This is why they say they want reserves to be “ample” rather than “abundant”. The problem is that these aggregate estimates may overstate the “ampleness” of reserves because they ignore issues of distribution. Stress could show up even when reserves levels seem “ample” if those reserves are concentrated in a few institutions and cannot easily be lent or otherwise transferred to other banks that might need them to make payments or cover deposit outflows.

Takeaways by Macro Roundup® AI

  1. Fed officials pursue two distinct goals: shrinking the central bank's bond holdings, especially mortgage bonds, because they believe portfolio size and composition affect how others price risky assets, and separately reducing the supply of bank reserves.
  2. Fed officials say they want reserves to be "ample" rather than "abundant", reflecting a desired reduction in reserve supply independent of what happens to the asset side of the balance sheet.
  3. Aggregate reserve estimates may overstate ampleness by ignoring distribution, since stress can emerge when reserves are concentrated in a few institutions and cannot easily be lent or transferred to banks needing them for payments or deposit outflows.

Related Articles:

  • Crash Up — Large fiscal deficits paired with expected interest rate cuts are argued to drive strong demand for equities, as newly issued Treasury debt accumulates with a concentrated group of wealthy holders who may rebalance out of bonds as yields fall. Combined with a structural decline in equity supply, this points to upward price pressure.

AI Summary. International retractions of research papers rose from about 400 in 2010 to more than 10,000 in 2023, an annual record, according to the journal Nature, which attributes part of the increase to paper-writing mills. Watchdog groups including Retraction Watch, the Center for Open Science, and Data Colada now scrutinize published research.

Anemona Hartocollis The New York Times
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Over 10,000 research papers were retracted in 2023 globally according to @Nature, up from 400 in 2010. The retractions are due to both increased scrutiny but also the rise of “paper writing mills” or low-quality journals.

Over 10,000 research papers were retracted in 2023 globally according to @Nature, up from 400 in 2010. The retractions are...

Are retractions of research papers rising sharply?

Core argument: Retracted research papers exceeded 10,000 internationally in 2023, an annual record, up from about 400 in 2010, according to the journal Nature.

A cottage industry of checking research papers sprung up in the last two decades, including Retraction Watch, the Center for Open Science, and Data Colada, a blog dedicated to unmasking research based on bad data. The number of retracted research papers has grown dramatically over time, to more than 10,000 retractions internationally in 2023, an annual record, according to the journal Nature, up from about 400 papers in 2010, when Retraction Watch began its work. This may be in part because the scrutiny has intensified, said Ivan Oransky, co-founder of Retraction Watch. Nature also blamed the rise of paper-writing mills. “What’s different this time is the levels at which this seems to be striking — Harvard and Stanford,” Dr. Oransky said. “These are cataclysmic events.”

Takeaways by Macro Roundup® AI

  1. Retracted research papers exceeded 10,000 internationally in 2023, an annual record, up from about 400 in 2010, according to the journal Nature.
  2. Nature attributed part of the rise in retractions to paper-writing mills, while Retraction Watch co-founder Ivan Oransky said intensified scrutiny may also play a part.
  3. A cottage industry of research checking has emerged over two decades, including Retraction Watch, the Center for Open Science, and Data Colada, with Oransky saying cases now strike Harvard and Stanford.

Related Articles:

  • A Looming Retraction Casts a Shadow Over a Field of Physics — A major physics journal is retracting a paper on how a chemical compound transforms when compressed between diamonds, co-led by a University of Rochester physicist who also claimed to have discovered a room-temperature superconductor. While the researcher defends the work, some scientists who reviewed reports on it say the data submitted were falsified.
  • The U.S. Is Turning Away From Its Biggest Scientific Partner at a Precarious Time — More than 40% of high-quality U.S. scientific papers involve collaboration with researchers abroad, and China and the U.S. are each other's largest research partners, with their joint work consistently among the most-cited across fields. In some strategic areas, analysis of publication data finds the U.S. depends on China more than China depends on the U.S.

AI Summary. The UK's defence secretary described the world as having entered a "prewar" phase and urged allies to raise defence spending, arguing the number of global conflicts is more likely to grow than shrink and could involve Russia, China, Iran and North Korea. Britain spends over £50bn a year, just above 2% of GDP, on defence.

Lucy Fisher and John Paul Rathbone Financial Times
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Grant Shapps, the British defence secretary, argues that the world has moved into a “prewar” phase, noting that “In five years’ time, we could be looking at multiple theatres [of conflict] involving Russia, China, Iran, [and] North Korea.”

Should allies raise defence spending as global conflicts multiply?

Core argument: UK Defence Secretary Grant Shapps said Britain spends over £50bn a year, just over 2% of GDP, on defence, and reiterated the government's "aspiration" to reach 2.5% of GDP as economic conditions allow, without calling for extra spending.

Grant Shapps, the UK’s defence secretary warned that the world had moved to a “prewar” phase as he called on allies to lift defence spending to meet the rising threat. “The era of peace dividend is over...In five years’ time, we could be looking at multiple theatres [of conflict] involving Russia, China, Iran, North Korea. Looking at today’s conflicts across the world, is it more likely that the number grows or reduces? I suspect we all know the answer — it’s likely to grow.” Shapps said Britain was spending more than £50bn a year — or just over 2% of GDP — on defence, and had increased funds to modernise the UK’s nuclear deterrent and replenish stockpiles of weapons supplied as military aid to Ukraine. However, he made no calls for extra UK spending on defence, other than to reiterate that it was the government’s “aspiration” to spend 2.5% of GDP on defence as economic conditions allowed.

Takeaways by Macro Roundup® AI

  1. UK Defence Secretary Grant Shapps said Britain spends over £50bn a year, just over 2% of GDP, on defence, and reiterated the government's "aspiration" to reach 2.5% of GDP as economic conditions allow, without calling for extra spending.
  2. Shapps warned the world has moved to a "prewar" phase and said that within five years there could be multiple theatres of conflict involving Russia, China, Iran and North Korea, with the number of conflicts likely to grow.
  3. Shapps said the UK has increased funds to modernise its nuclear deterrent and replenish stockpiles of weapons supplied as military aid to Ukraine, and called on allies to lift defence spending, declaring "the era of peace dividend is over".

Related Articles:

  • The ‘Eye-Watering’ Cost of Ending the Peace Dividend — Sweden announced plans to raise defense spending by more than 25% to reach NATO's target of 2% of GDP, a level met by only 11 of the alliance's 31 members. Meeting such commitments requires a major reordering of budget and electoral priorities, as when Denmark funded higher spending by cancelling a public holiday.
  • India’s Military Studying Options for Any China-Taiwan War — India's military has commissioned a study of how a war over Taiwan involving the US and its allies would affect India and how it could respond. Options under study include serving as a logistics hub for allied warships, aircraft and armies, or engaging China directly along their shared northern border.
  • Japan Raises Military Spending To Counter China With More Missiles and Ships — Japan's defense budget rises 13% over the prior fiscal year's planned spending, part of a five-year, ¥43tn plan to lift military spending to roughly 2% of gross domestic product, versus the roughly 1% cap maintained since the 1960s. Purchases include Aegis-equipped destroyers and Tomahawk cruise missiles, with the largest share directed at the Self-Defense Forces' sustainability and resilience.

Wednesday, January 17, 2024

AI Summary. The Federal Reserve runs an "ample reserves" framework, adjusting policy mainly through short-term interest rates while keeping bank reserves slightly above the level banks need. Although its balance sheet has shrunk, shifts among its non-reserve liabilities have left reserve levels little changed, and officials differ over how to interpret those shifts.

Joseph Wang Fed Guy Blog
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.@FedGuy12 writes that “The balance of evidence continues to suggest a late 2024 taper that could continue well into 2025.” He suggests that the taper is likely to start in Q4.

Has shrinking the central bank balance sheet actually reduced bank reserves?

Core argument: Bank reserves at the Federal Reserve stand near 2022 levels despite quantitative tightening, as reserves shift between the reverse repo facility and the Treasury General Account even while the overall balance sheet shrinks.

The Fed operates an “ample reserves” framework, but is not sure how to view non-reserve liabilities. Under the framework, the Fed primarily adjusts monetary policy through changes in short-term interest rates and provides the banking system with a bit more reserves than it actually needs. Reserves are just deposits commercial banks hold at the Fed. Although QT has been shrinking the overall size of the Fed’s balance sheet, the composition of the Fed’s liabilities is dynamic. Reserves can move into the RRP and into the TGA (and vice versa), so reserve levels today are around 2022 levels despite QT. Fed officials unanimously note that reserve levels are far above ample, but have diverged on how they view changes in the RRP. These differences have led to different potential QT timelines.

Takeaways by Macro Roundup® AI

  1. Bank reserves at the Federal Reserve stand near 2022 levels despite quantitative tightening, as reserves shift between the reverse repo facility and the Treasury General Account even while the overall balance sheet shrinks.
  2. The Fed's "ample reserves" framework adjusts monetary policy mainly through short-term interest rates while supplying the banking system slightly more reserves than it needs, leaving the treatment of non-reserve liabilities unsettled.
  3. Fed officials unanimously judge reserve levels to be far above ample but diverge on how to interpret changes in the reverse repo facility, producing different potential timelines for quantitative tightening.

Related Articles:

  • Is the Fed Preparing to Taper Its Bond Redemptions? — Federal Reserve officials aim both to shrink the central bank's bond holdings, especially mortgage bonds, on the view that portfolio size and composition affect how others price risky assets, and to reduce bank reserves to "ample" rather than "abundant" levels. Aggregate reserve estimates may overstate ampleness by ignoring concentration across institutions.

AI Summary. China's population fell for a second year, dropping by more than 2 million to 1.41 billion, according to the National Statistics Bureau. Births totaled 9.02 million, the lowest since the founding of the People's Republic of China in 1949, while deaths rose to 11.1 million, the highest since 1960.

Bloomberg Staff Bloomberg
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China’s population declined by 2.1mm in 2023, more than double the 2022 decline. China recorded just over 9mm births last year, the lowest since 1949.

Is China's population shrinking as births fall and deaths rise?

Core argument: China's population fell by more than 2 million to 1.41 billion in 2023, a second consecutive annual decline and more than double the drop in 2022, according to the National Statistics Bureau.

The number of people in the world’s second-largest economy fell for a second year by over 2 million to 1.41 billion in 2023, according to data released by the National Statistics Bureau on Wednesday. The drop more than doubled that in 2022, when the Chinese population shrank for the first time since 1961, the final year of the Great Famine under former leader Mao Zedong. A total of 9.02 million babies were born in 2023, the lowest since the founding of the People’s Republic of China in 1949. Deaths rose to 11.1 million, almost 700,000 more than the previous year and the highest since 1960. The bureau doesn’t break down deaths by cause, but Covid-related fatalities likely contributed to the rise after authorities abruptly ended strict pandemic curbs in December 2022 and led to an explosion of infections.

Takeaways by Macro Roundup® AI

  1. China's population fell by more than 2 million to 1.41 billion in 2023, a second consecutive annual decline and more than double the drop in 2022, according to the National Statistics Bureau.
  2. Births in China totaled 9.02 million in 2023, the lowest since the founding of the People's Republic of China in 1949, while deaths rose by almost 700,000 to 11.1 million, the highest since 1960.
  3. The National Statistics Bureau does not break down deaths by cause, though Covid-related fatalities likely contributed to the 2023 rise after authorities abruptly ended strict pandemic curbs in December 2022 and infections exploded.

Related Articles:

  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
  • 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.
  • China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism — China recorded about 9.6m births, roughly half the 17.9m recorded six years earlier, and millions of young people have joined movements expressing alienation from work ("lying flat") and from Chinese society itself ("let it rot"). A viral video of a man telling pandemic enforcers "we are the last generation" spread the despairing hashtag #Lastgeneration.

AI Summary. China is expected to report hitting its roughly 5% growth target, but the author estimates actual growth was closer to 1.5%, citing a shrinking property sector, limited consumer spending, a falling trade surplus, and strained local government finances. A cyclical recovery to about 3.0–3.5% is projected as property bottoms out, with structural slowdown continuing.

Daniel Rosen, Logan Wright, Charlie Vest, and Rogan Quinn Rhodium Group
Date Posted:

Though China officially reported a 5.2% GDP growth in 2023, an analysis by @rhodium_group argues the growth rate was likely closer to 1.5%. They forecast a growth rate of 3-3.5% this year.

Is China's reported growth far above its actual growth?

Core argument: China's actual 2023 GDP growth was closer to 1.5%, well below the "around 5%" target Beijing will almost certainly claim to have hit.

Despite clear evidence that it was slowed down by unexpected economic headwinds this year, China will almost certainly claim to have hit its “around 5%” GDP growth target for 2023. The realities of a still-shrinking property sector, limited consumer spending, falling trade surplus, and battered local government finances mean that actual growth in 2023 was more like 1.5%. Looking ahead, China may see a cyclical recovery to perhaps 3.0-3.5% growth in 2024 as property bottoms out, although structural slowdown will naturally remain the dominant story for years to come.

Takeaways by Macro Roundup® AI

  1. China's actual 2023 GDP growth was closer to 1.5%, well below the "around 5%" target Beijing will almost certainly claim to have hit.
  2. A still-shrinking property sector, limited consumer spending, a falling trade surplus, and battered local government finances held back China's 2023 growth.
  3. China may see a cyclical recovery to roughly 3.0–3.5% growth in 2024 as property bottoms out, though structural slowdown is expected to remain the dominant story for years to come.

Related Articles:

  • What Will It Take for China’s GDP to Grow at 4–5 Percent Over the Next Decade? — China accounts for 18% of global GDP, 13% of global consumption, and 31% of global manufacturing. The author estimates that if China grew 4–5% annually for a decade while keeping manufacturing's role in its economy, its share of global manufacturing would reach 36–39%, requiring the rest of the world to let manufacturing's share of its output fall by 0.5–1.0pp.
  • The Global Constraints To Chinese Growth — China accounts for 18% of global GDP but 13% of global consumption and 32% of global investment, with each dollar of Chinese investment offset by only $1.3 of consumption versus $4.1 outside China. If China grew 4-5% annually for a decade while relying on investment, its share of global investment would rise to 37%.
  • 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.

AI Summary. China's National Bureau of Statistics resumed publishing a youth jobless rate, reporting 14.9% unemployment among 16-to-24-year-olds under a revised method that excludes students. The bureau says the adjusted measure better reflects the employment status of young people seeking work after graduation.

Amanda Leeand and Orange Wang South China Morning Post
Date Posted:

China resumed publishing the jobless rate for the 16-24 cohort of 14.9% at the end of last year, adjusted to exclude students. This is down from 21.3% when it was last published in June. @SCMPNews

Does a revised youth unemployment measure clarify China's jobs picture?

Core argument: China's jobless rate for the 16–24 age group stood at 14.9% in December, according to the National Bureau of Statistics, which resumed publication of the youth unemployment figure on Wednesday.

China resumed the release of its youth jobless rate on Wednesday. The jobless rate for the 16 to 24 age group stood at 14.9% in December, according to the National Bureau of Statistics (NBS), who said the adjusted figure does not include students. “[The revised number] will more accurately reflect the employment and unemployment status of the youth who are in need of a job after graduation, and the whole picture of employment and unemployment of the youth from their graduation to stable work,” the NBS said.

Takeaways by Macro Roundup® AI

  1. China's jobless rate for the 16–24 age group stood at 14.9% in December, according to the National Bureau of Statistics, which resumed publication of the youth unemployment figure on Wednesday.
  2. The National Bureau of Statistics said its revised youth jobless measure excludes students, which it argues more accurately reflects the employment status of young people seeking work after graduation.

Related Articles:

  • China Stops Reporting Youth Unemployment as Economic Pressures Mount — China has said it will stop publishing youth unemployment data, which reached 21.3% and was omitted from a subsequent broader data release, alongside other data pointing to weakness in its economic recovery.
  • The Root of China’s Growing Youth Unemployment Crisis — China's government has long encouraged university enrollment, raising higher-education student numbers from 22m to 383m and expanding graduate-school capacity, with master's candidates up 25% in one year. The author argues that boosting graduate numbers while restricting the services sector and subsidizing construction is bad economics and worse social policy.
  • China Cannot Allow Jobless Young To ‘Lie Flat’ — China's job mix has shifted toward low-pay, low-skill, informal work at the expense of higher-paid, high-skill manufacturing and construction jobs, with the informal-to-formal ratio flipping from 40:60 to 60:40 over 15 years, according to a Stanford University estimate. Younger workers are over-represented in low-pay sectors and gig work.

AI Summary. After controlling for each industry's pre-pandemic productivity trend, there is essentially no statistically significant relationship between how easily an industry's work can be done remotely and its excess productivity growth during the pandemic.

John Fernald, Ethan Goode, Huiyu Li, and Brigid Meisenbacher Federal Reserve Bank of San Francisco
Date Posted:

John Fernald @sffed finds little evidence that the shift to remote/hybrid work associated with the pandemic has “either substantially held back or boosted the rate of productivity growth.”

Does remote work boost industry productivity growth?

Core argument: After subtracting each industry's average annualized productivity growth for 2006–2019 from its pandemic average, the relationship between teleworkability and excess pandemic productivity growth is essentially flat and not statistically significant.

To better isolate the association with the shift to remote work during the pandemic, Figure 3 controls for pre-pandemic trends by removing each industry’s average annualized productivity growth for 2006–2019 from its pandemic average. Hence, the vertical axis now captures the amount by which an industry’s pandemic productivity growth exceeded or fell short of its pre-pandemic pace. In Figure 3, the nearly flat blue line reflects that there is essentially no relationship between teleworkability and excess pandemic productivity growth. Although the association is still slightly positive, the relationship is much weaker than in Figure 2 and is not statistically significant.

Takeaways by Macro Roundup® AI

  1. After subtracting each industry's average annualized productivity growth for 2006–2019 from its pandemic average, the relationship between teleworkability and excess pandemic productivity growth is essentially flat and not statistically significant.
  2. The association between industry teleworkability and productivity growth remains slightly positive once pre-pandemic trends are controlled for, but is much weaker than in the uncontrolled comparison.

Related Articles:

  • 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.
  • Work From Home and the Office Real Estate Apocalypse — The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, a $453bn value destruction, with lower-quality buildings hit hardest as tenants shifted to higher-quality space. They argue this has implications for local public finances and financial sector stability.
  • 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 implied expected annual return on US stocks is estimated at 8.48%, with an equity risk premium of 4.60%, based on current prices and forecast earnings. The author compares these figures with historical estimates of expected returns and risk premiums going back to 1960.

Aswath Damodaran Musings On Markets
Date Posted:

In 2023, American stocks accounted for $9.5T of $14T increase in global market capitalization. Going into 2024, the S&P 500 is priced to earn 8.5% and has an ERP of 4.6%. @AswathDamodaran

How do current expected stock returns compare with historical estimates?

Core argument: At the start of 2024, US stocks carried an expected annual return of 8.48% and an implied equity risk premium of 4.60%, following higher prices and a more upbeat earnings forecast as fear lifted.

At the start of 2024, the lifting of fear has led to higher prices, a more upbeat forecast of earnings and an expected return of 8.48%, and an equity risk premium of 4.60%. I do compute this expected return and the equity risk premium at the start of each month, and the last 24 months have been a roller coaster ride. To the question of whether 8.48% is a reasonable expectation for an annual return for US stocks, and 4.60% a sufficient equity risk premium, I looked at the historical estimates for these numbers going back to 1960.

Takeaways by Macro Roundup® AI

  1. At the start of 2024, US stocks carried an expected annual return of 8.48% and an implied equity risk premium of 4.60%, following higher prices and a more upbeat earnings forecast as fear lifted.
  2. Damodaran computes the expected return and equity risk premium at the start of each month, and describes the last 24 months of those estimates as a roller coaster ride.
  3. To assess whether an 8.48% expected return and a 4.60% equity risk premium are reasonable, Damodaran examines historical estimates of both measures going back to 1960.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • 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%.
  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

AI Summary. An index of aggregated company revenue growth by region shows the US led not by growing fastest each year — it had the fastest regional growth in only 3 of the last 10 years — but through steady growth with roughly 20% lower volatility than Europe or Japan. Regressing relative equity returns on relative revenue growth showed no statistical significance.

Dan Rasmussen and Chris Satterthwaite Verdad
Date Posted:

American equity’s outperformance isn’t due to stronger American revenue growth. Looking at the US, Japan, and Europe, @verdadcap found that regressing relative equity returns against relative revenue growth had no statistical significance.

Does faster regional revenue growth explain higher equity returns?

Core argument: The US posted the fastest regional revenue growth in only 3 of the last 10 years, but sustained strong growth throughout the decade with about 20% lower volatility than Europe or Japan, according to an aggregated index of year-over-year revenue growth.

We aggregate the revenue of all companies in each region and create a daily updated index of year-over-year revenue growth. Our indexed revenue growth data shows that the US has won not necessarily by growing fastest every year (the US had the fastest regional growth in only 3 out of the last 10 years) but rather by having strong growth throughout the decade, with about 20% lower volatility than Europe or Japan. But what’s perhaps most interesting is that regressing relative equity returns against relative revenue growth had no statistical significance. The fastest-growing equity markets did not concurrently earn the highest equity returns within each year. To understand why, examine the chart below, which shows average revenue growth versus average equity returns by region by year.

Takeaways by Macro Roundup® AI

  1. The US posted the fastest regional revenue growth in only 3 of the last 10 years, but sustained strong growth throughout the decade with about 20% lower volatility than Europe or Japan, according to an aggregated index of year-over-year revenue growth.
  2. Regressing relative equity returns against relative revenue growth showed no statistical significance, and the fastest-growing equity markets did not concurrently earn the highest equity returns within each year.
  3. The index aggregates the revenue of all companies in each region into a daily updated measure of year-over-year revenue growth, compared against average equity returns by region by year.

Related Articles:

  • Driving with the Rear-View Mirror — Federal Reserve policymakers' median estimate of the equilibrium real policy rate is 0.5%; on that basis, repeating the past decade's equity returns over cash would require a real equity total return of 12.4%. With a dividend yield of 1.5%, the author argues that under even extreme earnings-growth scenarios valuations would have to exceed the Tech Bubble peak.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • 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%.