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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, February 5, 2024

AI Summary. A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.

William Olney and Owen Thompson National Bureau of Economic Research
Date Posted:
Is Database:
Database
Is Important:
Important

The decline in internal migration in the US has been driven by increasing housing prices; potential wage gains from migration are being offset by housing-related factors.

Do housing costs offset wage incentives driving internal migration?

Core argument: A 10% increase in destination-area wages is associated with a 7.8% rise in migration, while a 10% increase in origin wages is associated with a 3.5% decline.

A 10% increase in the origin wage is associated with a 3.5% decline in migration, while a 10% increase in the destination wage is associated with a 7.8% increase in migration. For housing, a 10% increase in origin home prices is associated with a 1.4% increase in migration, but a 10% increase in destination home prices is associated with a 2.6% decline in migration. These analyses show that wages on their own would have led to an increase in migration rates, primarily because migrants are increasingly responsive to high earnings levels in potential destination communing zones (CZs). However, these wage effects have been more than offset by housing-related factors, which have increasingly impeded internal mobility. In particular, migration has become much less responsive to housing prices in the origin CZ, such that many households that would have left in response to high home prices several decades ago now choose to stay.

Takeaways by Macro Roundup® AI

  1. A 10% increase in destination-area wages is associated with a 7.8% rise in migration, while a 10% increase in origin wages is associated with a 3.5% decline.
  2. A 10% increase in destination home prices is associated with a 2.6% decline in migration, while a 10% increase in origin home prices is associated with a 1.4% increase.
  3. Wage effects on their own would have raised migration rates, but housing-related factors more than offset them, with migration becoming much less responsive to origin-area home prices than several decades ago.

Related Articles:

  • Movers And Money: Mapping the Flow of Income During the Pandemic — Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.
  • Southern Comforts — Migration into southern metropolitan areas such as Austin, San Antonio, Jacksonville, and Tampa has continued, and the South also has a higher birth rate than other census regions. Growth has been uneven: Florida's GDP rose 20% and Texas and Tennessee 15% against a US average of 11%, while Oklahoma and Louisiana contracted.
  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.

AI Summary. Core wage growth is running slightly faster than in the late 1990s and 2005-2007, about 2-3 percentage points faster than before the pandemic. The author argues a steady state near 5% annual wage growth need not be inflationary if workers save more or productivity gains let businesses expand output to meet demand.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues “wages are rising about 2-3pp faster than in the pre-pandemic period. The apparent steady state of ~5% yearly wage growth does not have to be inflationary.”

Can wage growth near 5% avoid fueling inflation?

Core argument: Core wage growth is running about 2–3pp faster than in the pre-pandemic period, slightly exceeding rates seen in the late 1990s and in 2005–2007.

Core wage growth is now running slightly faster than it was in the late 1990s and in 2005-2007. Put another way, wages are rising about 2-3pp faster than in the pre-pandemic period. The apparent steady state of ~5% yearly wage growth does not have to be inflationary. If workers save more, they would (partly) break the link between wages and spending, which would relieve some of the pressure on businesses to ration finite quantities via higher prices. And if businesses can ramp up output sufficiently to meet demand through productivity gains, inflation would be muted relative to spending growth. There are reasons to be optimistic about both factors, but it is too early (for me) to have much confidence about how this will play out.

Takeaways by Macro Roundup® AI

  1. Core wage growth is running about 2–3pp faster than in the pre-pandemic period, slightly exceeding rates seen in the late 1990s and in 2005–2007.
  2. A steady state of roughly 5% annual wage growth need not be inflationary if workers save more, partly breaking the link between wages and spending and easing pressure on businesses to ration supply through higher prices.
  3. Productivity gains that let businesses raise output enough to meet demand would mute inflation relative to spending growth, though it remains too early to have much confidence in how saving and productivity will play out.

Related Articles:

  • The Labor Market Is Primed For a Soft Landing — Elevated wage growth can threaten a strong labor market if it raises inflation concerns and leads the Federal Reserve to hold monetary policy tighter, though productivity growth eases that concern. After wage growth exceeded a sustainable benchmark of productivity growth plus the Federal Reserve's 2% inflation target, rebounding productivity and moderating wage growth have narrowed the gap.
  • Is Post-Pandemic Wage Growth Fueling Inflation? — A model forecasts no statistically significant additional wage pressure on prices if year-over-year employment cost growth runs between 3.78% and 4.25%, a range above the Federal Reserve's 2% inflation target plus average productivity growth. Because inflation has outpaced productivity-adjusted wages, wages have room to catch up without adding inflation.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.

AI Summary. A record $8.9tn of US government debt matures over a one-year period, and combined with a projected $1.4tn budget deficit and the Federal Reserve shrinking its balance sheet by $60bn per month, buyers will be needed for more than $10tn of Treasuries — over one-third of outstanding US government debt and of US GDP.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal reports that “someone will need to buy more than $10 trillion in US government bonds in 2024” as a record $8.9 trillion of government debt will mature over the next year.

How much Treasury debt will the market need to absorb?

Core argument: Buyers will need to absorb more than $10 trillion in US Treasuries in 2024, more than one-third of outstanding US government debt and more than one-third of US GDP.

A record $8.9 trillion of government debt will mature over the next year. The government budget deficit in 2024 will be $1.4 trillion according to the CBO, and the Fed has been running down its balance sheet by $60 billion per month. The bottom line is that someone will need to buy more than $10 trillion in US government bonds in 2024. That is more than one-third of US government debt outstanding. And more than one-third of US GDP. This may be a particular challenge when the biggest holders of US Treasuries, namely foreigners, continue to shrink their share. More fundamentally, interest rate-sensitive balance sheets such as households, pensions, and insurance have been the biggest buyers of Treasuries in 2023, and the question is whether they will continue to buy once the Fed starts cutting rates.

Takeaways by Macro Roundup® AI

  1. Buyers will need to absorb more than $10 trillion in US Treasuries in 2024, more than one-third of outstanding US government debt and more than one-third of US GDP.
  2. A record $8.9 trillion of US government debt matures over the next year, alongside a CBO-projected $1.4 trillion budget deficit for 2024 and Federal Reserve balance-sheet runoff of $60 billion per month.
  3. Foreigners, the largest holders of US Treasuries, continue to shrink their share, while interest rate-sensitive buyers such as households, pensions, and insurers were the biggest buyers in 2023, leaving open whether they keep buying once the Federal Reserve cuts rates.

Related Articles:

  • Government Interest Payments Have Doubled Since 2021 — US government interest payments have doubled from about $350bn in 2021 to over $700bn annually, reflecting higher interest rates and debt levels.
  • 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.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.

AI Summary. US interracial marriage rates showed no decline despite heightened public discourse about racial tension, a metric where increased racial tension would be expected to register. The author argues America's ethnoracial composition is more mixed than it has ever been, resembling a Latin American country more than a European one.

Cremieux Cremieux Recueil
Date Posted:

An analysis by @cremieuxrecueil finds that 16% of marriages in 2022 were interracial, up from 12% in 2008. The increase has been largely driven by intermarriage between whites and Hispanics.

Have interracial marriage rates declined amid rising talk of racial tension?

Core argument: Interracial marriage rates in the U.S. showed no decline during the "Great Awokening," a period in which heightened racial tension would have been expected to reduce them if race relations had worsened.

If the "Great Awokening” or “Great Racial Reckoning”, or whatever you wish to call it had a major impact on race relations in the U.S., [interracial marriage] is about the hardest metric on which it could have shown up. It’s reasonable to posit that, if people really were feeling more racial tension, interracial marriage rates should have declined as a result. That was not at all evident in the data. The trajectory for America’s ethnoracial composition remains one that is more mixed than it has ever been, more akin to a Latin American country than a European one. Although, it should be noted, Europe’s indigenous population is also rapidly aging and mixing at as-yet unforeseen rates so the analogy may have to change to a comparison with countries like China and Japan.

Takeaways by Macro Roundup® AI

  1. Interracial marriage rates in the U.S. showed no decline during the "Great Awokening," a period in which heightened racial tension would have been expected to reduce them if race relations had worsened.
  2. America's ethnoracial composition is on a trajectory toward being more mixed than it has ever been, resembling a Latin American country more than a European one.
  3. Europe's indigenous population is aging and mixing at rapid rates, which may make countries like China and Japan the more apt comparison.

Related Articles:

  • Econ Focus: Melissa Kearney — The decline in marriage and the rise in children raised in one-parent homes have occurred predominantly outside the college-educated class, whose members continue to marry, often to each other, while earnings for adults without a college degree have stagnated or risen only slightly. These divergent family-structure trends mean household inequality has widened by more than earnings inequality alone would imply.
  • 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%.
  • 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. Adjusted for inflation, aggregate credit card balances are roughly back to their 2019 level and close to their 2003–2023 average, having increased since 2022. Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and near the series low of 5.2%.

Scott Fulford and Neale Mahoney Briefing Book
Date Posted:

In 2023 credit card balances per person were 6.3% of mean income, below the 7.3% historical average and fairly close to the 5.2% low in 2021. @nealemahoney @Scott_L_Fulford

Are credit card balances elevated after adjusting for inflation and income?

Core argument: Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and fairly close to the series low of 5.2% recorded in 2021.

Adjusting for inflation, credit card balances are fairly typical. Although they have increased since 2022, aggregate credit card balances are roughly back to their 2019 level and close to their average over 2003 to 2023. Moreover, compared to incomes, credit card balances are well below their historical average. The figure shows credit card balances per person as a percentage of mean income. At 6.3%, the percentage is below its historical average (7.3%) and fairly close to the series low (5.2% in 2021). The pattern is similar if we use other income or population measures.

Takeaways by Macro Roundup® AI

  1. Credit card balances per person equal 6.3% of mean income, below the historical average of 7.3% and fairly close to the series low of 5.2% recorded in 2021.
  2. Adjusted for inflation, aggregate credit card balances are roughly back to their 2019 level and close to their 2003–2023 average, despite rising since 2022.
  3. The pattern of credit card balances sitting below their historical average relative to income holds when using other income or population measures.

Related Articles:

  • Excess No More? Dwindling Pandemic Savings — Research on U.S. household savings after the pandemic recession points to rapid accumulation and then drawdown of excess savings, with cumulative drawdowns exceeding $1.9tn and less than $190bn of excess savings remaining in the aggregate economy. The authors estimate that if recent drawdown rates persist, aggregate excess savings would be depleted.
  • Not Such A Cruel Summer — Bank of America internal data show average credit card balances for middle- and higher-income households at levels equivalent to 2019, while balances for lower-income households have risen more steeply and exceed their pre-pandemic range. Lower-income households continue to see faster wage growth, which offsets some of that pressure.
  • Credit Card Delinquencies Continue to Rise—Who Is Missing Payments? — Delinquency rates have risen from historic lows across most credit products, with auto loan and credit card delinquencies exceeding pre-pandemic levels while mortgage transitions into delinquency remain below them. The increase is broad-based across income groups and regions but disproportionately driven by Millennials, borrowers with auto or student loans, and those with relatively higher credit card balances.

AI Summary. Unlike the 1970s inflation waves, when inflation expectations rose as much as or more than inflation itself, inflation expectations stayed anchored near 3% while inflation reached 8%, which the author argues is an important reason inflation fell back. The author contends central banks still had to raise rates, since without hikes inflation would likely have been higher.

Jesper Rangvid Rangvid's Blog
Date Posted:

Jesper Rangvid argues that inflation was not transitory, and without tighter monetary conditions stronger economic growth would have driven higher inflation. He credits the Fed with keeping expectations anchored.

Were rate hikes necessary when inflation expectations stayed anchored?

Core argument: Inflation expectations peaked at 3% at the end of 2022 while inflation itself reached 8%, and anchored expectations are an important reason inflation has since fallen.

Figure 2 shows that inflation expectations rose just as much or even more than inflation itself during the two inflation waves in the 1970s. Higher inflation expectations fuelled inflation and made it more difficult to bring it down. The contrast with today’s inflation episode is striking. Today, inflation has also skyrocketed, to 8%. However, inflation expectations have remained anchored. At their peak at the end of 2022, inflation expectations were 3%, while inflation itself was at the aforementioned 8%. The fact that inflation expectations have remained low even though inflation has shot up is an important reason why inflation has fallen again. Moreover, the economy would probably have been even stronger and inflation even higher if there had been no rate hikes. Ultimately, this was not just a temporary supply-driven event. Central banks had to raise interest rates. Past experiences with alternative monetary policy responses have proved disastrous.

Takeaways by Macro Roundup® AI

  1. Inflation expectations peaked at 3% at the end of 2022 while inflation itself reached 8%, and anchored expectations are an important reason inflation has since fallen.
  2. During the two inflation waves of the 1970s, inflation expectations rose as much as or more than inflation itself, fuelling inflation and making it harder to bring down, unlike the current episode.
  3. Central banks had to raise interest rates because the episode was not just a temporary supply-driven event, and without rate hikes the economy would probably have been stronger and inflation higher.

Related Articles:

  • Rangvid On Housing Inflation — US core inflation measures include the cost of owner-occupied housing by imputing what homeowners would pay to rent from themselves, while Europe's core measure leaves owner-occupied housing out entirely. Measured the European way, US inflation is already back to 2%, while European inflation remains well above target.
  • Striking Similarities (and Differences) Between Inflation Today and In the 1970s — US inflation over the past 5-10 years has closely tracked its behavior in the early 1970s, a pattern that would put inflation back on target by mid-2024. But unlike the early 1970s, when core inflation followed headline inflation both up and down, headline inflation has been falling while core has not, indicating more pronounced underlying inflationary pressures.
  • When Will There Be No More Excess Savings Left? — Post-pandemic excess savings and core consumer price inflation one year later track each other closely, with inflation rising, peaking, and declining roughly a year after excess savings did. The author argues fiscal stimulus that boosted disposable income and excess savings contributed to this inflation episode, alongside monetary policy and supply chain problems.

AI Summary. Dartmouth College has reinstated its standardised test requirement after commissioned research concluded that dropping it did not increase applicant diversity and that high school grade point averages and counsellor recommendations were far less reliable predictors of university performance than SAT scores.

Andrew Jack Financial Times
Date Posted:

Dartmouth College has reinstated standardized testing requirements. A review found that the test results were a better indicator of undergraduate performance than high school grade point average.

Dartmouth College has reinstated standardized testing requirements. A review found that the test results were a better...

Do standardised test scores predict college performance better than grades?

Core argument: Students admitted to Dartmouth without SAT scores on average scored only better than the lowest 30% of the total intake in their first-year university exams, according to research commissioned by the college.

Dartmouth College is breaking ranks with its elite US university peers by reinstating a requirement for standardised test results put on hold during the pandemic. Research commissioned by Dartmouth concluded that dropping the requirement for tests did not increase the diversity of candidates. It found that those from lower socio-economic backgrounds did not apply or submit test scores which would have strengthened their case if they believed erroneously that they were too low. It found that grade point averages given by high school teachers based on performance in their classes and recommendations by college counsellors were far less reliable indicators of student performance once they reached university than SATs. Those admitted to Dartmouth without SATs on average only scored better than the lowest 30% of the total intake in their first-year university exams.

Takeaways by Macro Roundup® AI

  1. Students admitted to Dartmouth without SAT scores on average scored only better than the lowest 30% of the total intake in their first-year university exams, according to research commissioned by the college.
  2. Dartmouth College is reinstating its standardised testing requirement, suspended during the pandemic, after commissioned research concluded that dropping the requirement did not increase the diversity of candidates.
  3. The Dartmouth research found high school grade point averages and college counsellor recommendations were far less reliable indicators of university performance than SATs, and that applicants from lower socio-economic backgrounds withheld scores they wrongly believed were too low.

Related Articles:

  • The Misguided War On The SAT — The National Assessment of Educational Progress, a nationwide test of elementary and middle school students with no test-prep industry around it, shows racial and economic gaps closely resembling those on the SAT and ACT. Researchers argue this indicates college admissions tests measure underlying learning, making score disparities a symptom rather than a cause of inequality.
  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • ACT Scores Fell for Class of 2023, Sixth Consecutive Decline — The average ACT college admissions test score fell to 19.5 out of 36, a 30-year low and a sixth consecutive annual decline, with scores down across English, math, reading and science. The testing organization says the results indicate fewer high-school seniors are ready for college.

Tuesday, February 6, 2024

AI Summary. Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.

Kevin Corinth and Jeff Larrimore Federal Reserve Board
Date Posted:
Is Database:
Database
Is Important:
Important

.@jefflarrimore @kevincorinth find that Millennials between the ages of 36-40 have 18% higher real median household incomes (net of taxes and transfers) than Generation X at the same age range and that Millennial’ market incomes were 14% higher.

Has each American generation earned more than the one before it?

Core argument: At age 36–40, Millennials' real median post-tax, post-transfer household income was 18% higher than the prior generation's at the same age, compared with 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.

Each of the past four generations of Americans was better off than the previous one, using a post-tax, post-transfer income measure constructed annually from 1963-2022 based on the Current Population Survey Annual Social and Economic Supplement. At age 36–40, Millennials had a real median household income that was 18% higher than that of the previous generation at the same age. This rate of [post-tax and transfer] intergenerational progress was slower than that experienced by the Silent Generation (34%) and Baby Boomers (27%), but similar to that experienced by Generation X (16%). Slower progress for Generation X and Millennials is due to their stalled growth in work hours—holding work hours constant, they experienced a greater intergenerational increase in real market income than Baby Boomers. We also find that the higher educational costs incurred by younger generations is far outweighed by their lifetime income gains.

Takeaways by Macro Roundup® AI

  1. At age 36–40, Millennials' real median post-tax, post-transfer household income was 18% higher than the prior generation's at the same age, compared with 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  2. The authors attribute slower intergenerational progress for Generation X and Millennials to stalled growth in work hours, finding that holding work hours constant, both generations posted larger intergenerational gains in real market income than Baby Boomers.
  3. The authors find that higher educational costs incurred by younger generations are far outweighed by their lifetime income gains, using an income measure built annually from the Current Population Survey Annual Social and Economic Supplement for 1963–2022.

Related Articles:

  • Young People Have a Lot More Wealth Than We Thought — Wealth data for young people comes from the Federal Reserve's quarterly Distributional Financial Accounts, which project forward results from the Survey of Consumer Finances conducted every three years. When newer survey results were released, young people turned out to hold considerably more wealth than the projections based on the prior survey had indicated.
  • With Housing, Millennials Have Much to Complain About — The Census Bureau's customary homeownership rate is measured by household, showing 52.7% of 25-to-34-year-old household heads own homes, but only 32.6% of all Americans in that age group do — down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s. Young-adult homeownership has seen a modest resurgence since 2016.
  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.

AI Summary. Labor force participation among 25-to-54-year-olds rose after the pandemic shock, with women's rate exceeding its pre-pandemic peak while men's returned to its pre-pandemic level but stayed below its historical high. The authors find this participation rise can ease wage and price pressures in hot labor markets, but appears to have ended.

Robert Valletta Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database

Female prime-age LFP has exceeded its pre-pandemic peak hitting an all-time high last year, and male prime-age LFP returned to its pre-pandemic level. A @sffed analysis argues LFP gains are “winding down” which implies sustained tight labor markets.

Has prime-age labor force participation stopped easing wage pressures?

Core argument: Prime-age women's labor force participation reached a historical high in 2023, exceeding its pre-pandemic peak, while prime-age men's rate returned only to its pre-pandemic level and remains well below its prior historical high.

Prime-age LFP dropped precipitously for both men and women during the early phase of the pandemic. After a rapid but partial recovery in the few months following the initial pandemic shock, LFP increased steadily through mid-2023. LFP increase has been especially pronounced for prime-age women. Their LFP rate has notably exceeded the pre-pandemic peak and, in fact, reached a historical high in 2023. By contrast, the rate for prime-age men has returned to its pre-pandemic level but remains well below its prior historical high. Our results suggest that by increasing worker availability during economic expansions, rising prime-age LFP may act as a “safety valve” for hot labor markets, helping to ease upward wage and price pressures. However, our results for the years 2022–23 indicate that the recent procyclical rise in prime-age LFP may have ended. These findings suggest that further rebalancing of the labor market will need to come from slower growth in labor demand rather than continued rapid growth in worker supply.

Takeaways by Macro Roundup® AI

  1. Prime-age women's labor force participation reached a historical high in 2023, exceeding its pre-pandemic peak, while prime-age men's rate returned only to its pre-pandemic level and remains well below its prior historical high.
  2. Rising prime-age labor force participation may act as a "safety valve" for hot labor markets by increasing worker availability during expansions, helping ease upward wage and price pressures.
  3. Results for 2022–23 indicate the procyclical rise in prime-age participation may have ended, suggesting further labor market rebalancing will need to come from slower growth in labor demand rather than continued rapid growth in worker supply.

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.
  • Explaining The Rise In Prime Age Women’s Employment — 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.

AI Summary. The West's share of US population has flattened and appears to be falling, with relative housing affordability cited as a key part of the story. Metropolitan areas with median mortgage payments above the US average generally show negative or weakly positive population growth, and Pacific-state metros all have above-average mortgage payments.

David Tinsley Bank of America
Date Posted:
Is Database:
Database
Is Important:
Important

David Tinsley @BankofAmerica finds for the first time in US history the West’s population share is declining and suggests that relative housing affordability is a key factor.

Is housing affordability driving the West's shrinking population share?

Core argument: The West's share of overall US population has flattened and now appears to be falling, with relative housing affordability seen as a key part of the story.

The West's share of overall US population has flattened, and now appears to be falling. We believe relative housing affordability remains a key part of the story. Exhibit 7 shows a fairly close relationship between where a metropolitan statistical area (MSA’s) median mortgage payment in December 2023 stands compared to that of the overall US and the net change in population growth in that MSA over the last year, according to Bank of America internal data. Where an MSA has a relatively high median mortgage payment, its population growth has usually been negative or at best weakly positive. Looking at the MSAs in the Pacific states in the West (red squares in the exhibit), they all tend to have higher-than-average mortgage payments relative to the US. By contrast, in the southern Mountain states (yellow squares), mortgage payments are lower than the US average, so outward migration is potentially a reaction to housing costs.

Takeaways by Macro Roundup® AI

  1. The West's share of overall US population has flattened and now appears to be falling, with relative housing affordability seen as a key part of the story.
  2. Bank of America internal data show a fairly close relationship between an MSA's median mortgage payment in December 2023 relative to the US and its net population change over the past year, with high-payment MSAs usually seeing negative or weakly positive growth.
  3. MSAs in the Pacific states tend to have higher-than-average mortgage payments relative to the US, while southern Mountain state MSAs have below-average payments, suggesting outward migration is potentially a reaction to housing costs.

Related Articles:

  • The Determinants Of Declining Internal Migration — A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.
  • The New Geography of American Growth — Texas's real economic output rose $230bn over four years, making it the second-largest contributor to US growth behind California despite starting 30% smaller, and one in five new American jobs came from Texas. The Dallas metro contributed more to national growth than any other, and Texas surpassed New York in overall output.
  • Movers And Money: Mapping the Flow of Income During the Pandemic — Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.

AI Summary. Two alternative gauges of US growth — gross domestic income, which sums all income rather than all spending, and a current activity indicator — show growth of 1.5% and 0.8% at annualized rates, well below corresponding GDP figures. The authors conclude real output is at most growing modestly above potential despite stronger GDP data.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius has raised @GoldmanSachs 2024 US GDP growth forecast to 3%. Noting weaker growth in Gross Domestic Income and an internal measure he argues the economy can sustain the current disinflationary trend.

Do alternative growth measures show weaker US output than GDP?

Core argument: US gross domestic income grew 1.5% quarter-on-quarter annualized in Q3, considerably below the corresponding GDP growth rate, and Q4 GDI is not yet available.

Beyond GDP, we track two other measures of US growth, namely gross domestic income (GDI)—a conceptually equivalent measure of GDP that is calculated by adding up all income as opposed to all spending in the economy—and our current activity indicator (CAI). None of the three measures is perfect, but both GDP alternatives indicate a more muted growth pace. GDI is not yet available for Q4 but grew just 1.5% in Q3 on a quarter-on-quarter annualized basis and our CAI grew 0.8% in Q4, both considerably below the corresponding GDP growth rates. Based on these indicators, we still think that real output is at most growing modestly above potential, despite the much stronger GDP data.

Takeaways by Macro Roundup® AI

  1. US gross domestic income grew 1.5% quarter-on-quarter annualized in Q3, considerably below the corresponding GDP growth rate, and Q4 GDI is not yet available.
  2. The current activity indicator grew 0.8% in Q4, considerably below the corresponding GDP growth rate, indicating a more muted US growth pace than GDP data suggest.
  3. Based on gross domestic income and the current activity indicator, US real output is judged to be at most growing modestly above potential despite much stronger GDP data.

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 Wasn’t AI: How Fiscal Supports, Supply Chain Healing, & Full Employment Explain Exceptional Productivity In 2023 — Strong US productivity growth over the past 40 years has coincided with periods when the employment rate for people aged 25–54 was above 80%, including the late 1990s, 2019, and 2023. Excluding recession-distorted observations, the author estimates that a 1% higher prime-age employment rate is associated with an additional 0.3% of productivity growth.

AI Summary. Boeing's largest union, the International Association of Machinists and Aerospace Workers, is demanding a 40% pay raise over three or four years, citing a scarcity of qualified aerospace workers and an earlier contract that sacrificed pensions and limited raises. Analysts at Jefferies estimate every 10% rise in machinist wages would reduce Boeing's free cash flow by about $260m.

Julie Johnsson Bloomberg
Date Posted:

Boeing’s largest union is demanding a 40% pay raise over the next 3-4 years. Jefferies estimates that every 10% increase in wages would reduce 2026 free cash flow by $260mm before offsets. Boeing’s 2023 free cash flow was $1.87B.

Boeing’s largest union is demanding a 40% pay raise over the next 3-4 years. Jefferies estimates that every 10%...

Are scarce skilled aerospace workers driving union demands for large pay raises?

Core argument: Boeing's largest union, the International Association of Machinists and Aerospace Workers, will demand a 40% pay raise over three or four years, emboldened by a resurgent US labor movement, a scarcity of qualified aerospace workers, and pressure on Boeing to stabilize factory work.

Boeing’s largest union, the International Association of Machinists and Aerospace Workers is still smarting over a 2014 deal that sacrificed pensions, locked in minimal raises, and tied the hands of activists for a decade. Union leaders will demand a 40% pay raise over three or four years, emboldened by a resurgent US labor movement, a scarcity of qualified aerospace workers, and pressure on Boeing to stabilize work in its factories. A labor deal could also be costly. Every 10% increase in machinist wages will drag down 2026 free cash flow by an estimated $260 million before price and productivity offsets, according to Sheila Kahyaoglu, an analyst with Jefferies.

Takeaways by Macro Roundup® AI

  1. Boeing's largest union, the International Association of Machinists and Aerospace Workers, will demand a 40% pay raise over three or four years, emboldened by a resurgent US labor movement, a scarcity of qualified aerospace workers, and pressure on Boeing to stabilize factory work.
  2. Jefferies analyst Sheila Kahyaoglu estimates every 10% increase in Boeing machinist wages will reduce 2026 free cash flow by $260 million before price and productivity offsets.
  3. The machinists' union remains aggrieved over its 2014 Boeing deal, which sacrificed pensions, locked in minimal raises, and tied the hands of activists for a decade.

Related Articles:

  • The Unexpected Revival of America’s Trade Unions — More than 485,000 US workers went on strike in a year across an estimated 317 work stoppages, the most in two decades, according to a Bloomberg Law analysis. The United Auto Workers is organizing at over a dozen non-unionized carmakers and urging other unions to align contract expiration dates for broader strikes.
  • Union Workers Score Big Pay Gains As Labour Action Sweeps US — The Bureau of Labor Statistics reports year-on-year wage growth for union members reached 4.6%, catching up with the larger pay rises non-union workers had been receiving. Analysis of 425 newly ratified union contracts by Bloomberg Law found first-year pay increases of 7% and 6.1%, against a 3% average over the preceding 10 years.
  • American Labor’s Real Problem: It Isn’t Productive Enough — U.S. manufacturing output per hour has grown about 0.2% a year since 2009, below the overall economy and peer economies in Europe and Asia except Japan, with motor vehicle manufacturing productivity falling 32% from 2012 through last year. Unlike warehouses and hospitals, manufacturers face foreign competition and cannot pass higher labor costs to customers.

AI Summary. US-listed exchange-traded funds buying Indian stocks drew record inflows while the four largest China funds saw combined outflows of nearly $800m, and India's weight in the main developing-market equity benchmark hit an all-time high of 18% as China's fell to a record low of 24.8%. Indian equities trade at more than 20x future earnings, 27% above their 2010–2020 average.

Srinivasan Sivabalan, Chiranjivi Chakraborty, and Subhadip Sircar Bloomberg
Date Posted:

Western money is rotating from China to India as India’s stock market has closely tracked economic growth. Over the past 20 years Indian GDP and market capitalization “rose in tandem from $500B to $3.5T.”

Are global investors shifting money from Chinese stocks to Indian ones?

Core argument: India's weight in MSCI's emerging-market equity benchmark stands at an all-time high of 18% while China's share has fallen to a record low of 24.8%, and India briefly overtook Hong Kong as the world's fourth-largest equity market.

In the US exchange-traded fund market, the main fund buying Indian stocks received record inflows in the final quarter of 2023, while the four largest China funds combined saw outflows of almost $800 million. Active bond funds have put 50 cents to work in India for every dollar they pulled from China since 2022, according to EPFR data. In mid-January, India briefly overtook Hong Kong to become the world’s fourth-largest equity market. Morgan Stanley predicts India’s stock market will become the third-largest by 2030. Its weight in the MSCI Inc.’s benchmark for developing-market equities is at an all-time high of 18%, even as China’s share has shrunk to its lowest on record at 24.8%. The euphoria has made Indian equities among the most expensive in the world. The gauge trades at more than 20 times future earnings, 27% more expensive than the average for the 2010 to 2020 period.

Takeaways by Macro Roundup® AI

  1. India's weight in MSCI's emerging-market equity benchmark stands at an all-time high of 18% while China's share has fallen to a record low of 24.8%, and India briefly overtook Hong Kong as the world's fourth-largest equity market.
  2. Indian equities trade at more than 20 times forward earnings, 27% above the 2010–2020 average, ranking among the world's most expensive, and Morgan Stanley projects India's stock market will become the third-largest by 2030.
  3. The main US exchange-traded fund buying Indian stocks drew record inflows in the final quarter of 2023, while the four largest China funds together saw outflows of almost $800 million.

Related Articles:

  • India At The Centre — India has averaged real GDP growth above 6% a year for three decades, and unlike China's growth, it has translated into equity returns, with the Sensex matching or beating the S&P 500 over 30-, 20-, 10-, and five-year spans. Analysis attributes the growth to rising total factor productivity, with contributions from services exports and improved basic infrastructure.
  • Indian Stock Market Surges as Foreign Funds Buy Into National Growth Story — Indian equities rose $440bn to more than $3.5tn in value, making India the world's fifth-largest stock market after the US, China, Japan, and Hong Kong, ahead of France and the UK. Foreign portfolio investors added a net $9.4bn to Indian shares in the quarter, with analysts attributing the bulk of this year's inflows to passive index buying.
  • India Equity: An Unsung Long-Term Performance Story — Cumulative total returns for Indian equities have been comparable to or better than US equities over roughly three decades, while Chinese equities have lagged both, according to index data for the MSCI India, S&P 500, and MSCI China indexes.

AI Summary. China's central bank kept the yuan inside the weak edge of its trading band without drawing on its own foreign exchange, leaving its foreign currency balance sheet essentially flat. Multiple reports suggest it instead leaned on China's state banks to conduct the intervention.

Brad Setser Council on Foreign Relations
Date Posted:

.@Brad_Setser argues that China has shifted management of its currency band from direct intervention by the PBOC to “stealth” intervention by state-owned banks.

Is China using state banks to defend the yuan?

Core argument: The People's Bank of China's foreign currency balance sheet stayed flat for most of 2023, consistent with the PBOC's assertions that it is mostly out of the currency market even as the yuan sat at the weak edge of its band from August through October.

Usually, a band is maintained by the central bank, which buys or sells foreign exchange as needed to keep the market price of the yuan within said band. But that doesn’t seem to be what China did. The foreign currency balance sheet of the PBOC was totally flat for most of 2023 (hence the PBOC’s assertions that it is mostly out of the currency market). There were adjustments to banks’ required reserve ratio that freed up a bit of foreign exchange held in the banks’ reserves, but the PBOC doesn’t seem to have used any of its own funds to keep the yuan inside the weak edge of the band from August through October. With a bit of digging, it is possible to get a relatively clear understanding of how the PBOC avoided intervention when the fix was fixed and the yuan was at the weak edge of the band: there are multiple reports suggesting that the PBOC leaned on China’s state banks to do its dirty work.

Takeaways by Macro Roundup® AI

  1. The People's Bank of China's foreign currency balance sheet stayed flat for most of 2023, consistent with the PBOC's assertions that it is mostly out of the currency market even as the yuan sat at the weak edge of its band from August through October.
  2. Multiple reports suggest the PBOC leaned on China's state banks to hold the yuan inside the weak edge of its band rather than deploying its own funds, unlike the standard practice of a central bank buying or selling foreign exchange to maintain a band.
  3. Adjustments to Chinese banks' required reserve ratio freed up a small amount of foreign exchange held in bank reserves.

Related Articles:

  • Is the Chinese Government Pushing Down the Yuan? — The Bank for International Settlements measure of China's inflation-adjusted, trade-weighted exchange rate has fallen roughly 14% from its recent peak, the largest decline among the 64 countries it tracks. The author argues this reflects a policy choice, with China's central bank having outsourced foreign reserve management to state-run banks while lending increasingly large sums to the domestic banking system.
  • Will China’s Economic Slump Be Contagious? — A Chinese push to export its way out of its economic slump, allowing a further large depreciation of the yuan, could pressure parts of the U.S. economy that compete with Chinese manufacturing, absent a major increase in trade restrictions. The U.S. remains the largest market globally for consumer and imported goods.
  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.