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


Friday, March 1, 2024

AI Summary. The authors estimate that for every $1,000 per capita of federal pandemic aid committed to state and local governments, state revenues and expenditures each rose by roughly the same amount, with $379 going to general government spending and $72 to pension contributions. They find no statistically significant increases in healthcare, education, or infrastructure spending.

Stan Veuger, Jeffrey Clemens, Oliver Giesecke and Joshua Rauh American Enterprise Institute
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Of the almost $1T in Federal pandemic-era fiscal aid to states, 38% went to general government expenditures (excluding healthcare, education, and infrastructure) and 7% on employee pension funding. @stanveuger @joshrauh @jeffreypclemens @og_giesecke

How do states spend federal aid windfalls?

Core argument: For every $1,000 per capita of committed federal pandemic aid, state intergovernmental grant revenue rose $645 over 2020–2022, from which the authors infer roughly 64.5 cents per dollar of the nearly $1 trillion in aid reached state governments by the end of fiscal 2022.

In 2020 and 2021, federal lawmakers enacted nearly $1 trillion in financial aid for state and local governments. In general, funds were not intended to be used to offset tax reductions or as contributions to pension funds. For every $1000 of incremental committed federal aid per capita, $645 appears as increased intergovernmental grant revenue in states over the years 2020-2022, from which we infer that approximately $0.645 of every dollar of committed federal aid to state and local governments was disbursed to state governments by the end of fiscal year 2022. Second, total revenues of states increased by approximately as much, indicating that states did not offset the federal revenue windfall with other revenue sources. Third, total expenditures of states increased by $770 per capita for every $1000 of federal aid committed, statistically indistinguishable from the revenue estimate. Fourth, the spending categories in which expenditures increase most strongly and significantly are General Government Expenditures ($379 per $1000 of incremental federal aid, or 38 cents per dollar) and state and local pension contributions ($72 per $1000 of federal aid, or 7 cents per dollar). General government expenditures reflect spending on the non-healthcare, non-educational functions of government, and include expenditures on administrative services and various departments. This category accounted for nearly half of the $770 spending increase we document while accounting for less than 10% of total expenditures. We do not find any statistically significant evidence that aid increased expenditures in any one of the functional categories of healthcare, education, or infrastructure, nor are there statistically significant increases in these aggregated functional categories, although we cannot reject the hypothesis that they also increased.

Takeaways by Macro Roundup® AI

  1. For every $1,000 per capita of committed federal pandemic aid, state intergovernmental grant revenue rose $645 over 2020–2022, from which the authors infer roughly 64.5 cents per dollar of the nearly $1 trillion in aid reached state governments by the end of fiscal 2022.
  2. Total state revenues rose by approximately as much as the grant revenue increase, indicating states did not offset the federal windfall with other revenue sources, while total expenditures rose $770 per capita for every $1,000 of committed aid, statistically indistinguishable from the revenue estimate.
  3. General government expenditures — non-healthcare, non-educational functions including administrative services — rose $379 per $1,000 of aid, nearly half the $770 spending increase despite accounting for less than 10% of total expenditures, while pension contributions rose $72.

Related Articles:

AI Summary. A measure of underlying US inflation—personal consumption services excluding energy, housing, and imputed items—is running about 1.5 percentage points faster than before the pandemic, unchanged over the past year. A 1% monthly jump in pre-tax personal income was driven more by dividends than by wages and salaries, which matter most for consumer spending.

Matt Klein The Overshoot
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.@_C_Klein notes that as of Q3 2023, growth in the total cash compensation paid to workers had reverted to pre-pandemic norms, consistent with slowing underlying inflation in 2024, though PCE inflation remains 1.5pp over the pre-pandemic level.

Is underlying inflation still elevated while wage income growth softens?

Core argument: PCE services excluding energy, housing, and imputations was rising about 1.5 percentage points faster than its pre-pandemic pace in December 2023 and remains about 1.5pp faster as of January.

The measure of underlying inflation that Fed officials have highlighted in the past—PCE services excluding energy and housing (I modify it slightly by also excluding imputations)—was rising about 1.5 percentage points faster than it was before the pandemic in December 2023 and it is still rising about 1.5pp faster as of January. The latest personal income data would appear to support the argument that U.S. inflation has re-accelerated. Total pre-tax income jumped by 1% month on month! But there is less here than meets the eye. Of the total $19.5 billion/month increase in personal income, only $3.6 billion can be attributed to wages and salaries, which is what matters most for consumer spending. By contrast, $6.3 billion is due to a spike in dividends that may or may not be a one-off. Either way, those extra dividends are unlikely to finance purchases of goods and services in ways that boost jobs, incomes, and price pressures.

Takeaways by Macro Roundup® AI

  1. PCE services excluding energy, housing, and imputations was rising about 1.5 percentage points faster than its pre-pandemic pace in December 2023 and remains about 1.5pp faster as of January.
  2. U.S. total pre-tax personal income jumped 1% month on month, which would appear to support the argument that inflation has re-accelerated.
  3. Of the $19.5 billion monthly increase in U.S. personal income, only $3.6 billion came from wages and salaries, while $6.3 billion came from a spike in dividends that may or may not be a one-off.

Related Articles:

  • How Fast Can the Fed Ease? The Private Sector Response to Easier Conditions Will Be a Key Factor — US households have reduced debt over the past 20 years, leaving room to borrow more if incentives improve, while companies that issued debt at low rates hold large liquidity and healthy balance sheets. That gives businesses capacity to raise investment, and business surveys indicate capital-spending sentiment is already improving.
  • U.S. Inflation Surged in January. Is It a Fluke? — Quarterly growth in the Employment Cost Index has slowed continuously and now runs roughly 1 percentage point faster on an annualized basis than just before the pandemic, while hourly private-sector pay growth has stayed stable. Despite the normalization of job-market churn, both measures of pay gains remain much faster than pre-pandemic.
  • 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%.

AI Summary. A bubble market can be identified by a combination of high prices relative to traditional value measures, unsustainable growth assumptions, an influx of naïve buyers, broad bullish sentiment, debt-financed purchases, and speculative forward buying. By these criteria the US stock market sits in the mid-range, at the 52nd percentile, levels not consistent with past bubbles.

Ray Dalio Linkedin
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.@RayDalio argues that the current US equity market “doesn’t look very bubbly. The market as a whole is in mid-range (52nd percentile). These levels are not consistent with past bubbles.”

Do standard bubble measures show the US stock market in a bubble?

Core argument: The US stock market as a whole sits in the mid-range 52nd percentile, a level not consistent with past bubbles.

I define a bubble market as one that has a combination of the following in high degrees: High prices relative to traditional measures of value (e.g., by taking the present value of their cash flows for the duration of the asset and comparing it with their interest rates). Unsustainable conditions (e.g., extrapolating past revenue and earnings growth rates late in the cycle when capacity limits mean that growth can’t be sustained). Many new and naïve buyers who were attracted in because the market has gone up a lot, so it’s perceived as a hot market. Broad bullish sentiment. A high percentage of purchases being financed by debt. A lot of forward and speculative purchases made to bet on price gains (e.g., inventories that are more than needed, contracted forward purchases, etc.). When I look at the US stock market using these criteria it—and even some of the parts that have rallied the most and gotten media attention—doesn’t look very bubbly. The market as a whole is in mid-range (52nd percentile). These levels are not consistent with past bubbles.

Takeaways by Macro Roundup® AI

  1. The US stock market as a whole sits in the mid-range 52nd percentile, a level not consistent with past bubbles.
  2. The bubble criteria include high prices relative to the present value of cash flows compared with interest rates, unsustainable extrapolation of past revenue and earnings growth late in the cycle, and many new and naïve buyers attracted by a rising market.
  3. Broad bullish sentiment, a high percentage of purchases financed by debt, and speculative forward purchases betting on price gains are further bubble markers, and even some of the US market segments that have rallied most and drawn media attention do not look very bubbly.

Related Articles:

  • The Current AI Bubble Is Bigger than the 1990s Tech Bubble — By median price-to-earnings ratio, the 10 largest companies in the S&P 500 stock index are more overvalued than the top 10 were during the 1990s technology stock bubble.
  • Five Easy Pieces — The rally in the seven largest US technology stocks has been driven by earnings rather than valuation: of the group's 28% return, 21 percentage points came from sales growth, 6 from margin expansion, and 1 from multiple expansion. Market concentration has reached its highest level since 1972, and large spikes in concentration have frequently coincided with or preceded prior recessions.
  • 2024 US Equity Outlook: “All You Had To Do Was Stay” — The seven largest US mega-cap technology stocks are projected to outperform the rest of the S&P 500, supported by faster expected sales growth, higher margins, greater reinvestment, and stronger balance sheets. Analysts expect these companies to grow sales at an 11% annual rate versus 3% for the other 493 companies, with net margins twice as high.

AI Summary. The author argues the Federal Reserve will not cut interest rates and rates will stay higher for longer, because the US economy is reaccelerating rather than slowing and underlying measures of trend inflation are moving higher. Growth expectations have been revised up, the labor market remains tight with wage inflation sticky at 4–5%, and financial conditions continue to ease.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk argues the Fed will not cut rates in 2024 citing stronger growth expectations and rising measures of trend inflation.

Will a reaccelerating economy and rising trend inflation keep rates higher?

Core argument: Wage inflation remains sticky between 4% and 5%, with a tight labor market and very low jobless claims, supporting the argument that the Fed will not cut rates in 2024 and that rates stay higher for longer.

The Fed will not cut rates this year, and rates are going to stay higher for longer. The economy is not slowing down, it is reaccelerating. Growth expectations for 2024 saw a big jump following the Fed pivot in December and the associated easing in financial conditions. Growth expectations for the US continue to be revised higher. Underlying measures of trend inflation are moving higher. Supercore inflation, a measure of inflation preferred by Fed Chair Powell, is trending higher. Following the Fed pivot in December, the labor market remains tight, jobless claims are very low, and wage inflation is sticky between 4% and 5%. Surveys of small businesses show that more small businesses are planning to raise selling prices. Manufacturing surveys show a higher trend in prices paid, another leading indicator of inflation. ISM services prices paid is also trending higher. Surveys of small businesses show that more small businesses are planning to raise worker compensation. Asking rents are rising, and more cities are seeing rising rents, and home prices are rising. Financial conditions continue to ease following the Fed pivot in December with record-high IG issuance, high HY issuance, IPO activity rising, M&A activity rising, and tight credit spreads, and the stock market reaching new all-time highs.

Takeaways by Macro Roundup® AI

  1. Wage inflation remains sticky between 4% and 5%, with a tight labor market and very low jobless claims, supporting the argument that the Fed will not cut rates in 2024 and that rates stay higher for longer.
  2. The US economy is reaccelerating rather than slowing, with 2024 growth expectations jumping after the December Fed pivot and continuing to be revised higher.
  3. Financial conditions continue to ease following the December Fed pivot, with record-high investment-grade issuance, high high-yield issuance, rising IPO and M&A activity, tight credit spreads, and the stock market reaching new all-time highs.

Related Articles:

  • Inflation Is Still Hot, But Could Incomes Be Slowing? — A measure of underlying US inflation—personal consumption services excluding energy, housing, and imputed items—is running about 1.5 percentage points faster than before the pandemic, unchanged over the past year. A 1% monthly jump in pre-tax personal income was driven more by dividends than by wages and salaries, which matter most for consumer spending.
  • How Fast Can the Fed Ease? The Private Sector Response to Easier Conditions Will Be a Key Factor — US households have reduced debt over the past 20 years, leaving room to borrow more if incentives improve, while companies that issued debt at low rates hold large liquidity and healthy balance sheets. That gives businesses capacity to raise investment, and business surveys indicate capital-spending sentiment is already improving.
  • 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%.

AI Summary. Fentanyl and other synthetic opioids kill roughly 75,000 Americans a year, more than double the 2019 figure, with annual overdose deaths rising 5% year-over-year after a decade of steep increases. Fentanyl killed more than a third of a million Americans over the prior decade, and border seizures nearly doubled in a year.

Economist Staff The Economist
Date Posted:

Drug overdoses in the US may be peaking: between 2021-2022 deaths rose just 5% to 75,000, which remains double the 2019 figure.

Are synthetic opioid deaths still rising after a decade of increases?

Core argument: Fentanyl and other synthetic opioids kill roughly 75,000 Americans a year, more than double the 2019 figure, with 2022 deaths just 5% above 2021 after a decade of steep increases.

After a decade of horrifying ascent, the yearly number of fatal overdoses appears at last to be slowing to a gentle climb. The figure for 2022 was just 5% higher than that of 2021. That still leaves fentanyl and other synthetic opioids like it killing some 75,000 people a year—more than double the figure of 2019. In 2013-22 fentanyl killed more than a third of a million Americans. But in the fight against the deadliest narcotic in American history, that is what passes for success. Seizures of fentanyl at the border almost doubled last year.

Takeaways by Macro Roundup® AI

  1. Fentanyl and other synthetic opioids kill roughly 75,000 Americans a year, more than double the 2019 figure, with 2022 deaths just 5% above 2021 after a decade of steep increases.
  2. Fentanyl, the deadliest narcotic in American history, killed more than a third of a million Americans in 2013-22.
  3. Seizures of fentanyl at the American border almost doubled last year, while the yearly rise in fatal overdoses slowed to a gentle climb.

Related Articles:

  • The Deaths-Of-Despair Narrative Is Out Of Date — An analysis of mortality and demographic data finds that deaths from alcohol, drugs and suicide have spread beyond predominantly white, working-class areas, with growth of 7% a year in the most diverse, educated counties versus 5.5% in counties with many high-school-educated whites. Such deaths are now as prevalent in Democratic-leaning as Republican-leaning counties.
  • How Fentanyl Changed The Game For Mexico’s Drug Cartels — Fentanyl causes most of the more than 85,000 annual opioid overdose deaths in the US and Canada, and has become the leading cause of death for young US adults. Researchers at Rand Corporation estimate a full year's US fentanyl supply weighs about 5 tonnes, versus roughly 125 tonnes for heroin.
  • The Rise in American Pain: The Importance of the Great Recession — The authors find that the rise in reported pain among Americans was almost entirely concentrated in the 2007–2010 recession period rather than following a smooth upward trend, with the disproportionate increase among the less educated also occurring primarily then. The authors state they find this jump difficult to explain.

Monday, March 4, 2024

AI Summary. Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.

Gabriel Chodorow-Reich, Matthew Smith, Owen Zidar and Eric Zwick National Bureau of Economic Research
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.@gchodorowreich @omzidar Eric Zwick and Matthew Smith find firms that benefited from the corporate tax cuts in the 2017 Tax Cuts and Jobs Act responded with a 20% increase in investment relative to firms that were not impacted.

Do corporate tax cuts raise domestic investment without paying for themselves?

Core argument: Firms experiencing the mean tax change from the Tax Cuts and Jobs Act's corporate rate cut and full expensing increased domestic investment by 20% relative to firms with no tax change, according to administrative tax data.

This paper uses administrative tax data and a new model of global investment behavior to evaluate the TCJA corporate tax provisions and to illuminate the nature of global production. We have four main findings. First, the main domestic provisions—the reduction in the corporate rate and full expensing of investment—stimulated domestic investment substantially: firms with the mean tax change increased investment by 20% relative to firms experiencing no change. Second, novel international tax provisions that incentivized U.S. multinationals to increase their foreign tangible capital also stimulated domestic investment, indicating within-firm complementarity between foreign and domestic capital. Third, using our general equilibrium model, the long-run effects of the TCJA on domestic and total capital are 7% and 13%, respectively. Finally, higher depreciation deductions largely offset additional labor and corporate tax revenue from capital accumulation. As a result, the total effect on tax revenue over ten years, which includes dynamic feedback from growth, is within 2p.p. of the mechanical effect of a 41% decline in corporate tax collections.

Takeaways by Macro Roundup® AI

  1. Firms experiencing the mean tax change from the Tax Cuts and Jobs Act's corporate rate cut and full expensing increased domestic investment by 20% relative to firms with no tax change, according to administrative tax data.
  2. TCJA international provisions that incentivized U.S. multinationals to expand foreign tangible capital also stimulated domestic investment, indicating within-firm complementarity between foreign and domestic capital.
  3. A general equilibrium model puts the long-run TCJA effects on domestic and total capital at 7% and 13%, with the ten-year revenue effect, including dynamic growth feedback, within 2 percentage points of the mechanical 41% decline in corporate tax collections.

Related Articles:

  • Tax Policy and Investment in a Global Economy — The authors estimate that the 2017 US corporate tax cut raised domestic investment at firms with the average tax change by about 20% relative to firms with no tax change, with long-run domestic and total capital up roughly 6% and 9%. They find dynamic revenue feedback under 2% of baseline corporate revenue.
  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.

AI Summary. Using anonymized data from 12,000 corporate tax returns and a model of global investment behavior, the authors estimate that corporations benefiting from the US corporate tax overhaul increased investment significantly more than those that did not. They find immediate expensing of domestic investment was a more efficient, lower-cost incentive than cutting the corporate tax rate.

Jim Tankersley New York Times
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.@jimtankersley reports on @omzidar @gchodorowreich research on the TCJA corporate tax cut which increased investment but reduced revenue. Eric Zwick notes immediate expensing was the most efficient incentive, “It has a bigger bang for the buck.”

.@jimtankersley reports on @omzidar @gchodorowreich research on the TCJA corporate tax cut which increased investment but...

Does immediate expensing boost investment more cheaply than corporate rate cuts?

Core argument: The researchers conclude the tax cut did not pay for itself, though both the lower corporate rate and immediate expensing of domestic investment spurred additional investment.

The researchers drew on anonymous data from 12,000 corporate tax returns from before and after the law passed, along with a new model of global investment behavior, to estimate how the law’s corporate provisions influenced businesses. They found corporations that benefited from the law increased investment significantly more than those that did not. Both the reduction in the corporate tax rate and the ability to immediately write off all domestic investments spurred more investment. But the researchers found that immediate expensing was a far more efficient incentive and came at a lower cost to taxpayers. That’s because it rewarded firms for making new investments instead of reducing their taxes on profits earned from investments made long ago. “It has a bigger bang for the buck,” Mr. Zwick said.

Takeaways by Macro Roundup® AI

  1. The researchers conclude the tax cut did not pay for itself, though both the lower corporate rate and immediate expensing of domestic investment spurred additional investment.
  2. Immediate expensing was a more efficient incentive at lower cost to taxpayers, the researchers found, because it rewarded new investment rather than reducing taxes on profits from investments made long ago — what Zwick called "a bigger bang for the buck.".
  3. The estimates rest on anonymized data from 12,000 corporate tax returns filed before and after the law passed, combined with a new model of global investment behavior.

Related Articles:

  • Tax Policy and Investment in a Global Economy — Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • The Curious Incident of the Elevated Profit Margins — The US fiscal deficit averaged just under 3% of gross national product from 1950 to 2011 but 6.6% from 2012 to 2022, driven mainly by health and social security spending, a pattern that holds excluding pandemic years. Even assuming permanently elevated profit margins, US equity valuations imply low long-run returns.

AI Summary. Older millennials' median wealth stood 37% above what a model based on all generations at the same age would predict — roughly $130,000 versus a predicted $95,000 at age 38 — a 46 percentage point swing from earlier years when they trailed expectations. Housing assets drove most of the growth.

Ana Hernández Kent and Lowell Ricketts Federal Reserve Bank of St. Louis
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According to a @stlouisfed analysis, the 2022 wealth of older millennials (born between 1980-89) was 37% above expectations based on prior generations at the same age, largely driven by real estate gains.

Have older millennials moved above wealth expectations for their age?

Core argument: Older millennials' median wealth in 2022 stood 37% above the model's prediction for their age, a 46 percentage point swing from prior years when their wealth sat below expectations.

Older millennials experienced a sharp swing in their relative standing with median wealth expectations in 2022. Whereas for much of their adult lives, their wealth had been below where we would have expected it to be based on all generations at the same age, in 2022, their wealth was 37% above expectations—a 46 percentage point swing. The figure shows these changes, as well as deviations from median wealth expectations, for each SCF year (2007-22), organized by birth decade. At age 38, the average age of older millennials in 2022, our model predicted that the typical family would have about $95,000 in median wealth based on how all generations fared at the same average age. Instead, the typical older millennial had over $130,000. While there is wide variation within this group, the typical millennial born in the 1980s thus did better than we had expected. Housing assets drove most of the overall growth.

Takeaways by Macro Roundup® AI

  1. Older millennials' median wealth in 2022 stood 37% above the model's prediction for their age, a 46 percentage point swing from prior years when their wealth sat below expectations.
  2. At age 38, the average age of older millennials in 2022, the model predicted about $95,000 in median wealth based on how all generations fared at the same age, while the typical older millennial held over $130,000.
  3. Housing assets drove most of the overall wealth growth, though wide variation exists within the group of families born in the 1980s.

Related Articles:

  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — 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.
  • 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.
  • Millennials Are Not As Badly-Off As They Think — But Success Is Bittersweet — Almost one in four US millennials say their lives are materially worse than their parents', and when wealth is deflated by house prices rather than consumer prices, millennials' assets go about half as far as baby boomers' once did. Measured against consumer prices alone, per capita wealth accumulation across the two generations tracks closely.

AI Summary. Surprise monetary tightening is associated with significant, persistent tightening in financial conditions: a 0.1 percentage point policy surprise raises the Goldman Sachs financial conditions index by about 0.07 index points on the announcement day, with further increases over the following two weeks. Macroeconomic news, especially inflation releases, also moves financial conditions by shifting expectations about future policy.

Michael Bauer and Zoë Arnaut Federal Reserve Bank of San Francisco
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New @sffed @michaelbauer_hh research suggests monetary policy is a key driver of financial conditions: a policy surprise of 0.1pp drove an increase of 0.07 index points in the Goldman Sachs Financial conditions index.

Do surprise interest rate changes tighten financial conditions persistently?

Core argument: A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.

Monetary policy has significant direct effects on financial conditions, as evident from the response to monetary policy surprises. [For example] a surprise monetary tightening leads to significant and persistent tightening in financial conditions. The size of the impact is moderately large: a policy surprise of 0.1 percentage point leads to an increase in the Goldman Sachs FCI by about 0.07 index points on the day of the announcement and further increases over the following two weeks. In addition, monetary policy also has indirect effects: Macroeconomic news affects financial conditions in part by shifting perceptions about the likely course of future policy. Financial market participants appear to be especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.

Takeaways by Macro Roundup® AI

  1. A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.
  2. Surprise monetary tightening leads to significant and persistent tightening in financial conditions, evidence of monetary policy's direct effects on those conditions.
  3. Monetary policy also works indirectly, as macroeconomic news shifts perceptions of the likely course of future policy, and financial market participants appear especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.

Related Articles:

  • A Status Check on Bank Lending and Bank Balance Sheets — Nominal bank lending growth has slowed from 10% to 2% on a three-month annualized basis, which the authors attribute to deposit outflows and higher deposit rates alongside recession fears, noting that banks building larger loan-loss provisions slowed lending more. The authors expect the growth drag from tighter lending standards to fade.
  • Transitory Disinflation — Recent disinflation likely reflected both improved supply and weaker demand, but supply improvements are largely complete and an anticipated Federal Reserve pivot could revive demand at home and abroad. A weaker dollar eases global financial conditions and is typically associated with higher commodity prices, putting upward pressure on inflation.
  • How Fast Can the Fed Ease? The Private Sector Response to Easier Conditions Will Be a Key Factor — US households have reduced debt over the past 20 years, leaving room to borrow more if incentives improve, while companies that issued debt at low rates hold large liquidity and healthy balance sheets. That gives businesses capacity to raise investment, and business surveys indicate capital-spending sentiment is already improving.

AI Summary. Rising property insurance premiums are attributed to climate-related damage, higher rebuilding costs, and costlier reinsurance protection for insurers, which is passed on to homeowners. The insurance industry says rebuilding and replacement costs rose 55% over a three-year span, driven by raw materials, wages, supply-chain bottlenecks, and a rising share of larger homes.

Aziz Sunderji Home Economics
Date Posted:

The property insurance industry claims that the cost of rebuilding and replacing homes has surged 55% between 2019 and 2022 contributing to higher insurance premiums. @AzizSunderji

Why are property insurance premiums rising for homeowners?

Core argument: The insurance industry says rebuilding and replacement costs surged 55% between 2019 and 2022, driven by higher raw materials prices, steeper labor wages, enduring supply-chain bottlenecks, and a rising proportion of larger, more expensive homes.

Climate change is only the first of three reasons insurance premiums are rising. The second reason is that the repair of homes after damage has also become more costly. This is a function of higher raw materials prices, steeper wages for labor, and enduring supply-chain bottlenecks. Higher replacement costs have also been driven by the rising proportion of larger, more expensive homes. The insurance industry says that rebuilding and replacement costs surged 55% between 2019 and 2022. The final driver has less to do with climate and housing than financial markets. The premiums insurance companies are paying for [catastrophic loss] protection have risen by about a third over the past few years. Insurers are passing on these higher costs to homeowners. So far, higher insurance costs haven’t hampered the flow of Americans moving to disaster-prone areas like Texas. But as insurance becomes more costly—or outright unavailable—we should probably expect this to change.

Takeaways by Macro Roundup® AI

  1. The insurance industry says rebuilding and replacement costs surged 55% between 2019 and 2022, driven by higher raw materials prices, steeper labor wages, enduring supply-chain bottlenecks, and a rising proportion of larger, more expensive homes.
  2. Premiums insurers pay for catastrophic loss protection have risen by about a third over the past few years, and insurers are passing these higher costs on to homeowners.
  3. Higher insurance costs have not yet slowed the flow of Americans moving to disaster-prone areas such as Texas, though that may change as insurance becomes more costly or outright unavailable.

Related Articles:

  • The Uninsurable World: What Climate Change Is Costing Homeowners — Global insurance losses from natural catastrophes have topped $100bn for four straight years, a level once considered the mark of an exceptionally bad year, and US insurers have repriced risk with significant premium increases. Reinsurer Swiss Re predicts a growing number of areas where buying insurance becomes uneconomical.
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AI Summary. Weak demand and overcapacity have pushed Chinese producer prices down for 16 months, and that disinflationary impulse is spreading abroad: US import prices from China fell 2.9% year over year while prices of imports from the European Union, Japan, and Mexico rose. Western protectionism could redirect the deflationary impact toward poorer markets.

Jason Douglas Wall Street Journal
Date Posted:
Is Database:
Database

While excess Chinese capacity is contributing to lower import prices, the US, EU, and Japan are seeking to avoid another “China Shock” with subsidies and tariffs to buttress their economies from a flood of cheap Chinese goods. @WSJ

Is Chinese overcapacity exporting deflation to the rest of the world?

Core argument: Chinese producer prices have fallen for 16 straight months amid weak demand and overcapacity, led by consumer and durable goods, food products, metals, and electrical machinery.

Weak demand and overcapacity means Chinese producer prices have been falling for 16 months, led by consumer and durable goods, food products, metals, and electrical machinery. That disinflationary impulse is showing up around the world. The price of U.S. imports from China fell 2.9% in January from a year earlier, while the price of imports from the European Union, Japan, and Mexico all rose. Unlike in the early 2000s, however, the Western world now sees China as its chief economic rival and geopolitical adversary. The EU is considering whether Chinese-made electric vehicles are unfairly subsidized and should be subject to tariffs or other import restrictions. Former President Donald Trump has floated the idea of hitting imports from China with tariffs of 60% or higher. Such protectionism might shift some of the deflationary impact to other parts of the world, as Chinese exporters look for new markets in poorer countries.

Takeaways by Macro Roundup® AI

  1. Chinese producer prices have fallen for 16 straight months amid weak demand and overcapacity, led by consumer and durable goods, food products, metals, and electrical machinery.
  2. The price of U.S. imports from China fell 2.9% in January from a year earlier, while import prices from the European Union, Japan, and Mexico all rose.
  3. Unlike in the early 2000s, the Western world now views China as its chief economic rival and geopolitical adversary, with the EU weighing tariffs on Chinese-made electric vehicles and Donald Trump floating tariffs of 60% or higher on Chinese imports.

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