Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 6, 2024

AI Summary. The authors find that aggregate profit margins of US public firms rose alongside greater globalization, with the gain driven by higher foreign profitability at large, research-intensive S&P 500 firms; domestic margins did not rise for any group, consistent with increased import competition.

Bullipe Chintha, Ravi Jagannathan and Sri Sridhar National Bureau of Economic Research
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During 2003-19, the mean EBIT margin of US public companies increased by 11.5% vs. 1984-2002, driven by a 47.4% increase in foreign profitability for S&P 500 firms, while domestic profitability remained flat.

How did globalization raise US firms' profit margins?

Core argument: The authors find average annual profitability of US public firms in 2003–2019 rose by 11.5% of their 1984–2002 level, driven primarily by a 47.4% increase in foreign profitability of S&P 500 firms.

We find that the overall profitability of US firms as measured by the ratio of aggregate Earnings Before Interest and Taxes to aggregate Sales (EBIT Margin, EBITM), increased significantly following increased globalization heralded by China’s entry into WTO in December 2001. We find that the increase in EBITM is driven primarily by the increased foreign profitability of S&P 500 firms, which are larger and spend significantly more on R&D than firms not in S&P 500 index (ex-S&P 500) and have greater intangible intensity than ex-S&P 500 firms. Even among S&P 500 firms, those firms that had higher intangible intensities as measured by higher R&D/Sales and Intangible Assets/Sales ratios had higher increases in their foreign profitability. Neither S&P 500 nor ex-S&P 500 firms experienced any increase in their domestic EBITM following increased globalization, consistent with increased import competition. In the aggregate, the average annual profitability of US public firms in 2003-2019 increased by 11.5% of 1984-2002 profitability. This increase was primarily driven by foreign profitability increasing by 47.4% for firms in the S&P 500 index, which are larger and have more intangible assets created by R&D and SG&A expenditures.

Takeaways by Macro Roundup® AI

  1. The authors find average annual profitability of US public firms in 2003–2019 rose by 11.5% of their 1984–2002 level, driven primarily by a 47.4% increase in foreign profitability of S&P 500 firms.
  2. The authors attribute the rise in aggregate EBIT margin following China's December 2001 WTO entry to S&P 500 firms, which are larger, spend significantly more on R&D, and have greater intangible intensity than ex-S&P 500 firms.
  3. Neither S&P 500 nor ex-S&P 500 firms saw any increase in domestic EBIT margin after increased globalization, which the authors state is consistent with increased import competition.

Related Articles:

  • 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.
  • 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.
  • Corporate Profits in the Aftermath of COVID-19 — Nonfinancial corporate profit margins—profits as a share of gross value added—rose to about 19% before easing to 15%, compared with about 13% before the pandemic. The authors attribute much of the increase to large direct government support for small and medium-sized U.S. businesses and to lower net interest expenses under accommodative monetary policy.

AI Summary. The number of California residents with incomes of $1m or more grew by 61,900, or 66%, from 2019 to 2021, lifting the state's share of US millionaires to 17.9% from 17% while the shares of New York, Texas, and Florida fell. Rising in-state incomes minted more new millionaires than the net outflow of higher-earning taxpayers to other states.

Justin Fox Bloomberg
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According to new IRS data, during 2019-21 California’s economy created millionaires faster than they fled: its share of US taxpayers with adjusted gross income of $1M or higher rose almost 1pp from 17% to 17.9%. @foxjust

Is California creating millionaires faster than wealthy residents leave?

Core argument: California's residents with incomes of $1 million or more rose by 61,900, or 66%, from 2019 to 2021, enough new homegrown millionaires to replace all those who left the state and then some.

The number of California residents with incomes of $1 million or more grew by 61,900, or 66%, from 2019 to 2021. [California’s] share of US millionaires rose to 17.9% in 2021 from 17% in 2019, while those of the next three most populous and millionaire-filled states — NY, TX, and FL — fell. It’s not that the exodus of affluent Californians was a mirage. From 2020 to 2021 (more precisely, from when people filed their 2019 taxes to when they filed their 2020 taxes), 403,041 taxpayers with an average adjusted gross income of $125,362 left California for elsewhere in the US, and just 241,216 with an average income of $87,072 moved in. But rising incomes in the state minted enough new homegrown millionaires to replace all the departers and then some.

Takeaways by Macro Roundup® AI

  1. California's residents with incomes of $1 million or more rose by 61,900, or 66%, from 2019 to 2021, enough new homegrown millionaires to replace all those who left the state and then some.
  2. California's share of US millionaires rose to 17.9% in 2021 from 17% in 2019, while the shares of New York, Texas, and Florida — the next three most populous and millionaire-filled states — fell.
  3. From 2020 to 2021, 403,041 taxpayers with an average adjusted gross income of $125,362 left California for elsewhere in the US, while just 241,216 with an average income of $87,072 moved in.

Related Articles:

AI Summary. Eased financial conditions — record stock prices and tight corporate bond spreads — plus jobless claims near 200,000 and a federal deficit near 6% of GDP support an argument for strong employment growth. With the employment-to-population ratio about a percentage point below pre-Covid levels and strong immigration, employment retains upside potential.

Torsten Sløk Apollo
Date Posted:

Citing a 6% fiscal deficit and easing financial conditions despite the tightening cycle Torsten Sløk @apolloglobal argues the job market is likely to remain strong.

Do easier financial conditions and large deficits point to strong job growth?

Core argument: Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight investment-grade and high-yield spreads, cited as a major tailwind to consumer spending and capex spending.

What are the arguments for a strong February employment report Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight IG and HY spreads. Significant wealth effects and lower borrowing costs are a major tailwind to consumer spending and capex spending. Jobless claims remain very low, around 200,000, and the economy remains surprisingly resilient, with households and firms having locked in lower interest rates during Covid. The fiscal deficit is running at a high 6% of GDP for an expansion, driven by the CHIPS Act, IRA, and Infrastructure Act, and associated positive effects on manufacturing construction, energy investments, and infrastructure investments. The employment-to-population ratio is almost a full percentage point lower than pre-Covid, and immigration continues to be strong, suggesting there is still more upside potential to employment.

Takeaways by Macro Roundup® AI

  1. Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight investment-grade and high-yield spreads, cited as a major tailwind to consumer spending and capex spending.
  2. The fiscal deficit is running at 6% of GDP, high for an expansion, driven by the CHIPS Act, Inflation Reduction Act, and Infrastructure Act, with associated positive effects on manufacturing construction, energy investments, and infrastructure investments.
  3. The employment-to-population ratio remains almost a full percentage point below its pre-Covid level and immigration continues to be strong, suggesting further upside potential for employment.

Related Articles:

  • Monetary Policy and Financial Conditions — 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.
  • 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. State-run "last resort" home insurance programs, which cover properties the private market won't, have more than doubled their market share since 2018, with liabilities passing $1tn; Florida's plan faces potential losses of $525bn and California's at least $290bn, six times its 2018 level. Of 36 such plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits.

Leslie Kaufman, Saijel Kishan, and Nadia Lopez Bloomberg
Date Posted:

State-run “last resort” insurance programs have over $1T in potentially unfunded liabilities. Florida’s state insurer is bearing $525B of risk, double the 2022 level. In California, the state insurer’s potential liability is $290B, 6x the 2018 level.

How large have state-backed insurers of last resort grown?

Core argument: State-created "last resort" insurance plans crossed $1 trillion in liabilities for the first time in 2022 and have more than doubled their market share since 2018, according to Property Insurance Plans Service Office Inc.

Homeowners in the most risky places are now more likely to be covered by state-created, “last resort” insurance programs that provide protection where the private market won’t. Those plans have more than doubled their market share since 2018, and their liabilities crossed the $1 trillion threshold for the first time in 2022, according to Property Insurance Plans Service Office Inc., a research firm that tracks the programs. The most climate-vulnerable states are the most exposed: As of now, Florida’s plan could suffer $525 billion in losses; In California, it’s at least $290 billion, up sixfold from 2018. As states have assumed more and more risk, they’ve largely dodged a fundamental question: How will they cover claims in the wake of a truly major catastrophe? Out of 36 residual insurance plans that offer coverage for natural catastrophes, 21 don’t explicitly detail how they’d pay deficits, according to new research from consulting group Milliman.

Takeaways by Macro Roundup® AI

  1. State-created "last resort" insurance plans crossed $1 trillion in liabilities for the first time in 2022 and have more than doubled their market share since 2018, according to Property Insurance Plans Service Office Inc.
  2. Florida's residual insurance plan could suffer $525 billion in losses and California's at least $290 billion, a sixfold increase from 2018, making the most climate-vulnerable states the most exposed.
  3. Of 36 residual insurance plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits, according to research from consulting group Milliman.

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.
  • Buying Home and Auto Insurance Is Becoming Impossible — Car insurance premiums rose 19.2% over 12 months, about six times the rise in overall consumer prices, marking the 15th consecutive month of double-digit year-over-year increases and the longest such stretch since the mid-1980s. Reinsurance prices rose 30%–50%, leaving home insurers to absorb more risk themselves.
  • The Insurance Market Is Healing — Higher returns are drawing capital into reinsurance, which is likely to ease pressure on coverage pricing. Catastrophe bond issuance hit a record $15bn, global property catastrophe reinsurance pricing rose about 5% at January renewals versus closer to 30% a year earlier, and risk-adjusted prices for reinsurance bought by reinsurers fell as much as 15%.

AI Summary. Bipartisan US legislation would bar app stores from distributing TikTok unless its Chinese owner ByteDance divests control within 165 days. The bill would also create a process letting the president act against social media applications controlled by groups headquartered or domiciled in China, Russia, Iran, or North Korea.

Demetri Sevastopulo, James Politi, and Hannah Murphy Financial Times
Date Posted:

A bipartisan federal bill has been introduced that would ban TikTok from app stores unless ByteDance divests control. The bill would enable the President to take action against social media platforms based in China, Russia, Iran, and North Korea.

A bipartisan federal bill has been introduced that would ban TikTok from app stores unless ByteDance divests control. The...

Should foreign-controlled social media apps be banned unless their owners divest?

Core argument: Bipartisan legislation from Mike Gallagher and Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok, after which app stores would be barred from distributing the video-sharing platform.

Lawmakers have introduced legislation that would ban app stores from distributing TikTok unless ByteDance, its Chinese owner, divests control of the popular video-sharing platform. The bipartisan bill from Mike Gallagher, the Republican chair of the House China committee, and his Democratic counterpart Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok to avoid the app from being banned. The bill would also create a process that would enable the president to take action against social media applications controlled by groups that are headquartered or domiciled in China, Russia, Iran, and North Korea.

Takeaways by Macro Roundup® AI

  1. Bipartisan legislation from Mike Gallagher and Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok, after which app stores would be barred from distributing the video-sharing platform.
  2. The bill would also create a process allowing the president to act against social media applications controlled by groups headquartered or domiciled in China, Russia, Iran, or North Korea.
  3. Mike Gallagher, the Republican chair of the House China committee, and his Democratic counterpart Raja Krishnamoorthi introduced the bill targeting TikTok's ownership by Chinese company ByteDance.

Related Articles:

  • Teens, Social Media and Technology 2023 — About nine-in-ten U.S. teens ages 13 to 17 say they use YouTube, making it the most widely used platform in Pew Research Center's survey, followed by TikTok (63%), Snapchat (60%), and Instagram (59%). Facebook use among teens fell from 71% in 2014-2015 to 33%, and Twitter's teen user base also shrank over the past decade.
  • US TikTok Ban Shifts to Senate Bill That Biden Team May Support — Proposed US legislation would give the government power to ban or prohibit foreign technologies or companies when deemed necessary, without naming TikTok or its owner ByteDance. Lawmakers say such measures are intended to counter security threats from apps that they say can gather user data or serve as propaganda tools.

Thursday, March 7, 2024

AI Summary. The Congressional Budget Office estimates net immigration was 3.3m in 2023, versus the 1m it had projected, implying faster population and labor force growth than currently reported. The authors estimate this raised real economic growth by about 0.1 percentage point and, by lifting both production and demand, added little price or wage pressure.

Wendy Edelberg and Tara Watson Brookings Institution
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A new analysis estimates that the recent surge in immigration lifted real GDP growth by 0.1 percentage point in 2022 and 2023 relative to a baseline without the surge and likely will do the same in 2024. @WendyEdelberg @taraelizwatson

Does higher-than-projected immigration explain faster employment growth without added price pressure?

Core argument: The Congressional Budget Office now estimates net immigration of 3.3 million in 2023, versus its 2019 projection of 1 million for that year.

Recent estimates from the Congressional Budget Office suggest much higher rates of recent immigration than were previously projected. In 2019, CBO projected that net immigration in 2023 would total 1 million people; Now, the agency estimates that net immigration last year was 3.3 million. Moreover, we estimate that CBO’s current immigration estimates suggest faster population and labor force growth in recent years than currently reported by the Bureau of Labor Statistics using Census population estimates. We estimate that real GDP growth was higher in 2022 and 2023 by 0.1 percentage point and will be boosted by a similar amount in 2024. (For context, real GDP growth was 0.7% in 2022 and 3.1% in 2023.) Because in our assessment the increase in immigration resulted in both greater production and greater consumer demand, it likely produced little additional pressure on aggregate prices or wages.

Takeaways by Macro Roundup® AI

  1. The Congressional Budget Office now estimates net immigration of 3.3 million in 2023, versus its 2019 projection of 1 million for that year.
  2. CBO's immigration estimates imply faster population and labor force growth in recent years than the Bureau of Labor Statistics reports using Census population estimates.
  3. Higher immigration is estimated to have raised real GDP growth by 0.1 percentage point in both 2022 and 2023 — when growth was 0.7% and 3.1% — with a similar boost expected in 2024 and likely little added pressure on prices or wages.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.
  • Monopsony, Efficiency, and the Regularization of Undocumented Immigrants — A study of France's amnesty program, which regularized undocumented workers making up 2.0% of workers in Paris and nearly 1% nationwide, finds positive effects on employment and wages, particularly for male, low-skill workers. The authors argue regularization reduces employers' wage-setting power in the undocumented labor market, and estimate a rise in total French GDP of around 1%.

AI Summary. Labor productivity growth in the U.S. nonfarm business sector has exceeded its longer-run average in three of the past five years, suggesting a possible shift to a faster productivity growth regime. Such a shift is one possible explanation for a long-run neutral real interest rate above 2%.

Kevin Kliesen Federal Reserve Bank of St. Louis
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A @stlouisfed analysis suggests the long-run interest rate has risen from its pre-pandemic level, potentially driven by “a shift to a faster productivity growth regime.” Labor productivity growth has exceeded its long-run mean in 3 of the past 5 years.

Does faster productivity growth explain a higher long-run neutral interest rate?

Core argument: If the long-run real neutral interest rate has risen above 2% over the past two years, one possible explanation is faster labor productivity growth.

If the long-run real neutral rate has increased to more than 2% over the past two years, then the question is why. One possibility is that labor productivity (output per hour in the nonfarm business sector) growth has increased. The figure plots the annual (four-quarter) percent change in labor productivity since 2005. Labor productivity growth has exceeded its longer-run average in three of the past five years. Thus, it’s possible that there has been a shift to a faster productivity growth regime.

Takeaways by Macro Roundup® AI

  1. If the long-run real neutral interest rate has risen above 2% over the past two years, one possible explanation is faster labor productivity growth.
  2. Labor productivity growth, measured as output per hour in the nonfarm business sector, has exceeded its longer-run average in three of the past five years.
  3. Above-average labor productivity growth raises the possibility that the U.S. economy has shifted to a faster productivity growth regime.

Related Articles:

  • The Future Of r* — Long-run equilibrium interest rates are argued to stay low relative to recent decades' historical average but above pre-pandemic lows, implying rates only slightly below current levels, with a nominal neutral rate near 3.5% offered as illustration. Rising government debt, particularly in the US, is identified as the main risk to that view.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. Economists expect low-income workers' wage gains to hold rather than reverse, citing a solid economy, retirements, a premium for in-person work and less exposure to job displacement from artificial intelligence. Research found inflation-adjusted wages rose most for the lowest-paid 20% of workers and fell only for the top 20%.

Amara Omeokwe Wall Street Journal
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Recent wage gains for lower-income workers have slowed but may prove to be persistent as the workforce shrinks relative to the economy.

Will low-income workers' recent wage gains hold rather than reverse?

Core argument: Arin Dube of the University of Massachusetts-Amherst found that between 2019 and 2023 inflation-adjusted wages rose most for the lowest-paid 20% of workers, while the top 20% was the only quintile whose wages declined.

Economists say that while low-income workers’ fortunes aren’t as likely to outperform as much as in recent years, they aren’t about to start backsliding again, thanks to a solid economy, retirements, a premium for in-person work and less exposure to the job-displacing effects of artificial intelligence. Arin Dube of the University of Massachusetts-Amherst found between 2019 and 2023, wages adjusted for inflation had risen most for the lowest 20% of paid workers. The only quintile to see its wages decline was the top 20%. A lot of the gains at the bottom came from workers changing to better-paying, higher-quality work, the authors found. Dube says he thinks prospects for lower-income workers are still favorable over the long term.

Takeaways by Macro Roundup® AI

  1. Arin Dube of the University of Massachusetts-Amherst found that between 2019 and 2023 inflation-adjusted wages rose most for the lowest-paid 20% of workers, while the top 20% was the only quintile whose wages declined.
  2. Much of the wage gain at the bottom came from workers switching to better-paying, higher-quality work, according to Dube and his co-authors.
  3. Economists attribute the endurance of low-income workers' gains to a solid economy, retirements, a premium for in-person work and less exposure to the job-displacing effects of artificial intelligence, with Dube calling long-term prospects still favorable.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Credit Bidenomics for Rising US Wages — Inflation-adjusted wages for US workers in the middle pay range, between the 40th and 60th percentiles, were 6.6% higher than before the pandemic, slightly above what 2015-19 trends would predict. The US is the only G7 country with substantial real wage gains, ranging elsewhere from a 0.2% rise in Canada to a 9% decline in Italy.
  • Just How Bad Is the US Cost-of-Living Squeeze? We Did the Math — It now takes $119.27 to buy what $100 purchased before the pandemic, with prices rising about as much since early 2020 as in the preceding decade. Groceries and electricity are each up 25% since January 2020, used cars 35%, auto insurance 33%, and rents roughly 20%.

AI Summary. An analysis of more than 25m trade flows among 52 exporters and 52 importers attributes most early growth in U.S. import prices to global factors common across countries, with U.S. demand factors taking over later. Foreign suppliers catching up with demand, notably China, account for the subsequent decline in import price inflation.

Mary Amiti, Oleg Itskhoki, and David Weinstein Federal Reserve Bank of New York
Date Posted:

Imported goods have become a deflationary force: from Q2 2021 to the middle of 2023, world trade prices have dropped by more than 5pp. @NewYorkFed

What drove the rise and fall of U.S. import prices?

Core argument: World trade prices peaked at 11% in 2021:Q2 and fell by more than 5 percentage points by mid-2023, with U.S. import prices following a similar pattern at a lower peak and a deeper trough.

After reaching a peak of 11% in the second quarter of 2021, world trade prices dropped by more than 5pp by the middle of 2023. U.S. import prices followed a similar pattern, albeit with a lower peak and a deeper trough. We investigate what drove these price movements by using information on the prices charged for products shipped from fifty-two exporters to fifty-two importers, comprising more than twenty-five million trade flows. We uncover several patterns in the data: (i) From 2021:Q1 to 2022:Q2, almost all of the growth in U.S. import prices can be attributed to global factors, that is, trends present in most countries; (ii) at the end of 2022, U.S. import price inflation started to be driven by U.S. demand factors; (iii) in 2023, foreign suppliers to the U.S. market caught up with demand and account for the decline in import price inflation, with a significant role played by China.

Takeaways by Macro Roundup® AI

  1. World trade prices peaked at 11% in 2021:Q2 and fell by more than 5 percentage points by mid-2023, with U.S. import prices following a similar pattern at a lower peak and a deeper trough.
  2. Drawing on prices for products shipped from fifty-two exporters to fifty-two importers across more than twenty-five million trade flows, the analysis attributes almost all growth in U.S. import prices from 2021:Q1 to 2022:Q2 to global factors present in most countries.
  3. U.S. demand factors began driving U.S. import price inflation at the end of 2022, and in 2023 foreign suppliers to the U.S. market caught up with demand and account for the decline in import price inflation, with a significant role played by China.

Related Articles:

  • What Caused the U.S. Pandemic-Era Inflation? — The authors estimate that food and especially energy price shocks, along with increased demand for durable goods combined with supply-chain shortages, accounted for much of U.S. pandemic-era inflation, while the contribution of tight labor markets was small or negative early on. They estimate that tight labor-market conditions became an increasingly important, though not dominant, source of inflation over time.
  • 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.

AI Summary. The United States remains the leading destination for the world's most elite AI talent and hosts 60% of top AI institutions. China's share of top AI researchers working domestically rose from 29% in 2019 to 47% in 2022, and India retained one-fifth of its top AI researchers in 2022 versus nearly none in 2019.

Macro Polo Staff Macro Polo
Date Posted:

57% of the top 2% of global AI talent currently works in the United States. Of the top 20% of AI workers in the US, 37% are from the US and 38% are from China. @MacroPoloChina

Is the US still the top destination for elite AI talent?

Core argument: The United States remains the leading destination for the world's most elite AI talent, the top ~2%, and is home to 60% of top AI institutions, according to the Global AI Talent Tracker 2.0.

The United States remains far and away the leading destination for the world’s most elite AI talent (top ~2%) and remains home to 60% of top AI institutions. Because China produces a sizable portion of the world’s top [~20%] AI researchers—rising from 29% in 2019 to 47% in 2022—it is no surprise that more Chinese talent are working in domestic industry. A similar dynamic appears to be taking place in India. While India remains a significant exporter of top-tier AI researchers, its ability to retain talent is growing. In 2019, nearly all Indian AI researchers (based on undergraduate degrees) opted to pursue opportunities abroad. But in 2022, one-fifth of Indian AI researchers ended up staying to work in India.

Takeaways by Macro Roundup® AI

  1. The United States remains the leading destination for the world's most elite AI talent, the top ~2%, and is home to 60% of top AI institutions, according to the Global AI Talent Tracker 2.0.
  2. China's share of the world's top AI researchers rose from 29% in 2019 to 47% in 2022, and more Chinese talent is working in domestic industry.
  3. India remains a significant exporter of top-tier AI researchers, but its retention is growing: nearly all Indian AI researchers, measured by undergraduate degrees, went abroad in 2019, while one-fifth stayed to work in India in 2022.

Related Articles:

  • Top Talent, Elite Colleges, and Migration: Evidence from the Indian Institutes of Technology — Among top scorers on India's Joint Entrance Exam for the Indian Institutes of Technology, 62% of the top 100 and 36% of the top 1,000 migrated abroad within eight years, primarily to the U.S. for graduate school. The authors argue elite schools shape migration by signaling ability and providing access to networks.
  • Third-Country Effects of U.S. Immigration Policy — U.S. H-1B visa denial rates rose from about 6% to 16%, and the authors estimate a 10 percentage point rise in denials increases Canadian applications by 30%, roughly one Canadian application per four forgone visas. More exposed Canadian firms increased sales and hired about 0.5 native workers per immigrant.
  • The Extreme Shortage of High IQ Workers — Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.

AI Summary. A Chinese government directive requires state-owned companies in finance, energy, and other sectors to replace foreign software in their information technology systems by 2027, part of a broader push to remove U.S. technology. Hardware makers were targeted first, with Dell, IBM, and Cisco equipment gradually replaced by Chinese products.

Liza Lin Wall Street Journal
Date Posted:

In 2022 the Chinese government issued a directive requiring state-owned companies in finance, energy, and other sectors to replace foreign software in their IT systems by 2027. Dell’s market share in China almost halved in the past five years.

Is China replacing foreign software and hardware in state-owned firms?

Core argument: China's 2022 Document 79 requires state-owned companies in finance, energy, and other sectors to replace foreign software in their IT systems by 2027, expanding an effort some refer to as "Delete A," for Delete America.

For American tech companies in China, the writing is on the wall. It’s also on paper, in Document 79. The 2022 Chinese government directive expands a drive that is muscling U.S. technology out of the country—an effort some refer to as “Delete A,” for Delete America. Document 79 was so sensitive that high-ranking officials and executives were only shown the order and weren’t allowed to make copies, people familiar with the matter said. It requires state-owned companies in finance, energy, and other sectors to replace foreign software in their IT systems by 2027. The first targets were hardware makers. Dell, International Business Machines, and Cisco Systems have gradually seen much of their equipment replaced by products from Chinese competitors. The likes of Microsoft and Oracle are losing ground in the field, one of the last bastions of foreign tech profitability in the country.

Takeaways by Macro Roundup® AI

  1. China's 2022 Document 79 requires state-owned companies in finance, energy, and other sectors to replace foreign software in their IT systems by 2027, expanding an effort some refer to as "Delete A," for Delete America.
  2. Dell, IBM, and Cisco Systems have gradually seen much of their equipment in China replaced by products from Chinese competitors, with hardware makers the first targets of the directive.
  3. Microsoft and Oracle are losing ground in China's software field, one of the last bastions of foreign tech profitability in the country.

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