Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:
Is Database:
Database

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
Date Posted:

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
Date Posted:

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.

Related Articles:

  • The US-China Chip War is Escalating — China's imports of chipmaking equipment have reached record highs, with purchases rising from Japan, the Netherlands, and Singapore alongside a rebound in imports from the United States, as Chinese manufacturers work to indigenize chip production. Chinese government and military buyers have obtained some NVIDIA A100 and H100 chips that US sanctions were designed to block.
  • Five Years Into the Trade War, China Continues Its Slow Decoupling from US Exports — US exports to China are 23% below where they would be had they grown at the same rate as China's imports from the world, with former major manufacturing exports such as automobiles and Boeing jets nearly absent. Record US farm sales to China reflect higher prices rather than larger shipment volumes.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.

Friday, March 8, 2024

AI Summary. Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.

Gianluca Benigno, Boris Hofmann, Galo Nuño Barrau and Damiano Sandri Bank for International Settlements
Date Posted:

A @BIS_org analysis of the natural rate of interest suggests the rate has risen in the post-pandemic period however there is considerable uncertainty about its current level.

Has the natural rate of interest risen after the pandemic?

Core argument: A review of established measures of the natural rate of interest across core advanced economies suggests r* may have increased, though estimates show considerable dispersion and high statistical uncertainty around individual estimates.

We assess the post-pandemic natural rate from different perspectives. A review of various established measures of r* in core advanced economies suggests that it may indeed have increased. That said, there is considerable dispersion across estimates and high statistical uncertainty around individual estimates. The recent behaviour of the structural drivers of r* does not paint a clear-cut picture either. Low expected potential growth and rising longevity may continue to weigh on r*. Several other factors may exert upward pressure though, including persistently large fiscal deficits due to rising age-related spending as well as higher public investment needs for infrastructure, defence, and the green transition. Moreover, and less often appreciated, monetary policy itself could have a non-negligible effect on natural rates and perceptions thereof, through debt accumulation and beliefs about r*. As such, the recent reemergence of upside inflation risks inducing a tighter monetary policy stance going forward may have pushed at least perceptions of r* higher.

Takeaways by Macro Roundup® AI

  1. A review of established measures of the natural rate of interest across core advanced economies suggests r* may have increased, though estimates show considerable dispersion and high statistical uncertainty around individual estimates.
  2. The recent behaviour of r*'s structural drivers paints no clear-cut picture: low expected potential growth and rising longevity may continue to weigh on r*, while large fiscal deficits from age-related spending and investment needs for infrastructure, defence, and the green transition may push it up.
  3. Monetary policy itself could have a non-negligible effect on natural rates and perceptions of them through debt accumulation and beliefs about r*, so reemerging upside inflation risks inducing a tighter stance may have pushed perceptions of r* higher.

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.
  • The Price of Money Is Going Up, and It’s Not Only Because of the Fed — A model projects the inflation-adjusted natural interest rate rising about a percentage point from a 1.7% trough to 2.7% by 2050, implying 10-year US Treasury yields of 4.5%–5%. The authors estimate wide fiscal deficits, climate investment, and faster growth could lift the natural rate to 4%, implying roughly 6% yields.
  • Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies — Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.

AI Summary. Market-based measures of expected inflation over the next one and two years, derived from the gap between yields on inflation-protected and traditional US Treasury bonds, have moved higher this year. The argument is that this uptrend pushes the Federal Reserve toward a more hawkish stance.

Torsten Sløk Apollo
Date Posted:

Citing the 1 and 2-year breakeven inflation rates (the yield difference between TIPS and traditional Treasuries) Torsten Sløk notes inflation expectations have moved higher this year.

Are rising inflation expectations pushing the Fed toward a more hawkish stance?

Core argument: Torsten Sløk notes that 1-year and 2-year breakeven inflation rates, the yield difference between TIPS and traditional Treasuries, have moved higher this year, indicating rising inflation expectations.

The strong uptrend in inflation expectations is forcing the Fed to be more hawkish.

Takeaways by Macro Roundup® AI

  1. Torsten Sløk notes that 1-year and 2-year breakeven inflation rates, the yield difference between TIPS and traditional Treasuries, have moved higher this year, indicating rising inflation expectations.
  2. Sløk argues the strong uptrend in inflation expectations is forcing the Federal Reserve to be more hawkish.

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.
  • A January Bounce — Inflation in "super core" services — services excluding housing — posted its strongest monthly reading since mid-2022, and its three-month average has ticked higher, reviving concern that late-year disinflation progress was a head fake. Disinflation has been uneven since core goods prices peaked, with the three-month average accelerating roughly every 8 months.

AI Summary. Foreign demand for long-term US Treasuries, at just over $450bn, exceeded the Treasury's net long-term issuance of just over $400bn, with that demand not coming from China. Net long-term issuance lagged the fiscal deficit—roughly 1.5% of GDP versus 6%—leaving the increase in the stock of long-term "safe" US assets modest.

Brad Setser @Brad_Setser
Date Posted:

According to @Brad_Setser in 2023 the $450B of foreign demand for long-term US Treasuries exceeded the $400B of Treasury’s net issuance of long term Treasuries.

Did foreign demand for long-term Treasuries exceed net issuance?

Core argument: Foreign demand for long-term US Treasuries reached just over $450bn in 2023, exceeding the Treasury's net long-term issuance of just over $400bn, an outcome not seen for a long time and not expected for 2023.

A rather surprising fact from the Fed's flow of funds: foreign demand for long-term US Treasuries (just over $450b) exceeded the Treasury's net issuance of long term Treasuries (just over $400b). That hasn't been the case for a long-time and it wasn't the expectation for 2023. Of course, with the Fed's Quantitative Tightening, the net supply of notes and bonds that the market had to absorb was larger than the Treasury's issuance (and note the foreign demand did not come from China either). What explains this sort of surprising outcome? Well, foreign demand for Treasuries isn't just China. Private investors presumably liked the yields on offer. And Treasury long-term issuance lagged the fiscal deficit bigly (1.5% of GDP v 6% of GDP). Net long-term issuance hasn't been this low since, well, 2007. So the increase in the stock of "safe" long-term US assets (counting Agencies) actually was fairly modest in 2023.

Takeaways by Macro Roundup® AI

  1. Foreign demand for long-term US Treasuries reached just over $450bn in 2023, exceeding the Treasury's net long-term issuance of just over $400bn, an outcome not seen for a long time and not expected for 2023.
  2. Treasury net long-term issuance ran at about 1.5% of GDP against a fiscal deficit of about 6% of GDP, the lowest net long-term issuance since 2007.
  3. The Fed's quantitative tightening meant the net supply of notes and bonds the market had to absorb exceeded the Treasury's issuance, and the foreign demand did not come from China.

Related Articles:

  • Preferred Habitats and Timing in the World’s Safe Asset — As the Federal Reserve shrinks its bond portfolio, the authors argue private investors, U.S. and foreign, are the more likely buyers of Treasury securities, since their purchases respond to yields and their holdings tilt toward longer-maturity bonds. Foreign governments have not materially added to their Treasury holdings in almost a decade and tend to hold shorter-maturity bonds.
  • Foreign Official and Foreign Private Investors in Treasuries Have Different Goals — Foreign central banks and sovereign wealth funds historically bought US Treasuries to hold down their own currencies and support exports rather than for yield, and these yield-insensitive official holders have been selling Treasuries to limit their currencies' weakening. Foreign private investors, by contrast, find US yields attractive despite high hedging costs.
  • US Treasury To Slow Pace Of Longer-Dated Debt Issuance — The US Treasury said it will keep raising two- and five-year note auction sizes by $3bn per month while slowing increases in longer-dated debt, lifting 10-year note auctions by $2bn and 30-year bond auctions by $1bn. Its quarterly refunding will total $112bn, down from $114bn.

AI Summary. A model-extracted trend in wage growth nearly doubled over 2021, appears to have peaked in early 2022, then declined before flattening out and remaining stagnant. The estimates carry considerable uncertainty, and it cannot be ruled out that wage growth stays markedly higher in the near term than before the pandemic.

Martin Almuzara, Richard Audoly, Augustin Belin, and Davide Melcangi Federal Reserve Bank of New York
Date Posted:

“Trend Wage Inflation,” a @NewYorkFed measure of the persistence of nominal wage growth, has stabilized at around 5%, vs. the pre-pandemic level of around 4%.

Will wage growth remain higher than before the pandemic?

Core argument: The trend wage growth extracted by the model nearly doubled over the course of 2021 after remaining stable between 2019 and 2020, suggesting a large chunk of that year's wage growth was persistent.

After remaining stable between 2019 and 2020, the trend increased markedly at the beginning of 2021, nearly doubling over the course of the year. As such, a large chunk of the wage growth we saw over the course of 2021 appears to have been persistent. It is worth stressing once more that the trend extracted by the model is expressed in terms of annualized monthly wage growth, which explains why it leads the actual year-over-year wage growth series in the chart. The model suggests that the trend may have peaked in the early months of 2022, and then started declining. The moderation in TWIn flattened out mid-2023 and has remained stagnant since. However, the shaded areas still illustrate considerable uncertainty. The recent slowdown estimated by our model indicates it cannot be ruled out that wage growth will continue to be markedly higher in the near-term than it was before the pandemic.

Takeaways by Macro Roundup® AI

  1. The trend wage growth extracted by the model nearly doubled over the course of 2021 after remaining stable between 2019 and 2020, suggesting a large chunk of that year's wage growth was persistent.
  2. The model suggests the wage growth trend may have peaked in the early months of 2022 and then declined, with the moderation in TWIn flattening out mid-2023 and remaining stagnant since.
  3. Considerable uncertainty surrounds the model's estimates, and it cannot be ruled out that wage growth will remain markedly higher in the near term than it was before the pandemic.

Related Articles:

  • Wages Are Rising Faster than We Thought — 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.
  • 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.

AI Summary. Artificial intelligence in investing is still statistics — data goes in and a forecast comes out — and is not as revolutionary as many claim, the author argues. Questions such as the premium for high- versus low-quality stocks or value versus growth involve a small-data problem, not a big-data one, so more computation cannot answer them.

Robert Armstrong and Ethan Wu Financial Times
Date Posted:

Noting AI is “still just statistics” @CliffordAsness suspects that AI’s impact in investing will be more limited than many people’s revolutionary expectations.

Noting AI is “still just statistics” @CliffordAsness suspects that AI’s impact in investing will be more...

Is artificial intelligence as revolutionary for investing as many claim?

Core argument: Cliff Asness argues that AI in his field is not as revolutionary as others claim, describing it as "still just statistics" — data going in and a forecast coming out.

We don’t think AI, at least in our field, is as revolutionary as others do. It’s still just statistics. It’s still a whole bunch of data going in and a forecast coming out. Some of the key things we’ve talked about here I don’t think AI will help with at all: what is the premium for high-quality versus low-quality stocks? Value versus growth? We don’t have a big data problem there; we have a small data problem. If we had 8bn years of stationary comparable markets, we could answer these questions with any kind of statistics.

Takeaways by Macro Roundup® AI

  1. Cliff Asness argues that AI in his field is not as revolutionary as others claim, describing it as "still just statistics" — data going in and a forecast coming out.
  2. Asness says questions such as the premium for high-quality versus low-quality stocks and value versus growth pose a small data problem rather than a big data problem, so AI will not help with them at all.
  3. Asness contends that answering such questions with any kind of statistics would require 8bn years of stationary comparable markets.

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  • Assessing the Implications of a Productivity Miracle — If artificial intelligence can perform economically valuable cognitive tasks at very low marginal cost, consumers would buy far more of the cheapened goods and spend the savings in other categories, expanding activity and employment in sectors facing new demand. Where supply is inherently limited, such as real estate, those savings could bid up prices and produce inflation.
  • Integrating the Goldman AI Report Into Our Views — Goldman Sachs estimates generative AI productivity gains based on how easily the technology applies to each occupation rather than where the largest untapped economic opportunities lie. The author argues gains in producing documents and emails are overstated, while gains in software production are far larger than Goldman anticipates.

AI Summary. Global gross domestic product growth is routinely revised higher long after a period ends, which makes the most recent growth performance look weak by comparison. Current estimates put global growth at 2.7% year-over-year, but if the historical pattern of revisions holds, that figure is likely to be revised up to 3.2%.

Kevin Daly and Johan Allen Goldman Sachs
Date Posted:

Noting that early GDP estimates are routinely revised higher, Kevin Daly suggests 2023 was an “unusually strong” year and the global economy likely grew 3.2%.

Do upward GDP revisions make recent global growth look weak?

Core argument: Global GDP growth for 2023 is currently estimated at +2.7% yoy, an average year, but if the historical pattern of upward revisions holds, that figure is likely to be revised to +3.2% yoy, an unusually strong year.

The fact that GDP growth is routinely revised higher, long after the period has ended, has the effect of making the latest growth performance appear poor by comparison. We currently estimate that the global economy grew by +2.7%yoy in 2023, making it an average year for global growth. However, if the historical pattern of GDP revisions persists, that growth rate is likely to be revised to +3.2%yoy over time, making 2023 an unusually strong year for the world. Last year was pretty good – we just don’t know it yet.

Takeaways by Macro Roundup® AI

  1. Global GDP growth for 2023 is currently estimated at +2.7% yoy, an average year, but if the historical pattern of upward revisions holds, that figure is likely to be revised to +3.2% yoy, an unusually strong year.
  2. GDP growth is routinely revised higher long after the period has ended, making the latest measured growth performance appear poor by comparison.

Related Articles:

  • 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%.
  • 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.
  • 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.

AI Summary. National election surveys and Gallup polling show the Democratic Party's advantage among Black, Latino, and Asian voters at its lowest level since 1960. The article argues this shift reflects fading civil rights-era ties, a weakening link between income and party choice, and non-white voters with long-held conservative views aligning their votes with those views.

John Burn-Murdoch Financial Times
Date Posted:

Democrats’ advantage with minorities is the lowest since 1960, as conservative minorities increasingly vote their policy preferences. In 2012 3/4 of blacks who identified as conservatives voted for Democrats, vs. less than half in 2022. @jburnmurdoch

Why is the Democratic advantage among non-white voters shrinking?

Core argument: America's national election surveys show Democrats' advantage among Black, Latino, and Asian voters at its lowest level since 1960, with Gallup figures showing the same steepening decline.

Data from America’s gold-standard national election surveys show Democrats’ advantage among Black, Latino, and Asian voters at its lowest since 1960. Figures from Gallup show the same steepening decline. Part of this is due to fading memories and weakening ties. Black Americans who lived through the civil rights era still support the party at very high levels, but younger generations are wavering. There’s also the weakening correlation between income and voter choice in US politics. The image of the GOP as the party of wealthy country club elites is dimming, opening the door to working- and middle-class voters of all ethnicities. More ominous for the Democrats is a less widely understood dynamic: many of America’s non-white voters have long held much more conservative views than their voting patterns would suggest. The migration we’re seeing today is not so much natural Democrats becoming disillusioned but natural Republicans realising they’ve been voting for the wrong party.

Takeaways by Macro Roundup® AI

  1. America's national election surveys show Democrats' advantage among Black, Latino, and Asian voters at its lowest level since 1960, with Gallup figures showing the same steepening decline.
  2. Black Americans who lived through the civil rights era still back the Democratic Party at very high levels, while younger generations are wavering as memories fade and party ties weaken.
  3. Many non-white American voters have long held more conservative views than their voting patterns suggested, so the migration reflects natural Republicans realising they had been voting for the wrong party rather than disillusioned Democrats.

Related Articles:

  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? — Just over a third of the decline in the Democratic margin of victory came from the suburbs, with New York City voters—through a mix of defection and abstention—accounting for most of the rest. Precincts that are at least three-quarters Hispanic or Asian swung 58 and 52 points toward Republicans, versus 32 points in white and 8 points in black precincts.
  • How Worried Should the Democrats be About the Polls? — The Democratic share of the Black vote fell from 97% to 91% between 2012 and 2020, according to Catalist data on demographic voting patterns, with the decline in the latter half as large as in the first. Polls put the Democratic presidential share at 80%, and 70% among young Black men.