Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 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


Thursday, March 14, 2024

AI Summary. Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.

Victoria Ivashina, Ṣebnem Kalemli-Özcan, Luc Laeven and Karsten Müller National Bureau of Economic Research
Date Posted:

Corporate debt plays a key role in amplifying boom-bust cycles; expansions in non-financial corporate credit, particularly when backed by real estate, are associated with a higher probability of a future financial crisis. @skalemliozcan @KarstenMueIIer

Does corporate debt predict financial crises as strongly as household debt?

Core argument: Using a new dataset on sectoral credit exposure for 115 economies over 1940–2014, the authors document that corporate debt accounts for two-thirds of aggregate credit expansion before crises and three-quarters of total nonperforming loans during the bust.

Using a new dataset on sectoral credit exposure for 115 economies over the period 1940–2014, we document that (i) corporate debt accounts for two-thirds of the aggregate credit expansion before crises and three-quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt. Given the usual focus on household debt, our findings underscore the importance of monitoring firm credit for financial stability purposes.

Takeaways by Macro Roundup® AI

  1. Using a new dataset on sectoral credit exposure for 115 economies over 1940–2014, the authors document that corporate debt accounts for two-thirds of aggregate credit expansion before crises and three-quarters of total nonperforming loans during the bust.
  2. Expansions in corporate debt predict crises similarly to household debt, and a measure of credit growth flowing disproportionately to sectors such as construction and non-bank financial intermediation is associated with crises.
  3. Recovery from financial crises is slower after a boom in corporate debt, which the authors argue underscores the importance of monitoring firm credit, not household debt alone, for financial stability.

Related Articles:

  • The Corporate Debt Maturity Wall: Implications for Capex and Employment — The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.
  • Rates Are Up. We’re Just Starting to Feel the Heat — U.S. companies have $600bn in corporate debt maturing this year, a total Goldman Sachs data show rising to more than $1tn a year from 2025 through 2028. Those debt loads, combined with higher financing costs, may cut into corporate profits, investor returns, innovation spending, and hiring, with some analysts expecting credit-rating downgrades.
  • Credit Allocation and Macroeconomic Fluctuations — Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.

AI Summary. Average pay for most workers is rising about 4.5–5% a year, roughly 1.5–2pp faster than the pre-pandemic average, implying an underlying inflation trend about 1–2pp above the pre-pandemic pace absent a surge in productivity or saving. Earlier one-off drops in consumer goods prices held measured inflation below that trend and appear to have ended.

Matt Klein The Overshoot
Date Posted:

Nominal annual wage growth is 4.5-5%, 1.5-2pp faster than pre-pandemic. Absent a surge in productivity and/or the personal saving rate, @M_C_Klein argues that inflation will remain above the Fed’s 2% target.

Does faster pay growth keep underlying inflation above the pre-pandemic trend?

Core argument: Average pay for most workers is rising about 4.5–5% a year, 1.5–2 points faster than the pre-pandemic average, leaving the underlying inflationary trend roughly 1–2 points above its pre-pandemic pace absent faster productivity or a higher saving rate.

[Inflation] is probably still 1-2pp faster than the 2% yearly inflation rate target. Average pay for most workers is still rising about 4.5-5% a year, which is still 1.5-2pp faster than the pre-pandemic average. Absent a surge in productivity and/or the personal saving rate, the underlying inflationary trend therefore remains about 1-2pp faster than before the pandemic. For much of 2023, the CPI rose slower than this implied underlying trend, thanks in large part to big one-off drops in consumer goods prices that seem to have stopped. The recent acceleration in observed inflation may therefore reflect a convergence to its “true”, faster value. If the extra income growth continues to translate into faster spending growth (as opposed to higher saving), inflation will not stabilize at the pre-pandemic rate unless businesses consistently increase their production of goods and services almost 2 percentage points faster than they did in 2018-2019.

Takeaways by Macro Roundup® AI

  1. Average pay for most workers is rising about 4.5–5% a year, 1.5–2 points faster than the pre-pandemic average, leaving the underlying inflationary trend roughly 1–2 points above its pre-pandemic pace absent faster productivity or a higher saving rate.
  2. The CPI rose slower than this implied underlying trend for much of 2023, largely because of big one-off drops in consumer goods prices that appear to have stopped, so the recent acceleration may reflect convergence to inflation's faster "true" value.
  3. If faster income growth keeps feeding into spending rather than saving, inflation will not settle back at the pre-pandemic rate unless businesses consistently expand output of goods and services almost 2 points faster than in 2018–2019.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • 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.
  • 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.

AI Summary. Nonfinancial corporate profit margins rose from 13.4% to 17% before easing to 16.4%, the highest outside the pandemic period since the 1960s, with prices up 17% and profits up 41%. Had profits grown at the slower pace of labor costs, cumulative price increases would have been 12.5%.

Greg Ip Wall Street Journal
Date Posted:

At 16.4% in Q3 ‘23, US corporate profit margins have remained elevated relative to the pre-pandemic level of 13.4%. @greg_ip notes prices are up 17%, outpacing both labor and nonlabor costs.

Did rising corporate profit margins contribute to higher consumer prices?

Core argument: Nonfinancial corporate pretax profit margins rose from 13.4% in late 2019 to 17% by the second quarter of 2022, and stood at 16.4% in the third quarter of 2023 after supply problems were largely fixed — the highest outside the pandemic period since the 1960s.

Between late 2019 and the second quarter of 2022, corporate profit margins shot up to 17% from 13.4%. (These are pretax profits as a share of revenue, minus inputs such as imported parts, and excludes financial companies.) As of the third quarter of 2023, the supply problems had largely been fixed, and profit margins had fallen, but only to 16.4%. Outside the pandemic period, that is the highest since the 1960s. Do higher margins contribute to inflation? Since the end of 2019, prices are up 17%, outpacing both labor and nonlabor costs. The result: Profit grew by 41%. If profits had grown at the same, slower rate as labor costs, that would have translated to a cumulative price increase of only 12.5%, and an average annual inflation rate roughly 1pp lower.

Takeaways by Macro Roundup® AI

  1. Nonfinancial corporate pretax profit margins rose from 13.4% in late 2019 to 17% by the second quarter of 2022, and stood at 16.4% in the third quarter of 2023 after supply problems were largely fixed — the highest outside the pandemic period since the 1960s.
  2. Since the end of 2019, prices are up 17%, outpacing both labor and nonlabor costs, while profits grew 41%.
  3. Had profits grown at the same slower rate as labor costs, the cumulative price increase would have been 12.5% rather than 17%, implying an average annual inflation rate roughly 1 percentage point lower.

Related Articles:

  • 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.
  • 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.
  • The Wealth of Greedflations — A screen of more than 1,000 global large-cap companies shows net profit margins returning to their long-run average of 13.5%, after being suppressed earlier and inflated during the later stages of the pandemic. On a company-by-company view, 52% still earn above their 10-year average margin, by an average of 2.15 percentage points.

AI Summary. Lower-density suburbs of large metropolitan areas grew faster than urban cores, mid-size and small metros, and non-metropolitan areas, as domestic out-migration from urban counties more than offsets population gains from international immigration. Nine of the ten most expensive metropolitan areas, many in California, recorded population declines, with Seattle the exception.

Jed Kolko JedKolko.com
Date Posted:

Expensive urban counties continued to lose population in 2023 despite the uptick in immigration. The American population continues to shift to the south. @JedKolko

Are people still leaving big cities for lower-density suburbs?

Core argument: Nine of the ten U.S. metros with the highest cost of living, many of them in California, recorded population declines in 2023, with Seattle the one expensive metro that grew.

Lower-density suburbs of large metros grew faster than other parts of large metros, mid-size and small metros, and non-metropolitan areas. Urban populations are shrinking despite rising immigration. Net international migration added more growth to urban counties in 2023 than in any year since at least 2010. However, urban counties lost more people due to domestic migration in 2023 than in the years before the pandemic. Domestic out-migration accelerated throughout the 2010s, spiked during pandemic, and continues to more than offset the urban population boost from immigration. Expensive metros lost people. Of the ten metros with the highest cost of living – many of which are in California – nine had population declines in 2023; Seattle was the one expensive metro that grew.

Takeaways by Macro Roundup® AI

  1. Nine of the ten U.S. metros with the highest cost of living, many of them in California, recorded population declines in 2023, with Seattle the one expensive metro that grew.
  2. Urban counties lost more people to domestic migration in 2023 than in the years before the pandemic, more than offsetting the boost from immigration, even as net international migration added more growth to urban counties than in any year since at least 2010.
  3. Lower-density suburbs of large metros grew faster than other parts of large metros, mid-size and small metros, and non-metropolitan areas, while domestic out-migration from urban counties accelerated through the 2010s and spiked during the pandemic.

Related Articles:

  • Southern Comforts — Migration into southern metropolitan areas such as Austin, San Antonio, Jacksonville, and Tampa has continued, and the South also has a higher birth rate than other census regions. Growth has been uneven: Florida's GDP rose 20% and Texas and Tennessee 15% against a US average of 11%, while Oklahoma and Louisiana contracted.
  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.
  • The Long-Term Housing and Population Shift — The median center of the US population has been moving southwest, but the author argues that trend will slow or reverse without more water supply, more affordable housing policies, and progress on climate change. Areas from Missouri to West Virginia and the Great Lakes could become more attractive.

AI Summary. An analysis of polling from 20 rich countries found that a political gap between men and women aged 18-29 that was negligible two decades ago reached 0.75 points on a 1-10 liberal-conservative scale by 2020, roughly twice the gap between graduates and non-graduates. Young men were more conservative than young women in every large country examined.

Economist Staff The Economist
Date Posted:

According to an @TheEconomist analysis, in 2002 there was little difference in political attitudes of 18-29 year olds in rich countries, but by 2020 females were 0.75 more liberal than males on a scale of 0-10.

Are young men and women diverging politically across rich countries?

Core argument: The Economist's analysis of polling from 20 rich countries found the ideological gap between men and women aged 18-29 reached 0.75 points on a 1-10 liberal-conservative scale by 2020, up from little difference two decades earlier.

The Economist analyzed polling data from 20 rich countries, using the European Social Survey, America’s General Social Survey, and the Korean Social Survey. Two decades ago there was little difference between men and women aged 18-29 on a self-reported scale of 1-10 from very liberal to very conservative. But our analysis found that by 2020 the gap was 0.75. For context, this is roughly twice the size of the gap in opinion between people with and without a degree in the same year. Put another way, in 2020 young men were only slightly more likely to describe themselves as liberal than conservative, with a gap of just two percentage points. Young women, however, were much more likely to lean to the left than the right, with a gap of a massive 27 percentage points. In all the large countries we examined, young men were more conservative than young women. In Poland, the gap was 1.1 points on a scale of 1-10. It was a hefty 1.4 in America, 1 in France, 0.75 in Italy, 0.71 in Britain and 0.74 in South Korea.

Takeaways by Macro Roundup® AI

  1. The Economist's analysis of polling from 20 rich countries found the ideological gap between men and women aged 18-29 reached 0.75 points on a 1-10 liberal-conservative scale by 2020, up from little difference two decades earlier.
  2. The Economist's analysis found that in 2020 young women were more likely to lean left than right by 27 percentage points, while young men described themselves as liberal rather than conservative by just two percentage points.
  3. Young men were more conservative than young women in every large country The Economist examined, with gaps of 1.4 points in America, 1.1 in Poland, 1 in France, 0.75 in Italy, 0.74 in South Korea and 0.71 in Britain.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • A New Global Gender Divide Is Emerging — Gallup data show women aged 18–30 in the US are 30 percentage points more liberal than young men, a gap that opened in six years, with similar divides in Germany (30 points), the UK (25 points), South Korea and China. In South Korea, marriage rates have plummeted and births fell to 0.78 per woman, the world's lowest.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

AI Summary. SpaceX's Starship rocket flew farther and faster than in its previous test flights, separating from its Super Heavy booster and reaching near-orbit before contact was lost during its return to Earth. SpaceX confirmed the vehicle was lost, likely destroyed, cutting the mission short.

Loren Grush Bloomberg
Date Posted:

The largest rocket ever sent into space, @SpaceX’s Starship successfully reached near orbit Thursday, before it was lost while returning to Earth.

The largest rocket ever sent into space, @SpaceX’s Starship successfully reached near orbit Thursday, before it was lost...

Did the largest rocket ever built survive its return to Earth?

Core argument: SpaceX's Starship flew farther and faster than in any prior flight, separating from its Super Heavy booster as planned and reaching near-orbit, surpassing the length of its previous two test missions.

SpaceX launched its Starship rocket into space in a critical test, sending the colossal craft farther and faster than it had ever flown before it was lost while returning to Earth. The craft successfully separated from its Super Heavy booster as planned and reached near-orbit in space, surpassing the length of its prior two test missions. SpaceX said it lost signal connection with Starship and later confirmed the vehicle was “lost” — likely destroyed — as it plummeted back to Earth, cutting the mission short.

Takeaways by Macro Roundup® AI

  1. SpaceX's Starship flew farther and faster than in any prior flight, separating from its Super Heavy booster as planned and reaching near-orbit, surpassing the length of its previous two test missions.
  2. SpaceX lost signal connection with Starship as the craft plummeted back to Earth and later confirmed the vehicle was "lost" — likely destroyed — cutting the test mission short.

Related Articles:

  • SpaceX Rocket Explodes Before Reaching Orbit — SpaceX's Starship, a nearly 400-foot rocket described as the most powerful ever launched, exploded after reaching an altitude of nearly 40km on its first launch, setting back the company's effort to build a spacecraft capable of flying to Mars.
  • Space: The Missing Element of Your Strategy — Private-sector funding of space-related companies has topped $10bn, close to a tenfold rise over the past decade, though the US government remains the largest source of space funding. If current momentum continues, commercial funding for space ventures could surpass government funding within 20 years.
  • Despite An Explosion, Elon Musk Is Closer to His New Space Age — SpaceX says it is producing Super Heavy boosters and Starships at a healthy pace, though damage to the launch support structure may require a significant redesign and cause delays. A Starship launched by a Super Heavy would lift 100-150 tonnes to orbit, against 64 tonnes for Falcon Heavy and 24 for the space shuttle.

Friday, March 15, 2024

AI Summary. Private credit loans are negotiated bilaterally outside traditional regulatory requirements and are illiquid because no secondary market exists, leaving investors expected to hold them to maturity or face steep losses if they need to exit. Scarce data on this growing form of nonbank lending makes assessing its risks difficult.

Fang Cai and Sharjil Haque Federal Reserve Board
Date Posted:

Private credit has grown exponentially since 2000, reaching over $1.7T in June of 2023. @FederalReserve analysis suggests private credit raises overall corporate leverage, potentially increasing corporate sector vulnerability to financial shocks.

What makes private credit risks hard to assess?

Core argument: Private credit is growing rapidly as a frontier for nonbank lending, but the scarcity of available data makes assessing risks in this market difficult.

As private credit continues to grow rapidly as a new frontier for nonbank lending, the scarcity of available data has made it challenging to assess risks in this market. Private credit involves bilateral negotiation of terms and conditions without the need to comply with traditional regulatory requirements. These loans are illiquid due to the lack of a secondary market. There is limited market discovery, and investors acquiring these loans should expect to hold them to maturity or face steep losses in need of an emergency exit.

Takeaways by Macro Roundup® AI

  1. Private credit is growing rapidly as a frontier for nonbank lending, but the scarcity of available data makes assessing risks in this market difficult.
  2. Private credit involves bilateral negotiation of terms and conditions without the need to comply with traditional regulatory requirements.
  3. Private credit loans are illiquid because no secondary market exists, so investors should expect to hold them to maturity or face steep losses if they need an emergency exit.

Related Articles:

  • Trends In Private Markets Going Into 2024 — Global private capital assets under management total $13tn, less than 5% of global financing markets, against $103tn in outstanding fixed income, $101tn in equity market capitalization, and $98tn in banking sector balance sheets. Over the past decade private capital grew by $8tn, far less in absolute terms than fixed income ($42tn), equities ($35tn), and banking ($34tn).
  • Where Are All the Defaults? — One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.
  • How Private Credit Gives Banks a Run for Their Money — Private credit emerged as an alternative to banks as regulators tightened rules on risky lending by deposit-taking institutions, and now competes with mainstream lenders across businesses from real estate firms to tech startups. Closed-end private debt funds held roughly $1.6tn in assets globally, up from about $500bn at the end of 2015.

AI Summary. Artificial intelligence is projected to push datacenters to 4.5% of global electricity generation by 2030, with datacenter power capacity growth accelerating from a 12-15% annual rate to 25%. Global datacenter critical IT power demand is projected to rise from 49 gigawatts to 96 gigawatts, about 40 gigawatts of it for AI.

Dylan Patel, Daniel Nishball, and Jeremie Eliahou Ontiveros Semi Analysis
Date Posted:

Datacenters currently consume approximately 1.5% of global electrical generation. @dylan522p @dnishball forecast they will consume 4.5% by 2030 and “there is a real power crunch coming soon.”

How much will AI raise datacenter electricity demand?

Core argument: Global datacenter critical IT power demand is projected to nearly double from 49 GW in 2023 to 96 GW by 2026, with AI accounting for roughly 40 GW of that total.

The AI boom will indeed rapidly accelerate datacenter power consumption growth. We believe AI will propel datacenters to use 4.5% of global energy generation by 2030. Datacenter power capacity growth will accelerate from a 12-15% CAGR to a 25% CAGR over the next few years. Global Datacenter Critical IT power demand will surge from 49 Gigawatts (GW) in 2023 to 96 GW by 2026, of which AI will consume ~40 GW. In reality, the buildout is not this smooth and there is a real power crunch coming soon.

Takeaways by Macro Roundup® AI

  1. Global datacenter critical IT power demand is projected to nearly double from 49 GW in 2023 to 96 GW by 2026, with AI accounting for roughly 40 GW of that total.
  2. AI is expected to push datacenters to consume 4.5% of global energy generation by 2030, with power capacity growth accelerating from a 12–15% CAGR to a 25% CAGR.
  3. The datacenter buildout is not expected to proceed smoothly, with a power crunch approaching.

Related Articles:

  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • Data Centres Curbed as Pressure Grows On Electricity Grids — The International Energy Agency reports that data center energy use is growing rapidly in the US, home to a third of the world's 8,000 data centers, and in China, which has a tenth, and projects that global electricity consumption from data centers, cryptocurrencies, and artificial intelligence could double over a four-year span.
  • Microsoft Infrastructure – AI & CPU Custom Silicon Maia 100, Athena, Cobalt 100 — Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.

AI Summary. Japanese companies including Honda, Nippon Steel, and ANA Holdings granted workers their largest pay rise in more than three decades, with economists expecting large firms to give unionised workers average increases above 4%, up from 3.6% the prior year. The increases strengthen the case for the Bank of Japan to begin raising interest rates.

Kana Inagaki Financial Times
Date Posted:

Japan might be successfully reflating. While real wages in Japan are just above their 2000 level, Japanese workers are now seeing the largest annual real wage gains in thirty years.

Do rising Japanese wages strengthen the case for higher interest rates?

Core argument: Economists expect Japan's large companies to grant unionised workers average wage increases of more than 4% in the shunto spring negotiations, up from 3.6% last year and the biggest rise since 1992.

Japanese companies including Honda, Nippon Steel, and ANA Holdings have granted workers their biggest pay rise in more than three decades, underlining the inflationary trend and bolstering the case for the Bank of Japan to begin raising interest rates. Galvanised by the sharp rise in living costs and a deepening labour shortage, the country’s trade unions have negotiated an increase in wages that is certain to exceed the rate of inflation, marking a milestone in a country where real wages have stagnated since the late 1990s. With the shunto spring wage negotiations mostly concluding on Wednesday, economists expect large companies to give their unionised workers an average wage increase of more than 4%, compared with 3.6% last year. That would be the biggest rise since 1992. Nippon Steel agreed to an 11.8% increase in base salary, exceeding its trade union’s request for the biggest jump in monthly pay since 1979.

Takeaways by Macro Roundup® AI

  1. Economists expect Japan's large companies to grant unionised workers average wage increases of more than 4% in the shunto spring negotiations, up from 3.6% last year and the biggest rise since 1992.
  2. Nippon Steel agreed to an 11.8% base salary increase, exceeding its trade union's request for the largest jump in monthly pay since 1979.
  3. Wage increases negotiated at Japanese firms including Honda, Nippon Steel and ANA Holdings are set to exceed the rate of inflation, bolstering the case for the Bank of Japan to begin raising interest rates.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • Japan’s Stock Market Is Back After 34 Years But The Country Is Deeply Changed — Japan's economy grew an average of just 0.7% during the 2000s amid mild deflation, and the International Monetary Fund expects public debt to reach 256% of gross domestic product, up from 65% in 1989. Net profits at non-financial Japanese firms rose more than fourfold over that period, leaving ¥343tn in cash.
  • One in 10 Japanese Now Aged Over 80, Population Report Shows — People aged over 80 account for more than 10% of Japan's population for the first time, and those over 65 reached a record 29.1%, making Japan the world's oldest country by that measure. The overall population fell by about half a million to 124.4m and is projected to drop below 109m by 2045.

AI Summary. Consumer spending has not weakened in the way a soft household employment survey would imply, which challenges the near-consensus view that fundamental factors keep the neutral interest rate very low and that a high policy rate is therefore inappropriate for an economy at full employment with inflation near target.

Brad DeLong Project Syndicate
Date Posted:

.@delong notes that long-term real rates are 2pp higher than their pre-pandemic level with little contractionary effect on the economy, and suggests that the neutral rate may have risen.

.@delong notes that long-term real rates are 2pp higher than their pre-pandemic level with little contractionary effect on...

Is the neutral interest rate still as low as assumed?

Core argument: The near-consensus since the start of the pandemic holds that fundamental factors keep the neutral interest rate very low and that those fundamentals have not materially changed, implying the current high policy rate is inappropriate for an economy at full employment with inflation near target.

The near consensus since the start of the pandemic has been that there are powerful fundamental factors keeping the neutral interest rate very low, and that there have been no major changes to those fundamentals. The neutral rate therefore should still be very low, implying that the high policy rate is inappropriate to an economy at full employment with inflation near its target. If the labor market is as weak as the household survey suggests, that weakness should have already shown up in consumer spending. It has not. This leaves the possibility of a faulty analysis [suggesting a persistently low neutral rate.]

Takeaways by Macro Roundup® AI

  1. The near-consensus since the start of the pandemic holds that fundamental factors keep the neutral interest rate very low and that those fundamentals have not materially changed, implying the current high policy rate is inappropriate for an economy at full employment with inflation near target.
  2. Labor market weakness of the magnitude suggested by the household survey should already have appeared in consumer spending, and it has not.
  3. The absence of the expected weakness in consumer spending leaves open the possibility that the analysis pointing to a persistently low neutral rate is faulty.

Related Articles:

  • Data Update 3 for 2024: A Rule-breaking Year for Interest Rates — Central bank influence on interest rates is strongest at the shortest maturities and decays at longer ones, so long-term rates are better understood through the Fisher decomposition of a nominal rate into expected inflation plus an expected real rate. Assuming the expected real rate converges on real economic growth yields an "intrinsic risk-free rate" estimated as inflation plus real growth.
  • 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.
  • Has the U.S. Economy Transitioned to a Higher Long-Run Real Interest Rate Regime? — 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%.

AI Summary. Surveys and interviews find that Generation Z adults—those born in 1997 or later—report more disillusionment than any other living generation, doubting they will ever earn enough to reach the security of earlier generations and citing delayed adulthood, unaffordable housing, and student debt. That pessimism contrasts with entry into a historically strong labor market.

Andrew Restuccia and Eliza Collins Wall Street Journal
Date Posted:

According to a WSJ survey of Gen Z Americans (18-27) a cohort of 41mm are “feeling more disillusioned than any living generation before them.”

Are young adults the most disillusioned generation despite a strong labor market?

Core argument: Generation Z Americans, those born in 1997 or after, have emerged from the pandemic more disillusioned than any living generation before them, according to long-running surveys and interviews with dozens of young people across the country.

Young adults in Generation Z—those born in 1997 or after—have emerged from the pandemic feeling more disillusioned than any living generation before them, according to long-running surveys and interviews with dozens of young people around the country. They worry they’ll never make enough money to attain the security previous generations have achieved, citing their delayed launch into adulthood, an impenetrable housing market, and loads of student debt. The pessimistic mood contrasts with what in many ways are relatively healthy economic circumstances. Many millennials—those born between 1981 and 1996—started careers around the 2007-09 recession. Gen Z workers are entering the labor market during a historically strong stretch.

Takeaways by Macro Roundup® AI

  1. Generation Z Americans, those born in 1997 or after, have emerged from the pandemic more disillusioned than any living generation before them, according to long-running surveys and interviews with dozens of young people across the country.
  2. Gen Z young adults worry they will never earn enough to attain the security previous generations achieved, citing a delayed launch into adulthood, an impenetrable housing market, and heavy student debt.
  3. Gen Z's pessimism contrasts with relatively healthy economic circumstances, as Gen Z workers enter the labor market during a historically strong stretch, while many millennials, born between 1981 and 1996, started careers around the 2007-09 recession.

Related Articles: