Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, March 21, 2024

AI Summary. Japan offers investors geographic diversification, with among the lowest correlation in economic conditions to the US of any developed country, reflecting trade exposure split between the US, China, and the broader Asia region. Most sales of Japanese-listed companies are domestic, and investors remain underweight Japanese assets.

Karen Karniol-Tambour and Alexa Rozario Bridgewater Associates
Date Posted:

Bridgewater argues that Japan, India, and Brazil offer the largest opportunities for investors seeking geographic diversification as conditions in the EU and UK are closely linked to the US.

Does Japan offer investors meaningful geographic diversification from the US?

Core argument: Japan exports roughly equal amounts each year to the US and China and the most to the broader Asia region, giving it among the lowest correlations in economic conditions to the US of any developed country.

Japan stands out as one of the most diversifying places for investors and one of the few places in the world that can absorb sizable amounts of capital. It is a trade-heavy economy that sits at the crossroads of the East and West, exports almost equal amounts each year to both the US and China, and exports the most to the broader Asia region. This diversified exposure to global trade means it has among the lowest correlations in economic conditions to the US of any developed country. Not only are Japanese conditions lowly correlated to the US, but Japanese equities also provide a relatively high level of exposure to those domestic (versus global) conditions. While Japanese growth is driven by a diverse set of trade linkages, the majority of the sales for companies listed on Japanese exchanges are domestic. After decades of Japan basically not having a monetary policy cycle and relatively stagnant conditions, investors remain underweight Japanese assets.

Takeaways by Macro Roundup® AI

  1. Japan exports roughly equal amounts each year to the US and China and the most to the broader Asia region, giving it among the lowest correlations in economic conditions to the US of any developed country.
  2. The majority of sales for companies listed on Japanese exchanges are domestic, so Japanese equities provide relatively high exposure to Japan's domestic conditions rather than global conditions.
  3. Investors remain underweight Japanese assets after decades in which Japan essentially lacked a monetary policy cycle and had relatively stagnant conditions, while Japan is one of the few places able to absorb sizable amounts of capital.

Related Articles:

  • Japanese Workers Secure Biggest Pay Rise In Three Decades — 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.
  • Japan’s Foreign Worker Tally Tops Two Million For First Time — Japan's foreign worker count reached about 2.05 million, the most on record, a 12.4% increase from a year earlier, according to the Labor Ministry. About three in five of the roughly 319,000 establishments employing non-Japanese staff have no more than 30 employees in total.
  • How Japan’s Nikkei 225 Got Its Mojo Back — Japan's Nikkei 225 stock index has reclaimed the record peak it set more than 34 years ago, closing at 39,098.68, as global investors bet the country has escaped deflation and is on a path of sustainable growth. Gains in technology and chip-equipment shares drove the advance, with the index up over 16% since the start of the year.

AI Summary. The authors introduce EVADE, a measure of the informal economy based on observed compliance with value-added tax payments, drawing on gaps between taxes owed under national income statistics and taxes actually collected. Their estimates show informality moving counter-cyclically—rising in recessions and falling in booms, notably in Greece and Italy—while remaining more stable in France and Germany.

Francesco Pappadà and Kenneth Rogoff National Bureau of Economic Research
Date Posted:

Pappada and @krogoff argue the size of the “off the books” economy exhibits counter-cyclical variation over time, and that it represents nearly 30% of GDP in Southern Europe vs. World Bank estimates of 20%.

Does the informal economy grow during recessions and shrink in booms?

Core argument: EVADE (Evading Value Added Duty Economy), a measure of the informal economy built from observed compliance on VAT payments, tracks the evolution of informality over 1999–2020.

It is well known that VAT tax evasion is rampant, with social statistics showing large “tax gaps” between taxes that ought to have been collected according to national income statistics, and taxes actually collected according to tax authorities. We introduce our measure of the informal economy, Evading Value Added Duty Economy (EVADE), based on the observed compliance on VAT payments In Figure 3, we report the evolution of the informal economy over the period 1999-2020. The volatility of EVADE appears to be associated with a counter-cyclical movement of the informal economy: EVADE tends to increase in recessions and decrease in booms, in particular in a couple of GIPS countries like Greece and Italy. In France and Germany instead, the level of informality is more stable. The more pronounced variation across time than previous measures is consistent with the view suggested by the novelist Victor Hugo that informality is countercyclical.

Takeaways by Macro Roundup® AI

  1. EVADE (Evading Value Added Duty Economy), a measure of the informal economy built from observed compliance on VAT payments, tracks the evolution of informality over 1999–2020.
  2. EVADE's volatility is associated with countercyclical movement of the informal economy, rising in recessions and falling in booms, particularly in Greece and Italy, while informality is more stable in France and Germany.
  3. EVADE varies more over time than previous measures of informality, consistent with the view suggested by novelist Victor Hugo that informality is countercyclical.

Related Articles:

  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.
  • Europe Has Fallen Behind America and the Gap is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.
  • 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.

AI Summary. Federal Reserve officials have marked up growth projections, with output growing 3.1% versus the 1% previously projected, and now expect short-term interest rates to fall by only 1.5pp after peaking rather than the 2.25pp once anticipated. Rising asset prices and the resilience of rate-sensitive sectors such as housing help explain upward revisions to "neutral" rate estimates.

Matt Klein The Overshoot
Date Posted:

Over the last year, US output grew 3.1% relative to the Fed’s 1% projection; stronger growth implies less urgency to cut rates despite more confidence about disinflation. @M_C_Klein

Does stronger-than-expected growth mean interest rates stay higher?

Core argument: U.S. output grew 3.1% from 2022Q4 to 2023Q4, far above the 1% previously projected, and with markups to 2024 and 2025 growth projections the cumulative impact exceeds 3% of GDP.

Output ended up growing far faster than previously projected between 2023Q4 and 2022Q4 (3.1% vs. 1%). Growth rate projections for 2024 and 2025 have also been marked up. The cumulative impact is more than 3% of GDP. Most interesting is the shift in the expected pace of rate reductions after the peak has been reached. Last summer, the consensus was that it would be appropriate to reduce the short-term interest target by about 2.25pp in the two years after rates peaked in 2023Q4. Now, the consensus is that rates should drop by only 1.5pp by the end of 2025. Since September 2023, the estimate of the “appropriate” level of rates at the end of 2026 has also ticked up. The growth impulse from rising asset prices—which also reflect optimism about real economic strength—and the resilience of rate-sensitive sectors such as housing to higher borrowing costs both help explain why many Fed officials seem to be revising up their shorter-term “neutral” rate estimates.

Takeaways by Macro Roundup® AI

  1. U.S. output grew 3.1% from 2022Q4 to 2023Q4, far above the 1% previously projected, and with markups to 2024 and 2025 growth projections the cumulative impact exceeds 3% of GDP.
  2. Fed officials' consensus now calls for only 1.5pp of rate cuts by the end of 2025, down from the roughly 2.25pp expected last summer for the two years after the 2023Q4 peak.
  3. The growth impulse from rising asset prices and the resilience of rate-sensitive sectors such as housing to higher borrowing costs help explain why many Fed officials appear to be revising up their shorter-term "neutral" rate estimates.

Related Articles:

  • 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%.
  • 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.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — 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.

AI Summary. Mortgage rates equal the US Treasury yield plus a spread, and a lower term premium and lower lender fees brought them from 7.8% to 6.75%, with the Federal Reserve, inflation, and mortgage bond spreads contributing little. The author argues prepayment risk is overpriced by 0.4% and its compression could push rates to about 6%.

Aziz Sunderji Home Economics
Date Posted:

.@AzizSunderji expects 30-year mortgage rates to fall from the current 6.7% to under 6% by year-end, driven by a decline in prepayment risk as the Fed cuts rates.

What can bring mortgage rates down to 6%?

Core argument: Mortgage rates have fallen from a peak near 7.8% to 6.75% on a lower term premium and reduced lender fees, while the Fed, inflation, and the mortgage bond option-adjusted spread have not contributed.

The mortgage rate is simply the interest rate on US Treasury bonds plus a spread; each of these components is made up of sub-components. A rise in these sub-components drove mortgage rates from 3% in 2021 to near 8% at their recent peak. A lower term premium and lender fees have brought mortgage rates down from 7.8% to 6.75% today. Other factors—the Fed, inflation, and the mortgage bond OAS—have not played a part, and likely won’t in the near future. So what will get us from the current level TO 6%? A decline in prepayment risk. Prepayment risk is overpriced—by 0.4%—into mortgage rates today. Falling uncertainty around interest rates and a steeper yield curve should bring the fair value of prepayment risk down another 0.3% by year-end. Altogether, there is room for a 70 bp rally in mortgage rates as the prepayment risk premium compresses. Over the remainder of this year, prepayment risk should decline enough to bring mortgage rates down to, if not below, 6%.

Takeaways by Macro Roundup® AI

  1. Mortgage rates have fallen from a peak near 7.8% to 6.75% on a lower term premium and reduced lender fees, while the Fed, inflation, and the mortgage bond option-adjusted spread have not contributed.
  2. Prepayment risk is overpriced by 0.4% in mortgage rates today, and falling interest-rate uncertainty plus a steeper yield curve should cut the fair value of prepayment risk another 0.3% by year-end.
  3. Compression of the prepayment risk premium leaves room for a 70 bp rally in mortgage rates, which should decline to, if not below, 6% over the remainder of the year, after climbing from 3% in 2021 to near 8% at their peak.

Related Articles:

  • 1.54 million Total Housing Completions in 2023 including Manufactured Homes; Most Since 2007 — Total US housing completions and placements, including manufactured homes, reached 1.543m, the most since 2007, even as total housing starts fell 9.0% year over year. Excluding manufactured homes, completions were 1.453m, up 4.5%, with construction delays leaving a near-record number of units still under construction.
  • America’s Housing Rebound — Pandemic-era house price gains tracked the plunge in mortgage rates, and the initial post-pandemic price dip tracked their rise, but the rebound since early 2023 breaks that relationship and instead matches faster U.S. growth and rising risk asset prices. If mortgage rates stay near current levels, housing activity should increase further.
  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.

AI Summary. Research published in The Lancet projects that 76% of 204 countries and territories will have birth rates below population replacement by 2050, rising to 97% by 2100. The share of global live births occurring in low-income countries is projected to rise from 18% to 35% by 2100, with sub-Saharan Africa accounting for half of births.

Michael Peel and Cathy Chen Financial Times
Date Posted:

.@TheLancet research forecasts that 3/4 of nations will fall under their population replacement birth rates by 2050. In the latter half of the decade, global population growth will be concentrated in low-income states in sub-Saharan Africa and Asia.

Will falling birth rates shift global births toward low-income countries?

Core argument: Research published in The Lancet projects 76% of 204 countries and territories will fall below population replacement birth rates by 2050, rising to 97% by 2100.

Research published in The Lancet projects three-quarters of nations are projected to fall below population replacement birth rates by 2050, leaving growth concentrated in a minority of low-income states in sub-Saharan Africa and Asia that face acute threats from resource shortages and climate change. The study of 204 countries and territories forecasts that 76% will dip below population replacement rates by 2050 — a number that will rise to 97% by 2100. The proportion of live births in low-income countries is projected to all but double from 18% in 2021 to 35% by the end of the century. Sub-Saharan African countries are forecast to account for half of global births by 2100.

Takeaways by Macro Roundup® AI

  1. Research published in The Lancet projects 76% of 204 countries and territories will fall below population replacement birth rates by 2050, rising to 97% by 2100.
  2. The Lancet study projects the share of global live births in low-income countries will nearly double from 18% in 2021 to 35% by 2100, with sub-Saharan African countries accounting for half of global births by 2100.
  3. The Lancet research projects population growth will be concentrated in a minority of low-income states in sub-Saharan Africa and Asia that face acute threats from resource shortages and climate change.

Related Articles:

  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.
  • Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals — Italy has appealed for greater European Union support as more than 12,000 people arrived from north Africa in a single week, most reaching the island of Lampedusa. Arrivals on Italian shores have surged to more than 128,600 so far this year, up from about 66,200 a year earlier.

AI Summary. The US military says all indications point to China's People's Liberation Army meeting a directive to be ready to invade Taiwan by 2027, having added more than 400 fighter aircraft and over 20 major warships in three years and doubled its ballistic and cruise missile inventory.

Roxana Tiron Bloomberg
Date Posted:

The head of US Indo-Pacific Command states that by 2027, China’s military will have the “ability to meet Xi’s preferred time-line to unify Taiwan with mainland China by force if directed.”

The head of US Indo-Pacific Command states that by 2027, China’s military will have the “ability to meet Xi’s preferred...

Is China on track to be ready to invade Taiwan by 2027?

Core argument: Admiral John Aquilino said the PLA has added more than 400 fighter aircraft and more than 20 major warships during his three years in command.

In the three years since Admiral John Aquilino took command, he said the People’s Liberation Army, or PLA, has added more than 400 fighter aircraft, along with more than 20 major warships. It’s also doubled its inventory of ballistic and cruise missiles since 2020, he said. “All indications point to the PLA meeting President Xi Jinping’s directive to be ready to invade Taiwan by 2027,” Aquilino said. “The PLA’s actions indicate their ability to meet Xi’s preferred time-line to unify Taiwan with mainland China by force if directed.”

Takeaways by Macro Roundup® AI

  1. Admiral John Aquilino said the PLA has added more than 400 fighter aircraft and more than 20 major warships during his three years in command.
  2. Aquilino said the PLA has doubled its inventory of ballistic and cruise missiles since 2020.
  3. Aquilino said all indications point to the PLA meeting Xi Jinping's directive to be ready to invade Taiwan by 2027, with the ability to unify Taiwan with mainland China by force if directed.

Related Articles:

  • CIA Chief Warns Against Underestimating Xi’s Ambitions Toward Taiwan — The U.S. Central Intelligence Agency says intelligence shows China's leadership has ordered its military to be ready to invade Taiwan by 2027, though the agency states this does not mean an invasion has been decided for that or any year. The agency warns China's ambitions toward Taiwan should not be underestimated.
  • The Taiwan Catastrophe — East Asia and the Pacific account for one-third of global GDP in purchasing-power-parity terms, roughly twice the U.S. share, and Chinese domination of the region would harm U.S. economic interests. U.S. two-way goods trade with its nine largest Asian partners besides China was nearly $940bn, about 60% larger than U.S. goods trade with China.
  • China’s Shipyards Are Ready for a Protracted War. America’s Aren’t — China produced more than half of the world's commercial shipbuilding output, while Europe accounts for about 5% and the US next to nothing, with most of the remainder built in South Korea and Japan. Analysts argue that in a protracted conflict China's wartime-scale yards could quickly accelerate production, replace lost ships, and repair damaged ones.

Friday, March 22, 2024

AI Summary. Employees at more productive firms and firms with more structured management practices have substantially higher pay, with a doubling of productivity associated with 15% higher pay for the highest-paid employee versus 7% for the median worker. The authors estimate rising productivity can explain 40% of the increase in within-firm inequality.

Melanie Wallskog, Nicholas Bloom, Scott Ohlmacher and Cristina Tello-Trillo National Bureau of Economic Research
Date Posted:
Is Database:
Database
Is Important:
Important

Increases in firm-level productivity disproportionately raise wages for top earners, and since 1980 have driven 40% of the rise in within-firm inequality as measured by the CEO/median pay ratio. @I_Am_NickBloom @WallskogMelanie @tellotri

How much of rising within-firm pay inequality does productivity explain?

Core argument: A doubling of firm productivity is associated with 15% higher pay for a firm's highest-paid employee, likely the CEO, versus 7% for the median worker.

We find that employees at more productive firms and firms with more structured management practices have substantially higher pay. This pay-performance relationship is particularly strong amongst top-paid executives, with a doubling of firm productivity associated with 15% more pay for the highest-paid employee (likely the CEO) compared to 7% for the median worker. The highest-paid worker sees a 19% pay increase in public firms but only an 11% pay increase in private firms for a doubling of productivity. More productive firms have higher within-firm inequality. The magnitude of this pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980.

Takeaways by Macro Roundup® AI

  1. A doubling of firm productivity is associated with 15% higher pay for a firm's highest-paid employee, likely the CEO, versus 7% for the median worker.
  2. For a doubling of productivity, the highest-paid worker's pay rises 19% in public firms but 11% in private firms, and more productive firms show higher within-firm inequality.
  3. The magnitude of the estimated pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980; employees at firms with more structured management practices also have substantially higher pay.

Related Articles:

  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Global private capital assets under management total $13tn, compared with $103tn in fixed income outstanding, $101tn in equity market capitalization, and $98tn in banking sector balance sheets. Over the past decade private markets grew by $8tn, less than the $42tn, $35tn, and $34tn increases in those public financing markets.

Torsten Sløk and Rajvi Shah Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that global private capital, which can bear high levels of risk, accounts for less than 5% of total public and private capital.

How large are private markets compared with public financing markets?

Core argument: Global private capital assets under management total $13tn, against $103tn of outstanding global fixed income, $101tn of global equity market capitalization, and $98tn of global banking sector balance sheets.

Comparing public and private markets. Global private capital AUM: $13T. Global fixed income outstanding: $103T. Global equity market cap: $101T. Global size of banking sector balance sheets: $98T. Increase in the size of global private markets AUM over the past decade: $8T. Increase in the size of global fixed income markets over the past decade: $42T. Increase in the size of global equity market cap over the past decade: $35T. Increase in the size of global banking sector balance sheets over the past decade. $34T. Private capital has over the past decade grown much slower than global financing markets.

Takeaways by Macro Roundup® AI

  1. Global private capital assets under management total $13tn, against $103tn of outstanding global fixed income, $101tn of global equity market capitalization, and $98tn of global banking sector balance sheets.
  2. Global private markets AUM grew by $8tn over the past decade, less than the $42tn increase in global fixed income, $35tn in global equity market capitalization, and $34tn in banking sector balance sheets.
  3. Private capital has grown much more slowly than global financing markets over the past decade.

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).
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.
  • Private Credit: Characteristics and Risks — 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.

AI Summary. The long-standing link between economic sentiment and government popularity has disappeared in the US while remaining strong in France and Germany and, to a lesser degree, the UK. The author attributes this decoupling to hyper-partisanship, arguing that American voters' political allegiances now shape their economic perceptions rather than the reverse.

John Burn-Murdoch Financial Times
Date Posted:

The historic relationship between consumer sentiment and government approval has broken down in the US but remains strong in Western Europe suggesting US political polarization has driven the decoupling. @jburnmurdoch

Has partisanship severed the link between economic sentiment and government popularity?

Core argument: The historical link between economic sentiment and government popularity has evaporated in the US, while remaining almost as strong as ever in Western Europe, where French and German government favourability stays closely tied to economic fortunes.

The new rule — that “It’s no longer the economy, stupid” — has since reasserted itself. What makes this apparent shift all the more notable is that it appears to be an exclusively American phenomenon. The age-old relationship between economic sentiment and a government’s popularity has evaporated in the US, but it remains almost as strong as ever in Western Europe, with the favourability of French and German governments still closely linked to economic fortunes. The same is true in the UK, albeit to a lesser extent. This contrast between continents supports the theory that the hyper-partisan nature of US politics is behind the decoupling. The US electorate is now cleanly divided into Democrat and Republican factions, more hostile to one another than ever before, making it harder for economic trends to move people between political camps. If anything, voters’ politics are now shaping their economic perceptions, not the other way around.

Takeaways by Macro Roundup® AI

  1. The historical link between economic sentiment and government popularity has evaporated in the US, while remaining almost as strong as ever in Western Europe, where French and German government favourability stays closely tied to economic fortunes.
  2. The contrast between continents supports the theory that the hyper-partisan nature of US politics drives the decoupling, with the electorate cleanly split into mutually hostile Democrat and Republican factions that economic trends struggle to move voters between.
  3. In the US, voters' politics now appear to shape their economic perceptions rather than the reverse, while the UK follows the Western European pattern to a lesser extent.

Related Articles:

  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.

AI Summary. China's property market is in a yearslong downturn and its benchmark CSI 300 stock index has lost about a third of its value, while consumer confidence sits near its lowest level in decades alongside weak private-sector investment and very high youth unemployment. Households are spending less and saving more, with savings reaching a record $19.83tn according to central bank data.

Cao Li Wall Street Journal
Date Posted:

The Chinese middle class is “spending less, saving more, and shying away from risky investments” in the face of a stock market rout and declining real estate prices.

Why is China's middle class spending less and saving more?

Core argument: Chinese household savings reached a record $19.83 trillion by February, according to central bank data, as citizens spend less, save more, and avoid risky investments.

The property market has entered a yearslong downturn, the country’s benchmark CSI 300 stock index has lost around a third of its value and the economy has become increasingly vulnerable, suffering from moribund consumer confidence, weak private-sector investment, and sky-high youth unemployment. Chinese citizens are spending less, saving more, and shying away from risky investments. Household savings in the country reached $19.83 trillion by February, the highest figure on record, according to data from the central bank. Consumer confidence is near its lowest level in decades.

Takeaways by Macro Roundup® AI

  1. Chinese household savings reached a record $19.83 trillion by February, according to central bank data, as citizens spend less, save more, and avoid risky investments.
  2. China's benchmark CSI 300 stock index has lost around a third of its value, and the property market has entered a yearslong downturn.
  3. China's economy is increasingly vulnerable, with consumer confidence near its lowest level in decades, weak private-sector investment, and high youth unemployment.

Related Articles:

  • Why Are China’s Households in the Doldrums? — Chinese mortgage loans account for over 50% of total household debt, at $6tn and a third of GDP, and the stock of outstanding mortgage loans has declined for the first time as households prioritize repayment. Other forms of consumer credit have slowed sharply while new deposit growth has accelerated.
  • Foreign Direct Investment in China Falls to Lowest Level in Decades — China's direct investment liabilities, a measure of foreign capital flowing into the country, totalled about $33bn in 2023, an 82% decline from the prior year and the lowest annual level since 1993, according to China's State Administration of Foreign Exchange.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

AI Summary. Chinese steel exports reached an eight-year high, rising 32.6% year over year to 15.9mn tonnes in a two-month period, as a property crisis weighs on domestic consumption. China produces about 55% of the world's steel, so analysts say even small export increases can pressure world prices.

Joe Leahy and Harry Dempsey Financial Times
Date Posted:

Chinese steel exports increased 32.6% y/y to an 8-year high as the country seeks to drive growth through exports.

Are rising Chinese steel exports pressuring global prices?

Core argument: Chinese steel exports rose 32.6% year-on-year to 15.9mn tonnes in the first two months of the year, the highest for that period since 2016, according to National Bureau of Statistics figures.

Chinese steel exports are at an eight-year high as a property crisis undermines domestic consumption in the world’s second-largest economy and fuels concerns of global oversupply across several industries. In the first two months of this year, Chinese exports increased 32.6% against a year earlier to 15.9mn tonnes, the highest since 2016 for the period, according to figures from the National Bureau of Statistics. The country makes about 55% of the world’s steel, so even a small increase in exports can lead to price pressures in world markets, analysts said. The last time China’s steel exports were this high was during an economic slowdown from 2015 to 2016. “There’s too much steel in the world,” said Colin Richardson, head of steel at price reporting agency Argus Media. “Even with a pullback in China, there will be too much steel.”

Takeaways by Macro Roundup® AI

  1. Chinese steel exports rose 32.6% year-on-year to 15.9mn tonnes in the first two months of the year, the highest for that period since 2016, according to National Bureau of Statistics figures.
  2. China produces about 55% of the world's steel, so even a small increase in its exports can create price pressures in world markets, according to analysts.
  3. Colin Richardson, head of steel at price reporting agency Argus Media, said there is too much steel in the world and that oversupply will persist even with a pullback in China.

Related Articles:

  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.
  • Brazil Launches China Anti-Dumping Probes After Imports Soar — Brazil's industry ministry has opened at least half a dozen investigations into alleged dumping of Chinese industrial products, spanning metal sheets, pre-painted steel, chemicals and tyres. Brazilian steelmakers have asked for tariffs of 9.6% to 25% on imported steel, as Brazil's steel and iron imports from China rose from $1.6bn to $2.7bn.
  • Mexico Targets Chinese Steel Imports With Increased Tariff Of Nearly 80% — Mexico imposed a tariff of nearly 80% on some steel imports, including certain Vietnamese exports of cold-rolled steel sheets, after local producers said Chinese steelmakers had strangled their production. Exporters that prove the steel originates outside China are exempt.