Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a 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 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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, April 3, 2024

AI Summary. Demographic needs are outweighing affordability in the housing market, with the share of first-time buyers returning nearly to pre-pandemic levels despite high prices and interest rates. One in four Millennial buyers reported purchasing because they had no choice, and Millennials again make up the largest group of homebuyers.

Aziz Sunderji Home Economics
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Younger homebuyers are coming back into the market despite affordability being close to all-time lows as “demographics trump affordability in the housing market.” @AzizSunderji

Do demographic needs outweigh affordability in the housing market?

Core argument: One in four Millennial homebuyers reported buying because they had no choice, and the share of first-time buyers rose almost all the way back to pre-pandemic levels despite high interest rates and prices.

Homebuyers—younger ones in particular—are coming to grips with the new, less hospitable homebuying landscape. It’s a tangible reflection of the fact that demographics trump affordability in the housing market. One out of four Millennial buyers reported buying because they had no choice. Despite high interest rates and prices, the percentage of first time home buyers rose almost all the way back to pre-pandemic levels. Older Millennials in particular are starting families and need larger homes (two-thirds of them are married couples with at least one child). Higher costs put them on the back-burner in 2021-22, but their needs didn’t go away. In 2022-23, older Millennials surged back into the second spot in the ranking of homebuyers (behind Gen X), and Millennials as a whole (older + younger Millennials) once again asserted themselves as the largest cohort of buyers.

Takeaways by Macro Roundup® AI

  1. One in four Millennial homebuyers reported buying because they had no choice, and the share of first-time buyers rose almost all the way back to pre-pandemic levels despite high interest rates and prices.
  2. Older Millennials, two-thirds of whom are married couples with at least one child, moved back into second place among homebuyer cohorts in 2022–23 behind Gen X after higher costs delayed their purchases in 2021–22.
  3. Millennials as a whole, older and younger combined, again ranked as the largest cohort of homebuyers.

Related Articles:

  • The US Housing Market Is Very Quickly Becoming Unaffordable — Home prices in Las Vegas, Phoenix, Orlando, and Tampa now stand at 6 to 7x incomes, exceeding the ratios reached at the peak of the early 2000s housing bubble in each of those metro areas. All four shifted from affordable, to unaffordable, back to affordable, and into unaffordable territory again.
  • The Determinants Of Declining Internal Migration — A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.
  • On The Move: West Side Story — The West's share of US population has flattened and appears to be falling, with relative housing affordability cited as a key part of the story. Metropolitan areas with median mortgage payments above the US average generally show negative or weakly positive population growth, and Pacific-state metros all have above-average mortgage payments.

AI Summary. Survey evidence finds 80% of respondents believe prices rise faster than wages, though real weekly earnings for the median worker grew 1.7% between 2019 and 2023. About 40% think their nominal income would be higher had inflation been lower, and half expect wages to take over a year to catch up if inflation doubled.

Stefanie Stantcheva Brookings Papers On Economic Activity
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New survey research shows that people dislike inflation because they believe that it is associated with declining real wages and falling living standards. @S_Stantcheva building on @RobertJShiller

Do people believe prices rise faster than their wages?

Core argument: 80% of survey respondents believe prices rise faster than wages, while U.S. Treasury figures show real weekly earnings for the median worker grew 1.7% between 2019 and 2023 and about 0.8% in the year preceding the survey.

Figure 13 summarizes the key findings from closed-ended questions related to wage impacts [of inflation]. People systematically think that prices rise faster than wages (80% of all respondents). In reality, real weekly earnings for the median worker grew 1.7% between 2019 and 2023, and real weekly earnings by around 0.8% in the year preceding the survey (The Purchasing Power of American Households, U.S. Department of the Treasury). Around 40% of respondents think that if inflation had been lower, their (nominal) income would be higher. In addition, one-third of respondents say that their job satisfaction would be lower if their wage increased just as much as prices. Respondents are asked how long it would take for their wage to catch up if inflation doubled. Half of the sample believes it will take more than one year for their wage to catch up if inflation doubled. These numbers are much lower than those in Shiller (1997) for the ’90s, where more than 80% of respondents thought it would take “several years” for their wage to adjust or that it would “never” adjust.

Takeaways by Macro Roundup® AI

  1. 80% of survey respondents believe prices rise faster than wages, while U.S. Treasury figures show real weekly earnings for the median worker grew 1.7% between 2019 and 2023 and about 0.8% in the year preceding the survey.
  2. Around 40% of respondents think their nominal income would be higher had inflation been lower, and one-third say their job satisfaction would be lower if their wage rose just as much as prices.
  3. Half of respondents believe their wage would take more than a year to catch up if inflation doubled, below Shiller (1997), where over 80% said adjustment would take "several years" or never occur.

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. Dominion Energy, which serves 6m customers, has raised its projected power needs for the coming decade, attributing the change to data center demand. McKinsey, BCG, and S&P Global all expect US power demand to grow 13%-15% annually through 2030, and rising transformer costs alongside electrification could make electricity scarcer.

Michael Cembalest J.P. Morgan
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Michael Cembalest @jpmorgan notes McKinsey, BCG, and S&P Global all expect American electric power demand to grow 15-30% annually until 2030, with previously unanticipated power demand from AI a major driver.

Is data center demand making electricity a scarcer resource?

Core argument: Dominion Resources, which serves 6 million customers across 15 states, sharply raised its projected power needs for the coming decade, attributing the change solely to increased demand from data centers.

Energy is a hot topic in AI circles. Dominion Resources which serves 6 million customers in 15 states has sharply increased its projected power needs for the coming decade. The sole reason for the change: increased demand from data centers. Dominion may not be representative of all utilities, but with the cost of transformer equipment already rising sharply, electrification of transport/heating and increased power demand from AI may turn electricity into a much scarcer resource. McKinsey, BCG, and S&P Global all expect US power demand to grow by 13%-15% per year until 2030. There were a lot of media articles on Amazon which acquired data centers and up to 40% of the output from the Susquehanna nuclear plant, both owned by Talen Energy. Amazon paid a premium of 50% over what Talen could earn from the grid. But these articles missed an important point: taking baseload power off an existing grid may not be feasible everywhere.

Takeaways by Macro Roundup® AI

  1. Dominion Resources, which serves 6 million customers across 15 states, sharply raised its projected power needs for the coming decade, attributing the change solely to increased demand from data centers.
  2. McKinsey, BCG, and S&P Global each expect US power demand to grow 13%–15% per year until 2030, while rising transformer equipment costs, electrification of transport and heating, and AI demand may make electricity a much scarcer resource.
  3. Amazon acquired data centers and up to 40% of the output from Talen Energy's Susquehanna nuclear plant, paying a 50% premium over what Talen could earn from the grid, though taking baseload power off an existing grid may not be feasible everywhere.

Related Articles:

  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
  • 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.
  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

AI Summary. Venture capital fundraising has slowed sharply, from $555bn at its peak to about a third of that the following year, leaving venture investors on course for their worst fundraising year since 2015. Firms holding large pre-downturn funds have been reluctant to back start-ups whose valuations were hit by higher interest rates.

George Hammond Financial Times
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Last year global venture capital funds raised one-third of 2021’s record total of $555B. Funds are increasingly using their dry powder to support existing investments as opposed to making new investments.

Has venture capital fundraising slowed sharply since its peak?

Core argument: Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.

Fundraising activity has slowed sharply since 2021, when VCs hauled in $555bn. Last year, they raised a third of that total, and activity has continued to slow, putting venture investors on course for their worst fundraising year since 2015. In the US, just $9.3bn in capital was raised in the first three months of this year, roughly a tenth of the total raised in 2023. VCs that raised large funds before the market turned still have billions of dollars of “dry powder”, but have been reluctant to invest in start-ups whose valuations have been rocked by higher rates. Increasingly, they are focused on helping companies already in their portfolios towards exits which would then allow VCs to return capital to their own limited partners.

Takeaways by Macro Roundup® AI

  1. Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.
  2. US venture funds raised just $9.3bn in the first three months of this year, roughly a tenth of the total raised in 2023.
  3. Venture investors holding billions in "dry powder" from funds raised before the market turned have been reluctant to back start-ups whose valuations were rocked by higher rates, focusing instead on steering portfolio companies toward exits that return capital to limited partners.

Related Articles:

  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
  • High-Interest Rates Crushed Startup Investment. Here Is What Could Revive It — U.S. venture funding for startups peaked above $300bn—more than double the prior year—before a series of steep interest-rate increases, the fastest in four decades, curbed appetite for risky startup bets and pushed funding down for a second straight year to $167bn.
  • 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.

AI Summary. US southwest border migrant encounters totaled about 850,000 in fiscal 2019, nearly double the prior year, and more than doubled again to 2.5m in fiscal 2023, with monthly encounters topping 300,000 for the first time before falling to roughly 175,000–190,000. Encounters are typically lower in winter months and higher in the fall.

Julie Fine, Josh Wingrove and Maya Averbuch Bloomberg
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2% of the population of Denver, Miami-Dade, Queens, and the Bronx in New York City now consists of new migrants.

How much have southwest border migrant encounters risen since 2018?

Core argument: Southwest border migrant encounters reached 2.5 million in fiscal 2023, more than double the roughly 850,000 recorded in fiscal 2019, which itself was almost twice the 2018 level.

There were about 850,000 southwest border “encounters” of migrants—some are caught more than once—in the 2019 fiscal year. That was almost twice as much as 2018. It has more than doubled since, with 2.5 million encounters in the 2023 fiscal year. Migrant encounters across the Mexican border hit a record in December, topping 300,000 for the first time, before falling to about 175,000 in January and 190,000 in February. They’re typically lower in winter months and higher in the fall, right around the election.

Takeaways by Macro Roundup® AI

  1. Southwest border migrant encounters reached 2.5 million in fiscal 2023, more than double the roughly 850,000 recorded in fiscal 2019, which itself was almost twice the 2018 level.
  2. Migrant encounters across the Mexican border topped 300,000 for the first time in December, a record, before falling to about 175,000 in January and 190,000 in February.
  3. Border encounters are typically lower in winter months and higher in the fall, around the time of the US presidential election.

Related Articles:

  • Immigration and the U.S. Economy Since the Pandemic: An Accounting Exercise — The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.
  • Illegal US Border Crossings Aren’t Really Breaking Records — Official US border encounter statistics exclude people who evade Border Patrol agents, who in past decades made up the majority of illegal crossers. The Department of Homeland Security estimated apprehension rates of 33%–43% in the 2000s versus 81% more recently, a shift attributed mainly to most crossers intending to turn themselves in and apply for asylum.
  • Illegal Immigration Is a Bigger Problem Than Ever. These Five Charts Explain Why — Government data show border agents made 2.05m arrests in a single federal fiscal year, the second consecutive year above 2m, after figures never previously exceeded 1.7m or stayed elevated for as long. A growing share of migrants are families with children, who are difficult to deport to their home countries, rather than single adults from Mexico seeking work.

AI Summary. Deliveries of US Virginia-class attack submarines are running an estimated 24 to 36 months behind contracted dates, with builders General Dynamics and HII averaging roughly 1.2 submarines a year against a required two. The Navy projects the contractors will reach the two-a-year rate by 2028.

Anthony Capaccio Bloomberg
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The Navy’s submarine program is facing delays of 24-36 months, largely driven by shipyard capacity. These delays could undermine plans to deliver at least 5 Virginia-class subs to Australia starting in 2032.

The Navy’s submarine program is facing delays of 24-36 months, largely driven by shipyard capacity. These delays...

Are US attack submarine deliveries falling years behind schedule?

Core argument: Virginia-class attack submarine deliveries are running an estimated 24 to 36 months behind contracted dates, according to results of the Navy's 45-day ship review made available to Bloomberg News ahead of its release.

Delivery dates for Virginia-class subs are running an estimated 24 to 36 months past the contracted dates, according to results of the Navy’s new 45-day ship review made available to Bloomberg News in advance of its release this week. General Dynamics and HII are supposed to be completing two submarines a year but instead are averaging the completion of one plus 20% of the work building a second sub. The Navy projects the contractors hitting the two-a-year rate by 2028.

Takeaways by Macro Roundup® AI

  1. Virginia-class attack submarine deliveries are running an estimated 24 to 36 months behind contracted dates, according to results of the Navy's 45-day ship review made available to Bloomberg News ahead of its release.
  2. General Dynamics and HII are supposed to complete two submarines a year but are averaging one submarine plus 20% of the work on a second.
  3. The Navy projects its contractors will reach the two-submarine-per-year rate by 2028.

Related Articles:

  • 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.
  • Why Xi Can No Longer Brag About the Chinese Economy — China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.
  • Nearly 40% of US Attack Submarines Are Out of Commission for Repairs — US Navy data show 18 of its 49 attack submarines — 37% — are out of commission for repairs because of naval shipyard delays, up from 28% and well above the 20% industry best practice. The report argues this leaves the US at a disadvantage against China's numerically larger fleet.

Thursday, April 4, 2024

AI Summary. An examination of 25 years of US banking trends finds deposits—especially uninsured deposits—have grown rapidly while banks have shifted from information-intensive lending toward longer-term securities such as mortgage-backed securities and long-term Treasuries. The authors argue these trends favor strengthening liquidity regulation over expanding deposit insurance to reduce bank-run risk.

Samuel Hanson, Victoria Ivanshina, Laura Nicolae, Jeremy Stein, Adi Sunderam and Daniel Tarullo Brookings Papers On Economic Activity
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Deposits – especially uninsured deposits that create run risk – have risen sharply, while banks with the most rapid growth in deposits have shifted assets away from lending towards longer-term MBS and Treasuries. @lauramnicolae

Should regulators strengthen liquidity rules rather than expand deposit insurance?

Core argument: Bank deposits, especially uninsured deposits, have grown rapidly on the liability side of bank balance sheets over the last twenty-five years, according to an examination of banking industry trends.

To inform the ongoing discussion of the appropriate regulatory response to [such events as] the failures of three regional banks 2023, we examine trends in the banking industry over the last twenty-five years. On the liability side of bank balance sheets, deposits—and especially uninsured deposits—have grown rapidly. On the asset side, there has been a notable shift away from the information-intensive lending traditionally associated with banks and towards longer-term securities such as MBS and long-term Treasuries. We assess the main regulatory options to reduce the risk of destabilizing bank runs—expanding deposit insurance and strengthening liquidity regulation— and argue that the industry trends we document favor the latter option. Regulators may be more comfortable tightening liquidity requirements on uninsured deposits, insofar as the substantial increase in those deposits in recent decades has not been correlated with an increase in information-intensive lending.

Takeaways by Macro Roundup® AI

  1. Bank deposits, especially uninsured deposits, have grown rapidly on the liability side of bank balance sheets over the last twenty-five years, according to an examination of banking industry trends.
  2. On the asset side, banks have shifted away from the information-intensive lending traditionally associated with them and toward longer-term securities such as mortgage-backed securities and long-term Treasuries.
  3. Documented industry trends favor strengthening liquidity regulation over expanding deposit insurance to reduce the risk of destabilizing bank runs, since the increase in uninsured deposits has not been correlated with an increase in information-intensive lending.

Related Articles:

  • All Clear — Data and commentary indicate the banking panic has ended and had only a limited effect on credit availability, with overall bank lending little changed and still growing, reflecting problems at a few poorly managed banks rather than a systemic crisis. Recognition that the banking sector is not collapsing has already prompted some repricing of expected interest rate cuts.
  • Frankenstein’s Monster — Unrealized losses on bank balance sheets are consistent with a rising interest rate cycle and become a problem only when large deposit outflows force those losses to be realized. Lending rules allowing banks to borrow against securities at book value help, but do not address underwater loans or deposits leaving for higher money market yields.
  • In Today’s Banking Crisis, Echoes of the ’80s — Unrealized securities losses at recently failed banks reflect the risk of borrowing short and lending long, echoing thrifts that became insolvent as the Federal Reserve raised rates; between 1980 and 1994, 1,617 banks and 1,295 thrifts closed or received government assistance. Uninsured depositors fled fast enough to limit losses, illustrating market discipline.

AI Summary. The S&P 500 returned 11% over a quarter, with market breadth broadening beyond the largest technology stocks as the equal-weighted index rose 7%; the return came from roughly 295 basis points of improved earnings expectations, 721 basis points from a 7% expansion in the forward price-to-earnings multiple to 21x, and 40 basis points of dividends.

David Kostin Goldman Sachs
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During the tech bubble in 2000, the tech sector made up 33% of the S&P 500 but only 14% of net income. Today it makes up 30% and 20% respectively, as the current rally broadens beyond mega-cap tech stocks.

What drove the stock market's quarterly gain beyond big tech?

Core argument: Of the S&P 500's year-to-date return, +721 bp came from a 7% expansion in the forward P/E multiple to 21x, +295 bp from improved earnings expectations, and +40 bp from dividends.

The S&P 500 returned 11% in 1Q 2024 reaching a new all-time high and posted the strongest 1Q return since 2019. While strong performance by several of the largest mega-cap tech stocks (MSFT, NVDA, AMZN, GOOGL, META) helped lift the index, market breadth improved in 1Q and the equal-weight S&P 500 also rose (+7%). Components of the YTD return included +295 bp from better earnings expectations, +721 bp from a 7% expansion in the forward P/E multiple to 21x, and +40 bp from dividends. The index was led by Comm. Services (+16%) while Real Estate (-1%) fared the worst. Underneath the surface, Cyclicals outperformed Defensives by 5pp in 1Q as the market continued to price an optimistic growth outlook amid firm economic data. In 2024, we expect S&P 500 EPS will rise by 8% but the index will remain flat at 5200 as the P/E multiple contracts slightly from its current level.

Takeaways by Macro Roundup® AI

  1. Of the S&P 500's year-to-date return, +721 bp came from a 7% expansion in the forward P/E multiple to 21x, +295 bp from improved earnings expectations, and +40 bp from dividends.
  2. Communication Services led S&P 500 sectors at +16% and Real Estate lagged at -1%, while Cyclicals outperformed Defensives by 5 pp in 1Q; the forecast calls for 8% S&P 500 EPS growth in 2024 with the index flat at 5200.

Related Articles:

  • Equity Risk Premiums: Determinants, Estimation, and Implications — The implied equity risk premium for the S&P 500 — the forward-looking extra return investors demand for holding stocks over risk-free assets — has fallen to 4.23%, its lowest level since 2008, as the market has climbed.
  • Magnificent 7. Or is it Magnificent 2? — Microsoft and Nvidia's combined weight in the S&P 500 rose from 6.3% in 2021 to 12.3%, while Alphabet, Amazon, Apple, Meta, and Tesla's combined weight fell from 18% to 16.2% as they underperformed the index. The other 493 stocks rose 33.5% in value, from $23.9tn to $31.9tn.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Real fixed investment in US multifamily construction rose more than 30% from 2019 to 2023, surpassing its pre-Great Recession peak, and apartment completions reached a 50-year high near an annual rate of 650k units. That supply surge, alongside slower income and employment growth, is cooling rental inflation, with newly signed rents rising more slowly than the pre-pandemic norm.

Joseph Politano Apricitas Economics
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Though real rents remain at a record high, a 50-year peak in apartment completions is exerting downward pressure and has sharply reduced rental inflation. @JosephPolitano

Is a surge in apartment completions slowing rental inflation?

Core argument: US apartment completions hit a 50-year high in February, approaching an annual rate of 650k units, after real fixed investment in multifamily construction climbed more than 30% between 2019 and 2023, surpassing the pre-Great Recession peak.

Real fixed investment in multifamily construction climbed more than 30% between 2019 and 2023, easily surpassing the pre-Great Recession peak. Today, those projects started in 2021/2022 are finally paying dividends as new units come online—apartment completions hit a 50-year high in February, approaching a rate of 650k per year. That surge in completions, combined with a slowdown in income and employment growth, is helping to steadily cool US rental inflation. Indices of newly signed rental prices from Zillow and ApartmentList both show prices increasing at a slower rate than the pre-pandemic norm and well below their 2022 peaks. That is actually a somewhat unusual situation—in the short term, the kind of tighter monetary policy we’ve seen over the last few years can increase measured housing inflation by driving would-be buyers into the rental market and cutting the production of new housing units. Yet while higher mortgage rates have certainly suppressed US homebuyer activity, they have not yet reduced the supply of newly-completed rental units.

Takeaways by Macro Roundup® AI

  1. US apartment completions hit a 50-year high in February, approaching an annual rate of 650k units, after real fixed investment in multifamily construction climbed more than 30% between 2019 and 2023, surpassing the pre-Great Recession peak.
  2. Newly signed rental price indices from Zillow and ApartmentList both show increases slower than the pre-pandemic norm and well below their 2022 peaks, as the completions surge combines with slowing income and employment growth.
  3. Tighter monetary policy can raise measured housing inflation in the short term by pushing would-be buyers into the rental market and cutting new housing production, yet higher mortgage rates have not yet reduced the supply of newly completed rental units.

Related Articles:

  • The Boomer-Millennial Housing Battle Cools — Demographic needs are outweighing affordability in the housing market, with the share of first-time buyers returning nearly to pre-pandemic levels despite high prices and interest rates. One in four Millennial buyers reported purchasing because they had no choice, and Millennials again make up the largest group of homebuyers.
  • The US Housing Market Is Very Quickly Becoming Unaffordable — Home prices in Las Vegas, Phoenix, Orlando, and Tampa now stand at 6 to 7x incomes, exceeding the ratios reached at the peak of the early 2000s housing bubble in each of those metro areas. All four shifted from affordable, to unaffordable, back to affordable, and into unaffordable territory again.
  • 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. U.S. inventors produced about half as many creative patents per capita in the 2000s as in the 1950s, with the overall rise in patents driven by non-creative or derivative patents. Creative patents per capita show a 75.7% correlation with productivity growth across decades.

Aakash Kalyani Federal Reserve Bank of St. Louis
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The rise in U.S. patents is increasingly driven by non-creative or derivative patents, which have historically had little positive effect on productivity growth.

Does rising patent counts hide a decline in creative invention?

Core argument: U.S. inventors produced only about half as many creative patents per capita in the 2000s as in the 1950s, a pattern in line with productivity growth.

Figure 2 plots the number of creative patents per capita and the total number of patents per capita. It shows that the number of creative patents is in line with the pattern of productivity growth: U.S. inventors produced only about half as many creative patents per capita in the 2000s than they did in the 1950s; the excess increase in patents is entirely driven by an increase in non-creative or derivative patents. The correlation between creative patents per capita and productivity growth over the decades is 75.7%.

Takeaways by Macro Roundup® AI

  1. U.S. inventors produced only about half as many creative patents per capita in the 2000s as in the 1950s, a pattern in line with productivity growth.
  2. The correlation between creative patents per capita and productivity growth across decades is 75.7%.
  3. The excess increase in patents per capita is entirely driven by an increase in non-creative or derivative patents rather than creative ones.

Related Articles:

  • Dataset Artefacts are the Hidden Drivers of the Declining Disruptiveness in Science — A reanalysis argues that the reported long-run decline in the disruptiveness of scientific papers and patents, measured by CD indices, is attributable to a relative decline in database entries recorded as having zero references. The authors find these entries are dataset artifacts, since their source documents do contain references, and that random citation behaviour reproduces the observed decline.
  • Something Is Getting Harder But It’s Not Finding Ideas — The number of researchers in the US economy has grown to 23x its 1930 level while the economy's growth rate has been constant or declining, contradicting the assumption that constant research input yields a constant growth rate. Bloom et al. explain this divergence by assuming ideas get harder to find as more are discovered.

AI Summary. China's leadership has pledged a "whole of nation" push for technological self-reliance, applying science and technology to production, with the central government's budget raising annual science and technology spending by 10%, the largest percentage increase of any category. Rhodium Group estimates China spent about $420bn, or 2.8% of GDP, on science and technology.

Economist Staff The Economist
Date Posted:

China is launching a new effort to drive economic growth via “new productive forces,” such as photonic computing, brain-computer interfaces, and nuclear fusion; Xi has said success will be measured by TFP growth.

How is China scaling up spending to achieve technological self-reliance?

Core argument: China spent almost 2.9trn yuan ($420bn, or 2.8% of GDP) on science and technology as of 2020, according to Rhodium Group, with the government's contribution exceeding 60% once generous tax breaks are included.

According to Mr Xi, the new productive forces will flow from the application of science and technology to production. The phrase is a signal that China’s technology push should be even more ambitious than it is today, and more tightly integrated into economic production. China’s leaders have promised a “whole of nation” effort to boost technological self-reliance. The central government’s budget, unveiled in March, increased annual spending on science and technology by 10%, the largest percentage increase of any division. Frugal innovation, this is not. As of 2020, China was spending almost 2.9trn yuan ($420bn, or 2.8% of GDP) on science and technology, according to Rhodium Group, a consultancy. The government’s contribution exceeded 60% if generous tax breaks are included. Of the recipients, a sixth ended up with universities or research institutes. Roughly 60% flowed to companies.

Takeaways by Macro Roundup® AI

  1. China spent almost 2.9trn yuan ($420bn, or 2.8% of GDP) on science and technology as of 2020, according to Rhodium Group, with the government's contribution exceeding 60% once generous tax breaks are included.
  2. China's central government budget raised annual spending on science and technology by 10%, the largest percentage increase of any division, alongside a promised "whole of nation" effort to boost technological self-reliance.
  3. Roughly 60% of China's science and technology funding flowed to companies and a sixth to universities or research institutes, with Xi Jinping arguing that new productive forces will come from applying science and technology to production.

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