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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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


Tuesday, April 16, 2024

AI Summary. Survey-based estimates show the share of US businesses using artificial intelligence for business purposes rose from 3.7% to 5.4%, with use expected to reach about 6.6%. Users often apply AI to substitute for worker tasks and equipment or software, but few report employment reductions from AI use.

Kathryn Bonney, Cory Breaux, Cathy Buffington, Emin Dinlersoz, Lucia Foster, Nathan Goldschlag, John Haltiwanger, Zachary Kroff and Keith Savage National Bureau of Economic Research
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Based on a Dept. of Commerce survey of 1.2mm US businesses, only 6.6% of firms, representing 12% of employees, plan to use AI by Fall 2024. In the Information sector, 21.5% of firms with 25% of employees plan to use AI. @JHaltiwanger_UM

How widely are US businesses adopting AI, and with what employment effects?

Core argument: Bi-weekly business AI use rose from 3.7% to 5.4% between September 2023 and February 2024 in the Business Trends and Outlook Survey, with an expected rate of about 6.6% by early fall 2024.

We provide new, real-time estimates of current and expected future use of AI for business purposes based on the Business Trends and Outlook Survey for September 2023 to February 2024. During this period, bi-weekly estimates of AI use rate rose from 3.7% to 5.4%, with an expected rate of about 6.6% by early Fall 2024. The fraction of workers at businesses that use AI is higher, especially for large businesses and in the Information sector. AI users often utilize AI to substitute for worker tasks and equipment/software, but few report reductions in employment due to AI use. Common uses of AI include marketing automation, virtual agents, and data/text analytics. Many businesses do not yet see AI as being relevant for their business activity or do not yet have the knowledge to implement AI in their business activity.

Takeaways by Macro Roundup® AI

  1. Bi-weekly business AI use rose from 3.7% to 5.4% between September 2023 and February 2024 in the Business Trends and Outlook Survey, with an expected rate of about 6.6% by early fall 2024.
  2. The fraction of workers at businesses using AI exceeds the fraction of businesses using AI, especially for large businesses and in the Information sector, with marketing automation, virtual agents, and data/text analytics among common applications.
  3. AI users often apply AI to substitute for worker tasks and equipment or software, but few report employment reductions from AI use, while many businesses report AI is not yet relevant to their activity or that they lack the knowledge to implement it.

Related Articles:

  • 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.
  • Assessing the Implications of a Productivity Miracle — If artificial intelligence can perform economically valuable cognitive tasks at very low marginal cost, consumers would buy far more of the cheapened goods and spend the savings in other categories, expanding activity and employment in sectors facing new demand. Where supply is inherently limited, such as real estate, those savings could bid up prices and produce inflation.
  • The Good, the Bad and the Ugly — 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.

AI Summary. Business investment in OECD economies fell after 2008, standing about 40% below its pre-crisis trend by 2021, and the analysis attributes roughly half of that shortfall to weaker economic activity. Firm-level estimates find that a 10–30% average decline in firms' future productivity and profitability expectations accounts for most of the explained drop in investment.

IMF Staff International Monetary Fund
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In advanced economies, private capital formation remains 40% below its pre-crisis trend, with slower economic growth explaining about half the decline.

Why has business investment fallen below its pre-crisis trend?

Core argument: Business investment in OECD economies, the bulk of total investment, fell after 2008 and in 2021 declined by about 40% of its pre-global-financial-crisis trend.

In OECD economies, business investment—the bulk of total investment—tumbled after 2008, and in 2021 it fell by about 40% of its pre-global-financial-crisis trend. For every 1pp decline in output growth that is not triggered by a contraction in business investment, there is a corresponding 2pp decrease in investment growth. This estimated output-investment relationship is used to calculate the investment shortfall from the growth slowdown following the global financial crisis. Comparing with the precrisis trend, Figure 3.8 suggests that as of 2021, about half of the shortfall in business investment since 2008 can be linked to weaker economic activity. [In a separate firm-level analysis of investments by public companies,] since 2008, Tobin’s q, an indicator of firms’ future productivity and profitability expectations, has decreased by 10 to 30% on average, contributing to the bulk of the explained decline in investment in both advanced and emerging market economies.

Takeaways by Macro Roundup® AI

  1. Business investment in OECD economies, the bulk of total investment, fell after 2008 and in 2021 declined by about 40% of its pre-global-financial-crisis trend.
  2. Each 1pp decline in output growth not triggered by a contraction in business investment corresponds to a 2pp decrease in investment growth, an estimated relationship implying about half of the business investment shortfall since 2008 is linked to weaker economic activity as of 2021.
  3. Tobin's q, an indicator of firms' future productivity and profitability expectations, has declined by 10–30% on average since 2008 in a firm-level analysis of public companies, contributing the bulk of the explained investment decline in both advanced and emerging market economies.

Related Articles:

  • US Manufacturers to Temper Investment Pace After Vibrant 2023 — US manufacturers' investment in plants and production facilities rose almost 63% in a year, the largest annual advance since 1951, reflecting federal incentives and spending deferred during the pandemic. Purchasing and supply executives expect outlays to increase almost 12% this year after rising nearly 15%.
  • 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 Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends? — Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and its growth has been lackluster across large advanced economies since the mid-2000s. The authors find this slowdown appears in both manufacturing and market services, with U.S. productivity growth slowing before the Great Recession.

AI Summary. Smartphone location data for over 2m Americans indicate that 73% enter a place of worship at least once a year but only 5% attend weekly, far below the roughly 22% who report weekly attendance in surveys. Frequent attenders are less likely to visit strip clubs, liquor stores, and casinos.

Devin Pope National Bureau of Economic Research
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Geolocation data from cell phones shows that less than 5% of Americans attend weekly religious services, versus 22% who report they do. @Devin_G_Pope

Do Americans attend religious services as often as they say?

Core argument: Smartphone geodata for over 2 million Americans in 2019 show only 5% attend religious services weekly, far below the roughly 22% who report weekly attendance in surveys.

I provide a descriptive analysis of religious worship attendance using geodata from smartphones for over 2 million Americans in 2019. I establish several key findings. First, 73% of people step into a religious place of worship at least once during the year on the primary day of worship. However, only 5% of Americans attend services “weekly”, far fewer than the ~22% who report to do so in surveys. The number of occasional vs. frequent attenders varies substantially by religion. I estimate that approximately 45M Americans attend worship services in a typical week of the year, but with large changes around Holidays (e.g. Easter). The intensity of religious observance correlates with a host of other activities. For example, relative to non-attenders and infrequent attenders, frequent religious attenders are less likely to go to strip clubs, liquor stores, and casinos.

Takeaways by Macro Roundup® AI

  1. Smartphone geodata for over 2 million Americans in 2019 show only 5% attend religious services weekly, far below the roughly 22% who report weekly attendance in surveys.
  2. 73% of people step into a religious place of worship at least once during the year on the primary day of worship, with the mix of occasional versus frequent attenders varying substantially by religion.
  3. An estimated 45 million Americans attend worship services in a typical week, with large changes around holidays such as Easter, and frequent attenders are less likely than non-attenders and infrequent attenders to visit strip clubs, liquor stores, and casinos.

Related Articles:

  • Most U.S. Parents Pass Along Their Religion and Politics to Their Children — Survey data show most U.S. teens share their parents' politics and religion: 81% of Republican or Republican-leaning parents had teens identifying the same way, as did 89% of Democratic or Democratic-leaning parents. Similar alignment held for religion, with 82% of Protestant parents, 81% of Catholic parents, and 86% of religiously unaffiliated parents having teens who identified likewise.
  • Religious ‘Nones’ in America: Who They Are and What They Believe — Pew survey data indicate about 28% of U.S. adults are religiously unaffiliated, identifying as atheist, agnostic, or "nothing in particular." Most of these adults believe in God or a higher power, rarely attend religious services, say religion does some harm while many also see some good, and reject the idea that science can explain everything.
  • Opiates of the Masses? Deaths of Despair and the Decline of American Religion — The authors estimate that declines in religious attendance following repeals of laws restricting Sunday commerce explain an important part of the initial increase in middle-aged "deaths of despair" from suicide, liver disease, and poisoning. The effect appears driven by falling formal religious participation rather than by changes in belief or private activities such as prayer.

AI Summary. Tax season is unlikely to move markets meaningfully because cash held by banks and money market funds remains abundant. Asset sales to fund tax bills are spread over time and small relative to market size, though tax-date declines in bank reserves and money fund assets have occasionally pushed money market rates up briefly.

Joseph Wang Fed Guy Blog
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This year, the April tax drain, a shift of hundreds of billions of dollars from banks and money market funds to the Treasury’s General Account should be uneventful “because cash remains plentiful.” @FedGuy12

Does tax season meaningfully move markets when cash is abundant?

Core argument: April tax season is unlikely to move markets in 2024 because high reverse repo (RRP) and bank reserve balances indicate an abundance of cash in the financial system.

Tax season is unlikely to have a meaningful impact on markets in 2024 because cash remains plentiful. While taxpayers can sell equities and other assets to finance their tax bill, those sales occur over a period of time and are small relative to the size of asset markets. But the decline in bank reserves and MMF assets around tax date is discrete and a steep decline in cash holdings of the private sector. This has occasionally led to some degree of upward pressure in money markets, as there is literally less cash in the space. In 2019, the RRP was empty and MMFs and banks were active lenders in the repo market. April tax season coincided with upward pressure in repo rates that then dissipated in a few days. The high RRP and reserve balances today indicates an abundance of cash and suggests an uneventful tax season.

Takeaways by Macro Roundup® AI

  1. April tax season is unlikely to move markets in 2024 because high reverse repo (RRP) and bank reserve balances indicate an abundance of cash in the financial system.
  2. Taxpayer sales of equities and other assets to fund tax bills are spread over time and small relative to asset market size, while the tax-date drop in bank reserves and money market fund assets is discrete and steep.
  3. In 2019, with the RRP empty and money market funds and banks lending actively in repo, April tax season coincided with upward pressure in repo rates that dissipated within a few days.

Related Articles:

  • Neutralizing QT — Declining balances in the Federal Reserve's reverse repurchase facility are projected to eventually outweigh the Fed's balance-sheet runoff and produce a net increase of money in the financial system. As money market funds lend to the Treasury, that cash flows through government spending into the banking system, mechanically increasing bank reserves and deposits.
  • A Beautiful Replenishment — Money market funds buying Treasury bills lets bank reserves be replenished as cash moves from the Federal Reserve's overnight reverse repo facility into the Treasury's account and back out through government spending. The author argues reserves should stay abundant, allowing the Federal Reserve's balance sheet runoff to continue about two more years.

Wednesday, April 17, 2024

AI Summary. Administrative data on 38mm Italian and German workers show wages of older workers grew much faster than those of younger workers, a widening age pay gap the authors also find in fourteen other high-income countries. The authors argue workforce aging leaves fewer top hierarchy slots for younger workers, slowing promotions.

Nicola Bianchi and Matteo Paradisi National Bureau of Economic Research
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Data on 38mm Italian and German workers in 3.7mm firms show that a large supply of older workers amidst slow growth has limited career progression for younger workers and led to an increasing wage gap between older and younger workers. @MatteoParadisi

Does an aging workforce slow wage growth for younger workers?

Core argument: Data on 38mm Italian and German workers across 3.7mm firms show that from 1985–2019 wages of older workers grew much faster than those of younger workers.

Data on 38mm Italian and German workers in 3.7mm firms show that from 1985-2019, wages of older workers have grown much faster than those of younger ones. [We] introduce a frictional labor market in which firms cannot change the wage and job allocation of incumbent older employees in the short term and cannot always add higher-ranked positions to their organizations. [This] reduces the number of slots at the top of firms’ hierarchies available for younger workers, who, therefore, experience longer waiting time for promotions and slower career progression. Empirical analysis uses confidential administrative data provided by the Italian Social Security Institute (INPS) and confidential employer-employee Social Security data for Germany, as well as labor survey data from the Luxembourg Income Income Survey (LIS) database for fourteen other high-income countries. These [latter] data sources confirm that the widening pay gap between older and younger workers and the progressive aging of the workforce are not exclusive features of the Italian labor market.

Takeaways by Macro Roundup® AI

  1. Data on 38mm Italian and German workers across 3.7mm firms show that from 1985–2019 wages of older workers grew much faster than those of younger workers.
  2. The authors model a frictional labor market in which firms cannot adjust the wages and job allocation of incumbent older employees in the short term or always add higher-ranked positions, reducing top-of-hierarchy slots for younger workers, who face longer waits for promotions and slower career progression.
  3. Labor survey data from the Luxembourg Income Study database covering fourteen other high-income countries indicate that the widening older-younger pay gap and the aging of the workforce are not exclusive to the Italian labor market.

Related Articles:

  • Millennials Are Not As Badly-Off As They Think — But Success Is Bittersweet — Almost one in four US millennials say their lives are materially worse than their parents', and when wealth is deflated by house prices rather than consumer prices, millennials' assets go about half as far as baby boomers' once did. Measured against consumer prices alone, per capita wealth accumulation across the two generations tracks closely.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  • Young People Have a Lot More Wealth Than We Thought — Wealth data for young people comes from the Federal Reserve's quarterly Distributional Financial Accounts, which project forward results from the Survey of Consumer Finances conducted every three years. When newer survey results were released, young people turned out to hold considerably more wealth than the projections based on the prior survey had indicated.

AI Summary. Hourly pay growth for Americans aged 16–24 reached 13% year on year versus 6% for those aged 25–54, the largest such gap since reliable data began. Americans aged 15–24 spent 25% less time on work and work-related activities than in 2007, and the share of 12th-graders calling work a central part of life has dropped sharply.

Economist Staff The Economist
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The number of full-time “Gen Z” workers (born 1997-2012) in the US workforce will soon overtake the number of Baby boomers (1946-64.) Hourly wage growth among 16-24-year-olds is running at 13%, the fastest “young person premium” on record.

Are young workers earning more while working less?

Core argument: U.S. hourly pay growth for 16- to 24-year-olds reached 13% year on year versus 6% for workers aged 25–54, the highest "young person premium" since reliable data began.

In the average American workplace, the number of Gen Zers (sometimes also known as “Zoomers”) working full-time is about to surpass the number of full-time baby boomers, those born from 1945 to 1964, whose careers are winding down. In America, hourly pay growth among 16- to 24-year-olds recently hit 13% year on year, compared with 6% for workers aged 25 to 54. This was the highest “young person premium” since reliable data began. In 2022 Americans aged between 15 and 24 spent 25% less time on “working and work-related activities” than in 2007. Not long ago young people wanted to work a lot more than older people. Now they want to work less. According to analysis by Jean Twenge the share of American 12th-graders (aged 17 or 18) who see work as a “central part of life” has dropped sharply.

Takeaways by Macro Roundup® AI

  1. U.S. hourly pay growth for 16- to 24-year-olds reached 13% year on year versus 6% for workers aged 25–54, the highest "young person premium" since reliable data began.
  2. Americans aged 15–24 spent 25% less time on working and work-related activities in 2022 than in 2007, and young people now want to work less than older people, reversing an earlier pattern.
  3. In the average American workplace, the number of Gen Zers working full-time is about to surpass the number of full-time baby boomers, those born from 1945 to 1964, whose careers are winding down.

Related Articles:

  • Gen Z Really Does Have a Work Ethic Problem — Long-running nationally representative surveys of U.S. 12th graders show the share saying they want to do their best at a job "even if this sometimes means working overtime" fell from 54% to 36%, a relative drop of 33% in two years, after work ethic measures had recovered among Gen Z in the 2010s.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.

AI Summary. Underlying inflation reflects income growth relative to output growth, and aggregate income is still rising a couple of percentage points faster than before the pandemic; with nominal incomes up 6-7% a year and trend output growth likely nearer 3% than 4-5%, inflation is likely to run somewhat faster than pre-pandemic. That argues against lowering interest rates.

Matt Klein The Overshoot
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.@M_C_Klein argues that nominal annual income growth at 6-7% is inconsistent with the Fed’s 2% target, and forecasts annual trend inflation in the 3-3.5% range based on current income and output growth.

Does income growth outpacing output growth keep inflation above 2%?

Core argument: Aggregate U.S. income is rising a couple of percentage points faster than before the pandemic, and if nominal incomes rise 6–7% a year, spending should rise by a comparable amount.

The underlying inflationary trend is a function of income growth vs. output growth, and aggregate income is still rising a couple of percentage points faster than before the pandemic. If nominal incomes are rising 6-7% a year—even after job market churn has normalized—then spending is going to be rising by a comparable amount. And while trend output may have accelerated from ~2% to ~3% a year, it probably has not accelerated to 4-5% a year, which would imply that inflation will also tend to be somewhat faster than before. Officials do not necessarily need to do anything about this. The current combination of robust growth, high employment, relatively tame inflation, and mid-single-digit yields on safe assets represents the best set of macroeconomic and financial outcomes for the U.S. in decades. But this also means that there is little reason for monetary policymakers to lower interest rates, despite what (some of) their models may be telling them.

Takeaways by Macro Roundup® AI

  1. Aggregate U.S. income is rising a couple of percentage points faster than before the pandemic, and if nominal incomes rise 6–7% a year, spending should rise by a comparable amount.
  2. Trend U.S. output growth may have accelerated from roughly 2% to 3% a year, but probably not to 4–5%, which would imply inflation somewhat faster than before the pandemic.
  3. The combination of robust growth, high employment, relatively tame inflation, and mid-single-digit yields on safe assets represents the best set of U.S. macroeconomic and financial outcomes in decades, leaving monetary policymakers little reason to lower interest rates.

Related Articles:

  • It’s All About Shelter — Producer price inflation for final demand tracks consumer price inflation excluding shelter closely, and both show inflation under control; overall consumer inflation looks hot only because the shelter component is up 5.6%. That shelter measure lags rents by construction, and more current rent series show no recent inflation.
  • Furman On CPI — Core consumer price inflation has run hot for three consecutive months, at a 3.5% annual rate over 12 months and 4.6% over the past three, undercutting the view that the early-year jump was a seasonal anomaly. Shelter inflation has plateaued around a 5.5% annual rate rather than falling as bottom-up forecasts assumed.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.

AI Summary. The US general government deficit rose to 8.8% of GDP from 4.1% despite strong growth, as income tax revenues fell 3.1 percentage points of GDP and spending rose 1.3 points, with deficits projected above 6% of GDP over the medium term. Loose fiscal policy could make disinflation harder.

IMF Staff International Monetary Fund
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An IMF report notes high ongoing US government fiscal deficits and warns that loose US fiscal policy makes disinflation harder and raises global financial risks.

Why did the US deficit double despite strong economic growth?

Core argument: The U.S. general government fiscal deficit, including state and local, rose to 8.8% of GDP in 2023 from 4.1% in 2022 despite strong growth, with the overall deficit projected to persist above 6% of GDP over the medium term.

In 2023, the United States experienced remarkably large fiscal slippages, with the general government fiscal deficit [including state and local] rising to 8.8% of GDP from 4.1% of GDP in 2022, despite strong growth. Income tax revenues fell sharply, by 3.1 percentage points of GDP, owing to lower capital gains taxes in 2023 and delayed tax payment deadlines. Spending, in turn, increased by 1.3 percentage points of GDP. The overall fiscal deficit is projected to persist at more than 6% of GDP over the medium term. Financing costs have increased substantially in recent years. Nominal yields on 10-year US Treasury bonds surged from below 1% in 2020 to 5% in October 2023, the highest level in 16 years, before receding to about 4% more recently. Loose US fiscal policy could make the last mile of disinflation harder to achieve while exacerbating the debt burden. Further, global interest rate spillovers could contribute to tighter financial conditions, increasing risks elsewhere.

Takeaways by Macro Roundup® AI

  1. The U.S. general government fiscal deficit, including state and local, rose to 8.8% of GDP in 2023 from 4.1% in 2022 despite strong growth, with the overall deficit projected to persist above 6% of GDP over the medium term.
  2. U.S. income tax revenues fell by 3.1 percentage points of GDP in 2023, owing to lower capital gains taxes and delayed tax payment deadlines, while spending rose by 1.3 percentage points of GDP.
  3. Nominal yields on 10-year U.S. Treasury bonds surged from below 1% in 2020 to 5% in October 2023, the highest level in 16 years, before receding to about 4%.

Related Articles:

  • The Long Term Budget Outlook: 2024 to 2054 — The Congressional Budget Office projects the federal budget deficit will reach 8.5% of gross domestic product over a 30-year horizon, with outlays rising to 27.3% of GDP and revenues to 18.8%. The projected growth is attributed to rising interest costs, large sustained deficits excluding interest, and spending on federal health care programs, particularly Medicare.
  • The Deteriorating US Fiscal Situation — Early signs of US fiscal stress would appear in markets as weaker Treasury auction results, including lower bid-to-cover ratios and softer demand from interest rate-sensitive buyers, rating agency opinions on the deteriorating fiscal position, and a higher term premium on longer-dated debt.
  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.

AI Summary. Single-family homebuilding is less capital intensive than multifamily and so less exposed to credit costs, and wide margins have let builders offer mortgage rate buy-downs while existing homes for sale remain scarce. Single-family construction is easing back toward pre-pandemic norms, while multifamily building has fallen below 2019 levels with no sign of reaccelerating.

Aziz Sunderji Home Economics
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.@AzizSunderji argues that US construction starts in March show “a single-family market that is gently falling back to pre-pandemic norms, and a multifamily market that has crashed below 2019 levels and shows no signs of reaccelerating anytime soon.”

Why is single-family homebuilding holding up better than multifamily construction?

Core argument: Multifamily construction has crashed below 2019 levels with no signs of reaccelerating, while single-family building is gently falling back toward pre-pandemic norms.

Single family building is less capital intensive, and so less affected by credit cost and availability. Thick margins have allowed them to offer rate buy-downs and other enticements. And there are still not enough existing homes for sale. Still, these tailwinds can only support single family construction for so long, and on the margins, there are rising headwinds. The economists at Wells Fargo agree: “dynamics appear to be shifting slightly...resale supply remains tight, but inventories have risen so far in 2024. What's more, the slower-than-anticipated cooling in inflation has pushed out expectations for rate cuts this year.” Overall, the picture is of a single-family market that is gently falling back to pre-pandemic norms, and a multifamily market that has crashed below 2019 levels and shows no signs of reaccelerating anytime soon.

Takeaways by Macro Roundup® AI

  1. Multifamily construction has crashed below 2019 levels with no signs of reaccelerating, while single-family building is gently falling back toward pre-pandemic norms.
  2. Single-family homebuilding is less capital intensive and therefore less exposed to credit costs and availability, with thick margins letting builders offer rate buy-downs and other enticements amid tight resale supply.
  3. Wells Fargo economists note that resale inventories have risen so far in 2024 and that slower-than-anticipated cooling in inflation has pushed out expectations for rate cuts this year.

Related Articles:

  • A Huge Number of Homeowners Have Mortgage Rates Too Good to Give Up — About 70% of US mortgage holders hold rates more than three percentage points below what a new loan would cost, compared with a 1998–2020 period in which no more than 40% had rates even one point below market. Economists at the Federal Housing Finance Agency estimate this lock-in effect accounts for roughly 1.3m fewer home sales.
  • The Lock-In Effect of Rising Mortgage Rates — The authors estimate that each percentage point by which market mortgage rates exceed a homeowner's original rate lowers the probability of sale by 18.1%, an effect they calculate prevented 1.33m US home sales. They estimate this supply reduction raised home prices by 5.7%, outweighing a 3.3% price decline from higher rates.
  • 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.