Edward Conard

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  • “…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
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  • “…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 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
Date Posted:
Is Database:
Database

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
Date Posted:
Is Database:
Database

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
Date Posted:

.@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
Date Posted:

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
Date Posted:

.@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.

Thursday, April 18, 2024

AI Summary. Despite upside inflation surprises, the authors argue the broader disinflation narrative remains intact, citing a labor market that continues to rebalance: a jobs-workers gap of 2.0m, a quits rate below pre-pandemic levels, and wage growth running just over 4% year-on-year. They expect wage growth to converge to 3.5%, the pace they estimate is consistent with 2% inflation.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius @GoldmanSachs forecasts wage growth decelerating to 3.5%, consistent with the Fed’s 2% inflation target and expects quarterly cuts starting in July.

Does labor market rebalancing keep disinflation on track despite inflation surprises?

Core argument: The jobs-workers gap has fallen to 2.0 million and the quits rate sits below pre-pandemic levels, evidence cited that the labor market continues to rebalance and the disinflationary narrative remains intact despite upside inflation surprises.

Despite the recent upside inflation surprises, we think the broader disinflationary narrative remains intact. One key reason is that the labor market continues to rebalance nicely. Our jobs-workers gap is down to 2.0 million, the quits rate is below pre-pandemic levels, and the wage news remains favorable. As of March, average hourly earnings and the Atlanta Fed wage growth tracker are consistent with year-on-year wage growth of just over 4%, and we expect the more reliable employment cost index to show a similar pace for Q1. Over the next year, we see wage growth converging to 3.5%, the pace we estimate is consistent with 2% assuming a productivity trend of 1.5% and stable profit margins.

Takeaways by Macro Roundup® AI

  1. The jobs-workers gap has fallen to 2.0 million and the quits rate sits below pre-pandemic levels, evidence cited that the labor market continues to rebalance and the disinflationary narrative remains intact despite upside inflation surprises.
  2. As of March, average hourly earnings and the Atlanta Fed wage growth tracker are consistent with year-on-year wage growth of just over 4%, and the employment cost index is expected to show a similar pace for the first quarter.
  3. Wage growth is projected to converge to 3.5% over the next year, the pace estimated to be consistent with 2% inflation assuming a 1.5% productivity trend and stable profit margins.

Related Articles:

  • Parsing the 2024 Inflation Rebound — Average pay for most workers is rising about 4.5–5% a year, roughly 1.5–2pp faster than the pre-pandemic average, implying an underlying inflation trend about 1–2pp above the pre-pandemic pace absent a surge in productivity or saving. Earlier one-off drops in consumer goods prices held measured inflation below that trend and appear to have ended.
  • Wages Are Rising Faster than We Thought — Core wage growth is running slightly faster than in the late 1990s and 2005-2007, about 2-3 percentage points faster than before the pandemic. The author argues a steady state near 5% annual wage growth need not be inflationary if workers save more or productivity gains let businesses expand output to meet demand.
  • Is Post-Pandemic Wage Growth Fueling Inflation? — A model forecasts no statistically significant additional wage pressure on prices if year-over-year employment cost growth runs between 3.78% and 4.25%, a range above the Federal Reserve's 2% inflation target plus average productivity growth. Because inflation has outpaced productivity-adjusted wages, wages have room to catch up without adding inflation.

AI Summary. U.S. population growth slowed to about 7.4% in the decade to 2020, the slowest since the Great Depression, as the fertility rate fell from above the 2.1 needed for a stable population to 1.67. Because local and regional authorities levy 48% of all U.S. taxes—versus 20% in France and 6% in Britain—shrinking local revenue forces service cuts or tax rises.

Economist Staff The Economist
Date Posted:
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Database

Between 2010 and 2020 over half of US counties, representing 25% of the population, saw their populations decline. Rural America’s population decline is set to accelerate this decade as the birth rate declines and immigrants flow to major cities.

Does America's tax decentralization make population decline harder to manage?

Core argument: The U.S. population grew about 7.4% between 2010 and 2020, the slowest decade of growth since the Great Depression's 7.3%, and down from 13% in the 1990s.

Between 2010 and 2020 the number of people in the country grew by around 7.4%. That was the slowest decade of growth since the Great Depression (when the population grew by 7.3%). In the 1990s the growth rate was 13%. The main culprit is falling birth rates. The total fertility rate—a measure of how many children a typical woman will have in her lifetime—was steady or rising for 30 years from the mid-1970s. In 2008, however, it fell below 2.1, the level needed to keep the population stable, and has since declined to 1.67. Death spirals [of declining population leading to declining tax revenues and public services] tend to be worse in America because of the remarkable level to which the government is decentralised. Local and regional authorities levy 48% of all tax collected in America, compared with just 20% in France and 6% in Britain. And even America’s federal spending typically comes in the form of grants linked to population levels. So when local tax revenues shrink, services must be cut or taxes must rise.

Takeaways by Macro Roundup® AI

  1. The U.S. population grew about 7.4% between 2010 and 2020, the slowest decade of growth since the Great Depression's 7.3%, and down from 13% in the 1990s.
  2. The U.S. total fertility rate held steady or rose for 30 years from the mid-1970s, fell below the population-stabilising level of 2.1 in 2008, and has since declined to 1.67.
  3. Local and regional authorities levy 48% of all tax collected in America, versus 20% in France and 6% in Britain, so shrinking local tax revenues force service cuts or tax increases.

Related Articles:

  • Economic Prosperity is Shifting Toward the Mountain West and Southeast — The most economically prosperous U.S. zip codes house 80.6m residents and averaged nearly 3x the job growth of "comfortable" zip codes and 10x that of "at-risk" ones. In several Southeast and Mountain West states, a much greater share of the population now lives in top-ranked prosperous zip codes than a decade earlier.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.
  • 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.

AI Summary. Higher average temperatures put over half of US counties at risk of rising energy consumption costs, with Bank of America internal data showing average total utility payments per customer near $300, up almost 25% since 2019 and 38% higher for lower-income customers. The same data show heat-exposed sectors have weaker cash inflow-to-outflow ratios during warmer months.

Taylor Bowley Bank of America
Date Posted:

Warming average temperatures in most of the US are contributing to rising utility costs. In March, @BankofAmerica’s internal data showed $300 mean monthly utility payments per customer, up nearly 25% from 2019.

Are rising temperatures raising utility costs and squeezing heat-exposed businesses?

Core argument: Average total utility payments per customer reached nearly $300 as of March, a nearly 25% rise since 2019, according to Bank of America internal data.

Higher average temperatures put over half of US counties at risk for increasing energy consumption costs and associated expenses such as utility payments. As of March, the average total utility payments per customer was nearly $300 per Bank of America internal data, a nearly one-quarter rise in cost since 2019. Many households are impacted by climate hazards, but certain households are particularly susceptible to experiencing financial strain. Lower-income customers' average utility payments are 38% higher in March than the 2019 average, and people in the Northeast and West are facing increasing financial pressure. Rising temperatures are also taking a toll on workers, especially those working outdoors in heat-exposed industries. Bank of America internal data finds, during warmer months, heat-exposed sectors have a lower inflow-to-outflow ratio, which we view as a proxy for profits. Long-term, high heat could reduce available jobs in certain sectors, amplifying economic costs.

Takeaways by Macro Roundup® AI

  1. Average total utility payments per customer reached nearly $300 as of March, a nearly 25% rise since 2019, according to Bank of America internal data.
  2. Lower-income customers' average utility payments in March were 38% above their 2019 average, with people in the Northeast and West facing increasing financial pressure.
  3. Bank of America internal data show heat-exposed sectors have a lower inflow-to-outflow ratio during warmer months, viewed as a proxy for profits, and high heat could reduce available jobs in certain sectors over the long term.

Related Articles:

  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • Elon Musk’s Latest Mission: Rev Up the Electricity Industry — U.S. electricity demand has grown at an average of 1% a year over the past 20 years, but McKinsey projects it will double by 2050 and PG&E expects a 70% rise over the next 20 years. Deloitte estimates the largest U.S. electric companies will together spend as much as $1.8tn by 2030.
  • Climate Change and the Geography of the U.S. Economy — The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.

AI Summary. US manufacturing output is rising 5.7% year-on-year while foreign factory output has picked up only marginally, up 0.3% year-on-year after stagnating. Contributors include a waning drag from inventory drawdowns as inventory ratios normalize, easing financial conditions, and rising national defense budgets lifting arms and ammunition production.

Spencer Hill and Jessica Rindels Goldman Sachs
Date Posted:

US manufacturing output is growing 5.7% y/y, aided by reduced inventory drawdowns, easing global financial conditions, and increased national defense spending. @GoldmanSachs

Is US manufacturing output growing faster than foreign factory output?

Core argument: US manufacturing output is rising 5.7% year-on-year, while foreign factory output rose only 0.3% year-on-year in the first quarter after stagnating in 2022 and 2023.

US manufacturing output is currently rising at a fairly strong pace of 5.7% year-on-year, whereas the level of foreign factory output has picked up only marginally—up +0.3% year-on-year in Q1—after stagnating in 2022 and 2023. The nascent rebound has multiple causes, including a waning drag from inventory drawdowns after they became bloated in 2022 in a hangover from the pandemic goods demand boom. Inventory ratios are nearly back to normal in the US and they have partially normalized in East Asia where the consumer goods and technology inventory overhang was particularly severe. The easing in financial conditions over the last 6 months has also supported factory activity and consumer demand (Global FCI ex-Russia -0.65pt from the peak). Rising national defense budgets and the related increase in arms and ammunition production and exports are also boosting industrial demand in some industries and countries.

Takeaways by Macro Roundup® AI

  1. US manufacturing output is rising 5.7% year-on-year, while foreign factory output rose only 0.3% year-on-year in the first quarter after stagnating in 2022 and 2023.
  2. The nascent factory rebound stems partly from a waning drag from inventory drawdowns, with inventory ratios nearly back to normal in the US and partially normalized in East Asia, where the consumer goods and technology overhang was particularly severe.
  3. Easing financial conditions, with the global financial conditions index excluding Russia down 0.65 point from its peak, have supported factory activity and consumer demand, while rising national defense budgets lift arms and ammunition production and exports.

Related Articles:

  • The US and Its Allies Face a $10 Trillion Reckoning in the Race to Rearm — World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.
  • Why is the U.S. Navy Running Out of Tomahawk Cruise Missiles? — The U.S. Navy has been firing Tomahawk land-attack cruise missiles faster than it can replace them, with opening-day strikes in Yemen expending more than 80 missiles against 30 targets. An entire year's purchase of 55 Tomahawks accounted for 68% of the precision munitions fired at the Houthis in a single day.
  • U.S. Seeks To ‘Integrate’ Japan Into Defense Industrial Base — The U.S. and Japan are formalizing arrangements for U.S. Navy warships to undergo maintenance, repair, and overhaul at Japanese private shipyards, initially limited to the roughly two dozen ships forward-deployed to Japan. Expanding the work to U.S.-based ships, which could ease American maintenance bottlenecks, may require congressional action.

AI Summary. China's overall fiscal deficit remained above 7% of GDP, as a modest increase in revenues offset higher spending, and is projected to rise gradually to about 8% of GDP by 2029 as pension and interest costs increase. Persistently large primary deficits are projected to keep raising public debt despite very favorable interest-growth differentials.

IMF Staff International Monetary Fund
Date Posted:

The IMF notes that China’s public debt as a % of GDP (including local governments and government-guided funds) surpassed the US in 2020, and is expected to reach almost 250% of GDP in 2053.

Will China's large deficits keep raising public debt despite favorable interest-growth differentials?

Core argument: China's overall fiscal deficit remained above 7% of GDP in 2023, as a modest increase in revenues offset increases in spending.

The overall fiscal deficit in China remained above 7% of GDP in 2023, as a modest increase in revenues offset spending increases. The fiscal deficit is projected to stay elevated and even to gradually rise to about 8% of GDP by 2029 as pension spending and interest expenses gradually rise over the medium term. Despite very favorable interest-growth differentials, persistently large primary deficits are projected to continue raising public debt in the country.

Takeaways by Macro Roundup® AI

  1. China's overall fiscal deficit remained above 7% of GDP in 2023, as a modest increase in revenues offset increases in spending.
  2. China's fiscal deficit is projected to stay elevated and gradually rise to about 8% of GDP by 2029, as pension spending and interest expenses rise over the medium term.
  3. Persistently large primary deficits are projected to keep raising China's public debt, despite very favorable interest-growth differentials.

Related Articles:

  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.
  • The Debt Supercycle Comes to China — China's property sector, which accounts for 23% of GDP (26% counting imports), is yielding diminishing returns after a construction boom driven by the country's massive post-2008 investment stimulus. The author argues this debt supercycle is the best explanation for China's faltering economy and what comes next.
  • China’s Debt Isn’t The Problem — China's roughly $47.5tn debt pile is a symptom rather than the core problem, which is the unrecognized losses from a decade of misallocated investment into excess property, infrastructure, and manufacturing. Resolving it requires distributing asset-side losses quickly in ways that minimize financial distress costs, not just restructuring liabilities to protect the financial system.