Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, May 10, 2024

AI Summary. A scenario analysis projects that the U.S. public corporate sector's overall debt-servicing capacity is robust to sustained elevated interest rates, aided by low borrowing costs on existing debt and moderate near-term refinancing needs. Firms with weaker balance sheets, including some large investment-grade borrowers, are projected to see meaningful credit-quality deterioration, with the share of debt at risk rising.

Dalida Kadyrzhanova, Ander Perez-Orive, and Eliezer Singer Federal Reserve Board
Date Posted:

A @FederalReserve analysis of four different scenarios finds that absent a significant recession, the debt servicing capacity of US non-financial corporations is strong despite higher rates and an 8pp rise in debt as a % of GDP.

Can corporate borrowers withstand sustained high interest rates?

Core argument: The scenario analysis finds the U.S. public corporate sector's debt-servicing capacity robust to sustained elevated interest rates in both a soft-landing baseline and a stagflation scenario with a moderate downturn, but not in a severely adverse recession scenario.

The debt-servicing capacity of the U.S. public corporate sector as a whole is robust to sustained elevated interest rates, both in the soft landing (baseline) scenario as well as in a stagflation scenario with a moderate economic downturn [though not the “severely adverse” recession scenario]. This resiliency is due, in large part, to the strong balance sheets of public firms—namely, low borrowing costs on existing debt and moderate refinancing needs in the short run. In the distribution of firms, however, persistently higher interest rates are projected to result in a meaningful deterioration in the credit quality of firms with weaker balance sheets, including some large investment-grade firms that have so far been relatively insulated from rising rates by their high share of fixed-rate debt. Accordingly, the share of debt at risk is likely to see sustained increase over the next two to three years even if earnings remain resilient.

Takeaways by Macro Roundup® AI

  1. The scenario analysis finds the U.S. public corporate sector's debt-servicing capacity robust to sustained elevated interest rates in both a soft-landing baseline and a stagflation scenario with a moderate downturn, but not in a severely adverse recession scenario.
  2. The analysis attributes corporate resilience largely to strong balance sheets at public firms, specifically low borrowing costs on existing debt and moderate refinancing needs in the short run.
  3. Persistently higher interest rates are projected to meaningfully deteriorate credit quality among firms with weaker balance sheets, including some large investment-grade firms so far insulated by high fixed-rate debt shares, with the share of debt at risk rising over two to three years even if earnings remain resilient.

Related Articles:

  • The Corporate Debt Maturity Wall: Implications for Capex and Employment — The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.
  • Corporate Debt, Boom-Bust Cycles, and Financial Crises — Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.
  • Rates Are Up. We’re Just Starting to Feel the Heat — U.S. companies have $600bn in corporate debt maturing this year, a total Goldman Sachs data show rising to more than $1tn a year from 2025 through 2028. Those debt loads, combined with higher financing costs, may cut into corporate profits, investor returns, innovation spending, and hiring, with some analysts expecting credit-rating downgrades.

AI Summary. Bank of America internal payments data show average household property insurance payments up 23% relative to 2019, and average per-customer payments up 25%, with a three-month average year-over-year increase of 11%. The data cannot separate auto from home insurance payments.

David Michael Tinsley, Joe Wadford, et al. Bank of America
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An analysis of @BankofAmerica internal data indicates that the mean monthly customer payment for home and auto insurance is up 25% since 2019, and represented around 4.5% of household income in the 12 months to March 2024.

How much have household property insurance payments risen?

Core argument: Bank of America internal payments data show the average property insurance payment is up 23% relative to 2019, with the average customer payment up 25%, a gap reflecting customers making more than one insurance payment in a month.

We use Bank of America internal data across payment channels to examine how households’ overall property insurance payments are changing. While we cannot distinguish in the data between auto or home insurance payments, we can use our data to gauge the impact of rising aggregate property insurance costs across different groups of consumers. The average insurance payment is up 23% relative to 2019 and the average customer payment is up 25%. The difference between these two numbers reflects the fact that some customers will make more than one insurance payment in any month. Compared with 2023, our data shows a rapid increase in these costs for customers over the past year – with the three-month average April 2024 YoY rise at 11%.

Takeaways by Macro Roundup® AI

  1. Bank of America internal payments data show the average property insurance payment is up 23% relative to 2019, with the average customer payment up 25%, a gap reflecting customers making more than one insurance payment in a month.
  2. Bank of America data show property insurance costs rising rapidly for customers over the past year, with the three-month average April 2024 year-over-year increase at 11%.
  3. Bank of America's payments data cannot distinguish auto from home insurance payments, but can gauge the impact of rising aggregate property insurance costs across different groups of consumers.

Related Articles:

  • As Texas Burns, Property Insurance Costs Soar — Rising property insurance premiums are attributed to climate-related damage, higher rebuilding costs, and costlier reinsurance protection for insurers, which is passed on to homeowners. The insurance industry says rebuilding and replacement costs rose 55% over a three-year span, driven by raw materials, wages, supply-chain bottlenecks, and a rising share of larger homes.
  • In Southwest Florida, High Home Insurance Rates Are Driving Away Would-Be Buyers — Florida homeowners paid about $6,000 a year for insurance on average, roughly triple what they paid in 2019 and compared with about $1,700 for the average US homeowner. Insurers and state regulators attribute the increases to widespread lawsuits and fraud, and a Category 5 hurricane led some insurers to exit the state or limit new policies.
  • A Hidden Crisis In US Housing — State-run "last resort" home insurance programs, which cover properties the private market won't, have more than doubled their market share since 2018, with liabilities passing $1tn; Florida's plan faces potential losses of $525bn and California's at least $290bn, six times its 2018 level. Of 36 such plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits.

AI Summary. California has installed more grid-scale batteries than any place outside China, storing excess daytime solar power for use after dark and supplying over one-fifth of the state's electricity during some evening hours. National battery storage capacity has grown tenfold over three years to 16,000 megawatts and is expected to nearly double again, led by Texas, California, and Arizona.

Brad Plumer and Nadja Popovich New York Times
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Grid-scale batteries can supply up to 20% of California’s electrical demand, equivalent to the output of 7 large nuclear reactors. US battery storage has grown 10X in the past three years to 16,000 megawatts and is expected to double again this year.

Are giant batteries changing how the US stores and uses electricity?

Core argument: U.S. grid battery storage capacity has grown tenfold over the past three years to 16,000 megawatts and is expected to nearly double again this year, with the biggest growth in Texas, California, and Arizona.

Since 2020, California has installed more giant batteries than anywhere in the world apart from China. They can soak up excess solar power during the day and store it for use when it gets dark. Those batteries play a pivotal role in California’s electric grid, partially replacing fossil fuels in the evening. Between 7 p.m. and 10 p.m. on April 30, for example, batteries supplied more than one-fifth of California’s electricity and, for a few minutes, pumped out 7,046 megawatts of electricity, akin to the output from seven large nuclear reactors. Across the country, power companies are increasingly using giant batteries the size of shipping containers to address renewable energy’s biggest weakness: the fact that the wind and sun aren’t always available. Over the past three years, battery storage capacity on the nation’s grids has grown tenfold, to 16,000 megawatts. This year, it is expected to nearly double again, with the biggest growth in Texas, California, and Arizona.

Takeaways by Macro Roundup® AI

  1. U.S. grid battery storage capacity has grown tenfold over the past three years to 16,000 megawatts and is expected to nearly double again this year, with the biggest growth in Texas, California, and Arizona.
  2. Between 7 p.m. and 10 p.m. on April 30, batteries supplied more than one-fifth of California's electricity, peaking for a few minutes at 7,046 megawatts, akin to the output of seven large nuclear reactors.
  3. California has installed more giant batteries since 2020 than anywhere in the world apart from China, soaking up excess daytime solar power and partially replacing fossil fuels in the evening.

Related Articles:

  • U.S. Battery Storage Capacity Expected To Nearly Double In 2024 — U.S. battery storage capacity is projected to rise 89%, to more than 30 gigawatts, if developers bring all planned energy storage systems online as scheduled — a total that would exceed capacity from petroleum liquids, geothermal, wood waste, or landfill gas. California leads all states with 7.3 gigawatts installed, followed by Texas with 3.2 gigawatts.
  • 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.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.

AI Summary. AlphaFold 3, a single deep learning model with a diffusion-based architecture, jointly predicts the structures of complexes containing proteins, nucleic acids, small molecules, ions, and modified residues. The authors report accuracy exceeding specialised tools for protein-ligand docking, protein-nucleic acid interactions, and antibody-antigen prediction.

Josh Abramson, Jonas Adler, Jack Dunger, et al. Nature
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.@GoogleDeepMind and @IsomorphicLabs announced AlphaFold 3, claiming a 50% accuracy improvement in the interaction between proteins, DNA, RNA, and other molecules. “We hope it will transform our understanding of the biological world and drug discovery.”

Can a single deep learning model predict diverse biomolecular structures accurately?

Core argument: AlphaFold 3 uses a substantially updated diffusion-based architecture to jointly predict structures of complexes spanning proteins, nucleic acids, small molecules, ions, and modified residues.

The introduction of AlphaFold 2 [July 2021] has spurred a revolution in modelling the structure of proteins and their interactions, enabling a huge range of applications in protein modelling and design. In this paper, we describe our AlphaFold 3 model with a substantially updated diffusion-based architecture, which is capable of joint structure prediction of complexes including proteins, nucleic acids, small molecules, ions, and modified residues. The new AlphaFold model demonstrates significantly improved accuracy over many previous specialised tools: far greater accuracy on protein-ligand interactions than state of the art docking tools, much higher accuracy on protein-nucleic acid interactions than nucleic-acid-specific predictors, and significantly higher antibody-antigen prediction accuracy. Together these results show that high accuracy modelling across biomolecular space is possible within a single unified deep learning framework.

Takeaways by Macro Roundup® AI

  1. AlphaFold 3 uses a substantially updated diffusion-based architecture to jointly predict structures of complexes spanning proteins, nucleic acids, small molecules, ions, and modified residues.
  2. The authors report that AlphaFold 3 achieves far greater accuracy on protein-ligand interactions than state-of-the-art docking tools, much higher accuracy on protein-nucleic acid interactions than nucleic-acid-specific predictors, and significantly higher antibody-antigen prediction accuracy.
  3. The authors conclude that high-accuracy modelling across biomolecular space is possible within a single unified deep learning framework.

Related Articles:

  • 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.

Monday, May 13, 2024

AI Summary. An event study using intraday price moves around US Treasury quarterly borrowing announcements finds no evidence that news about government bond supply meaningfully affects the term premium, the portion of long-term yields above the expected path of short-term rates.

Alex Etra Money: Inside and Out
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.@EtraAlex argues that changes in term premia are dominated by changes in expected short-term rates and oil prices and that news about Treasury borrowing has minimal impact.

Does government bond supply news meaningfully move the term premium?

Core argument: An event study using intraday price action around Quarterly Refunding Announcements as a proxy for unexpected Treasury supply shocks does not suggest that borrowing announcements have a meaningful impact on the authors' term premium proxy.

If bond supply was driving changes in term premium (TP)—that is driving changes in long-term yields over and above changes in the expected path of short-term rates—we might expect changes in the residual term to be explained by proxies of bond supply. But an event study which uses intraday price action around QRAs as a proxy for unexpected supply shocks, does not suggest that announcements about Treasury borrowing are having a meaningful impact on our TP proxy. The chart shows the cumulative residual from our TP proxy since October 2022 around QRA announcements and outside them.

Takeaways by Macro Roundup® AI

  1. An event study using intraday price action around Quarterly Refunding Announcements as a proxy for unexpected Treasury supply shocks does not suggest that borrowing announcements have a meaningful impact on the authors' term premium proxy.
  2. If bond supply were driving term premium—long-term yields moving beyond changes in the expected path of short-term rates—changes in the residual term would be expected to track proxies of bond supply.
  3. The authors chart the cumulative residual from their term premium proxy since October 2022, separating movements around Quarterly Refunding Announcements from those outside them.

Related Articles:

  • Political Risks to the U.S. Safe Harbor Premium — The authors estimate a "shadow" country risk premium for the US of 25–35 basis points rather than the zero conventionally assumed, reflecting US political and institutional risk. If the US premium rose to current UK levels, they project real equity wealth per household would be $50,000 lower and real GDP 1% smaller after 10 years.
  • 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.
  • Federal Debt — Stabilizing federal debt would require a zero primary deficit — borrowing only to cover interest on past borrowing — which today would mean a cash deficit of about 3% of GDP, or roughly $800bn a year. The actual deficit is about $1.7tn, or 6% of GDP, with no political dynamics in prospect that would cut it to 3%.

AI Summary. Scaling US deficits by federal debt held by the public shows deficits of a size comparable to those that preceded past inflations, though large deficits have not always been followed by inflation. Fiscal theory holds that only the portion of a deficit people do not expect to be repaid, through future surpluses or lower interest costs, is inflationary.

John Cochrane The Grumpy Economist
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.@JohnHCochrane argues that unfunded spending as a % of the outstanding stock of debt, rather than as a % of GDP, is the key to inflationary dynamics both in the 1970s and the 2020s.

Do today's deficits match the size of those that preceded past inflations?

Core argument: Measuring the US surplus relative to federal debt held by the public shows 1972 as inflationary as 2008 and 1975 nearly as bad as 2022, with current deficits comparable in size to those inflationary episodes.

When we look at the history of US surplus relative to debt, the picture changes. 1972 is as inflationary as 2008, and 1975 was almost as bad as 2022. Now we are starting to see deficits of comparable size to the inflation that followed! (I use Federal Debt held by the Public, FYGFDPUN. Sadly Fred only has it starting in 1970.) Of course 2008 did not produce inflation. Fiscal theory does not say that deficits cause inflation. It only says that the fraction of deficit people do not expect to be paid back, either by higher future surplus or by lower future interest costs, is inflationary. 2008 got, I think, really lucky with low interest costs, and to its credit (or maybe not, if you wanted stimulus), the Obama Administration always promised eventual debt reduction.

Takeaways by Macro Roundup® AI

  1. Measuring the US surplus relative to federal debt held by the public shows 1972 as inflationary as 2008 and 1975 nearly as bad as 2022, with current deficits comparable in size to those inflationary episodes.
  2. Fiscal theory holds that deficits alone do not cause inflation; only the fraction of a deficit that people do not expect to be repaid through higher future surpluses or lower future interest costs is inflationary.
  3. The 2008 deficits did not produce inflation, which the author attributes to luck with low interest costs and the Obama Administration's standing promises of eventual debt reduction.

Related Articles:

  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

AI Summary. The author argues that a shock to relative prices can only raise the overall price level if monetary or fiscal policy provides the demand to accommodate it. On this reading, inflation following supply shocks — as in the conventional account of 1970s oil shocks — is attributable to the expansionary policy response rather than the shock itself.

John Cochrane The Grumpy Economist
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.@JohnHCochrane notes that monetary or fiscal expansion is required for a price shock to raise the overall price level. “The supply shock is the cart, in front of the horse (monetary or fiscal policy) that pulls the inflation cart.”

Do supply shocks cause inflation, or does the policy response?

Core argument: A relative price shock can raise the overall price level only if accompanied by demand from monetary or fiscal policy, which means that policy is what raises the price level.

It seems to me that for a relative price shock to raise the overall price level, you need demand; either monetary or fiscal policy. And then it’s really the monetary and fiscal policy that’s raising the overall price level. Now, yes, central banks and governments may well respond to a relative price shock with monetary or fiscal policy that raises the overall price level. They might choose option 2 or 3 in my little schema, not option 1. They don’t like any prices to go down, especially wages, and view that option 1 might cause a recession that option 2 and 3 would avoid. That’s a conventional reading of how “oil price shocks” caused inflation in the 1970s — they induced expansionary responses. But if the inflation is due to the monetary and fiscal policies, which respond to the relative price shock, does it really make sense to say that inflation is not due to the monetary and fiscal policy, but “due to” the supply shock?

Takeaways by Macro Roundup® AI

  1. A relative price shock can raise the overall price level only if accompanied by demand from monetary or fiscal policy, which means that policy is what raises the price level.
  2. Central banks and governments may respond to a relative price shock with monetary or fiscal policy that raises the overall price level, since they dislike falling prices, especially wages, and expect that allowing such declines could cause a recession.
  3. A conventional reading of the 1970s oil price shocks holds that they caused inflation by inducing expansionary responses, which raises the question of whether that inflation is better attributed to the supply shock or to the monetary and fiscal policies.

Related Articles:

  • Fiscal Tidbits, Part 1 — Scaling US deficits by federal debt held by the public shows deficits of a size comparable to those that preceded past inflations, though large deficits have not always been followed by inflation. Fiscal theory holds that only the portion of a deficit people do not expect to be repaid, through future surpluses or lower interest costs, is inflationary.
  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. The M2 money supply has contracted for the first time in sixty years, shrinking at an annual rate of nearly 5%, yet inflation has remained high rather than turning to deflation. The author argues this undercuts the claim that money supply growth drives inflation, since the same logic implies severe deflation should now follow.

Jesper Rangvid Rangvid's Blog
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Jesper Rangvid argues that monetarist theory would have predicted deflation from the recent contraction in the M2 money supply. Continuing inflation leaves him “skeptical, to say the least” about the theory.

Does a shrinking money supply produce deflation?

Core argument: M2 shrank at an annual rate of almost 5% a year earlier, the first contraction in the money supply in sixty years, yet inflation has been excessive rather than deflationary.

If money supply growth should cause inflation when money supply growth is unusually high, then the logical consequence must be that money supply growth should also cause low inflation/deflation when money supply growth is very low. And indeed, money supply growth has been historically low recently. In fact, the money supply has shrunk for the first time in sixty years. We should have deflation, but we have not. Instead, we have too much inflation. Since M2 shrank at an annual rate of almost 5% a year ago, with the 15-month lag that correlated with the inflation outbreak, we should have severe deflation in the next few months. Not “just” the 2% deflation we experienced during the financial crisis. No, severe deflation, because the money supply has been shrinking at a historic pace. As you can imagine, I am skeptical, to say the least.

Takeaways by Macro Roundup® AI

  1. M2 shrank at an annual rate of almost 5% a year earlier, the first contraction in the money supply in sixty years, yet inflation has been excessive rather than deflationary.
  2. Applying the 15-month lag that correlated with the inflation outbreak to a historic pace of money supply contraction implies severe deflation within months, beyond the 2% deflation experienced during the financial crisis.
  3. If unusually high money supply growth causes inflation, the logical consequence is that very low money supply growth should cause low inflation or deflation, a conclusion the author regards with skepticism.

Related Articles:

  • Monetary Policy in the 1970s and Today — The Federal Reserve responded late in the early phase of the recent inflation cycle but is now holding the federal funds rate at a fairly high level even as inflation has declined substantially. In the early 1970s the Fed cut rates as soon as inflation fell, leaving monetary conditions too expansionary when inflation resurged later in that decade.
  • Is Nominal Wage Growth Starting to Slow? — Aggregate nominal wage income, which tracks closely with nominal gross domestic product, has grown at a yearly rate of just 4.5%—identical to the pre-pandemic pace—compared with almost 7% over the prior six months. The author argues that several consecutive slow months, rather than a one-off, suggest the deceleration could be significant.
  • 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.

AI Summary. US business-formation applications reached a record 5.5m in a year, with the monthly average running about 80% above the pre-pandemic decade versus a 20% rise in Europe. In the four years before the pandemic, established firms added one net job for every four created by startups; in the four years since, they lost one for every four.

Economist Staff The Economist
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The monthly average of US new business formation is 80% higher than during the decade before COVID, vs. 20% in Europe . Between 2020-23, US startups created more than 100% of net new jobs.

Are American startups now driving job growth as established firms shed jobs?

Core argument: U.S. business formation applications hit a record 5.5m last year, and despite slowing slightly this year, the monthly average remains about 80% above the pre-covid decade, versus a 20% rise in Europe.

Last year applications to form businesses reached 5.5m, a record. Although they have slowed a touch this year, the monthly average is still about 80% higher than during the decade prior to covid, compared with just a 20% rise in Europe. Startups normally play an outsized role in creating employment in America, as elsewhere. By definition, every startup job counts as new, whereas mature companies have more churn. That difference has become even starker. In the four years before the pandemic, established firms added one net job for every four created by startups; in the four years since the pandemic, established firms have actually lost one job for every four created by startups.

Takeaways by Macro Roundup® AI

  1. U.S. business formation applications hit a record 5.5m last year, and despite slowing slightly this year, the monthly average remains about 80% above the pre-covid decade, versus a 20% rise in Europe.
  2. In the four years before the pandemic, established U.S. firms added one net job for every four created by startups; in the four years since, established firms have lost one job for every four startup jobs created.
  3. Startups play an outsized role in creating employment in America and elsewhere, since every startup job counts as new by definition, whereas mature companies have more churn.

Related Articles:

  • High Tech Business Entry In The Pandemic Era — High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
  • The Startup Surge Continues: Business Applications on Track for Second-Largest Annual Total on Record — Americans filed nearly 2.7m business applications in the first half of the year, up 5% from the prior year and 52% above the same period in 2019. One-third were applications with a high likelihood of hiring employees, 36% above the comparable 2019 total.
  • Latinos Are Starting U.S. Businesses at a Torrid Pace — Immigrants accounted for 36% of new U.S. business launches last year, up from 25% in 2019, driven by a rise in Latino entrepreneurship, while business creation by white and native-born Americans has slowed. Hispanic-owned startups tend to be smaller, with 46% reporting over $100,000 in annual revenue versus 62% of white-owned firms.

AI Summary. Europe's largest publicly traded companies invested $400bn less than US counterparts in one recent year, and venture capital investment in US companies was almost 3x that in Europe. Research and development spending by the seven largest US technology companies exceeded $200bn, about half of Europe's total public and private R&D spending.

Martin Arnold, Sam Fleming and Claire Jones Financial Times
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Erik Nielsen, economics adviser at Italian bank UniCredit, says investment in the US has increased more than 8% since the end of 2019 and is still growing strongly at the start of 2024, while the Eurozone remained 4% below pre-Covid levels.

Is Europe's investment gap with the US widening across corporate spending?

Core argument: Europe's largest publicly traded companies with over $1bn in annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022.

The biggest publicly traded European companies with more than a billion dollars of annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022. Volkswagen was the only EU company that appeared in the top 10 in a recent European Commission report examining the world’s top 2,500 R&D investors in 2023. Six of the top 10 were headquartered in the US and none were in the UK. The R&D spending of the so-called Magnificent Seven companies amounted to more than $200B last year, around half of Europe’s total equivalent spending across all private and public sectors. The mismatch in venture capital funding is stark. Last year VC investment in US companies was almost treble what those in Europe managed, according to KPMG research. VC funds in the US also raised almost five times as much as those in Europe over the past three years.

Takeaways by Macro Roundup® AI

  1. Europe's largest publicly traded companies with over $1bn in annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022.
  2. The Magnificent Seven companies spent more than $200bn on R&D, roughly half of Europe's total equivalent spending across all private and public sectors.
  3. Venture capital investment in US companies was almost triple that in Europe, and US VC funds raised almost five times as much as European funds over three years, according to KPMG research.

Related Articles:

  • Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss — Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.
  • Europe Regulates Its Way to Last Place — Europe's regulators tend to act on the mere possibility of harm rather than evidence of it, an approach that can throttle innovation early. The McKinsey Global Institute found that among companies with over $1bn in revenue, U.S. firms spent 80% more on research and development, had 30% higher return on capital, and grew revenue 1.3 percentage points faster.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.

AI Summary. Polling of registered voters showed Trump ahead of Biden in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden leading only in Wisconsin. Trump and Biden were essentially tied among voters aged 18-29 and Hispanic voters, groups that each gave Biden over 60% of their vote in 2020.

Nate Cohn New York Times
Date Posted:

New polling suggests Trump and Biden are tied with 18-29-year-olds and Hispanic voters, relative to 2020 when Biden won 60% of those voters. The Rust Belt states are toss-ups with Trump having an edge in the Sun Belt.

Are young and nonwhite voters shifting away from the incumbent president?

Core argument: Trump led Biden among registered voters in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden ahead only in Wisconsin.

Mr. Trump was ahead among registered voters in a head-to-head matchup against Mr. Biden in five of six key states: Michigan, Arizona, Nevada, Georgia and Pennsylvania. Mr. Biden led among registered voters in only one battleground state, Wisconsin. The race was closer among likely voters. Mr. Trump led in five states as well, but Mr. Biden edged ahead in Michigan while trailing only narrowly in Wisconsin and Pennsylvania. Mr. Trump and Mr. Biden are essentially tied among 18-to-29-year-olds and Hispanic voters, even though each group gave Mr. Biden more than 60% of their vote in 2020. Mr. Trump also wins more than 20% of Black voters — a tally that would be the highest level of Black support for any Republican presidential candidate since the enactment of the Civil Rights Act of 1964.

Takeaways by Macro Roundup® AI

  1. Trump led Biden among registered voters in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden ahead only in Wisconsin.
  2. Trump and Biden are essentially tied among 18-to-29-year-olds and Hispanic voters, both groups having given Biden more than 60% of their vote in 2020.
  3. Trump wins more than 20% of Black voters, a tally that would be the highest level of Black support for any Republican presidential candidate since the enactment of the Civil Rights Act of 1964.

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  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
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