Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 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
  • “…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
  • “…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 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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, May 20, 2024

AI Summary. A cross-country analysis of 11 economies finds wide agreement that global energy and food price increases and supply disruptions in key sectors drove pandemic-era inflation, and that their recession accounts for most of the global cooling of inflation. The authors find tight labor markets had smaller but more persistent inflationary effects, leaving wage inflation as the larger remaining factor.

Ben Bernanke and Olivier Blanchard Peterson Institute for International Economics
Date Posted:
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.@benbernanke and @ojblanchard1 find that pandemic-era inflation across ten countries was initially driven by transient price shocks, but as these effects receded, tight labor markets and wage inflation became more significant and persistent factors.

What drove pandemic-era inflation and its subsequent cooling across economies?

Core argument: In many, though not all, of the 11 economies studied, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply, which contributed to wage inflation and consequently to price inflation.

This cross-country summary presents the conclusions of studies by ten central banks and our own work for the United States. Consistent with our original findings for the United States, there is wide agreement [re] global increases in energy and food prices and supply disruptions in key sectors. As of this writing (March ‘24), these shocks have receded substantially, accounting for most of the global cooling of inflation. The prominence of shocks to prices does not preclude a role for labor markets, however: Also consistent with earlier results, in many, although not all, countries, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply. Tight labor markets in turn contributed to wage inflation, and consequently to price inflation. Importantly, although the inflationary effects of tight labor markets were initially much smaller than the effects of shocks to prices, they were more persistent. Thus, as the shocks to prices faded or reversed, wage inflation has become the larger factor behind the remaining price inflation, which may make further reductions in inflation more difficult to achieve

Takeaways by Macro Roundup® AI

  1. In many, though not all, of the 11 economies studied, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply, which contributed to wage inflation and consequently to price inflation.
  2. The inflationary effects of tight labor markets were initially much smaller than those of price shocks but more persistent, so wage inflation has become the larger factor behind remaining price inflation, which may make further disinflation harder to achieve.
  3. Studies by ten central banks, together with the authors' work on the United States, agree that global increases in energy and food prices and supply disruptions in key sectors drove pandemic-era inflation, and their recession accounts for most of the global cooling.

Related Articles:

  • 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.
  • 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.
  • Money and Inflation — 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.

AI Summary. The U.S. output advantage over other advanced economies is attributed mainly to faster labor productivity growth and secondarily to hours worked per employee. Rigid foreign labor markets and job-retention policies kept workers attached to firms producing below capacity, while the U.S. saw about 3x more sectoral worker reallocation and a surge in new firm formation.

Francois de Soyres, Joaquin Garcia-Cabo Herrero, et al. Federal Reserve Board
Date Posted:

More fluid labor markets and greater business dynamism are key reasons for the stronger post-pandemic recovery in the US vs. other advanced economies. @FSoyres

Why does US output growth outpace other advanced economies?

Core argument: Sectoral reallocation of workers during the pandemic recession was three times greater in the U.S. than in the euro area, with advanced foreign economies characterized by more rigid labor markets, stricter employment protection, and higher unemployment rates.

The gap in output performance between the U.S. and advanced foreign economies (AFEs) can be traced to a divergence in labor productivity, and, to a lesser degree, the number of hours worked per employee. Many AFEs have more rigid labor markets, with more stringent employment protection as well as higher unemployment rates. During the pandemic recession, there has been three times more sectoral reallocation of workers in the U.S. than in the euro area. Policies preserving the firm-employee link in some AFEs led to adjustments along the intensive margin [hours and effort] as firms retain employees without producing goods and services up to their full potential. Hence, as aggregate demand recovers, one might see a mechanical increase in labor productivity in advanced foreign economies, as firms are able to produce more without a comparable increase in their labor force. Another aspect is the stark difference in business dynamisms. The U.S. experienced an impressive increase in new firms' formation since the second half of 2020. Together with the high increase in unemployment discussed above, this surge in firms' creation likely supported the strong rebound in U.S. aggregate activity.

Takeaways by Macro Roundup® AI

  1. Sectoral reallocation of workers during the pandemic recession was three times greater in the U.S. than in the euro area, with advanced foreign economies characterized by more rigid labor markets, stricter employment protection, and higher unemployment rates.
  2. The output performance gap between the U.S. and advanced foreign economies traces to a divergence in labor productivity and, to a lesser degree, hours worked per employee, with policies preserving the firm-employee link abroad pushing adjustment onto hours and effort.
  3. U.S. new firm formation rose since the second half of 2020, which, together with the high increase in unemployment, likely supported the strong rebound in U.S. aggregate activity.

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.
  • Has the U.S. Economy Transitioned to a Higher Long-Run Real Interest Rate Regime? — Labor productivity growth in the U.S. nonfarm business sector has exceeded its longer-run average in three of the past five years, suggesting a possible shift to a faster productivity growth regime. Such a shift is one possible explanation for a long-run neutral real interest rate above 2%.
  • Can Europe’s Economy Ever Hope To Rival the US Again? — 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.

AI Summary. The $280bn CHIPS Act seeks to expand US semiconductor manufacturing and reduce dependence on Taiwan, where TSMC produces 92% of leading-edge chips, a concentration that raises national security concerns. The authors argue success should be judged by whether the US reaches a target of 20% of advanced chip production domestically by 2030, not by job creation or plant locations.

James Pethokoukis Faster, Please!
Date Posted:

.@JimPethokoukis argues that the success of the CHIPS Act should be measured not by job creation, but by increasing the US share of global advanced chip production from 0% today to 20% by 2030.

How should success of semiconductor subsidies be measured?

Core argument: TSMC in Taiwan produces 92% of leading-edge chips, a concentration behind the national security concerns motivating the $280 billion CHIPS Act's push to expand US semiconductor manufacturing.

The $280 billion CHIPS Act aims to boost US semiconductor manufacturing and reduce reliance on TSMC in Taiwan, which produces 92% of leading-edge chips, raising national security concerns. Historical analysis shows mixed results for US industrial policy, with R&D support being the most successful. The CHIPS Act's specific industry focus and national security objectives may justify federal intervention, despite early challenges in implementation. Success will be measured by whether the US increases domestic production of advanced chips to 20% by 2030, as targeted by the Biden administration, rather than by other metrics like job creation or the location of chip facilities.

Takeaways by Macro Roundup® AI

  1. TSMC in Taiwan produces 92% of leading-edge chips, a concentration behind the national security concerns motivating the $280 billion CHIPS Act's push to expand US semiconductor manufacturing.
  2. The Biden administration's target of raising US domestic production of advanced chips to 20% by 2030 is the benchmark for judging the CHIPS Act, rather than job creation or the location of chip facilities.
  3. Historical analysis of US industrial policy shows mixed results, with R&D support the most successful form of intervention, while the CHIPS Act's specific industry focus and national security objectives may justify federal intervention despite early implementation challenges.

Related Articles:

  • The Chips Act Has Been Surprisingly Successful So Far — The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.
  • Making Manufacturing Great Again — US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.
  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

AI Summary. Publicly traded companies represent a small share of US economic activity: 87% of firms with revenues above $100m are private, privately owned firms account for nearly 80% of job openings, and S&P 500 companies provide 18% of US employment and 15% of capital spending.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that publicly traded firms are a small part of the American economy. Workers employed by S&P 500 firms constitute 18% of total US employment though their profits make up half of economy-wide corporate profits.

How much of the US economy do public companies represent?

Core argument: 87% of US firms with revenues above $100 million are private, and privately owned firms account for almost 80% of job openings.

Most of the time in financial markets is spent on discussing Apple, Tesla, and Coca-Cola, but these firms and the rest of the S&P 500 companies only make up a very small part of the US economy. 87% of firms with revenues greater than $100 million are private. Privately owned firms account for almost 80% of job openings. Employment in S&P 500 companies is 18% of total US employment. Employment in firms with more than 500 employees is 23.8 million, and total US employment is 158 million. Less than half of all corporate debt outstanding is from S&P 500 companies. S&P 500 profits make up half of economy-wide corporate profits. Capex by S&P 500 companies is 15% of total capex in the US economy. Bottom line: Public markets are a small part of the overall economy.

Takeaways by Macro Roundup® AI

  1. 87% of US firms with revenues above $100 million are private, and privately owned firms account for almost 80% of job openings.
  2. Employment at S&P 500 companies is 18% of total US employment, and firms with more than 500 employees account for 23.8 million jobs out of 158 million total US employment.
  3. S&P 500 companies account for half of economy-wide corporate profits, 15% of total US capital expenditure, and less than half of corporate debt outstanding.

Related Articles:

  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Chinese firms bought the largest amount of foreign exchange from banks since 2016, while exporters held back dollar conversion and residents bought foreign currencies for overseas travel. Chinese banks sent a record net $29.5bn overseas for clients' direct investment, which one analysis attributes partly to higher US interest rates rather than waning foreign interest in China.

Bloomberg Staff Bloomberg
Date Posted:

Chinese banks wired a net $29.5B of funds overseas on behalf of clients for direct investment, a record high. @gdp1985 speculates that outflows may be “more a reflection of higher interest rates in the US than of foreign firms losing interest in China.”

Are China's capital outflows driven by higher US interest rates?

Core argument: Chinese banks wired a net $29.5 billion overseas on behalf of clients for direct investment in April, a record high for a measure that captures both foreign investment into China and Chinese outbound investment.

China’s capital outflows worsened in April. Local firms purchased the largest amount of foreign exchange from banks since 2016 in April, while exporters held back dollar conversion and residents snapped up foreign currencies for overseas travel. Chinese banks wired a net $29.5 billion worth of funds overseas on behalf of clients for direct investment, which was a record high. This measure includes both foreign investment into China and China’s outbound investment overseas. The collapse in China’s foreign direct investment inflows may be more a reflection of comparatively higher interest rates in the US than of foreign firms losing interest in China, Bloomberg analyst Gerard DiPippo wrote in a note last week as non-resident firms — including Chinese firms with Hong Kong offices — may have moved their cash offshore to benefit from higher yields.

Takeaways by Macro Roundup® AI

  1. Chinese banks wired a net $29.5 billion overseas on behalf of clients for direct investment in April, a record high for a measure that captures both foreign investment into China and Chinese outbound investment.
  2. Chinese firms bought the largest amount of foreign exchange from banks since 2016 in April, while exporters held back dollar conversion and residents bought foreign currencies for overseas travel.
  3. Bloomberg analyst Gerard DiPippo wrote that the collapse in China's foreign direct investment inflows may reflect comparatively higher US interest rates rather than foreign firms losing interest in China, as non-resident firms may have moved cash offshore for higher yields.

Related Articles:

  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • China’s Unremitted Export Earnings — A substantial share of China's net export proceeds is never repatriated and cannot be accounted for; the authors attribute this to offshore holdings by private Chinese firms, overseas accumulation by state-owned entities, and reduced reinvestment by foreign exporters. They argue state-linked funds could be repatriated in a crisis, while lower foreign reinvestment is more structural.
  • Anatomy of Capital Fight in China… — Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.

Tuesday, May 21, 2024

AI Summary. After adjusting for worker characteristics, the gap between union and non-union members' hourly earnings has been declining since the Great Recession, while the union differential in weekly wages has been more stable at roughly 15 log points. That weekly gap reflects both a higher hourly wage (about 10 log points) and longer working hours (about 5 log points).

David Blanchflower and Alex Bryson National Bureau of Economic Research
Date Posted:
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The private sector union weekly earnings premium reflects a 10% higher hourly wage and 5% more working hours, reflecting trade unions’ role in “ensuring workers receive the paid hours they desire.” @D_Blanchflower @AlexanderBryson

Does the union wage premium reflect higher hourly pay or hours?

Core argument: The regression-adjusted union differential in weekly wages stands at roughly 15 log points, composed of an hourly wage premium of about 10 log points and longer working hours worth about 5 log points.

The regression-adjusted difference between union members’ and non-members’ hourly earnings has been falling since the Great Recession. The union differential in weekly wages has been more stable. Although it fellby around 5 log points during COVID, it remains 15 log points [roughly 15 ppt]. This weekly earnings differential arises from a higher hourly wage of around 10 log points and longer working hours (5 log points). [Chart 3 above, which includes only the private sector; as the authors note, “The monotonic decline since the late 1970s is driven by decline in the private sector, whereas density has remained relatively stable in the public sector”]. A recent literature indicates that many workers wish to work more hours than their employer offers them. What is perhaps most striking is the [apparent] role unions play in raising hours. It is a [putative] role that has not emerged clearly from the earlier literature but is important for the welfare of workers whose consumption is dependent not only on hourly wages, but the [number of] paid hours of work.

Takeaways by Macro Roundup® AI

  1. The regression-adjusted union differential in weekly wages stands at roughly 15 log points, composed of an hourly wage premium of about 10 log points and longer working hours worth about 5 log points.
  2. The regression-adjusted gap between union members' and non-members' hourly earnings has been falling since the Great Recession, while the weekly wage differential has been more stable, falling about 5 log points during COVID.
  3. The authors attribute the monotonic decline in union density since the late 1970s to the private sector, with density relatively stable in the public sector, and note that unions' apparent role in raising paid hours matters for workers whose consumption depends on hours as well as hourly wages.

Related Articles:

  • US Union Members See Record Pay Raises, Outpacing Nonunion Workers — US private sector union workers' wages rose 6.3% over 12 months, the largest increase in Bureau of Labor Statistics employment cost data going back to 2001, while nonunion private sector pay rose 4.1%, not much above inflation.
  • Pettis On American Labor Unions — Strong labor unions are incompatible with a global trading system in which countries that subsidize domestic production externalize those costs through large, persistent trade surpluses, according to this argument. The US must either reform that system or unilaterally limit its economy's role in absorbing global savings and production imbalances.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.

AI Summary. The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.

Ernie Tedeschi Georgetown University
Date Posted:
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.@ernietedeschi argues that higher growth, higher debt levels, and greater political risk have most likely driven long-run R* higher than its pre-pandemic levels and higher than the 60bps the median FOMC participant currently projects.

Has the natural rate of interest risen above pre-pandemic levels?

Core argument: Most direct and indirect estimates of R*, the natural rate of interest that prevails when growth is at its sustainable trend and inflation at target, have risen since 2022 and stand above 2019 levels, though Laubach-Williams and a few other prominent estimates are lower.

R* [ the “natural rate of interest”] prevails when the economy is growing at its sustainable trend rate and inflation is at target. It is one of the most important concepts in markets today, but it is both unobservable and highly uncertain. Most direct or indirect estimates of R* appear to have risen since 2022 and are above 2019 levels, though a few prominent ones like Laubach-Williams are lower. The data lean toward the conclusion that the pandemic and its aftermath have, for the moment, arrested the structural decline in R* the U.S. was undergoing in the decades prior to 2020. Taken together, the data are not unanimous but lean towards the conclusion that the long-run natural rate of interest at the moment is most likely higher than its pre-pandemic level. They also raise the real possibility that it is higher in level terms than the 60 basis points the median Federal Open Market Committee (FOMC) participant currently projects.

Takeaways by Macro Roundup® AI

  1. Most direct and indirect estimates of R*, the natural rate of interest that prevails when growth is at its sustainable trend and inflation at target, have risen since 2022 and stand above 2019 levels, though Laubach-Williams and a few other prominent estimates are lower.
  2. The data raise the real possibility that the long-run natural rate of interest is higher in level terms than the 60 basis points the median FOMC participant projects.
  3. The data lean toward the conclusion that the pandemic and its aftermath have, for the moment, arrested the structural decline in U.S. R* of the decades before 2020, though estimates are not unanimous and R* remains unobservable and highly uncertain.

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.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.
  • The Future Of r* — Long-run equilibrium interest rates are argued to stay low relative to recent decades' historical average but above pre-pandemic lows, implying rates only slightly below current levels, with a nominal neutral rate near 3.5% offered as illustration. Rising government debt, particularly in the US, is identified as the main risk to that view.

AI Summary. Immigrants authored or co-authored 30% of U.S. patents in industries important to economic and national security, including semiconductors, automobile manufacturing and software, according to an analysis of patent data. The immigrant-authored share reaches 44% in strategic information industries and 38% in professional services.

Connor O’Brien and Adam Ozimek Economic Innovation Group
Date Posted:

Immigrants make up 20% of the US workforce, but they accounted for ⅓ of US Nobel prize winners in the last decade, and they were authors or co-authors on 30% of all patents in strategic industries from 2000-18. @cojobrien @ModeledBehavior

How large is immigrants' share of patents in security-critical industries?

Core argument: Using U.S. patent data from 2000–2018, the authors estimate that immigrants authored or co-authored 30% of patents in U.S. industries important for economic and national security, from semiconductors to automobile manufacturing to software development.

Nearly one out of every seven people who live in the United States is foreign-born. Yet the benefits of immigration have been much larger than immigrants’ share of the population would suggest. Foreign-born talent has been instrumental in American scientific and technological leadership, accounting for more than 1/3 of U.S. Nobel Prizes over the last decade. We use U.S. patent data between 2000 and 2018 to estimate the share of patents with foreign-born authors by industry. We find that immigrants authored or co-authored 30% of patents within U.S. industries that are important for economic and national security, from semiconductors to automobile manufacturing to software development. The share of patents that are immigrant-authored varies widely by industry. In the information industries considered strategic, 44% of patents originate from immigrant inventors. In professional services, the share is 38%.

Takeaways by Macro Roundup® AI

  1. Using U.S. patent data from 2000–2018, the authors estimate that immigrants authored or co-authored 30% of patents in U.S. industries important for economic and national security, from semiconductors to automobile manufacturing to software development.
  2. The immigrant-authored share of patents varies widely by industry, reaching 44% in information industries considered strategic and 38% in professional services.
  3. Foreign-born people make up nearly one in seven U.S. residents, while foreign-born talent accounted for more than one-third of U.S. Nobel Prizes over the last decade.

Related Articles:

  • Foreign-born Skilled Workers Play a Critical Role in Strategically Significant Industries — Foreign-born workers make up 20.3% of the roughly 19.9mn workers in strategically significant US industries—those ranking in the top fifth for research spending per worker and above average in use of science and engineering workers—compared with 18.4% of the workforce overall. Manufacturing and professional services account for 83% of employment in these industries.
  • Third-Country Effects of U.S. Immigration Policy — U.S. H-1B visa denial rates rose from about 6% to 16%, and the authors estimate a 10 percentage point rise in denials increases Canadian applications by 30%, roughly one Canadian application per four forgone visas. More exposed Canadian firms increased sales and hired about 0.5 native workers per immigrant.
  • 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. Firms with access to both bank loans and corporate bonds are borrowing a greater share through bonds, and those bonds' maturities have shortened both absolutely and relative to the same firms' loans. The shift is driven by smaller firms, whose loan share fell from about 60% to 50%.

Nina Boyarchenko and Leonardo Elias Federal Reserve Bank of New York
Date Posted:

A @NewYorkFed analysis finds that the share of bank-intermediated credit for small firms has fallen from 58% in 2002 to 50% in 2022, as small firms increasingly rely on bond financing.

Are firms shifting from bank loans to shorter-maturity corporate bonds?

Core argument: Firms below the 75th percentile of the size distribution cut their share of intermediated credit from about 60% to 50%, while the share for the largest 25% of firms held steady near 30%.

Firms that can borrow through both bank loans and corporate bonds are increasingly borrowing a greater fraction of debt through corporate bonds and that the maturity of those bonds has shortened dramatically since 2002, both in an absolute sense and relative to the maturity of loans the same firms have outstanding. Thus, firms are relying increasingly more on the corporate bond market as a source of funding and are accessing the corporate bond market more frequently, as existing corporate bonds mature more frequently. Firms that have access to both intermediated credit and debt markets seem to be increasingly relying on public debt markets. The trend is driven by firms in the bottom 75th percentile of the size distribution. While the share of intermediated credit for the top 25th percentile of firms has stayed relatively constant (at around 30%), the share of loans has decreased considerably for the rest of the firms (from around 60% to 50%). That is, smaller firms that have access to both bond and loan markets are increasingly relying more on bond financing.

Takeaways by Macro Roundup® AI

  1. Firms below the 75th percentile of the size distribution cut their share of intermediated credit from about 60% to 50%, while the share for the largest 25% of firms held steady near 30%.
  2. Firms with access to both bank loans and corporate bonds are borrowing a greater fraction of debt through bonds, and the maturity of those bonds has shortened sharply since 2002, both in absolute terms and relative to their outstanding loans.
  3. As existing corporate bonds mature more frequently, firms are accessing the corporate bond market more often as a source of funding.

Related Articles:

  • Stress Testing the Corporate Debt Servicing Capacity: A Scenario Analysis — 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.
  • 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.
  • 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.

AI Summary. ASML and TSMC have ways to remotely disable extreme ultraviolet lithography machines, the world's most advanced chipmaking equipment, in the event of a Chinese invasion of Taiwan, according to people familiar with the matter. TSMC is ASML's largest customer for these machines.

Diederik Baazil, Cagan Koc, and Jordan Robertson Bloomberg
Date Posted:

Both ASML and TSMC have contingency plans to disable Taiwanese chip manufacturing in the event of a Chinese invasion of Taiwan. About 90% of the world’s most advanced chips are made in Taiwan. @markets

Can advanced chipmaking machines be remotely disabled if Taiwan is invaded?

Core argument: ASML and TSMC have ways to disable the world's most sophisticated chipmaking machines if China invades Taiwan, according to people familiar with the matter.

ASML Holding NV and Taiwan Semiconductor Manufacturing Co. have ways to disable the world’s most sophisticated chipmaking machines in the event that China invades Taiwan, according to people familiar with the matter. The remote shut-off applies to Netherlands-based ASML’s line of extreme ultraviolet machines, known within the industry as EUVs, for which TSMC is its single biggest client. TSMC Chairman Mark Liu hinted in a September interview with CNN that any invader of Taiwan would find his company’s chipmaking machines out of order. “Nobody can control TSMC by force,” Liu said. “If there is a military invasion you will render TSMC factory non-operable.”

Takeaways by Macro Roundup® AI

  1. ASML and TSMC have ways to disable the world's most sophisticated chipmaking machines if China invades Taiwan, according to people familiar with the matter.
  2. The remote shut-off applies to ASML's extreme ultraviolet (EUV) machines, for which TSMC is the Netherlands-based company's single biggest client.
  3. TSMC Chairman Mark Liu said in a September CNN interview that "nobody can control TSMC by force" and that a military invasion would render the TSMC factory non-operable.

Related Articles:

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