Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, May 30, 2024

AI Summary. Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.

Greg Jensen and Josh Moriarty Bridgewater Associates
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US AI-related capex was ~ $100B in 2023, about 0.4% of GDP. Bridgewater forecasts an investment arms race: “We see the makings of a surge in spending that could be large enough to shape the trajectory of the business cycle from here.”

Is AI investment large enough to shape the business cycle?

Core argument: Spending on AI chips and data centers was a bit below $100 billion in 2023, around 0.4% of US GDP, leaving AI-related capex a small share of the economy.

Historically, major technological transitions have fueled investment increases that were large enough to shape the overall business cycle. Today, AI-related capex is still a small share of the economy: spending on AI chips and data centers was a bit below $100 billion in 2023 (around 0.4% of US GDP). While chip company revenues have spiked (driven by NVIDIA), the broader ecosystem of companies exposed to AI-related investments has yet to see a major jump in sales since AI enthusiasm took off following ChatGPT’s November 2022 launch. Notwithstanding some pockets of froth, the classic boom dynamic of abundant capital chasing far-out returns has yet to take off: affected firms’ equity prices are mostly moving in line with near-term expected profits at reasonable or only slightly stretched multiples. But when we look at the underlying dynamics, we see the makings of a surge in spending that could be large enough to shape the trajectory of the business cycle from here.

Takeaways by Macro Roundup® AI

  1. Spending on AI chips and data centers was a bit below $100 billion in 2023, around 0.4% of US GDP, leaving AI-related capex a small share of the economy.
  2. Chip company revenues have spiked, driven by NVIDIA, but the broader ecosystem of firms exposed to AI-related investment has not seen a major jump in sales since ChatGPT's launch in November 2022.
  3. Equity prices of AI-exposed firms are mostly moving in line with near-term expected profits at reasonable or only slightly stretched multiples, and the classic boom dynamic of abundant capital chasing far-out returns has yet to take off.

Related Articles:

  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.
  • Measuring Trends in AI — The United States led the world in private artificial intelligence investment with $67.2bn, roughly 8.7x China's $7.8bn and 17.8x the United Kingdom's $3.8bn. Cumulative private AI investment over the prior decade shows the same ranking: $335.2bn for the United States, $103.7bn for China, and $22.3bn for the United Kingdom.
  • Generational Growth AI, Data Centers and the Coming US Power Demand Surge — Data center power demand is projected to grow 15% annually through 2030, lifting data centers to 8% of US power demand from about 3% and raising overall US power demand growth to 2.4% a year versus roughly 0% over the prior decade.

AI Summary. Across cross-country survey data, the age pattern of reporting frequent unhappiness and depression reversed: one wave sloped upward with age while a later wave sloped downward, and women report more unhappiness. Young people with poorer mental health spend more daily time in front of a screen.

David Blanchflower, Alex Bryson, Anthony Lepinteur, et al. National Bureau of Economic Research
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European data from 2021 show that in contrast to the 2011 data, self-reported unhappiness and depression are highest among teens and decline sharply with age. @AlexanderBryson @D_Blanchflower

Has youth mental health declined worldwide, and is screen time related?

Core argument: In International Social Survey Program data, the share reporting they were often or very often unhappy and depressed over the past four weeks sloped upward with age in 2011 but downward with age in 2021, with the two lines crossing.

In both 2011 and 2021, International Social Survey Program (ISSP) surveys included a Health and Healthcare module, which included the same questions, and 7-step happiness question: If you were to consider your life in general these days, how happy or unhappy would you say you are, on the whole? Chart 1 reports the results of regressing the percentage who say that, over the past four weeks, they were often or very often unhappy and depressed on gender, plus a full set of age and country dummies for each of the two ISSP surveys, for 2011 and 2021. Remarkably, the two lines cross: that for 2011 slopes upwards in age, that for 2021 slopes down in age. The female variable is significantly positive which is a standard finding in the unhappiness literature. Young people with poorer mental health spend more time daily in front of a screen and within-person increases in poor mental health are correlated with spending more time in front of a screen.

Takeaways by Macro Roundup® AI

  1. In International Social Survey Program data, the share reporting they were often or very often unhappy and depressed over the past four weeks sloped upward with age in 2011 but downward with age in 2021, with the two lines crossing.
  2. The female variable is significantly positive in regressions of poor mental health on gender plus full sets of age and country dummies, a standard finding in the unhappiness literature.
  3. Young people with poorer mental health spend more time daily in front of a screen, and within-person increases in poor mental health are correlated with more screen time.

Related Articles:

AI Summary. Foreign direct investment into China fell to a 30-year low even as Chinese leaders launched an investment push in high-tech goods such as batteries and electric vehicles. Weak domestic demand for cars, chemicals, and steel has pushed Chinese goods into global markets, with average manufactured export prices down nearly 10% and export volumes near record levels.

Economist Staff The Economist
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Emerging economies are introducing import restrictions on Chinese goods, while accelerating a push for free trade elsewhere, as Chinese industrial production surges to 30% above January 2019 levels. @TheEconomist

Are weak domestic demand and falling export prices pushing Chinese goods abroad?

Core argument: The average price of China's manufactured exports fell by nearly 10% from 2022 to 2023, while its export volumes surged to near-record levels amid weak domestic demand for cars, chemicals, and steel.

Having struggled to compete with China’s industrial might, other emerging markets stood ready to benefit as their rival’s labor costs surged, and rising tensions between it and the West pushed firms to look for new factory locations. Last year foreign direct investment into China fell to a 30-year low. But China has started to fight back. To reverse an economic slowdown and cement its control over global supply chains, its leaders have launched an investment spree in high-tech goods, such as batteries, electric vehicles, and other green devices. Weak domestic demand for traditional products, such as cars, chemicals, and steel, means they are also flooding global markets. The average price of Chinese manufactured exports fell by nearly 10% from 2022 to 2023. China’s export volumes have surged to near-record levels.

Takeaways by Macro Roundup® AI

  1. The average price of China's manufactured exports fell by nearly 10% from 2022 to 2023, while its export volumes surged to near-record levels amid weak domestic demand for cars, chemicals, and steel.
  2. Foreign direct investment into China fell to a 30-year low, as surging labor costs and rising tensions with the West pushed firms to look for new factory locations, leaving emerging markets such as Brazil, India, and Mexico poised to benefit.
  3. China's leaders have launched an investment spree in high-tech goods including batteries, electric vehicles, and other green devices, aiming to reverse an economic slowdown and cement control over global supply chains.

Related Articles:

  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.
  • Brazil Launches China Anti-Dumping Probes After Imports Soar — Brazil's industry ministry has opened at least half a dozen investigations into alleged dumping of Chinese industrial products, spanning metal sheets, pre-painted steel, chemicals and tyres. Brazilian steelmakers have asked for tariffs of 9.6% to 25% on imported steel, as Brazil's steel and iron imports from China rose from $1.6bn to $2.7bn.
  • China’s Excess Savings Are A Danger — China's current account surplus of 4% of GDP is larger in global terms than its 2007 peak of 10%, because its share of the world economy at market prices rose from 6% to 17%. Sustaining that surplus would require China to fund deficits in smaller developing countries.

AI Summary. Comparing households by birth cohort in inflation-adjusted dollars, both Generation X (born 1965-1980) and millennials (born 1981-1996) held more debt than baby boomers (born 1946-1964). Generation X held the most mortgage debt, alongside the highest home values, while millennials held nearly 2x as much educational debt as Generation X.

Victoria Gregory and Kevin Bloodworth II Federal Reserve Bank of St. Louis
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.@stlouisfed analysis finds Gen Xers had a higher median net worth at age 30 than Baby Boomers or Millennials, largely due to lower debt levels.

How do debt levels and types differ across generations?

Core argument: Millennials (born 1981–1996) held nearly twice as much educational debt as Generation X (1965–1980), in 2019 dollars.

We classify respondents as belonging to one of three birth cohorts: baby boom (1946-1964), Generation X (1965-1980) and millennial (1981-1996). All dollar values are converted to 2019 dollars. The patterns reveal a clear increase in debt holdings for more recent generations. Specifically, both Gen Xers and millennials held more debt than baby boomers. The reasons, though, are different. Gen Xers had the highest level of mortgage debt, consistent with the fact that they also had the highest level of home values. However, there are stark differences in educational debt: Millennials had nearly twice as much as Gen Xers. Thus, the level of debt holdings is what sets baby boomers apart from later generations; in contrast, the types of debt differentiate Gen Xers from millennials. We report the mean and the median (the net worth for which half the households are above it and half are below it) for each generation.

Takeaways by Macro Roundup® AI

  1. Millennials (born 1981–1996) held nearly twice as much educational debt as Generation X (1965–1980), in 2019 dollars.
  2. Both Generation X and millennial households held more debt than baby boomers (1946–1964), so the level of debt holdings separates baby boomers from later generations.
  3. Generation X had the highest level of mortgage debt of the three cohorts, consistent with also holding the highest home values.

Related Articles:

  • 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.
  • Millennials and Older Gen Zers Made Significant Wealth Gains in 2022 — Older millennials' median wealth stood 37% above what a model based on all generations at the same age would predict — roughly $130,000 versus a predicted $95,000 at age 38 — a 46 percentage point swing from earlier years when they trailed expectations. Housing assets drove most of the growth.

AI Summary. States gained more than 31m newly eligible voters — people who moved from another state, turned 18, or became naturalized US citizens — with migration between states the largest factor, according to a Bloomberg News analysis of government and private data. In all seven swing states, newly registered voters outnumber the prior presidential margin of victory.

Andre Tartar, Elena Mejía and Gregory Korte Bloomberg
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A Bloomberg analysis finds that PA has 1.1mm new voters relative to 2020 while MI has 0.8mm and WI 0.5mm, more than the 2020 margin of victory in each state.

Has the electorate changed enough to swing the next presidential election?

Core argument: States cumulatively added more than 31 million eligible voters since the last presidential election — people who moved from another state, turned 18, or became naturalized US citizens — nearly 1 million more than in the three years after the 2016 election, per Bloomberg News estimates.

States cumulatively welcomed more than 31 million eligible voters since Americans last voted for president, counting people who moved from a different state, turned 18, or became naturalized US citizens. That’s nearly one million more new potential voters than in the three years after the 2016 election, according to estimates from a Bloomberg News analysis of government and private data. Migration between states is by far the biggest factor affecting the broader electorate. In all seven swing states, there are more newly registered voters than the margin of victory in the last presidential election, according to an analysis by Catalist.

Takeaways by Macro Roundup® AI

  1. States cumulatively added more than 31 million eligible voters since the last presidential election — people who moved from another state, turned 18, or became naturalized US citizens — nearly 1 million more than in the three years after the 2016 election, per Bloomberg News estimates.
  2. Migration between states is by far the biggest factor affecting the broader US electorate, according to a Bloomberg News analysis of government and private data.
  3. In all seven swing states, newly registered voters outnumber the margin of victory in the last presidential election, according to an analysis by Catalist.

Related Articles:

  • The Shaky Foundation of Trump’s Lead: Disengaged Voters — Polling shows Trump's narrow national lead is built on gains among voters who pay little attention to politics, don't follow traditional news, and don't vote regularly, while Biden leads among those who voted in the prior presidential election. Almost all of Trump's gains have come from these less engaged voters.
  • Trump Leads in 5 Key States, as Young and Nonwhite Voters Express Discontent With Biden — 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.
  • American Politics Is Undergoing A Racial Realignment — National election surveys and Gallup polling show the Democratic Party's advantage among Black, Latino, and Asian voters at its lowest level since 1960. The article argues this shift reflects fading civil rights-era ties, a weakening link between income and party choice, and non-white voters with long-held conservative views aligning their votes with those views.

AI Summary. A survey of young registered voters finds 54% backing Biden and 46% backing Trump, with 60% of young women supporting Biden while 52% of young men support Trump. Young men are more likely than young women to say the country has gone too far in giving women equal rights, 19% versus 9%.

Daniel Cox, Kyle Gray and Kelsey Eyre Hammond American Enterprise Institute
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New survey data show a deep gender gap among registered voters aged 18-29: 60% of young women would vote for Biden if the election were held today, relative to 48% of young men. @dcoxpolls

Do young men and young women differ sharply in voting preferences?

Core argument: Among young registered voters, 54% say they would back Biden and 46% Trump if the election were held today, a modest Biden advantage.

At this stage in the campaign, Biden has a modest advantage among young Americans who are registered to vote. 54% of young voters say if the election were held today, they would support Biden, and 46% say they would support Trump. Young men and young women demonstrate starkly different vote preferences. 60% of young female voters say they are voting for Biden, compared to 40% who are backing Trump. Young men are more evenly divided: 52% are backing Trump, and 48% support Biden. 19% of young men say the country has gone too far in giving women equal rights with men, compared to 9% of young women. 60% of young women say the country has not gone far enough to address gender inequality, a view that only 37% of young men share. Notably, young men’s views have changed significantly in the past few years. In 2017, less than half of today’s number of young men 8% said the country had gone too far in ensuring women have equal rights with men.

Takeaways by Macro Roundup® AI

  1. Among young registered voters, 54% say they would back Biden and 46% Trump if the election were held today, a modest Biden advantage.
  2. Young female voters favor Biden 60%–40%, while young men split 52% for Trump and 48% for Biden.
  3. 19% of young men say the country has gone too far in giving women equal rights with men, up from 8% in 2017, compared with 9% of young women.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • A New Global Gender Divide Is Emerging — Gallup data show women aged 18–30 in the US are 30 percentage points more liberal than young men, a gap that opened in six years, with similar divides in Germany (30 points), the UK (25 points), South Korea and China. In South Korea, marriage rates have plummeted and births fell to 0.78 per woman, the world's lowest.
  • Why Young Men and Women are Drifting Apart — An analysis of polling from 20 rich countries found that a political gap between men and women aged 18-29 that was negligible two decades ago reached 0.75 points on a 1-10 liberal-conservative scale by 2020, roughly twice the gap between graduates and non-graduates. Young men were more conservative than young women in every large country examined.

Friday, May 31, 2024

AI Summary. Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly its level in the early 2000s. International Monetary Fund country data indicate most added official gold holdings came from a few central banks, with over half of reported accumulation from China and Russia and about a quarter from several emerging markets.

Patrick Douglass, Linda Goldberg, and Oliver Hannaoui Federal Reserve Bank of New York
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Research from @NewYorkFed finds the rise in Central Bank gold holdings since 2009 was driven by a few countries, with China and Russia accounting for over half of reported gold accumulation, not a widespread effort to diversify away from dollars.

Are central banks broadly shifting reserves into gold?

Core argument: Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly the same share as in the early 2000s.

Gold’s share of aggregate reserves remains modest at about 10%, roughly its level in the early 2000s. IMF country-level data suggest that most of the increase in official gold holdings has come from just a few central banks. More than half of reported gold accumulation since 2009 was from China and Russia, with another quarter coming from a handful of emerging market central banks (Turkey, India, Kazakhstan, Uzbekistan, and Thailand).

Takeaways by Macro Roundup® AI

  1. Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly the same share as in the early 2000s.
  2. China and Russia together account for more than half of reported official gold accumulation since 2009, according to IMF country-level data.
  3. Turkey, India, Kazakhstan, Uzbekistan, and Thailand account for another quarter of reported official gold accumulation since 2009.

Related Articles:

  • Gold Rising — China appears to be shifting its reserve diversification toward gold, but its gold allocation remains well below that of other countries at odds with the United States, such as Russia and Turkey, which raised their gold holdings substantially. Gold held in domestic custody sits outside U.S. influence.
  • China Leads Record Central Bank Gold Buying in First Nine Months of Year — China has led record global central bank purchases of gold, as countries seek to hedge against inflation and reduce reliance on the dollar. The buying has helped bullion prices trade just under $2,000 a troy ounce despite rising bond yields and a strong dollar, even as gold demand excluding bilateral over-the-counter flows was 6% lower year-on-year at 1,147 tonnes.
  • The New Gold Boom: How Long Can It Last? — Central banks bought 1,079 tonnes of gold bullion in a year, the most since records began in 1950, with prices hovering near the nominal all-time high of $2,072 per troy ounce. Developing countries wary of the US dollar have been diversifying reserves after the West froze $300bn of Russian foreign exchange holdings.

AI Summary. The share of Americans moving across state lines each year has stopped declining, and by a measure tracking where 30-somethings were born, interstate mobility never fell much. In 2022, 49% of US residents in their 30s were born outside their state of residence — slightly below 2010 but above any point in the 20th century.

Justin Fox Bloomberg
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While the share of US residents who had moved in the past year fell to an all-time low of 7.8% in 2023, Americans ages 30-39 are still relatively mobile: in 2022, 49% were not born in the state where they currently live. @foxjust

Has interstate mobility in the US actually declined?

Core argument: In 2022, 49% of US residents in their 30s were born outside the state where they lived, slightly below 2010 but higher than at any point during the 20th century, per updated American Community Survey data; the figure includes people who migrated from overseas.

The share of Americans moving across state lines each year has stopped declining — and by another measure, interstate mobility never truly declined much at all. Most such moves are made by young adults, Scott Winship looked at whether US residents in their 30s were born in the state where they lived or had moved from somewhere else, numbers that I’ve updated with 2022 ACS data. In 2022, the 49% who were born somewhere other than the state where they live was slightly lower than in 2010 but still higher than at any point during the 20th century. This includes people who migrated from overseas and is thus somewhat affected by immigration trends. The percentage of native-born Americans in their 30s who were born in a different state did decline slightly from 1980 to 2010, Winship reported in 2015, but it was still higher in 2010 than at any time from 1900 to 1960.

Takeaways by Macro Roundup® AI

  1. In 2022, 49% of US residents in their 30s were born outside the state where they lived, slightly below 2010 but higher than at any point during the 20th century, per updated American Community Survey data; the figure includes people who migrated from overseas.
  2. The share of Americans moving across state lines each year has stopped declining, and by the birth-state measure interstate mobility never declined much at all.
  3. Scott Winship reported in 2015 that the share of native-born Americans in their 30s born in a different state declined slightly from 1980 to 2010 but remained higher in 2010 than at any time from 1900 to 1960.

Related Articles:

  • On The Move: West Side Story — The West's share of US population has flattened and appears to be falling, with relative housing affordability cited as a key part of the story. Metropolitan areas with median mortgage payments above the US average generally show negative or weakly positive population growth, and Pacific-state metros all have above-average mortgage payments.
  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.
  • 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.

AI Summary. Bank of America loan data show year-over-year growth in total new and used vehicle loan originations slowing, with the uptrend in new car sales flattening. The bank attributes this to a more expensive all-in cost of ownership — higher interest rates, insurance, and maintenance — even as vehicle prices decline.

Joe Wadford and David Michael Tinsley Bank of America
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Auto sales are flattening according to internal @BankofAmerica data, as higher financing rates add nearly $100 to the average car loan monthly payment vs. 2022, and insurance costs are up 22.5% vs. last year.

Is vehicle loan growth slowing as ownership costs rise?

Core argument: Car loan interest rates have risen almost 4 percentage points since April 2022 across 48-, 60-, and 72-month terms, adding nearly $100 to monthly payments on a $51.2K loan, the average new vehicle loan amount as of March 2024 in Bank of America internal data.

While used car originations have been supported by declining used car prices, Bank of America loan origination data shows that in 2024 the year-over-year growth in total (new and used) vehicle originations is slowing; auto sales data also suggests the uptrend in new car sales has flattened off. One reason for this flattening, we believe, is that the total ‘all in’ cost of ownership – including elevated interest rates, insurance, and maintenance costs – has become more expensive even as auto prices are declining. The interest rates for car loans have risen sharply since April 2022, increasing almost 4pp for 48, 60, and 72 month loans. This translates to nearly a $100 monthly payment increase for a loan of $51.2K, the average new vehicle loan amount as of March 2024, according to internal Bank of America data. Insurance costs are rising, too. According to the Bureau of Labor Statistics’ Consumer Price Index data, motor insurance prices jumped 22.6% YoY in April 2024.

Takeaways by Macro Roundup® AI

  1. Car loan interest rates have risen almost 4 percentage points since April 2022 across 48-, 60-, and 72-month terms, adding nearly $100 to monthly payments on a $51.2K loan, the average new vehicle loan amount as of March 2024 in Bank of America internal data.
  2. Bank of America loan origination data show year-over-year growth in total new and used vehicle originations slowing in 2024, with auto sales data suggesting the uptrend in new car sales has flattened.
  3. Motor insurance prices rose 22.6% year-over-year in April 2024 according to Bureau of Labor Statistics Consumer Price Index data, and Bank of America attributes the flattening in sales partly to a rising 'all in' ownership cost spanning interest rates, insurance, and maintenance even as auto prices decline.

Related Articles:

  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Why Is Car Insurance So Expensive? — Motor vehicle insurance prices rose more than 22% over a year, the fastest pace since the 1970s, according to the Bureau of Labor Statistics. Insurers' personal auto businesses recorded losses of $4bn, $33bn, and roughly $17bn in successive years, and industry analysts say many companies still need higher prices to offset them.
  • April Flowers, Not Showers — 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.

AI Summary. A survey of 2,800 investors at a large German bank found that giving investors information that German stock returns were low during past inflationary periods lowered their expected returns for the German stock market by 0.68–1.05 percentage points. Trading data showed this information also reduced their actual stock purchases.

Philip Schnorpfeil, Michael Weber, and Andreas Hackethal National Bureau of Economic Research
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Evidence from German investors finds that educating investors about negative stock market returns during inflation causes them to reduce their return expectations and purchases of equities.

Does information about past inflation-period returns change investor expectations and trading?

Core argument: In a February 2022 survey of 2,800 investors conducted with a large German bank, those told that German stock returns during inflationary periods were low (one percent) cut their expected German stock market return by 0.68 percentage points when given return information only.

We conducted a survey with 2,800 investors in cooperation with a large German bank in February 2022 when inflation in Germany was at a 30-year high. Information on past returns during periods of high inflation [via priming by the investigators] leads to negative updating about the perceived stock-return impact of inflation and shifts return expectations in the expected direction, which feeds into [both] return expectations [Figure 6 above], and subsequent actual trading behavior. In particular, investors who learn that stock returns in Germany during inflationary periods were low (one percent) reduce their expected return of the German stock market by 0.68 percentage points for T2 (return information only) and by 1.05 percentage points for T3 (return information as well as explanations). In the trading data, treatment information about the negative stock return-inflation relation reduces actual stock purchases.

Takeaways by Macro Roundup® AI

  1. In a February 2022 survey of 2,800 investors conducted with a large German bank, those told that German stock returns during inflationary periods were low (one percent) cut their expected German stock market return by 0.68 percentage points when given return information only.
  2. Investors given both return information and explanations reduced their expected German stock market return by 1.05 percentage points, a larger shift than the 0.68 percentage points among those receiving return information alone.
  3. Trading data show that treatment information about the negative stock return–inflation relation reduced investors' actual stock purchases.

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.