Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
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  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, August 12, 2024

AI Summary. A survey of state transportation department procurement matched to project-level cost data finds infrastructure costs are associated with agency capacity and limited competition for government construction contracts. The authors estimate that a one standard deviation increase in transportation department employment per capita correlates with 16% lower costs.

Zachary Liscow, Will Nober, and Cailin Slattery Brookings Institution
Date Posted:

A 50-state survey finds that inadequate capacity of state DoT staff has been a key driver of higher US infrastructure costs; states that are more reliant on consultants vs. DoT staff spend $70,000 higher cost per lane-mile. @ZLiscow @cailin_slattery

Do agency staffing and contractor competition lower infrastructure costs?

Core argument: States whose department of transportation employees are rated average in quality have almost 30% higher infrastructure costs per mile than states rating their DOT employees as "moderately high quality," according to the authors' survey-linked cost data.

We conduct a survey of infrastructure procurement practices across the 50 states, [interviewing] both employees at each state department of transportation (DOT) and the road builders that win contracts to build and maintain roads. We correlate the survey with a new, detailed dataset of project-level infrastructure costs. We find that two important inputs in the procurement process appear to particularly drive costs: (1) the capacity of the DOT procuring the project and (2) the lack of competition in the market for government construction contracts. A state with [average] employees has almost 30% higher costs per mile than one that rates the DOT employees as “moderately high quality.” When we measure capacity using external data we show that states with higher DOT employment per capita have lower infrastructure costs. A one standard deviation increase in DOT employment per capita is correlated with 16% lower costs.

Takeaways by Macro Roundup® AI

  1. States whose department of transportation employees are rated average in quality have almost 30% higher infrastructure costs per mile than states rating their DOT employees as "moderately high quality," according to the authors' survey-linked cost data.
  2. A one standard deviation increase in state DOT employment per capita is correlated with 16% lower infrastructure costs, measured using external employment data.
  3. The authors find that two inputs in the procurement process appear to particularly drive infrastructure costs: the procuring DOT's capacity and the lack of competition in the market for government construction contracts.

Related Articles:

  • Government Infrastructure Spending Is Expensive and Inefficient — Government Infrastructure Spending Is Expensive and Inefficient
  • The Death of NYC Congestion Pricing — New York's Metropolitan Transportation Authority has a $19bn operating budget and roughly $11bn in annual capital spending yet builds relatively little, and 4 of the 5 most expensive projects tracked by the NYU-Marron Institute Transit Costs Project are in New York City. High transit construction costs are an America-wide problem, but the author argues they are worst in the city.
  • The Nimby Tax On Britain and America — New motorway bridges in the UK cost more than 3x as much per lane mile as in France, Denmark, or Norway, and adding lanes to existing British roads costs twice as much as in Germany. In both comparisons, only the US has higher costs.

AI Summary. Recent 10-year and 30-year US Treasury auctions each cleared three basis points above the yields trading minutes beforehand, signaling demand significantly weaker than the market expected. Larger and more frequent such gaps since the Federal Reserve began raising interest rates make auction metrics an early indicator of weakening Treasury demand.

Torsten Sløk Apollo
Date Posted:

Since the start of the hiking cycle, there have been larger and more frequent yield differences between when-issued Treasuries and actual auction yields, or “tails.” Torsten Sløk argues this signals weakening demand for Treasuries.

Do government bond auction results signal weakening demand for Treasuries?

Core argument: The 10-year and 30-year Treasury auctions both tailed three basis points, meaning results came in three basis points above where the when-issued yield traded minutes before the auction closed at 1 p.m., signaling demand significantly weaker than expected.

When a US government bond auction is announced, a new when-issued bond starts trading, which allows the market to trade the new Treasury bond before the auction has completed. Such trading activity promotes price discovery and allows the market to trade the government bond before it is available for sale. When the auction is complete, the yield difference between the when-issued bond and the new bond is generally called the tail. Specifically, a one basis point tail means that the auction result was one basis point higher than where the when-issued yield was trading minutes before the auction was completed, normally at 1 p.m. This past week, there were auctions for 10-year and 30-year Treasuries, and they both tailed three basis points, which signals that demand for Treasuries was significantly weaker than the market expected. The bottom line is that the trend of larger and more frequent tails since the Fed started raising interest rates in March 2022 underscores the importance of investors closely monitoring Treasury auction metrics. These metrics can provide early indications of weakening demand for Treasuries.

Takeaways by Macro Roundup® AI

  1. The 10-year and 30-year Treasury auctions both tailed three basis points, meaning results came in three basis points above where the when-issued yield traded minutes before the auction closed at 1 p.m., signaling demand significantly weaker than expected.
  2. Auction tails, the yield difference between the when-issued bond and the new bond, have grown larger and more frequent since the Federal Reserve began raising interest rates in March 2022.
  3. Treasury auction metrics such as tails can provide early indications of weakening demand for US government bonds, making close monitoring of auction results important for investors.

Related Articles:

  • An Update to the Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • In 2023 Foreign Demand for Long Term Treasuries Exceed Net Issuances — Foreign demand for long-term US Treasuries, at just over $450bn, exceeded the Treasury's net long-term issuance of just over $400bn, with that demand not coming from China. Net long-term issuance lagged the fiscal deficit—roughly 1.5% of GDP versus 6%—leaving the increase in the stock of long-term "safe" US assets modest.

AI Summary. Changes in US and global neutral real interest rates have driven most movements in emerging and developed market neutral rates over 25 years, passing through almost one-for-one. The authors find cross-country differences are accounted for by income per person, inflation, and current account balances, with no independent role for growth or government debt.

Kevin Daly Goldman Sachs
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Kevin Daly notes that r* tracks US/Global r*, while cross-country variation is driven by GDP per capita, inflation, and current account and government balances.

What explains differences in neutral real interest rates across countries?

Core argument: Changes in US/global r* have driven most developments in emerging- and developed-market neutral real rates over the past 25 years, passing through almost one-for-one, while country-specific spreads have stayed largely stable in aggregate, falling in some economies and rising in others.

Developments in EM and DM neutral real rates over the past 25 years have mostly been driven by changes in US/global r*, which have an almost one-for-one impact on other economies. Country-specific spreads have remained largely stable in aggregate, falling in some economies but rising in others.In the latest five-year period (2020-24), the neutral real rate spread vs. the US has ranged from negative in some DM economies (notably Japan, the Euro area and Switzerland) to more than 10pp in some high-yield EM economies that have experienced major currency weakness (Turkey and Egypt).We find that most of the cross-country variation in neutral real rates is accounted for by three factors: GDP per capita levels, inflation, and current account balances (the latter are a more important factor for EMs than DMs). A 10pp convergence in GDP per capita lowers neutral real rates (r*) by 12bp (all else equal), 1pp higher average inflation raises r* by 33bp, and a 1pp improvement in the current account balance lowers r* by 7bp (and by 20bp in EM economies). We find no independent role for a range of other factors, including GDP growth, government balances, and government debt levels.

Takeaways by Macro Roundup® AI

  1. Changes in US/global r* have driven most developments in emerging- and developed-market neutral real rates over the past 25 years, passing through almost one-for-one, while country-specific spreads have stayed largely stable in aggregate, falling in some economies and rising in others.
  2. Three factors account for most cross-country variation in neutral real rates: a 10pp convergence in GDP per capita lowers r* by 12bp, 1pp higher average inflation raises it by 33bp, and a 1pp improvement in the current account balance lowers it by 7bp, or 20bp in emerging markets.
  3. Over 2020–24, neutral real rate spreads versus the US ranged from negative in developed economies such as Japan, the Euro area and Switzerland to more than 10pp in high-yield emerging markets that experienced major currency weakness, including Turkey and Egypt.

Related Articles:

  • 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.
  • 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.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — 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.

AI Summary. The US Chips Act is a bet that Intel, Micron, Taiwan Semiconductor Manufacturing, and Samsung can return advanced chip production to the US, with an explicit goal of making a fifth of the world's most advanced processors by 2030, up from roughly zero. Nearly 100 companies have pledged about $400bn in US facilities.

Mackenzie Hawkins Bloomberg
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Citing BCG data, Bloomberg estimates that Chips Act grants will increase the global share of US fabs to 14% in 2032 from 10% today. In the absence of the Chips Act, BCG estimates the US share would have declined to 8%.

Can subsidies bring advanced chip manufacturing back to the US?

Core argument: An explicit goal of the Chips Act is for the US to make a fifth of the world's most advanced processors by 2030, up from roughly zero today.

The Chips Act, enacted two years ago Friday, is the nation’s most audacious foray into industrial policy since World War II. It’s essentially a bet that four companies — Intel Corp., Micron Technology Inc., Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. — can bring sophisticated chip production back to the US. In a sign of the ambition, one explicit goal is making a fifth of the world’s most advanced processors by 2030, up from roughly zero today. On all fronts, there’s progress. In the past several years, nearly a hundred companies have pledged to spend roughly $400 billion on US facilities. Over half of that comes from a trio of top chipmakers — TSMC, Intel, and Samsung — that are planning a slew of new chip fabrication centers, or fabs, to manufacture their most cutting-edge technology.

Takeaways by Macro Roundup® AI

  1. An explicit goal of the Chips Act is for the US to make a fifth of the world's most advanced processors by 2030, up from roughly zero today.
  2. Nearly 100 companies have pledged roughly $400 billion on US facilities, with over half coming from TSMC, Intel and Samsung, which plan new fabrication centers for their most cutting-edge technology.
  3. The Chips Act is the most audacious US foray into industrial policy since World War II, betting that Intel, Micron, TSMC and Samsung can bring sophisticated chip production back to the US.

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.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • A Mid-Year Temperature Check on Growth — The authors project business investment growth to slow to roughly 3% in the second half of the year as the factory-building boom catalyzed by CHIPS Act and Inflation Reduction Act subsidies has peaked. They expect downstream investment in factory equipment and artificial-intelligence-related computer hardware and software to eventually take its place, though the timing is uncertain.

AI Summary. A Financial Times investigation found that about 40% of the largest US manufacturing investments announced in the first year of the Inflation Reduction Act and Chips and Science Act have been delayed or paused. Of projects worth over $100m, $84bn have been delayed from two months to several years, or paused indefinitely.

Amanda Chu, Alexandra White, and Rhea Basarkar Bloomberg
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The FT finds that 40% of the major manufacturing investments receiving tax credits, loans, and grants via the Inflation Reduction Act and Chips and Science Act “have been delayed for between two months and several years, or paused indefinitely.”

Are large manufacturing projects from new industrial subsidies being delayed?

Core argument: A Financial Times investigation found that 40% of the largest US manufacturing investments announced in the first year of the Inflation Reduction Act and Chips and Science Act have been delayed or paused.

Some 40% of the biggest US manufacturing investments announced in the first year of Joe Biden’s flagship industrial and climate policies have been delayed or paused, according to a Financial Times investigation. The US president’s Inflation Reduction Act and Chips and Science Act offered more than $400bn in tax credits, loans, and grants to spark development of a US cleantech and semiconductor supply chain. However, of the projects worth more than $100mn, a total of $84bn have been delayed for between two months and several years, or paused indefinitely, the FT found.

Takeaways by Macro Roundup® AI

  1. A Financial Times investigation found that 40% of the largest US manufacturing investments announced in the first year of the Inflation Reduction Act and Chips and Science Act have been delayed or paused.
  2. Among projects worth more than $100mn, $84bn have been delayed for between two months and several years or paused indefinitely, according to the Financial Times.
  3. The Inflation Reduction Act and Chips and Science Act offered more than $400bn in tax credits, loans, and grants to spark development of a US cleantech and semiconductor supply chain.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • ‘Transformational Change’: Biden’s Industrial Policy Begins to Bear Fruit — Financial Times research identified more than 75 large-scale US manufacturing announcements following the passage of American semiconductor and clean-energy subsidy laws, with companies committing roughly $204bn to boost semiconductor and clean-tech production and promising at least 82,000 jobs. That is almost double the capital spending commitments made in those sectors two years earlier.

AI Summary. Real U.S. gasoline prices are lower than they have been 63% of the time this century, with the average production and nonsupervisory worker needing 8.65 hours of work to fill a 16-gallon tank. Greater domestic crude production is a key driver, with U.S. output exceeding any country's in history.

Ryan Cummings Briefing Book
Date Posted:

At $3.46/gal US gas prices are lower than they have been for 63% of the 21st century; the key driver of low real prices is record US domestic crude oil production. @weakinstrument

Is record domestic oil production making gasoline more affordable for workers?

Core argument: The U.S. national average gas price fell to $3.46/gal on Friday, August 9, and real gas prices are lower than they have been 63% of the time this century.

Gas prices are falling, with the national average down to $3.46/gal last Friday, August 9—not that you’ll be hearing about it on TV. (As we showed in May TV rarely covers gas prices when they drop below $3.50/gal.) Indeed, real gas prices are lower than they have been 63% of the time this century. Put differently, today the average worker (production and nonsupervisory) needs to work 8.65 hours to fill up a typical car’s 16-gallon tank, fewer hours than at most times since the turn of the century (59% of the time, to be exact). A key driver of the recent decline in gas prices is greater domestic crude production. The U.S. is now not only producing more than at any time in our history but more than any country has ever produced, ever.

Takeaways by Macro Roundup® AI

  1. The U.S. national average gas price fell to $3.46/gal on Friday, August 9, and real gas prices are lower than they have been 63% of the time this century.
  2. The average production and nonsupervisory worker must work 8.65 hours to fill a typical 16-gallon tank, fewer hours than at 59% of the time since the turn of the century.
  3. Greater domestic crude production is a key driver of the decline in gas prices, with the U.S. now producing more than at any time in its history and more than any country has ever produced.

Related Articles:

  • The World Is Transitioning to American Oil From Saudi Crude — Saudi Aramco scrapped plans to raise production capacity to 13mm barrels a day from 12mm, a cancellation expected to save $20–40bn in capital spending over five years and signaling insufficient demand for additional Saudi oil. Saudi Arabia, pumping about 9mm barrels a day under OPEC+ cuts, appears set on lower output to support higher prices.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.
  • Bad News Bias in Gasoline Price Coverage — An analysis of over one million television transcripts finds that coverage of gasoline prices shows a negative news bias, ramping up sharply once the nominal price reaches $3.50 a gallon, most steeply at Fox News. Because that threshold is fixed in nominal terms, the inflation-adjusted trigger has fallen by one-third.

Tuesday, August 13, 2024

AI Summary. The authors estimate that the cumulative increase in the U.S.-born population since 2010 was about 1.4m larger, and the foreign-born increase 1.7m larger, than official survey data show. Published data show a decline in the U.S.-born population over a recent one-year span, while the authors estimate an increase of 1.5m.

Wendy Edelberg and Tara Watson Brookings Institution
Date Posted:

.@WendyEdelberg and @taraelizwatson find that the native-born US population continues to grow, but the foreign-born share is ~18.5%, 1pp higher than Census Bureau reports.

Does official survey data understate growth in the US-born population?

Core argument: The authors estimate the cumulative increase in the U.S.-born population since 2010 was about 1.4 million larger than published data show, and the foreign-born increase 1.7 million larger.

We assume the mortality rate is the same at each age for the U.S.-born and foreign-born, and that net international migration adds only to the foreign-born population. We estimate that the cumulative increase in the U.S.-born population since 2010 was about 1.4 million greater than in the published data and the increase in the foreign-born population was 1.7 million greater. The difference in the recent growth in the U.S. born population between CPS reports and our own estimates is particularly noteworthy. The published data show a decline in the U.S.-born population between January 2023 and January 2024. This is at odds with the fact that the number of U.S.-born people turning 16 in 2023 far exceeded the number of deaths in 2023. In contrast, our estimate is that the U.S.-born population increased by 1.5 million, a similar pace to the preceding year.

Takeaways by Macro Roundup® AI

  1. The authors estimate the cumulative increase in the U.S.-born population since 2010 was about 1.4 million larger than published data show, and the foreign-born increase 1.7 million larger.
  2. Published CPS data show the U.S.-born population declining between January 2023 and January 2024, while the authors estimate it rose by 1.5 million, a pace similar to the preceding year.
  3. The authors argue the published decline conflicts with the number of U.S.-born people turning 16 in 2023 far exceeding deaths that year, estimating under the assumptions that mortality rates are equal by age across U.S.-born and foreign-born and that net international migration adds only to the foreign-born population.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • New Immigration Estimates Help Make Sense Of The Pace Of Employment — The Congressional Budget Office estimates net immigration was 3.3m in 2023, versus the 1m it had projected, implying faster population and labor force growth than currently reported. The authors estimate this raised real economic growth by about 0.1 percentage point and, by lifting both production and demand, added little price or wage pressure.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. Fewer than 0.1% of US corporations — roughly 350 firms — account for nearly 70% of the corporate tax base, and these large multinationals can shift profits to lightly taxed offshore locations. The authors argue coordinated minimum taxation narrows the gap between home and foreign tax rates, easing the tradeoff between curbing profit-shifting and competitiveness.

Kimberly Clausing Journal of Economic Perspectives
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.@KClausing notes that 350 US firms represent 70% of the tax base, and argues that international cooperation is required to maintain competitiveness of domestic firms while preventing profit-shifting to low-tax jurisdictions.

Can coordinated minimum taxation ease the tradeoff between curbing profit-shifting and competitiveness?

Core argument: Fewer than 0.1% of all US corporations — about 350 firms — account for nearly 70% of the corporate tax base, according to the 2022 IRS Statistics of Income database, and these large firms are far more likely to be multinational.

A small number of large corporations have disproportionate economic heft; these companies are also far more likely to be multinational companies. According to the [2022] IRS Statistics of Income database fewer 0.1% of all corporations, or about 350 firms, account for nearly 70% of the tax base. These large firms have the ability to shift profits to more lightly taxed offshore destinations. Concerns [about competitiveness] made it difficult for US policymakers to satisfy key policy goals: clamping down on profit-shifting would raise competitiveness worries, but being too responsive to competitiveness worries would spur further tax base erosion. Coordinated minimum taxation shrinks tax differentials between home tax rates and the lowest rate abroad, enabling governments to better set corporate tax policy based on domestic policy goals. As US policymakers contemplate reform of international corporate taxation in the years ahead, traditional tax policy dilemmas will be less stark. While the Base Erosion and Profit Shifting agreement and the Pillar 2 rules can be improved over time, they illustrate the importance of international economic cooperation in addressing global collective action problems.

Takeaways by Macro Roundup® AI

  1. Fewer than 0.1% of all US corporations — about 350 firms — account for nearly 70% of the corporate tax base, according to the 2022 IRS Statistics of Income database, and these large firms are far more likely to be multinational.
  2. US policymakers faced competing pressures in international corporate taxation: clamping down on profit-shifting raised competitiveness worries, while being too responsive to those worries spurred further tax base erosion.
  3. Coordinated minimum taxation shrinks the differential between home tax rates and the lowest rates abroad, which the authors argue lets governments set corporate tax policy according to domestic goals and makes traditional tax policy dilemmas less stark.

Related Articles:

  • Tax Policy and Investment in a Global Economy — Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.
  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • Lessons from the Biggest Business Tax Cut in US History — The authors find the 2017 US business tax cuts reduced corporate tax revenue by 40% while raising total tangible corporate investment by about 11%, with firms facing larger tax declines investing relatively more. They estimate long-run GDP is higher by under 1% and labor income by under $1,000 per employee.
  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.

AI Summary. A National Association of Realtors measure combining median existing-home prices, mortgage rates and median family incomes shows affordability roughly unchanged from the mid-1980s, but the drivers differ: mortgage rates then exceeded 10% with prices not unusually high relative to incomes, while prices have risen more than 50% since 2019 with rates just below 6.5%.

Nicole Friedman and Alana Pipe Wall Street Journal
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Housing affordability has fallen to levels last seen in the 1980s, driven primarily by high home prices relative to median family income. Mortgage rates around 6.5% remain below the long-term average since 1971.

Do high prices rather than high mortgage rates now drive unaffordability?

Core argument: The income needed to afford the median-priced single-family home with 20% down rose from $49,152 in January 2021 to $110,544 in June 2024, according to the National Association of Realtors' affordability index.

The National Association of Realtors’ affordability metric incorporates median single-family existing-home prices, mortgage rates and median family incomes. Even though it is roughly the same today as in the mid-1980s, the drivers of the housing market and consumer sentiments are nothing alike. In the mid-1980s, home prices weren’t unusually high relative to incomes. It was the mortgage rate, which soared above 18% in 1981 and held above 10% for most of the decade, that frustrated buyers. Mortgage rates currently sit just below 6.5%, according to Freddie Mac, which is more than double where they stood in 2021 but below the long-term average level since 1971. But home prices are much higher, having soared more than 50% since 2019. In January 2021, a family needed income of $49,152 to afford the median-priced single-family home with a 20% down payment, according to NAR’s affordability index. In June 2024, the family would need an income of $110,544 to make the same purchase. New-home construction plunged during the financial crisis and took years to recover. Home builders built 1.4 million units last year, compared with 1.7 million units in 1985, according to Census Bureau data. And shipments of manufactured homes, one of the most affordable types of housing, stood just under 90,000 last year, down from more than 280,000 in 1985.

Takeaways by Macro Roundup® AI

  1. The income needed to afford the median-priced single-family home with 20% down rose from $49,152 in January 2021 to $110,544 in June 2024, according to the National Association of Realtors' affordability index.
  2. Mortgage rates topped 18% in 1981 and stayed above 10% for most of that decade, while home prices were not unusually high relative to incomes; rates now sit just below 6.5%, per Freddie Mac, and prices have risen more than 50% since 2019.
  3. Home builders built 1.4 million units last year versus 1.7 million in 1985, and manufactured-home shipments stood just under 90,000, down from more than 280,000 in 1985, according to Census Bureau data.

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%.
  • Inflation Adjusted House Prices 1.9% Below 2022 Peak — Inflation-adjusted US house prices stand 1.9% below their 2022 peak. The monthly principal-and-interest payment on a $500,000 house bought with 20% down has roughly doubled over three years, rising 102% as prices climbed 26% and 30-year mortgage rates went from 2.96% to 7.06%.
  • Young Families Have Continued Leaving Big Cities Post-Pandemic — Large urban counties have continued to lose population of young children even as their overall population growth resumed, driven by immigration. Birth rates in large urban counties have declined twice as fast as in rural counties over the past decade, and the number of children under five fell in 58% of all US counties.

AI Summary. Commercial bank loan growth paused amid high interest rates and a regional banking panic, then resumed as rates declined, normalizing toward a pre-pandemic pace though slower than its earlier peak. Private credit blunted the impact of tighter monetary policy, research suggests, by both competing with public debt offerings and lending to companies that struggle to borrow from banks.

Joseph Wang Fed Guy Blog
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.@FedGuy12 notes private credit has “blunted the impact of tightening monetary policy by actively lending to a wide range of businesses,” and that bank credit is “normalizing towards a pre-pandemic pace.”

Is bank loan growth resuming as interest rates decline?

Core argument: Commercial bank loan growth paused last year amid high interest rates and the regional banking panic, and has steadily resumed as rates have declined, normalizing toward a pre-pandemic pace rather than the rapid 2022 rate.

Commercial bank loan growth paused last year amidst high rates and the regional banking panic but looks to resume just as economic growth concerns are surfacing. Private credit has blunted the impact of tightening monetary policy by actively lending to a wide range of businesses. Research suggests private credit has grown by both competing with public debt offerings and by willing to offer credit to companies who have difficulty borrowing from banks. The surge in private lending helped fill the void created by the decline in bank lending. However, bank lending has steadily resumed in recent months as interest rates have declined. Loan growth is not as rapid as 2022, but appears to be normalizing towards a pre-pandemic pace.

Takeaways by Macro Roundup® AI

  1. Commercial bank loan growth paused last year amid high interest rates and the regional banking panic, and has steadily resumed as rates have declined, normalizing toward a pre-pandemic pace rather than the rapid 2022 rate.
  2. Private credit blunted the impact of tighter monetary policy by lending actively to a wide range of businesses, helping fill the void created by the decline in bank lending.
  3. Research suggests private credit has grown both by competing with public debt offerings and by extending credit to companies that have difficulty borrowing from banks.

Related Articles:

  • Private Credit Growth and Monetary Policy Transmission — Private credit — direct lending to businesses by nonbank institutions — accounts for about 15% of private companies' outstanding debt, with volumes comparable to leveraged loans and high-yield corporate bonds. The authors find monetary policy transmission through private credit may be muted relative to bank lending and public bond markets, given resilient credit supply.
  • Where Are All the Defaults? — One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.
  • Economic Effects of Tighter Lending by Banks — Bank lending standards tightened to a degree previously seen only during the 2008 financial crisis and the onset of the COVID-19 pandemic, with the tightening beginning well before the bank collapses and affecting businesses of all sizes. The analysis attributes about 23pp of the tightening to credit supply shocks and about 22pp to lending standards responding to broader economic conditions.

AI Summary. Households across income groups accumulated large amounts of liquid wealth after the onset of the pandemic recession and subsequently spent it down, with credit card delinquency rates falling and then rising as that wealth rose and fell. Delinquency rates for middle and low-income households grew more rapidly and now sit about 3 percentage points above pre-pandemic levels.

Hamza Abdelrahman, Luiz Edgard Oliveira, and Adam Shapiro Federal Reserve Bank of San Francisco
Date Posted:

The bottom 80% of households by income exhausted their extra pandemic-era savings by late 2021, and their credit card delinquencies rates are now about 3 percentage points above late-2019 levels. @ah_shapiro

Has the drawdown of pandemic-era liquid wealth raised credit card delinquencies?

Core argument: Credit card delinquency rates for middle- and low-income households sit about 3 percentage points above late-2019 levels, having grown more substantially and more rapidly than those of high-income households.

We assess the evolution of pandemic-era liquid wealth across two income groups: high-income and middle to low-income. We find that households in both income groups accumulated and subsequently spent large amounts of liquid wealth following the onset of the pandemic recession. The rise and fall in household liquid wealth coincided with a fall and subsequent rise in credit card delinquency rates for both groups. Higher-income households held pandemic-era liquid wealth until mid-2022, and credit card delinquencies started to increase above pre-pandemic levels shortly thereafter. These households recently increased their liquid asset holdings by shifting funds into money market funds, likely fueled by higher interest rates. Middle and low-income households spent down their entire pandemic-era liquid wealth a bit earlier, by late 2021. Similar to high-income households, credit card delinquency rates for middle and low-income households surpassed pre-pandemic levels around the same time they completely drew down their pandemic-era liquid wealth. However, delinquency rates for this group grew more substantially and more rapidly than high-income households and now sit about 3 percentage points above late-2019 levels.

Takeaways by Macro Roundup® AI

  1. Credit card delinquency rates for middle- and low-income households sit about 3 percentage points above late-2019 levels, having grown more substantially and more rapidly than those of high-income households.
  2. Middle- and low-income households spent down their entire pandemic-era liquid wealth by late 2021, and their credit card delinquency rates surpassed pre-pandemic levels around the same time.
  3. Higher-income households held pandemic-era liquid wealth until mid-2022 and have since increased liquid asset holdings by shifting funds into money market funds, likely fueled by higher interest rates.

Related Articles:

  • Pandemic Savings Are Gone: What’s Next for U.S. Consumers? — Researchers estimate U.S. households' pandemic-era excess savings peaked at $2.1tn and were drawn down at an average pace of about $70bn per month before being depleted. The depletion is unlikely to cause households to sharply cut spending as long as they can support consumption through continued employment or wage gains, other wealth, and more debt.
  • The Rich Have all the “Excess” Cash Now — Excess cash balances outside the top 1% have mostly disappeared, but the author argues their liquidation did little to finance consumer spending, which has been driven mainly by wage income. Relatively low household debt leaves many Americans room to spend above their income, potentially aided by lower interest rates.
  • Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective — The authors construct measures of excess household savings accumulated during the COVID-19 pandemic and find they have been unwound in the United States, declined in advanced foreign economies, and slowed in emerging market economies. Past recessions featured smaller increases in excess savings and greater persistence in the accumulated stock.