Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, August 23, 2024

AI Summary. The authors identify a "Beveridge threshold" level of labor market tightness—the ratio of job vacancies to unemployed workers—below which the relationship between inflation and economic activity steepens and labor market adjustment occurs mainly through vacancies rather than unemployment. They estimate that during the post-pandemic inflation surge the unemployment rate fell as much as 1.08 percentage points below this threshold.

Pierpaolo Benigno and Gauti Eggertsson Federal Reserve Bank of Kansas City
Date Posted:
Is Database:
Database

.@PierpaBenigno and @GautiEggertsson argue that inflation rose sharply in 2022 due to labor market tightening well beyond the “Beveridge Threshold,” where job vacancies exceed unemployed workers.

Does labor market tightness beyond a threshold steepen the inflation tradeoff?

Core argument: The gap between the unemployment rate and the Beveridge-threshold rate widened to a maximum of -1.08% in March 2022 at the peak of the inflationary surge, with unemployment at 3.65% against a threshold rate of 4.73%.

The Phillips curve [PC] relates inflation to economic activity. The Beveridge curve [BC] [relates] job vacancies v and the unemployed u. A metric of labor market tightness is the ratio v/u. The Beveridge threshold [BT] marks a critical point, measured by the ratio v/u, that triggers fundamental changes in both the PC and the BC. Once the BT is crossed, the PC becomes steeper and more prone to generating inflation, while the BC becomes nearly vertical, with most labor market adjustments occurring through changes in vacancies. The BT marks an unemployment rate that triggers stronger inflationary pressures, which we call the Beveridge threshold (BT) unemployment rate, the point below which the Phillips curve steepens significantly. Figure 30 plots the unemployment rate in comparison with the BT counterpart, The post-pandemic episode started in May 2021, with the gap suddenly widening to a maximum of -1.08% exactly in March 2022 at the peak of the inflationary surge. At that time, the unemployment rate was at 3.65%, while the Beveridge-threshold rate lagged behind at 4.73%. This gap is another way to read the pressure coming from the labor market to inflation, combined with the steep part of the Phillips curve.

Takeaways by Macro Roundup® AI

  1. The gap between the unemployment rate and the Beveridge-threshold rate widened to a maximum of -1.08% in March 2022 at the peak of the inflationary surge, with unemployment at 3.65% against a threshold rate of 4.73%.
  2. The Beveridge threshold, measured by the vacancy-to-unemployment ratio, marks the point below which the Phillips curve steepens and becomes more prone to generating inflation, while the Beveridge curve becomes nearly vertical.
  3. Once the Beveridge threshold is crossed, most labor market adjustments occur through changes in vacancies; the post-pandemic episode started in May 2021.

Related Articles:

  • An Analysis of Pandemic-Era Inflation In 11 Economies — 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.
  • Markets Think Inflation Will Be Too High For The Next 20 Years — Inflation expectations derived from the gap between regular Treasury yields and inflation-indexed Treasury yields show expected annual inflation over the next 10 and 20 years running considerably above expected inflation for the decade beginning 20 years out. Before the pandemic-era inflation surge, actual inflation and expected future inflation tracked each other closely.
  • 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%.

AI Summary. An analysis of executive assessments finds four factors—general ability, execution versus interpersonal skills, charisma versus analytical skills, and creative-strategic versus detail-oriented—explain roughly half the variation in candidate characteristics. Hired CEOs in the later period are more analytical and more detail-oriented, though still more charismatic and more strategic than the average candidate.

Yann Decressin, Steven Kaplan and Morten Sorensen National Bureau of Economic Research
Date Posted:

In a study of 1,299 candidates for CEO positions from 2000 to 2019, @KaplAnalysis compared pre- vs. post-2009 results, and found that, “interpersonal or ‘softer’ skills do not increase over time, either for CEO candidates or hired CEOs.”

How have the traits of hired CEOs changed over time?

Core argument: Four factors — general ability, execution versus interpersonal skills, charisma versus analytical skills, and creative-strategic versus detail-oriented — explain roughly half the total variation in specific characteristics across the sample of executive assessments.

We find that four factors–which we interpret as [1] general ability, [2] execution vs. interpersonal skills, [3] charisma vs. analytical skills, and [4] being creative-strategic vs. detail-oriented–explain roughly half the total variation in the specific characteristics for this sample of executive assessments. The hypothesis “E=L” is that the factor scores for the hired CEO candidates are the same in the early and late periods. For general ability (factor 1) and interpersonal versus execution skills (factor 2), the factor scores are largely similar in the early and late periods; we see no evidence of changes in the hired CEOs for these two factors.Turning to factors 3 and 4, the last columns of Panel A of Table 3 reveal some significant changes. In the late period, hired CEOs are more analytical and less charismatic (increasing factor 3), although the hired CEOs are still more charismatic than the average candidate (negative factor 3). Hired CEOs are also less creative-strategic and more detail-oriented (decreasing factor 4), while remaining more strategic than average (positive factor 4).

Takeaways by Macro Roundup® AI

  1. Four factors — general ability, execution versus interpersonal skills, charisma versus analytical skills, and creative-strategic versus detail-oriented — explain roughly half the total variation in specific characteristics across the sample of executive assessments.
  2. Hired CEOs in the late period are more analytical and less charismatic than those in the early period, though they remain more charismatic than the average candidate.
  3. Hired CEOs in the late period are less creative-strategic and more detail-oriented while remaining more strategic than average, and general ability and interpersonal-versus-execution skills show no evidence of change between the early and late periods.

Related Articles:

  • The Market for CEOs: Evidence from Private Equity — In a study of larger U.S. companies bought by private equity, more than 70% hired new chief executives, and over 75% of those were external hires, unlike public companies where internal promotions dominate. The authors estimate these executives' pay exceeds that at similar-sized public companies, suggesting an active market for chief executives.
  • Executive Compensation: The Trend Toward One-Size-Fits-All — A study finds 24% of the variation across chief executive pay components — salary, bonus, stock awards, options, non-equity incentives, pensions, and perquisites — has disappeared, and that greater similarity in pay structure is associated with lower shareholder value. The author identifies institutional investors' influence, proxy advisors' recommendations, and expanded compensation disclosure as drivers of this standardization.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Adjusting United Nations figures for lower recorded births, the author estimates the global fertility rate was 2.18, below the 2.21 replacement threshold. Population is not yet falling because women born in the 1990s and 2000s are having children while older generations live longer, so births still exceed deaths, with a projected peak in about 30 years.

Jesus Fernandez-Villaverde The Spectator
Date Posted:

Jesus Fernandez-Villaverde estimates UN projections overstate the fertility rate which he puts at 2.18 and argues “Creating the conditions for large families to flourish is the only way to reverse the trend in fertility rates.” @AEIecon

Has the global fertility rate already fallen below replacement?

Core argument: Adjusting UN figures for lower recorded births, the author estimates the global fertility rate last year was 2.18, below the 2.21 replacement threshold, and argues it may be lower still if African birth rates fell more than the UN estimated.

By adjusting the UN’s figures to account for the lower births in many countries, I estimate the global fertility rate last year was 2.18, i.e. below the 2.21 replacement threshold. It could be even lower than that, as it’s likely that the birth rate in many African countries saw a larger fall than the UN estimated. This doesn’t mean the global population is already falling. ‘Demographic momentum’ means that women born in the 1990s and 2000s are currently having children, while their parents’ generations haven’t yet died. Longevity, meanwhile, is increasing. So although global births are falling, they still exceed deaths. At present rates the human population will peak in around 30 years. Then start plummeting. Creating the conditions for large families to flourish is the only way to reverse the trend in fertility rates. If we fail to do so, then the coming demographic winter will be far harsher than anyone cares to admit.

Takeaways by Macro Roundup® AI

  1. Adjusting UN figures for lower recorded births, the author estimates the global fertility rate last year was 2.18, below the 2.21 replacement threshold, and argues it may be lower still if African birth rates fell more than the UN estimated.
  2. Demographic momentum and rising longevity mean global births still exceed deaths, with women born in the 1990s and 2000s now having children while their parents' generations have not yet died.
  3. At present rates the author projects the human population will peak in around 30 years and then plummet, arguing that creating conditions for large families to flourish is the only way to reverse falling fertility.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.

AI Summary. Chinese policy advisers say China's leadership is guided by building a self-sufficient industrial supply chain that could withstand severe Western sanctions and by a philosophical objection to U.S.-style consumption as wasteful. That leaves exports as the main route to stabilizing a weakened economy and replacing jobs lost in domestic construction, shifting job losses to workers abroad.

Lingling Wei and Jason Douglas Wall Street Journal
Date Posted:
Is Database:
Database

Chinese export volumes adjusted for FX rates were up 10% since the end of 2021 relative to 1.5% for the rest of the world. @michaelxpettis notes of the export strategy, “The rest of the world wants the opposite. The world cannot accommodate it.”

Why is China relying on exports rather than domestic consumption?

Core argument: Chinese policy advisers say Xi is guided by the goal of building an all-encompassing industrial supply chain that can keep the domestic economy running under severe sanctions by the U.S. and other Western countries.

Two principles have guided Xi’s thinking, Chinese policy advisers say. The first is that China must build an all-encompassing industrial supply chain that can keep the domestic economy running in the event of severe sanctions by the U.S. and other Western countries. In the top leader’s views, advisers say, industrial security sits at the core of China’s stability as tensions with the developed world rise. The second is a deep-rooted philosophical objection to U.S.-style consumption, which Xi sees as wasteful. That leaves China with few options other than investing in exports to stabilize its weakened economy and create jobs to make up for losses in domestic construction. The upshot: Rather than Chinese workers losing their jobs, steelworkers in Brazil, chemical engineers in Europe, and solar panel makers in the U.S. may lose theirs.

Takeaways by Macro Roundup® AI

  1. Chinese policy advisers say Xi is guided by the goal of building an all-encompassing industrial supply chain that can keep the domestic economy running under severe sanctions by the U.S. and other Western countries.
  2. Xi holds a deep-rooted philosophical objection to U.S.-style consumption as wasteful, according to Chinese policy advisers, leaving China with few options other than investing in exports to stabilize its weakened economy and replace jobs lost in domestic construction.
  3. Rather than Chinese workers losing their jobs, steelworkers in Brazil, chemical engineers in Europe, and solar panel makers in the U.S. may lose theirs.

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.
  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • Brazil, India, and Mexico Are Taking on China’s Exports — 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.

Monday, August 26, 2024

AI Summary. When governments insulate taxpayers rather than bondholders from unfunded spending shocks, government bond yields rise as debt is marked to market, shifting the risk to bondholders — a "risky debt" regime the authors argue better fits recent experience. In that regime, large-scale central bank asset purchases give government bonds temporary price support at a net loss to taxpayers.

Roberto Gomez-Cram, Howard Kung, and Hanno Lustig Federal Reserve Bank of Kansas City
Date Posted:
Is Database:
Database

.@HannoLustig and @rgomezcram argue the pandemic was a period of “fiscal dominance” in which bondholders insulated taxpayers from increased spending by absorbing capital losses. From March 2020 to March 2022, the government’s real debt fell by 10%.

Who bears the risk of unfunded government spending, taxpayers or bondholders?

Core argument: When governments and central banks insulate taxpayers rather than bondholders from spending shocks, bond yields rise as unfunded fiscal expansions mark government debt to market, shifting risk onto bondholders — a risky debt regime the authors find fits recent experience.

Governments and central banks can protect either taxpayers or bondholders from government spending shocks. When they choose to insulate taxpayers, government bond yields increase in response to unfunded fiscal expansions as the government debt is marked to market. The risks of unfunded spending shocks are then borne by bondholders. This risky debt regime is a better fit for recent experience. High-frequency evidence from the COVID episode links U.S. In Figure 12, the cumulative change in the Treasury portfolio valuation on large negative proposal days [in red] exhibits a smooth downward trend over the extended sample, implying that the effects are attributed to a consistent flow of fiscal news rather than a few large observations. Between March 2020 and March 2022, the effect is much larger, as shown by the significant steepening of the red line. During COVID the overall value changes shown by the blue line were primarily driven by fiscal news. [Finally], in this risky debt regime, large-scale asset purchases in response to large government spending provide temporary price support to government bonds, a net loss for taxpayers.

Takeaways by Macro Roundup® AI

  1. When governments and central banks insulate taxpayers rather than bondholders from spending shocks, bond yields rise as unfunded fiscal expansions mark government debt to market, shifting risk onto bondholders — a risky debt regime the authors find fits recent experience.
  2. Cumulative Treasury portfolio valuation changes on large negative fiscal-proposal days trend smoothly downward across the sample, implying a consistent flow of fiscal news rather than a few large observations, with marked steepening between March 2020 and March 2022.
  3. In the risky debt regime, large-scale asset purchases made in response to large government spending give government bonds temporary price support and represent a net loss for taxpayers.

Related Articles:

  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements — Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.

AI Summary. Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

Larry Summers, Bob Rubin, Greg Jensen, et al. Bridgewater Associates
Date Posted:
Is Database:
Database

Fiscal deficits at current levels will manifest in “substantial inflationary pressure, substantial indigestion in the Treasury markets with financial chaos, or substantial crowding out of what would be otherwise valuable private investment.” @LHSummers

Does the case for fiscal consolidation depend on the interest rate environment?

Core argument: Larry Summers says that since 2021 he has viewed the fiscal situation with growing alarm, expecting it to manifest as substantial inflationary pressure, indigestion in Treasury markets with financial chaos, or crowding out of otherwise valuable private investment.

If Simpson-Bowles had been implemented, given that we were already at zero interest rates and massive QE, there would have been a systematic risk of excessive deflation and disinflation without a healthy tool—because there wouldn’t have been any room for long rates to fall and so there wouldn’t have been any offsetting expansionary impulse. So I was very much not a fiscal hawk in the 2011-19 period. And I would stand by those judgments. But in economics, unlike physics, you have to adjust your way of thinking to the fact that the world changes quite profoundly. And in the aftermath of the big run-up of debt and the many reasons to have real interest rate increases, it has seemed to me since 2021, with growing degrees of alarm, that we have a very, very serious fiscal situation developing, which is likely to manifest itself in one of substantial inflationary pressure, substantial indigestion in the Treasury markets with financial chaos, or substantial crowding out of what would be otherwise valuable private investment.

Takeaways by Macro Roundup® AI

  1. Larry Summers says that since 2021 he has viewed the fiscal situation with growing alarm, expecting it to manifest as substantial inflationary pressure, indigestion in Treasury markets with financial chaos, or crowding out of otherwise valuable private investment.
  2. Summers argues that implementing Simpson-Bowles would have created systematic risk of excessive deflation and disinflation, because with zero interest rates and massive QE there was no room for long rates to fall to provide an offsetting expansionary impulse.
  3. Summers stands by not being a fiscal hawk in the 2011-19 period, adding that economics, unlike physics, requires adjusting one's thinking to a world that changes profoundly, citing the run-up in debt and reasons for real interest rate increases.

Related Articles:

  • Weaker Demand for Treasuries — 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.
  • An Update from Our CIOs: How Durable Is the Economy? — Central banks will likely struggle to deliver the stimulus already priced into rate markets, and the cost of capital must rise enough to offset structurally higher government borrowing and durable private demand. Artificial intelligence spending is inflationary near-term while building capacity, but its deflationary potential is massive and could arrive fast.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.

AI Summary. A new public database estimates US inflation separately by household income, age, race, and other characteristics, using the official consumer price index methodology. Using these distributional indices, real income for the bottom fifth of households rose 2.1% rather than 12.5%, and income inequality between the top and bottom fifths grew 30% faster.

Xavier Jaravel London School of Economics
Date Posted:
Is Database:
Database

@XJaravel finds inflation rates differ by income quintiles. Accounting for inflation inequality reduces 1983-2019 real income growth for the bottom quintile from 12.5% to 2.1%, and from 19.1% to 12.0% for the next, with little change at the top.

Does measuring inflation by household group change inequality trends?

Core argument: Real income for the bottom U.S. income quintile rose 12.5% from 1983 to 2019 under the official CPI but only 2.1% using distributional CPIs, according to the author's estimates.

This paper develops a new public database providing estimates of inflation heterogeneity across sociodemographic groups in the United States in real time. These distributional CPIs (D-CPIs) are fully consistent with the methodology of the official CPI and are available from 2002 to the present day, by household income, age, race, and other characteristics. It is simple to keep expenditure shares fixed in 2002 and build the price index in prior years using these shares, going back to 1983. Using this longer data set, I establish that D-CPIs have important implications for the measurement of long-run trends in inequality and poverty. Figure 15 plots household real income from 1983 to 2019. Real income for the bottom quintile increased by 12.5% according to the official CPI, but by only 2.1% with D-CPI. With D-CPIs, real income inequality between the top and bottom income quintiles increased 30% faster than with the nominal CPI.

Takeaways by Macro Roundup® AI

  1. Real income for the bottom U.S. income quintile rose 12.5% from 1983 to 2019 under the official CPI but only 2.1% using distributional CPIs, according to the author's estimates.
  2. Measured with distributional CPIs, real income inequality between the top and bottom U.S. income quintiles increased 30% faster than when measured with the nominal CPI.
  3. The paper builds a public database of real-time inflation estimates by household income, age, race, and other characteristics, consistent with official CPI methodology and covering 2002 to the present, extended back to 1983 using expenditure shares fixed in 2002.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Inflation Usually Hits America’s Poor Hardest. Not This Time — Research on the distributional effects of US inflation finds an inverted-U pattern in which middle-income households faced the highest inflation, at roughly 15.5%, compared with about 13.5% for the lowest earners and about 14% for the wealthiest. Nominal wages rose about 4.2% a year on average, with the lowest-earning quartile seeing the largest gains at 5.3%.
  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.

AI Summary. China's industrial output has grown about 23% since 2019 and real export volumes about 34%, while real imports rose just 6%, with the weakness concentrated in household demand. Nominal retail spending on consumer goods and meals has grown about 3.5% a year, leaving it roughly 16% below its pre-pandemic trend.

Matt Klein The Overshoot
Date Posted:
Is Database:
Database

Noting the growing gap between demand and supply in China, @M_C_Klein depicts Chinese producers as “increasingly reliant on dumping excess output into world markets.”

Is weak household demand, not industrial strength, driving China's trade imbalance?

Core argument: China's real export volumes are up about 34% since December 2019 while real imports have risen only 6% over the past five years, and industrial output has grown about 23%, substantially less than the pre-pandemic trend implied.

China’s industrial output has grown by about 23% since December 2019—substantially less than would have been expected based on the pre-pandemic trend—but its real export volumes are up by about 34% even as its real imports have only increased by 6% over the past five years. The weakness in Chinese demand is concentrated among households. Nominal retail spending on consumer goods and meals has grown at an average rate of just 3.5% a year since 2019. That is not just an artifact of the pandemic. Nominal spending in January-July 2024 was just 3.5% higher than in January-July 2023. The current pace of retail spending is about 16% below what might have been expected based on the pre-pandemic trend, and that gap continues to grow.

Takeaways by Macro Roundup® AI

  1. China's real export volumes are up about 34% since December 2019 while real imports have risen only 6% over the past five years, and industrial output has grown about 23%, substantially less than the pre-pandemic trend implied.
  2. Chinese nominal retail spending on consumer goods and meals has grown just 3.5% a year on average since 2019, leaving the current pace about 16% below the pre-pandemic trend, a gap that continues to grow.
  3. The weakness in Chinese demand is concentrated among households, with nominal retail spending in January–July 2024 only 3.5% above the same period in 2023.

Related Articles:

  • Why China Is Starting a New Trade War — Chinese policy advisers say China's leadership is guided by building a self-sufficient industrial supply chain that could withstand severe Western sanctions and by a philosophical objection to U.S.-style consumption as wasteful. That leaves exports as the main route to stabilizing a weakened economy and replacing jobs lost in domestic construction, shifting job losses to workers abroad.
  • Why Xi Jinping Is Afraid to Unleash China’s Consumers — China's push for self-sufficiency began in the mid-2000s, and its reliance on global supply chains for inputs into its products has declined alongside that strategy, alongside a doctrine of "comprehensive national security" spanning the economy and society. Analysts argue China now gauges national power in military capacity rather than purely economic terms, making manufacturing central.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.

AI Summary. The 15 largest aerospace and defence contractors are forecast to generate $52bn in free cash flow in 2026, almost double their combined 2021 level, as governments increase orders for new weapons. Five top US contractors alone are projected to produce $26bn, more than twice their 2021 total.

Sylvia Pfeifer, Patrick Mathurin and Patricia Nilsson Financial Times
Date Posted:

According to an FT analysis, the top 15 defense contractors’ free cash flow will have doubled between 2021 and 2026 as defense spending surges.

Are rising government weapons orders doubling defense contractors' cash flow?

Core argument: The 15 leading global defence contractors are forecast to log free cash flow of $52bn in 2026, almost double their combined cash flow at the end of 2021, according to Vertical Research Partners analysis for the Financial Times.

The world’s largest aerospace and defence companies are set to rake in record levels of cash over the next three years as they benefit from a surge in government orders for new weapons amid rising geopolitical tensions. The leading 15 defence contractors are forecast to log free cash flow of $52bn in 2026, according to analysis by Vertical Research Partners for the Financial Times — almost double their combined cash flow at the end of 2021. Five top US defence contractors are forecast to generate cash flow of $26bn by the end of 2026, more than double the amount in 2021. The figures exclude Boeing, given its recent problems and heavy weighting towards civil aerospace.

Takeaways by Macro Roundup® AI

  1. The 15 leading global defence contractors are forecast to log free cash flow of $52bn in 2026, almost double their combined cash flow at the end of 2021, according to Vertical Research Partners analysis for the Financial Times.
  2. Five top US defence contractors are forecast to generate cash flow of $26bn by the end of 2026, more than double the 2021 amount, as governments increase orders for new weapons amid rising geopolitical tensions.
  3. The Vertical Research Partners figures exclude Boeing, given its recent problems and heavy weighting towards civil aerospace.

Related Articles:

  • The US and Its Allies Face a $10 Trillion Reckoning in the Race to Rearm — World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.
  • 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.
  • Global Defence Groups Hiring At Fastest Rate In Decades Amid Record Orders — A survey of 20 large and medium-sized US and European defence and aerospace companies found they plan to recruit tens of thousands of workers, with 10 of them seeking to add almost 37,000 positions, or nearly 10% of their combined workforce. Demand spans apprentices to executives, including engineers, software developers, cyber security analysts, welders, and mechanics.

AI Summary. Average home prices rose from $303,600 to $422,600 and mortgage rates from 2.8% to 6.5%, doubling the average new buyer's monthly payment to $2,671 from $1,247. Housing and rental affordability indexes have been pushed to 30-year lows, and lifetime payments on an average home rise to $961,560 from $448,920.

Michael Solon Wall Street Journal
Date Posted:
Is Database:
Database
Is Important:
Important

Noting that government deficits have exceeded total home sales by 16% for the 4th time in 5 years, Michael Solon argues chronic deficits, not constraints on building or the Fed, are ultimately responsible for the decline in housing affordability.

How have rising home prices and mortgage rates changed affordability?

Core argument: The average new home buyer's monthly mortgage payment has doubled to $2,671 from $1,247, as home prices rose from $303,600 in January 2021 to $422,600 and mortgage rates went from 2.8% to 6.5%.

A house that cost $303,600 in January 2021 now costs $422,600. Mortgage rates that were 2.8% are now 6.5%. Home prices 40% higher have combined with mortgage financing costs up 125% to double new home buyers’ average monthly mortgage payment, to $2,671 from $1,247. This has pushed the housing and rental affordability indexes to 30-year lows. In 2023, the federal deficit was $1.67 trillion, more than the $1.592 trillion value of all 4.09 million homes purchased at an average price of $389,300. Since 1989, the federal government has never borrowed annually more than the dollar total of sold homes except when housing sales and the economy both plunged in the subprime crisis and in three of the last four years. What does that mean to home buyers? The combined growth in average home prices and 30-year mortgage rates equals lifetime payments of $961,560 versus $448,920. That’s $512,640 more on the average home since the start of the Biden-Harris administration.

Takeaways by Macro Roundup® AI

  1. The average new home buyer's monthly mortgage payment has doubled to $2,671 from $1,247, as home prices rose from $303,600 in January 2021 to $422,600 and mortgage rates went from 2.8% to 6.5%.
  2. Home prices 40% higher combined with mortgage financing costs up 125% have pushed the housing and rental affordability indexes to 30-year lows.
  3. The 2023 federal deficit of $1.67 trillion exceeded the $1.592 trillion value of all 4.09 million homes purchased at an average price of $389,300, a pattern absent since 1989 except during the subprime crisis and in three of the last four years.

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%.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.
  • Housing and the American Worker — Wages net of housing costs were once substantially higher in high-density areas than low-density areas for workers both with and without college education, but over the past half-century that urban wage premium has persisted only for college-educated workers, not for those with a high school degree or less.

AI Summary. National polling shows a gender gap of roughly 39 to 51 percentage points among voters under 30, with young men favoring the Republican candidate and young women favoring the Democrat. The Republican message resonates particularly with young men without college degrees and young men of color.

Claire Cain Miller New York Times
Date Posted:
Is Database:
Database

When the race was Biden-Trump, women aged 18-29 favored Biden by 28pp while their male peers favored Trump by 11pp, a 39pp gender gap. That gap has risen to 51pp, with young women preferring Harris by 38pp and men favoring Trump by 13pp.

Is there a wide political gender gap among young voters?

Core argument: Men aged 18–29 favored Trump by an average of 11 points while young women favored Biden by 28 points across four New York Times/Siena College national polls from December to June, a 39-point gender gap exceeding that of any older generation.

When President Biden was still in the race, men ages 18 to 29 favored Mr. Trump by an average of 11 percentage points, while young women favored Mr. Biden by 28 points, according to four national New York Times/Siena College polls conducted from last December to June. That was a 39-point gender gap — far exceeding that of any older generation. In Times/Siena polls of six swing states this month — taken after Ms. Harris became the presumptive Democratic nominee — young men favored Mr. Trump by 13 points, while young women favored Ms. Harris by 38 points, a 51-point gap. Mr. Trump’s message has been particularly resonant for young men without college degrees and young men of color. Among men under 30 who voted for Mr. Biden in 2020, those who were sticking with him in swing-state polls in May were more likely to be white and have college degrees than those shifting to Mr. Trump.

Takeaways by Macro Roundup® AI

  1. Men aged 18–29 favored Trump by an average of 11 points while young women favored Biden by 28 points across four New York Times/Siena College national polls from December to June, a 39-point gender gap exceeding that of any older generation.
  2. In Times/Siena polls of six swing states taken after Harris became the presumptive Democratic nominee, young men favored Trump by 13 points and young women favored Harris by 38 points, a 51-point gap.
  3. Among men under 30 who voted for Biden in 2020, those sticking with him in May swing-state polls were more likely to be white and hold college degrees than those shifting to Trump, whose message has resonated with young men without degrees and young men of color.

Related Articles:

  • An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election — 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%.
  • One Cohort at a Time: A New Perspective on the Declining Gender Pay Gap — The authors find the entire decline in the gender pay gap comes from newer cohorts entering with smaller-than-average gaps and older cohorts exiting with larger ones, with entry convergence driven by younger men's positional losses in the wage distribution, especially at higher-paying firms. They find labor-market exit became the sole contributor, implying no full convergence ahead.
  • 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.