Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, August 28, 2024

AI Summary. The authors estimate that Federal Reserve purchases of mortgage-backed securities narrowed the mortgage spread by 38 basis points, out of a 113 basis point decline. Without both Federal Reserve and bank purchases, they estimate the spread would have fallen just 32 basis points and stayed relatively flat.

Itamar Drechsler, Alexi Savov, Philipp Schnabl et al. Federal Reserve Bank of Kansas City
Date Posted:

The combined purchases of MBS by banks and the Fed lowered the mortgage spread by 81 bps from 2019 to 2024, about 1/2 the 2010-19 average spread. Banks were responsible for 43 bps and the Fed for 38 bps. @idrechs @AlexiSavov @schnabl_econ @DominikSupera

How much did central bank mortgage bond purchases narrow mortgage spreads?

Core argument: The actual mortgage spread fell 113 bps from early 2020 to 2021, and the authors estimate that without Fed MBS purchases it would have declined only 75 bps, implying Fed purchases compressed the spread by 38 bps.

Banks and the Fed are the largest providers of mortgage credit in the economy. The Fed’s supply of mortgage credit consists of buying or selling mortgage-backed securities (MBS) under its quantitative easing and tightening (QE and QT) programs. Banks’ supply of mortgage credit is driven by the deposits channel of monetary policy: banks increase mortgage credit when the Fed lowers interest rates and contract it when the Fed raises them. Panel B of Figure 23 plots the actual mortgage spread against counterfactual mortgage spreads without Fed purchases and without Fed and bank purchases. We obtain the counterfactual spreads by adding the estimated impact [which depends on the sum of instrumental variables estimates of the two demand elasticities] back into the actual spread. The actual mortgage spread drops sharply by 113 bps from early 2020 to 2021. We estimate that if the Fed had not purchased MBS, the spread would have declined by 75 bps over this period. This implies that Fed purchases contracted the mortgage spread by 38 bps. If we also take away bank MBS purchases, the mortgage spread declines by just 32 bps and remains relatively flat during the period.

Takeaways by Macro Roundup® AI

  1. The actual mortgage spread fell 113 bps from early 2020 to 2021, and the authors estimate that without Fed MBS purchases it would have declined only 75 bps, implying Fed purchases compressed the spread by 38 bps.
  2. Removing both Fed and bank MBS purchases, the authors estimate the mortgage spread would have declined just 32 bps and remained relatively flat over the period.
  3. Banks and the Fed are the largest providers of mortgage credit, with the Fed acting through QE and QT purchases and sales of MBS and banks expanding mortgage credit when the Fed lowers rates and contracting it when rates rise.

Related Articles:

  • Can Mortgage Rates Still Fall to 6%? — Mortgage rates equal the US Treasury yield plus a spread, and a lower term premium and lower lender fees brought them from 7.8% to 6.75%, with the Federal Reserve, inflation, and mortgage bond spreads contributing little. The author argues prepayment risk is overpriced by 0.4% and its compression could push rates to about 6%.
  • The Secular Decline of Bank Balance Sheet Lending — Traditional bank balance sheet lending has declined as a share of credit intermediation, with credit increasingly channeled through arms-length transactions such as securitization. A structural model attributes falling lending shares to lower securitization costs, savers' behavior driving bank balance sheet size, and implicit bank costs and subsidies shaping balance sheet composition.

AI Summary. California recorded over 300,000 fire episodes between 1987 and 2022, with the size, intensity, and estimated costs of these episodes increasing in recent years. Proximity to past wildfires has been associated with larger adverse effects on property values in recent years, and the authors find insurance does little to offset those effects.

Leila Bengali, Fernanda Nechio and Stephanie Stewart Federal Reserve Bank of San Francisco
Date Posted:

Wildfire risk has started to impact property values in at-risk areas of CA. Being farther from past fires boosts home values ~ 2%, and insurance does little to offset these adverse effects on property values.

Do wildfires lower nearby property values despite insurance coverage?

Core argument: CAL FIRE data record over 300,000 fire episodes in California between 1987 and 2022, with the size, intensity, and estimated costs of these episodes increasing in recent years.

Historical data from California’s state fire agency, CAL FIRE, recorded over 300,000 fire episodes in the state between 1987 and 2022. The size and intensity of these episodes have increased in recent years, along with their estimated costs. Property values have been more adversely impacted in recent years by being close to past wildfires than was the case previously. Moreover, while having insurance can help mitigate some of the costs associated with fire episodes, our results suggest that insurance does little to improve the adverse effects on property values.

Takeaways by Macro Roundup® AI

  1. CAL FIRE data record over 300,000 fire episodes in California between 1987 and 2022, with the size, intensity, and estimated costs of these episodes increasing in recent years.
  2. Proximity to past wildfires has weighed more heavily on California property values in recent years than it did previously, according to the authors' analysis.
  3. The authors' results suggest that insurance, while mitigating some costs associated with fire episodes, does little to improve the adverse effects on property values.

Related Articles:

  • US Home Insurers Suffer Worst Loss This Century — US home insurers posted a $15.2bn net underwriting loss, the worst since at least 2000 and more than double the prior year's, according to rating agency AM Best, amid natural disasters, inflation and population growth in at-risk areas. Such conditions have prompted insurers to exit disaster-hit markets or raise prices, creating an affordability crisis for many homeowners.
  • Growing Costs of Natural Disasters are Stressing Property Insurance Markets — U.S. home insurers posted $15.2bn in net underwriting losses, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage. State "last-resort" public insurance plans, backed by a state's policyholders or taxpayers, reached a record of just over $1.3tn in exposure, signaling growing unavailability of private coverage.
  • As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose — Insurers lost money on homeowners coverage in 18 states, up from 12 states five years earlier and eight a decade earlier, according to a New York Times analysis of financial data. In response, insurers are raising premiums by as much as 50% or more, cutting coverage, or exiting entire states.

AI Summary. Businesses have at times moderated activity in anticipation of large policy changes and are likely to do so ahead of a national election. Because sentiment is politicized, roughly half the country will be pessimistic regardless of who wins, suggesting a soft patch in economic data that weighs on the market.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 notes a survey showing that 36% of businesses plan to postpone or scale down investments ahead of the US Presidential election, and anticipates a potential decline in consumer sentiment as half the country will be upset about the outcome.

Will election uncertainty and politicized sentiment produce a soft economic patch?

Core argument: Businesses have at times moderated activity ahead of large policy changes and will likely do so again heading into the November election, suggesting a soft patch of economic data at least through year-end.

Businesses have at times moderated their activity in anticipation of large policy changes and will likely act similarly heading into the November election. In any case, the politicization of sentiment implies that around half the country will be pessimistic coming out of the election regardless of who wins. This suggests a soft patch of economic data at least through the end of the year and that will weigh on the market.

Takeaways by Macro Roundup® AI

  1. Businesses have at times moderated activity ahead of large policy changes and will likely do so again heading into the November election, suggesting a soft patch of economic data at least through year-end.
  2. The politicization of sentiment implies roughly half the country will be pessimistic after the November election regardless of which side wins.
  3. A soft patch of economic data extending at least through the end of the year would weigh on the market.

Related Articles:

  • Why Are Americans So Displeased With The Economy? — Out-of-sample models estimated by the authors find that the tone of economic news has been more negative than economic fundamentals would predict, a gap that began before the pandemic. The negativity gap in the most recent three-year period is about one-third larger than in the prior three years.
  • It’s No Longer The Economy, Stupid — The long-standing link between economic sentiment and government popularity has disappeared in the US while remaining strong in France and Germany and, to a lesser degree, the UK. The author attributes this decoupling to hyper-partisanship, arguing that American voters' political allegiances now shape their economic perceptions rather than the reverse.
  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.

AI Summary. Measured by the Herfindahl-Hirschman index, the sum of squared market shares, US import sourcing is the most concentrated among the United States, European Union, and China, though US diversification has increased. China's import sourcing is the most diverse, with only the European Union supplying more than 10% of its imports.

Mary Lovely and Jing Yan Peterson Institute for International Economics
Date Posted:

Between 2018 and 2023, the US has reduced its import dependence on China (as measured by the HHI,) while the EU has increased dependence.

How concentrated are US import sources compared with Europe and China?

Core argument: The US has the highest Herfindahl-Hirschman index for total imports among the three big regions in every year examined, though its sourcing has become more diversified since 2018.

The Herfindahl-Hirschman index (HHI) is calculated as the sum of squared market shares. The higher the HHI, the greater the concentration of import sources; a lower HHI indicates more variety. The US index for total imports is the highest of the three regions for every year examined. Only four trading partners each supply the United States with more than 10% of its total imports—the European Union, Canada, Mexico, and China—but diversification of its sourcing has increased since 2018. China’s import sourcing is the most diverse of the three big regions; its concentration index is substantially lower than those of the other two, figure 1 shows. Only the European Union provides more than 10% of the total value of China’s imports.

Takeaways by Macro Roundup® AI

  1. The US has the highest Herfindahl-Hirschman index for total imports among the three big regions in every year examined, though its sourcing has become more diversified since 2018.
  2. Four trading partners each supply more than 10% of total US imports — the European Union, Canada, Mexico, and China — while only the European Union supplies more than 10% of China's total import value.
  3. China's import sourcing is the most diverse of the three big regions, with a concentration index substantially lower than those of the US and the European Union.

Related Articles:

  • How Trump and Biden Have Failed To Cut Ties With China — Mexico has overtaken China as America's largest source of goods imports, and China's share of US imports has fallen by a third to about 14% since 2017 by American figures. But Chinese data and a 32% rise in China's intermediate-goods exports suggest countries like India and Vietnam repackage Chinese inputs for America.
  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
  • 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. China's trade surplus reached $852bn over a year, and Chinese goods traders have curbed sales of their foreign-currency proceeds. Federal Reserve rate normalisation could prompt a pickup in dollar sales estimated at $15–22bn a month, though a weak renminbi outlook and official resistance could limit the increase.

Martin Lynge Rasmussen Money: Inside and Out
Date Posted:

.@martin_lynge notes that Chinese goods traders have been accumulating FX, but argues that as the Fed starts to cut rates “FX sales would increase $15-22B/month compared to the pace over the past 3-12 months” of $8-15B/month.

Will falling US rates push Chinese exporters to sell dollar holdings?

Core argument: China's trade balance reached $852bn in the year to July, reflecting weak domestic demand and Chinese manufacturers' growing global market share.

China’s trade balance reached $852bn in the year to July reflecting weak domestic demand and Chinese manufacturers growing global market share. What gets less attention is the activities of Chinese goods traders who have curbed FX sales from this surplus in recent months—something that could change quickly in coming quarters as the US policy cycle turns. Fed normalisation could allow a large pickup in dollar sales by Chinese goods traders, perhaps to the tune of $15-22bn per month in the coming quarters. However, even if Dollar weakness materializes, multiple factors could lead to a smaller-than-usual increase in FX sales. More specifically, goods exporters could remain downbeat on the renminbi outlook, authorities might push back to maintain competitiveness and positive US-China rate spreads could make exporters prefer to park excess cash in FX rather than RMB.

Takeaways by Macro Roundup® AI

  1. China's trade balance reached $852bn in the year to July, reflecting weak domestic demand and Chinese manufacturers' growing global market share.
  2. Chinese goods traders have curbed FX sales out of the trade surplus in recent months, and Fed normalisation could allow dollar sales to pick up by perhaps $15–22bn per month in coming quarters.
  3. Any increase in FX sales could be smaller than usual if exporters stay downbeat on the renminbi, authorities push back to maintain competitiveness, or positive US–China rate spreads lead exporters to park excess cash in FX rather than renminbi.

Related Articles:

  • Will Trump Get His Wish for a Weaker Dollar? — Broad measures of the dollar's real exchange rate, adjusted for inflation in major trading partners, place the currency far above historical norms, with only two earlier peaks comparable — each followed by sharp declines. Across many currency pairs, real exchange rates far out of line tend to revert toward their mean, with overvaluation typically halving in about three years.
  • How to Manage the Dollar (Part II) — US dollar strength is comparable to its early-2000s peak, with cost-based real exchange rate measures such as unit labour costs as strong as at any point since the 1990s. The US current account deficit, about 3.3% of GDP, remains below prior highs, but its composition has shifted toward non-commodity goods as the shale boom erased the commodity deficit.
  • There’s No Place Like Home — Deutsche Bank estimates Japanese households, pension plans, banks and the Bank of Japan built a $20tn carry trade funded by low-cost yen deposits and invested in overseas and longer-duration assets. A Bank of Japan hike of 25 basis points helped trigger a 14% yen rally, among the largest in 40 years.

Thursday, August 29, 2024

AI Summary. Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.

Devon Long and Eka Zhao Bridgewater Associates
Date Posted:
Is Database:
Database

Sub-Saharan Africa will have 25% of the world’s working-age population by 2050. Currently, the region accounts for 3% of global output. Assuming 2% productivity growth, Bridgewater expects this to double by 2050.

Will a booming working-age population make Sub-Saharan Africa the fastest-growing region?

Core argument: Sub-Saharan Africa's working-age population is growing nearly 3% a year, against close to zero in much of the rest of the world, which would leave the region among the world's fastest-growing even with modest productivity growth of about 2%.

Sub-Saharan Africa’s working-age population is booming. The region will account for a quarter of the world’s working-age population in a few decades and have more people of working age than China in about 10 years. In the years ahead, Sub-Saharan Africa is likely to experience some of the fastest growth in the world. Demographics are a huge tailwind with working-age population growth of nearly 3% when it is close to zero in much of the rest of the world. This means that, even with a modest productivity growth rate of about 2%, the region will be one of the fastest-growing. Currently, Sub-Saharan Africa accounts for just 3% of global output and around 5% of global growth. That will likely increase based on demographics alone.

Takeaways by Macro Roundup® AI

  1. Sub-Saharan Africa's working-age population is growing nearly 3% a year, against close to zero in much of the rest of the world, which would leave the region among the world's fastest-growing even with modest productivity growth of about 2%.
  2. Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to have more people of working age than China in about 10 years.
  3. Sub-Saharan Africa accounts for just 3% of global output and around 5% of global growth, shares likely to rise on demographics alone.

Related Articles:

  • 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.
  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.

AI Summary. Benin, Africa's largest cotton producer, exports nearly all of its roughly 300,000 tonnes of lint cotton raw, mostly to Bangladesh, and industry experts estimate it forgoes more than 90% of the value by not processing it domestically. The World Bank reports manufacturing's share of GDP in sub-Saharan Africa, excluding high-income countries, fell from 18% to 11%.

David Pilling Financial Times
Date Posted:
Is Database:
Database

According to World Bank data, manufacturing value added as a % of GDP in sub-Saharan Africa fell from 18% in 1981 to 11% in 2023. This series includes South Africa, Nigeria, and Ethiopia.

Does exporting raw cotton cost African producers most of its value?

Core argument: Benin exports virtually all of its roughly 300,000 tonnes of lint cotton raw, mostly to Bangladesh, where it is turned into clothing for the world's $1.5tn fast-fashion industry.

Virtually Benin's entire cotton crop, of about 300,000 tonnes of lint cotton, is exported raw, mostly to Bangladesh, where it is transformed into clothing for the world’s $1.5tn fast-fashion industry. In selling raw cotton, Benin, Africa’s biggest producer, is missing out on more than 90% of the value, according to industry experts. According to the World Bank, the percentage of manufacturing value added in GDP for sub-Saharan African states, excluding high-income countries, has fallen from 18% in 1981 to 11% in 2023. Benin, with a GDP per capita of about $1,400 at market prices, is only at 10%.

Takeaways by Macro Roundup® AI

  1. Benin exports virtually all of its roughly 300,000 tonnes of lint cotton raw, mostly to Bangladesh, where it is turned into clothing for the world's $1.5tn fast-fashion industry.
  2. Industry experts say Benin, Africa's biggest cotton producer, forgoes more than 90% of the value of its crop by selling it raw.
  3. Manufacturing value added in GDP for sub-Saharan African states excluding high-income countries fell from 18% in 1981 to 11% in 2023, according to the World Bank, with Benin at 10% and GDP per capita of about $1,400.

Related Articles:

  • 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.
  • From The Baby Boom To The Baby Bust — Africa's population is forecast to exceed that of all of today's high-income countries plus China by 2060, while age structures elsewhere are inverting. In South Korea, males aged 50-54 make up 4.3% of the population versus 1.5% for those aged 0-4, with similar inversions in China and, more slowly, India.
  • Unproductive Agriculture Is Holding Africa Back — Sub-Saharan Africa produces more than six times as much food as it did in 1961, but it has achieved this mainly by adding inputs — many more farmers and much more land under cultivation and pasture — rather than by raising productivity. The region badly trails the world in agricultural total factor productivity gains.

AI Summary. U.S. consumer energy spending rose 22% to more than $1.7tn in inflation-adjusted terms, a level exceeded in only two years on record, with the U.S. Energy Information Administration attributing most of the increase to higher energy prices, particularly petroleum for transportation. Energy spending equaled 6.7% of nominal gross domestic product, up from 5.6%.

Melissa Alejandro and Brett Marohl Energy Information Administration
Date Posted:

US energy spending as a % of GDP rose from a 50-year low of 5.6% in 2021 to 6.7% in 2022 but remained well below the 13.5% peak in 1980.

Did higher energy prices drive a sharp rise in consumer energy spending?

Core argument: U.S. energy expenditures rose 22% from 2021 to more than $1.7 trillion in 2022 on an inflation-adjusted basis, according to the State Energy Data System.

In 2022, energy expenditures—or the amount of money U.S. consumers spent on energy—increased 22% from 2021 to more than $1.7 trillion when adjusted for inflation, according to our State Energy Data System (SEDS). More money was spent on energy in the United States on an inflation-adjusted basis in 2022 than in all but two years in our records. Higher U.S. energy prices in 2022 compared with 2021, particularly higher petroleum prices for transportation, caused most of the increase in total U.S. energy expenditures. U.S. energy expenditures accounted for 6.7% of nominal gross domestic product (GDP) in 2022, compared with 5.6% in 2021.

Takeaways by Macro Roundup® AI

  1. U.S. energy expenditures rose 22% from 2021 to more than $1.7 trillion in 2022 on an inflation-adjusted basis, according to the State Energy Data System.
  2. Higher U.S. energy prices in 2022 compared with 2021, particularly higher petroleum prices for transportation, caused most of the increase in total U.S. energy expenditures.
  3. U.S. energy expenditures equaled 6.7% of nominal gross domestic product in 2022, compared with 5.6% in 2021, with inflation-adjusted spending higher in only two years on record.

Related Articles:

  • U.S. Energy Production Exceeded Consumption By Record Amount In 2023 — U.S. energy production rose 4% to nearly 103 quadrillion British thermal units while consumption fell 1% to 94, leaving production exceeding consumption by 9 quadrillion British thermal units, the widest gap in records dating to 1949. Dry natural gas, crude oil, natural gas plant liquids, and renewables all reached record output.
  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.

AI Summary. California regulators approved an average 34.1% home insurance rate increase for Allstate affecting about 350,000 policyholders, with some premiums rising as much as 650% and others falling by as much as 57%. Major insurers including State Farm and Farmers have pulled back from the state, citing wildfire costs and regulations that capped rate increases.

Nadia Lopez Bloomberg
Date Posted:

Allstate is increasing homeowners insurance rates in CA by a mean of 34.1% in November. Allstate stopped issuing new policies in CA in 2022 citing increased risks and regulators’ efforts to cap rate hikes.

Are home insurance rates rising sharply in wildfire-prone states?

Core argument: Allstate received approval to raise California home insurance rates by an average of 34.1% starting in November, the largest premium increase by a major insurer in the state in three years.

Allstate is set to increase home insurance rates for California customers by an average of 34.1%, marking the biggest jump in premiums for a major insurer in three years as the state faces a deepening property insurance crisis. The rate hike, which will take effect from November, will impact about 350,000 policyholders across California. Some customers will face premium increases of up to 650%, while others may see their rates drop by as much as 57%. The increase is part of the broader upheaval in California’s insurance market, with top insurers like State Farm, Farmers Insurance and others pulling back from the state, citing the escalating costs of wildfires and regulations that have capped rate hikes for decades. Allstate, stopped issuing new homeowner policies in California in 2022.

Takeaways by Macro Roundup® AI

  1. Allstate received approval to raise California home insurance rates by an average of 34.1% starting in November, the largest premium increase by a major insurer in the state in three years.
  2. The Allstate increase will affect roughly 350,000 California policyholders, with some facing premium hikes of up to 650% while others see reductions of as much as 57%.
  3. State Farm, Farmers Insurance and other top insurers have pulled back from California, citing escalating wildfire costs and regulations that have capped rate increases for decades, while Allstate stopped writing new homeowner policies there in 2022.

Related Articles:

  • US Home Insurers Suffer Worst Loss This Century — US home insurers posted a $15.2bn net underwriting loss, the worst since at least 2000 and more than double the prior year's, according to rating agency AM Best, amid natural disasters, inflation and population growth in at-risk areas. Such conditions have prompted insurers to exit disaster-hit markets or raise prices, creating an affordability crisis for many homeowners.
  • Wildfires and Real Estate Values in California — California recorded over 300,000 fire episodes between 1987 and 2022, with the size, intensity, and estimated costs of these episodes increasing in recent years. Proximity to past wildfires has been associated with larger adverse effects on property values in recent years, and the authors find insurance does little to offset those effects.
  • Analyzing State Resilience to Weather and Climate Disasters — The real annual cost of U.S. weather and climate disasters has risen from about $20bn per year in the 1980s to nearly $95bn per year in 2010–19, reaching roughly $153bn in one year. Property insurers absorbed 48% of these costs, uninsured or underinsured homeowners, businesses and farms 37%, the federal government 11%, and state and local governments 4%.

AI Summary. Chinese household spending remains far below its pre-pandemic trend—roughly 14% below as of 2023—and has fared worse than Chinese manufacturing. The corollary has been a sharp expansion of China's trade and current account surpluses.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein examines Chinese household spending since 2019, including retail sales and services, and concludes that 2024 consumer spending will be at least 16% under the pre-pandemic trend, “massive no matter how you count it.”

Has weak Chinese household spending driven the expansion of China's trade surpluses?

Core argument: Chinese household spending in the GDP accounts stood about 14% below its pre-pandemic trend as of 2023, leaving consumers weaker than Chinese manufacturers after the pandemic.

Chinese consumers were hit exceptionally hard by the pandemic, their spending remains far below the pre-pandemic trend, they have done worse than Chinese manufacturers, and the corollary has been a sharp expansion of China’s trade and current account surpluses. The household spending numbers that correspond to China’s GDP were about 14% below the pre-pandemic trend as of 2023. If we assume that nominal household spending rises by 5% in 2024—which may be overly generous given the retail sales numbers, but not obviously wrong—then consumer spending would be 18% below the pre-pandemic trend. That is almost exactly what the monthly retail sales data implied!

Takeaways by Macro Roundup® AI

  1. Chinese household spending in the GDP accounts stood about 14% below its pre-pandemic trend as of 2023, leaving consumers weaker than Chinese manufacturers after the pandemic.
  2. Assuming nominal household spending rises 5% in 2024, Chinese consumer spending would sit 18% below the pre-pandemic trend, almost exactly matching what the monthly retail sales data imply.
  3. The shortfall in Chinese consumer spending relative to manufacturing has had as its corollary a sharp expansion of China's trade and current account surpluses.

Related Articles:

  • Chinese Weakness is the Real “China Shock” — 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.
  • 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.

AI Summary. The Netherlands plans to limit ASML's ability to service and supply spare parts for its semiconductor-making equipment in China, with licenses covering its top-end deep ultraviolet lithography machines expected not to be renewed. Because the machines are sold with essential maintenance agreements, withdrawing support could render some of them inoperable.

Cagan Koc and Jenny Leonard Bloomberg
Date Posted:

Following US pressure the Netherlands will limit ASML’s ability to service their advanced lithography equipment in China, rendering inoperable many machines that had previously been outside trade restrictions.

Can withholding equipment servicing licenses disable advanced chipmaking machines in China?

Core argument: The Netherlands will likely not renew ASML licenses to service and supply spare parts for its semiconductor equipment in China when they expire at the end of this year, according to people familiar with the matter.

The Netherlands plans to limit ASML's ability to repair and maintain its semiconductor equipment in China. The government will likely not renew certain ASML licenses to service and provide spare parts in China when they expire at the end of this year, according to people familiar with the matter. The decision is expected to cover the company’s top-of-the-line deep ultraviolet lithography, or DUV, machines, said the people, asking not to be named discussing sensitive government decisions. The Dutch company’s chip-making equipment, the most advanced in the industry, is sold with maintenance agreements that are essential to keep them running. Withdrawing such support could render at least some of them inoperable as soon as next year.

Takeaways by Macro Roundup® AI

  1. The Netherlands will likely not renew ASML licenses to service and supply spare parts for its semiconductor equipment in China when they expire at the end of this year, according to people familiar with the matter.
  2. The expected Dutch decision covers ASML's top-of-the-line deep ultraviolet lithography machines, which are sold with maintenance agreements essential to keeping them running, said the people familiar with the matter.
  3. Withdrawing ASML's maintenance support could render at least some of the machines in China inoperable as soon as next year.

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