Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, September 3, 2024

AI Summary. Using matched manufacturer cost and online retail price data, the authors find total supply-chain markups in the US were stable even as retail prices rose, indicating the increase in consumer prices for these products came from higher production costs rather than a net rise in markups. Manufacturer and retail markups varied over time in offsetting directions.

Santiago Alvarez, Alberto Cavallo, Alexander MacKay and Paolo Mengano Working Paper
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.@albertocavallo @SEAlvarezBlaser @_amackay and @Paolo_Mengano find that the total US markup of prices over production costs was stable over June 2018-June 2023. Increased production costs rather than markups explain soaring retail prices during 2022.

Did rising production costs, rather than higher markups, drive consumer price increases?

Core argument: US total supply-chain markups were stable from June 2018 through June 2023, covering the pandemic and the inflationary period; for the products sampled, rising production costs rather than a net increase in markups were the primary driver of higher consumer prices.

We study markups and pricing strategies along the supply chain. Our dataset combines detailed price and cost information from a large global manufacturer with matched retail prices collected online for the period July 2018 through June 2023. The supply-chain markup reflects the wedge between the price that consumers pay and the production costs, and it usually takes on values between 0 (price equals cost) and 1 (prices substantially greater than costs). In the US, total markups were stable from June 2018 through June 2023, covering the pandemic and the recent inflationary period. Retail prices increased in 2022, but total markups did not. Thus, for the products in our sample, the primary driver of increased consumer prices was an increase in production costs, rather than a net increase in markups. However, when we examine each stage of the supply chain separately, we do find time-series variation in markups at the firm level. In the second half of 2020, manufacturer markups increased while retail markups fell. In 2022, retail markups increased while manufacturer markups fell. As a result, although manufacturer and retail markups vary over time, they lead to limited fluctuations in total markups.

Takeaways by Macro Roundup® AI

  1. US total supply-chain markups were stable from June 2018 through June 2023, covering the pandemic and the inflationary period; for the products sampled, rising production costs rather than a net increase in markups were the primary driver of higher consumer prices.
  2. Manufacturer markups rose while retail markups fell in the second half of 2020, and retail markups rose while manufacturer markups fell in 2022, leaving total markups with limited fluctuation.
  3. The dataset combines price and cost information from a large global manufacturer with matched retail prices collected online from July 2018 through June 2023, with the supply-chain markup measuring the wedge between consumer prices and production costs.

Related Articles:

  • Are Markups Driving the Ups and Downs of Inflation? — Aggregate markups have stayed roughly constant during the current recovery and the recoveries following the 1991, 2001, and 2008 recessions, making their recent path unexceptional by historical standards.
  • Corporate Profits in the Aftermath of COVID-19 — Nonfinancial corporate profit margins—profits as a share of gross value added—rose to about 19% before easing to 15%, compared with about 13% before the pandemic. The authors attribute much of the increase to large direct government support for small and medium-sized U.S. businesses and to lower net interest expenses under accommodative monetary policy.
  • 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.

AI Summary. Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

Michael Cembalest J.P. Morgan
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AI-related capex as a % of total is on par with the levels of the fiber optic deployment of the late 1990s. Mike Cembalest argues “there needs to be several hundred $B/year of AI-related demand from the corporate sector to pay for AI infrastructure.”

Is AI infrastructure spending outpacing the applications needed to justify it?

Core argument: NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels seen at the 1969 mainframe peak and during the dot-com boom.

Every computing cycle entails infrastructure first, then platforms and then applications. It’s probably too soon to worry that there’s no killer generative AI app yet akin to the enterprise resource planning software of the 1990s or the search and e-commerce applications of the 2000s. But the clock is ticking: NVIDIA data center revenues as a share of market-wide capital spending are projected to reach heights seen at the peak of the mainframe era in 1969 and the dot-com boom. [Hyperscalers] spend more than twice as much training complex foundational models than they do on running completed production models on a day-to-day basis for their end-use customers. That will probably continue for another year or so: highly profitable hyperscalers will keep the AI capital spending machine moving on their own. Some AI demand will be sourced from the military which is price inelastic due to national security reasons. Within the next two years, corporate AI adoption trends need to move higher, there needs to be several hundred billion dollars a year of AI-related demand from the corporate sector to pay for AI infrastructure

Takeaways by Macro Roundup® AI

  1. NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels seen at the 1969 mainframe peak and during the dot-com boom.
  2. Hyperscalers spend more than twice as much training complex foundational models as running completed production models day-to-day for end-use customers, a pattern likely to continue for about another year.
  3. Corporate AI adoption needs to rise within two years to generate several hundred billion dollars a year of AI-related demand to pay for AI infrastructure, with some demand coming from the price-inelastic military.

Related Articles:

  • AI’s $600B Question — Comparing spending on AI chips to historical railroad construction overlooks that high-fixed-cost, low-marginal-cost businesses without monopoly or oligopoly power tend to see prices competed down to marginal cost, and that semiconductors continually improve in cost versus performance, unlike physical infrastructure. Speculative frenzies accompany technology, but the payoff will take a long time.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.
  • Are We on the Brink of an AI Investment Arms Race? — Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.

AI Summary. A long-running study that gave the SAT to 12- and 13-year-olds and tracked roughly 2,000 participants found that those in the top quartile of the top 1% of measured ability were over 2x as likely to earn a doctorate or patent, and over 4x as likely to publish science research, as the bottom quartile, with no plateau in the relationship.

Charles Murray Wall Street Journal
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.@charlesmurray argues that our highest educational priority should be identifying students in the top 0.5% of cognitive ability and channeling them to elite schools in STEM fields. The top 0.5% of the US working-age population is ~650,000.

Does measured ability keep predicting achievement within the top 1%?

Core argument: Among Study of Mathematically Precocious Youth participants, those in the top quartile of the top 1% of ability (IQ 142 and higher) were more than twice as likely to earn a doctorate or be awarded a patent as those in the bottom quartile of that percentile.

In the 1970s, Johns Hopkins psychologist Julian Stanley established the Study of Mathematically Precocious Youth by administering the SAT to 12- and 13-year-olds. Some 2,000 of the participants have been followed throughout their careers. Measures of productivity varied substantially within the top percentile, equivalent to an IQ of 135 or higher. Those in the top quartile of the top 1%, equivalent to IQs of 142 and higher, were more than twice as likely to earn a doctorate or be awarded a patent as those in the bottom quartile and more than four times as likely to publish an article on a STEM topic in a refereed journal. There was no plateau. Greater measured cognitive ability was correlated with greater adult accomplishment throughout the range. These results suggest that we should be thinking in terms of at least the top half of the top percentile of ability when defining the set of people who have the potential to make major contributions in a STEM field.

Takeaways by Macro Roundup® AI

  1. Among Study of Mathematically Precocious Youth participants, those in the top quartile of the top 1% of ability (IQ 142 and higher) were more than twice as likely to earn a doctorate or be awarded a patent as those in the bottom quartile of that percentile.
  2. Participants in the top quartile of the top 1% were more than four times as likely to publish a STEM article in a refereed journal, and greater measured cognitive ability correlated with greater adult accomplishment throughout the range, with no plateau.
  3. Julian Stanley's Study of Mathematically Precocious Youth, which administered the SAT to 12- and 13-year-olds in the 1970s and followed some 2,000 participants through their careers, suggests defining STEM potential as at least the top half of the top percentile of ability.

Related Articles:

  • 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.
  • The Extreme Shortage of High IQ Workers — Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.

AI Summary. The highest-paying fifth of occupations are projected to grow 8.9% over a decade, versus under 3% for middle- and lower-paying occupations, and jobs requiring a graduate degree are projected to grow 9.3% versus 2.5% for those requiring only a high school degree. This skew toward higher-paying, higher-education jobs is greater than in the prior pre-pandemic projection.

Jed Kolko Jedkolko.com
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.@BLS_gov projects that jobs in the top wage quartile will grow by 8.9% per year from 2023-33, over 3X the rate for bottom-quartile jobs. @JedKolko notes this is a shift from the pre-pandemic period.

Is job growth increasingly concentrated in higher-paying, higher-education occupations?

Core argument: The highest-paying fifth of U.S. occupations are projected to grow 8.9% between 2023 and 2033, while middle- and lower-paying occupations are projected to grow less than 3% over the same period.

In general, high-pay, high-education jobs are projected to grow more than lower-pay jobs and those requiring less education. The highest-paying fifth of occupations are projected to growth 8.9% between 2023 and 2033. Middle and lower paying occupations are projected to grow less than 3% over this period. In these latest projections, job growth is more skewed toward the highest-paying occupations than in the last pre-pandemic projection, for the period 2019-2029, which called for fast job growth in both the highest and lowest paying occupations. Jobs requiring more education are projected to grow faster than those requiring less: 9.3% for those requiring a graduate degree versus just 2.5% for those requiring a high school degree only and 1.8% for those that don’t require a high school degree. Job growth is more skewed toward jobs requiring more education in the 2023 projection than it was in the pre-pandemic 2019 projection — mirroring the increasing skew toward higher-paying jobs.

Takeaways by Macro Roundup® AI

  1. The highest-paying fifth of U.S. occupations are projected to grow 8.9% between 2023 and 2033, while middle- and lower-paying occupations are projected to grow less than 3% over the same period.
  2. Occupations requiring a graduate degree are projected to grow 9.3% from 2023 to 2033, versus 2.5% for those requiring only a high school degree and 1.8% for those requiring no high school degree.
  3. The 2023 projections skew job growth more toward the highest-paying occupations and those requiring more education than the pre-pandemic 2019–2029 projection, which called for fast growth in both the highest- and lowest-paying occupations.

Related Articles:

  • The American Worker — Inflation-adjusted hourly wages for the median U.S. worker grew 35.9% from 1980 to 2023, and weekly compensation including benefits grew roughly 45%. Gains were uneven by sex: women's real hourly wages rose 59.9% over that period while men's rose 15.6%.
  • Perspectives on the Labor Share — The share of US income going to labor reached its lowest level since the Great Depression, falling roughly 5 percentage points between 1929 and 2022 across most industries, alongside a worldwide decline of about 6 percentage points since 1980. The author argues the most plausible causes are technological, including capital-augmenting technology.
  • Foreign-born Skilled Workers Play a Critical Role in Strategically Significant Industries — Foreign-born workers make up 20.3% of the roughly 19.9mn workers in strategically significant US industries—those ranking in the top fifth for research spending per worker and above average in use of science and engineering workers—compared with 18.4% of the workforce overall. Manufacturing and professional services account for 83% of employment in these industries.

AI Summary. An illustrative calculation shows that if US growth had been 0.25 to 1 percentage point lower per quarter over the postwar period, compounding would leave GDP per capita dramatically below its actual level — with a 1 percentage point quarterly shortfall leaving the US as poor as Tunisia.

Cremieux Cremieux Recueil
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.@cremieux notes that if the US had 0.25 ppts lower quarterly growth since 1947, 2023 US GDP/capita would have been on a par with today’s Italy, not 115% higher. “Once one starts to think about economic growth, it is hard to think about anything else.”

How much poorer would slightly slower growth have left America?

Core argument: A chart shows that if U.S. growth had been 1 percentage point lower each quarter since 1947, American GDP per capita in 2023 would be as low as Tunisia's.

This chart depicts what American GDP per capita would be [in 2023] if America had a 0.25 to 1 percentage point lower growth rate per quarter since 1947. So if America actually grew 3% in a year, in this model, you might see it growing at about 2% per annum (-0.25 percentage points per quarter). That compounding effect would be to make America incredibly poor compared to where it is now. Having 1 percentage point knocked out of growth each quarter, America becomes as poor as Tunisia by the modern day.

Takeaways by Macro Roundup® AI

  1. A chart shows that if U.S. growth had been 1 percentage point lower each quarter since 1947, American GDP per capita in 2023 would be as low as Tunisia's.
  2. Shaving 0.25 percentage points off quarterly growth since 1947 — turning an actual 3% annual pace into roughly 2% — would compound into a much poorer United States by 2023.
  3. The model tests reductions of 0.25 to 1 percentage point in quarterly U.S. growth since 1947, with compounding pushing GDP per capita far below its actual 2023 level.

Related Articles:

  • 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.
  • Is Britain Really As Poor As Mississippi? — Excluding London's output and population would reduce British living standards by 14%, enough to fall below the poorest US state; by comparison, removing Amsterdam would cut the Netherlands by 5%, removing Munich would cut Germany by 1%, and removing the entire San Francisco Bay Area would cut US GDP per capita by 4%.
  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.

AI Summary. A simulation using a simplified version of the Federal Reserve's model of the US economy estimates that a 100bps cut in the federal funds rate plus guidance for 150bps more would raise GDP by 2% and inflation by 1%. The author argues such cuts would lift stock prices, tighten credit spreads, and risk reaccelerating growth and inflation.

Torsten Sløk Apollo
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Torsten Sløk conducts a simulation with the Fed’s FRBUS model and concludes that two years of Fed cuts with a terminal rate of 3% will likely cause peak inflation to rise by 1 pp and peak GDP by 2% vs. the Fed’s baseline forecast.

How much would rate cuts boost GDP and inflation?

Core argument: A simulation of a simplified version of the Fed's FRB/US model finds that a 100bps cut to the fed funds rate this year plus forward guidance for 150bps more would boost GDP by 2% and inflation by 1%.

The Fed is saying that monetary policy is restrictive and the Fed funds rate needs to normalize and come down to r-star, which they estimate to be around 3%. We ran a simulation on a simplified version of the Fed’s model for the US economy, FRBUS, to quantify what the normalization of interest rates means for GDP and inflation. Assuming a 100bps cut to the Fed funds rate this year and an additional 150bps in forward guidance about more cuts coming will boost GDP by 2% and inflation by 1%. In short, the current excitement about a dramatic amount of rate cuts is ignoring the significant positive effects these cuts will have on the stock market, credit spreads, consumer spending, capex spending, corporate earnings, and inflation. Combined with a continued strong tailwind to the economy from fiscal policy and massive investments in AI, the risks are rising that Fed cuts are going to boost stock prices and tighten credit spreads and trigger a reacceleration in GDP and inflation.

Takeaways by Macro Roundup® AI

  1. A simulation of a simplified version of the Fed's FRB/US model finds that a 100bps cut to the fed funds rate this year plus forward guidance for 150bps more would boost GDP by 2% and inflation by 1%.
  2. The Fed describes monetary policy as restrictive and says the fed funds rate needs to normalize toward r-star, which it estimates at around 3%.
  3. Rate cuts, combined with a continued tailwind from fiscal policy and large investments in AI, raise the risk of higher stock prices, tighter credit spreads, and a reacceleration in GDP and inflation.

Related Articles:

  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — 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.
  • 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.
  • U.S. Business Investment in the Post-COVID Expansion — Business fixed investment has held at roughly the same share of U.S. GDP as before COVID, a better outcome than after every other recession since 1980, when investment typically fell as a share of GDP and contributed less well into the recovery. American businesses invested $430bn more than if investment had followed its usual historical pattern.

Wednesday, September 4, 2024

AI Summary. Private investment funds pursuing private credit strategies have become major corporate lenders in a now $5tn industry, drawing borrowers with higher returns, stronger contractual covenants than public debt markets offer, and protection from creditor-versus-creditor conflicts. As corporate borrowing shifts private, information about many firms and entire industries becomes unavailable to public investors.

Jared Ellias and Elisabeth de Fontenay Yale Law Journal
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The share of lending in the form of “private credit” has grown dramatically since the financial crisis. Private credit may now be a $1.5 trillion industry that is at least as large as the syndicated loans market. @jared_ellias and Elisabeth de Fontenay

Does the shift to private credit hide corporate information from public investors?

Core argument: New data presented by the authors shows the private credit industry has reached $5 trillion, as private investment funds become increasingly important corporate lenders and bring to corporate debt the consolidation forces reshaping equity markets.

Private investment funds executing a “private credit” strategy have become increasingly important corporate lenders, bringing into corporate debt the same forces of consolidation that have been reshaping the equity markets. We offer new data that illustrates the meteoric rise of the now 5 trillion private credit industry. Private credit [is] attractive relative to public debt markets because: 1) Debt investors receive attractive returns on their investment compared to public debt investing; 2) Private credit investors receive, on average, far stronger contractual covenants than the public debt market currently offers; and 3) Debt investors are protected from “creditor-on-creditor violence,” which has created risk and increased the monitoring costs associated with investing in public corporate debt. As the corporate debt markets go dark, we move to a world in which information about many firms and even entire industries will be lost to the investing public.

Takeaways by Macro Roundup® AI

  1. New data presented by the authors shows the private credit industry has reached $5 trillion, as private investment funds become increasingly important corporate lenders and bring to corporate debt the consolidation forces reshaping equity markets.
  2. The authors attribute private credit's appeal over public debt markets to attractive relative returns, on average far stronger contractual covenants, and protection from "creditor-on-creditor violence," which has created risk and raised monitoring costs in public corporate debt.
  3. The authors argue that as corporate debt markets go dark, information about many firms and even entire industries will be lost to the investing public.

Related Articles:

  • Private Credit: Characteristics and Risks — Private credit loans are negotiated bilaterally outside traditional regulatory requirements and are illiquid because no secondary market exists, leaving investors expected to hold them to maturity or face steep losses if they need to exit. Scarce data on this growing form of nonbank lending makes assessing its risks difficult.
  • The Calm Before the Storm — Private credit and direct lending have not rewritten the rules of credit risk, and much financial innovation amounts to repackaging risk in higher-fee wrappers. High-yield bonds followed a comparable path: after the 1980s boom, below-investment-grade default rates reached roughly 10.4% and 9.1% before the market matured.
  • Corporate Debt, Boom-Bust Cycles, and Financial Crises — Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.

AI Summary. US homebuilding falls short of demand, particularly in high-demand coastal markets, with per-person permitting running at less than half the level of two and five decades ago. The author argues Washington could unlock construction by conditioning federal highway funds on state housing reform, the same lever used to push states to set the drinking age at 21.

Edward Glaeser New York Times
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Ed Glaeser @AEIecon notes “Per capita, there was less than half as much permitting in 2023 as in 2003 or 1973”, and argues that Federal transportation funding should be conditional on state actions to remove barriers to new home construction.

Can federal highway funds pressure states to reform housing rules?

Core argument: U.S. housing permitting per capita in 2023 was less than half the level of 2003 or 1973, with too few homes built especially in coastal markets where demand is greatest.

We are just not building enough homes, especially in the coastal markets where there is the most demand. Per capita, there was less than half as much permitting in 2023 as in 2003 or 1973. To unleash enough new building to bring affordability, we need to dust off our history books and remember how this country raised the legal alcohol drinking age. The National Minimum Drinking Age Act of 1984 demanded states raise the minimum age to buy or publicly possess alcohol to 21 — or face a reduction in federal highway funds. The threat of losing such funds is a big stick.

Takeaways by Macro Roundup® AI

  1. U.S. housing permitting per capita in 2023 was less than half the level of 2003 or 1973, with too few homes built especially in coastal markets where demand is greatest.
  2. The author argues that unleashing enough new building to bring affordability requires emulating the National Minimum Drinking Age Act of 1984, which required states to raise the minimum age to buy or publicly possess alcohol to 21 or face reduced federal highway funds.
  3. The threat of losing federal highway funds is, in the author's view, a big stick.

Related Articles:

  • 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.
  • The Determinants Of Declining Internal Migration — A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.
  • 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.

AI Summary. A gap between housing demand and supply emerged after the COVID-19 pandemic that has likely put upward pressure on rents. Leading indicators including units under construction, the gap between completed units and net household formation, and market rents on new leases tend to foreshadow shelter inflation by about a year, and suggest it will keep declining toward more traditional levels.

Òscar Jordà and Aren Yalcin Federal Reserve Bank of San Francisco
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.@sffed analysts forecast that CPI shelter inflation will decline from 5.1% in July ‘24 to its pre-pandemic average of 3.3% in spring ‘25, based on trends in new units under construction and completed, net household formation, and rents on new leases.

Will shelter inflation keep declining toward traditional levels?

Core argument: Units under construction, the gap between completed units and net household formation, and market rents on new leases tend to foreshadow shelter inflation by about one year, and together suggest shelter inflation will keep declining toward more traditional levels over the next year.

Leading up to the COVID-19 pandemic and with the financial crisis in the rearview mirror, household formation and completions growth began to equalize in the mid-2010s. However, since the pandemic, a considerable gap between demand and supply of housing emerged that has likely put upward pressure on rents. We consider different leading indicators of shelter inflation, particularly units under construction and the gap between completed units and net household formation to assess the evolution of future rent inflation. These two, along with market rents for new lease agreements, tend to foreshadow shelter inflation by about one year. Taken together, these measures suggest that shelter inflation will continue to decline toward more traditional levels over the next year.

Takeaways by Macro Roundup® AI

  1. Units under construction, the gap between completed units and net household formation, and market rents on new leases tend to foreshadow shelter inflation by about one year, and together suggest shelter inflation will keep declining toward more traditional levels over the next year.
  2. A considerable gap between housing demand and supply emerged after the COVID-19 pandemic, which has likely put upward pressure on rents.
  3. Household formation and completions growth began to equalize in the mid-2010s, with the financial crisis in the rearview mirror and before the pandemic.

Related Articles:

  • It’s All About Shelter — Producer price inflation for final demand tracks consumer price inflation excluding shelter closely, and both show inflation under control; overall consumer inflation looks hot only because the shelter component is up 5.6%. That shelter measure lags rents by construction, and more current rent series show no recent inflation.
  • 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.
  • How the U.S. Might Outgrow Pandemic-Era Housing (Un)Affordability Problems — A projected scenario has the U.S. house-price-to-income ratio falling about 13 percentage points over roughly seven years, retracing about two-thirds of the pandemic-era rise through strong income growth rather than a price bust, with moderate price appreciation slightly trailing inflation. Such a gradual correction carries risks including reduced labor mobility, delayed household formation, and longer selling times.

AI Summary. The Congressional Budget Office estimates more than 9m people have migrated on net to the U.S. in recent years, nearly matching the prior decade's total and lifting population growth to almost 1.2% a year. Fewer than 30% are lawful permanent residents; without immigration, growth would be 0.2%.

Paul Kiernan Wall Street Journal
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Since the end of 2020, net immigration has lifted the US population by 9 million people, contributing to annual population growth of 1.2%, the highest since the early 1990s. The bulk of the 6.5mm net illegal immigrants came across the southern border.

How much does immigration drive U.S. population growth?

Core argument: More than nine million people have migrated to the U.S. on net since the end of 2020, coming both legally and illegally, nearly as many as arrived in the previous decade, according to Congressional Budget Office estimates and projections.

Since the end of 2020, more than nine million people have migrated to the U.S., after subtracting those who have left, coming both legally and illegally, according to estimates and projections from the Congressional Budget Office. That’s nearly as many as the number that came in the previous decade. Immigration has lifted U.S. population growth to almost 1.2% a year, the highest since the early 1990s. Without it, the U.S. population would be growing 0.2% a year because of declining birthrates and would begin shrinking around 2040, the CBO projects. Most migrants didn’t come through regular legal channels. Less than 30%, or 2.6 million, are what the CBO counts as “lawful permanent residents,” which includes green-card holders and other immigrants who came through legal channels, such as family or employment-based visas.

Takeaways by Macro Roundup® AI

  1. More than nine million people have migrated to the U.S. on net since the end of 2020, coming both legally and illegally, nearly as many as arrived in the previous decade, according to Congressional Budget Office estimates and projections.
  2. Immigration has lifted U.S. population growth to almost 1.2% a year, the highest since the early 1990s; without it, the Congressional Budget Office projects growth of 0.2% a year and a population that begins shrinking around 2040 because of declining birthrates.
  3. Fewer than 30% of those migrants, or 2.6 million, are counted by the Congressional Budget Office as lawful permanent residents, a category including green-card holders and immigrants arriving through family or employment-based visas.

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. More than 19m new business applications have been filed since the end of 2020, and the pace remains well above the steady pre-pandemic rate. Evidence suggests the surge reflects real entrepreneurship rather than a measurement artifact, as it also appears among applications the Census deems likely to pay wages.

Eric Van Nostrand U.S. Department of the Treasury
Date Posted:

According to a Treasury analysis of new US business applications, many to establish firms with a high propensity to hire employees, remain 50% above the pre-pandemic period.

Does the post-pandemic surge in business applications reflect real entrepreneurship?

Core argument: More than 19 million new business applications have been filed since the end of 2020, a pace that has eased from its peak but remains well above the steady pre-COVID rate.

There has been a surge in applications to start new businesses since the pandemic, with over 19 million new applications since the end of 2020. While the pace of new business applications has eased somewhat from its heights last year the pace remains well above the steady pre-COVID rate. The surge in business applications following the pandemic is so sharp that one might wonder whether it truly reflects a rise in entrepreneurship, or whether it may be some measurement artifact related to a pandemic-era distortion. However, several pieces of evidence suggest that the surge is real and no well-supported alternative explanation has been offered a few years into this trend. The surge is not confined to the broadest set of business applications, which includes many sole proprietorships or other entities that may not fit prevailing understandings of a “small business” (left panel). A similar surge is present for those applications the Census considers having a high propensity to pay wages (middle panel), as well as those who indicate a date on which they will begin paying wages (right panel).

Takeaways by Macro Roundup® AI

  1. More than 19 million new business applications have been filed since the end of 2020, a pace that has eased from its peak but remains well above the steady pre-COVID rate.
  2. The post-pandemic surge extends beyond the broadest application measure to those the Census considers to have a high propensity to pay wages and those specifying a date for beginning wage payments.
  3. Several pieces of evidence suggest the rise in business applications is real rather than a pandemic-era measurement artifact, and no well-supported alternative explanation has been offered a few years into the trend.

Related Articles:

  • High Tech Business Entry In The Pandemic Era — High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
  • Immigrant Entrepreneurship: New Estimates and a Research Agenda — Immigrants account for about a quarter of new employer businesses in the United States, and firms with immigrant owners are more likely to hold patents and hold more patents per employee. This higher propensity toward innovation is only partly explained by differences in owners' education levels and fields of study.
  • Why is the U.S. GDP Recovering Faster Than Other Advanced Economies? — The U.S. output advantage over other advanced economies is attributed mainly to faster labor productivity growth and secondarily to hours worked per employee. Rigid foreign labor markets and job-retention policies kept workers attached to firms producing below capacity, while the U.S. saw about 3x more sectoral worker reallocation and a surge in new firm formation.