Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, August 31, 2026

AI Summary. The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.

Gordon Liao, Eswar Prasad, Tony Zhang Federal Reserve Bank of Kansas City
Date Posted:

Dollar dominance in the world economy is not in danger. The dollar remains the currency for the vast majority of FX transactions, and dollar bond holdings by foreign private sector investors rose from $1T in 2010 to over $5T by early 2026.

Is the dollar holding its dominant role in global payments and reserves?

Core argument: The dollar accounts for 59% of the value of cross-border payments messaged through SWIFT, with the euro a distant second at 14%.

The dollar now accounts for 59% of the value of all cross-border payments for which messaging is done through SWIFT. The euro’s share, at 14%, is a distant second. The dollar’s share of turnover in FX markets has risen gradually to around 90% (out of a total of 200%, as each FX transaction involves two currencies) since 2010, indicating that it remains the counterparty currency for the vast majority of FX transactions (Figure 2, Panel B). Official holdings of U.S.Treasuries (including by sovereign wealth funds) have leveled off at around $4 trillion over the last 15 years while holdings by foreign private sector investors have increased steadily, from $1 trillion in 2010 to over $5 trillion by early 2026 (Figure 9, Panels A and B). The international monetary system seems to be fragmenting [at] the second tier (which, in our view, includes all currencies other than the dollar), evident in measures of currency concentration excluding the United States, [creating] a balanced distribution across a range of reserve currencies (Figure 11).

Takeaways by Macro Roundup® AI

  1. The dollar accounts for 59% of the value of cross-border payments messaged through SWIFT, with the euro a distant second at 14%.
  2. The dollar's share of FX market turnover has risen gradually since 2010 to around 90% out of a total of 200%, as each transaction involves two currencies, leaving it the counterparty currency for most FX trades.
  3. Official holdings of U.S. Treasuries, including by sovereign wealth funds, have leveled off at around $4 trillion over the last 15 years, while foreign private sector holdings rose from $1 trillion in 2010 to over $5 trillion by early 2026.

Related Articles:

  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.
  • US Monetary Spillovers, Foreign Exchange, and Gold Reserves at Times of Geopolitical Fragmentation — The authors estimate that surprises in US monetary policy spill over into exchange rates, with dollar-denominated reserves substantially mitigating depreciation pressures while non-dollar and gold reserves are associated with smaller effects. Aggregate reserve size alone does not capture external resilience; currency composition and access to dollar liquidity facilities are empirically relevant.
  • How Overvalued is the Euro? — The euro has traded at a premium against the dollar relative to the Euro zone–US two-year forward interest rate differential since reciprocal tariffs were introduced, a decoupling that is milder for the British pound and absent for the Australian and Canadian dollars. The author argues that US and Chinese efforts to weaken their currencies will worsen euro overvaluation.

AI Summary. The US 10-year Treasury yield topped 4.75%, a 19-month high, as rising oil prices bolstered expectations that the Federal Reserve will raise interest rates. The 30-year yield climbed five basis points to near 5.26% but stayed well below its multiyear high, having retreated after the Treasury Department said it would increase buybacks of long-dated debt.

Elizabeth Stanton Bloomberg
Date Posted:

The US 10-year yield hit 4.75% for the first time since January 2025. The 30-year yield also climbed, rising 5 bps to ~5.26%.

Are rising oil prices pushing Treasury yields to new highs?

Core argument: The US 10-year Treasury yield topped 4.75% for the first time since January 2025, as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates.

The US 10-year yield topped 4.75% for the first time since January 2025 as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates. While 30-year yields also climbed Monday, rising five basis points to near 5.26%, they remained well below their mid-August multiyear highs, having retreated after the Treasury Department said earlier this month it would increase its buybacks of debt in the sector to bolster its market value.

Takeaways by Macro Roundup® AI

  1. The US 10-year Treasury yield topped 4.75% for the first time since January 2025, as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates.
  2. The 30-year Treasury yield rose five basis points to near 5.26%, remaining well below its mid-August multiyear highs.
  3. Thirty-year yields retreated after the Treasury Department said it would increase buybacks of debt in that sector to bolster its market value.

Related Articles:

  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
  • Let the Bond Market Speak — The long-term Treasury yield is the most important price in the world, and markets aggregate information no committee possesses. The author argues the Treasury's larger buyback operations were not justified as liquidity support, since trading was orderly, volatility contained, and there were no failed auctions or forced unwinds indicating dysfunction.
  • Don’t Draw The Wrong Conclusion From Treasury Yields — Ten-year real yields equal the average expected overnight rate over the next decade plus a term premium, and fiscal credibility or debt sustainability concerns would show up as a higher term premium. With the term premium and inflation expectations contained, the increase in bond yields reflects higher expected long-term overnight rates.

AI Summary. An investment argument holds that long-term interest rates fall under either artificial intelligence outcome: success would generate trillions in technology revenue and prove deflationary, while failure would burst the bubble, cut the Nasdaq in half, and send investors from stocks into Treasury bonds.

Torsten Sløk Apollo
Date Posted:

Sløk argues that the next six months will see either a large increase in revenue associated with AI or the start of a major market correction. He argues either scenario will bring long rates down.

Do long-term rates fall whether or not AI succeeds?

Core argument: If AI fails to deliver, the argument runs, the bubble bursts and the Nasdaq falls 50% as investors rotate out of equities into Treasuries, pushing long rates dramatically lower.

If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower. If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically. Over the next six months, the market will make up its mind about which AI scenario is playing out. The narrative in rates today is all about inflation and fiscal problems. But the narrative going into 2027 is going to be all about either the success or failure of AI. And in both scenarios, long rates are going to be lower.

Takeaways by Macro Roundup® AI

  1. If AI fails to deliver, the argument runs, the bubble bursts and the Nasdaq falls 50% as investors rotate out of equities into Treasuries, pushing long rates dramatically lower.
  2. If AI succeeds and tech companies generate trillions in revenue, the argument runs, AI proves massively deflationary and pushes rates lower, leaving long rates lower in both scenarios.
  3. The rates narrative is expected to shift from inflation and fiscal problems to the success or failure of AI going into 2027, with the market making up its mind over the next six months.

Related Articles:

  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • The Buyers of AI Are Still Waiting for the Payoff — Companies in the S&P 500 outside the technology sector are spending heavily on artificial intelligence without showing gains in profit margins, with health care margins halved since 2015, consumer staples near 6%, and consumer discretionary near 8%. So far the artificial intelligence capital spending boom appears in sellers' margins rather than buyers'.
  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.

AI Summary. Large technology companies booked more than $160bn in gains last quarter from stakes in other artificial intelligence firms, with much of the profit increase at Alphabet and Amazon coming from "other income" on holdings such as SpaceX and Anthropic rather than new business lines or cash generation. Analysts question whether reported growth reflects underlying demand.

Ramsay Hodgson and Emily Herbert Financial Times
Date Posted:

In Q2, Alphabet, Amazon, Nvidia and Microsoft reported $160B in pre-tax profit from valuation gains on AI-related equity stakes alone.

Are paper gains on AI stakes inflating big tech profits?

Core argument: Big Tech companies booked more than $160bn last quarter from gains on investments in other AI companies, flattering earnings and raising concerns that paper gains are overstating the strength of the AI boom.

Big tech giants booked a more than $160bn windfall last quarter from investments in other AI companies, flattering their earnings and raising concerns that paper gains are overstating the strength of the AI boom. In the most recent round of earnings reports, pre-tax profits reached a record at several of the Big Tech “hyperscalers”. But the main source of these increases at Alphabet and Amazon was ‘other income’ from gains on SpaceX and Anthropic, rather than new business lines or fresh cash generation. “A couple of years ago investors started to ask about the circularity of [Big Tech] revenues,” said Ben Snider, chief US equities strategist at Goldman Sachs. The profit boost from AI investments now “raises the question of whether the growth these companies are reporting is based on underlying demand or if it is misleading in some way,” he added.

Takeaways by Macro Roundup® AI

  1. Big Tech companies booked more than $160bn last quarter from gains on investments in other AI companies, flattering earnings and raising concerns that paper gains are overstating the strength of the AI boom.
  2. Pre-tax profits reached a record at several Big Tech hyperscalers, but the main source of the increases at Alphabet and Amazon was "other income" from gains on SpaceX and Anthropic rather than new business lines or fresh cash generation.
  3. Ben Snider, chief US equities strategist at Goldman Sachs, said the profit boost from AI investments raises the question of whether the growth these companies report is based on underlying demand or is misleading in some way.

Related Articles:

  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation — A stock's value can be split into steady-state value from current operations and the "present value of growth opportunities" from future value-creating investments, which has averaged 35% of the S&P 500's price historically. Lower shares of price attributed to growth opportunities have been associated with higher subsequent returns, most clearly at the extremes.
  • Are US Corporate Profit Margins Too High? — US after-tax non-financial corporate profit margins remain elevated by historical standards, estimated at 7.6% versus a post-1949 high of 8.2%, while employee pay as a share of non-financial corporate gross value added has fallen from 66% to 56%. One argument holds that subdued demographic growth leads companies to prioritize maximizing margins over expanding capacity.

AI Summary. S&P 500 per-share earnings rose 53% year over year in the latest quarter and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge. Companies raising profit guidance outnumbered those lowering it by nearly 2-to-1, a reversal from a year earlier.

Sarah Nassauer and Theo Francis Wall Street Journal
Date Posted:

The S&P 500’s earnings per share rose 53% y/y in Q2 (34.5% excluding earnings from investment gains at Amazon and Alphabet), while revenue increased 15.6%.

Are corporate profits surging and pointing to further gains ahead?

Core argument: S&P 500 per-share earnings rose 53% in the second quarter from a year earlier and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge.

Across S&P 500 companies, per-share earnings soared 53% in the second quarter from a year earlier, while sales rose nearly 16%. Investment gains from tech giants Amazon and Alphabet added fuel to the big earnings surge. Even without those gains, S&P 500 earnings rose the most since fall 2021. By a nearly 2-to-1 margin, more companies raised their profit guidance for the current quarter than lowered it—a turnaround from a year ago, when more were lowering their outlooks. Tariff refunds are providing a big, temporary tailwind. They are likely to account for more than 4% of third-quarter economic growth—or add about 0.2 percentage point to the Atlanta Fed’s growth forecast of between 4% and 5%—according to a mid-August estimate from Apollo.

Takeaways by Macro Roundup® AI

  1. S&P 500 per-share earnings rose 53% in the second quarter from a year earlier and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge.
  2. Excluding investment gains at Amazon and Alphabet, S&P 500 earnings rose the most since fall 2021, and companies raised profit guidance for the current quarter over lowering it by a nearly 2-to-1 margin, reversing the prior year's pattern.
  3. Apollo estimated in mid-August that tariff refunds would account for more than 4% of third-quarter economic growth, adding about 0.2 percentage point to the Atlanta Fed's growth forecast of between 4% and 5%.

Related Articles:

  • Welcoming Everyone Else to the Earnings Party — Free cash flow at large technology companies is deteriorating rapidly as data-center spending absorbs it, even as the rest of the corporate sector generates more cash. Across the S&P 500, earnings per share have risen much faster than free cash flow over a protracted stretch, raising questions about how quickly artificial-intelligence capital spending will turn into profits.
  • Corporate America Is Minting Money—and Not Just in Tech and Finance — Earnings per share for S&P 500 companies are estimated to grow more than 13% year over year for a sixth straight quarter, with sales growth and improving margins accompanying the gains. Share buybacks are contributing less to earnings growth than in many quarters, with the gap between earnings-per-share and net income growth just under 1 percentage point.
  • Big Tech Profits Get $160bn Boost From Gains On Stakes Other AI Companies — Large technology companies booked more than $160bn in gains last quarter from stakes in other artificial intelligence firms, with much of the profit increase at Alphabet and Amazon coming from "other income" on holdings such as SpaceX and Anthropic rather than new business lines or cash generation. Analysts question whether reported growth reflects underlying demand.

Tuesday, September 1, 2026

AI Summary. Interest rates remain low relative to reasonable expectations of inflation and growth, with incomes and spending rising about 7% a year in dollar terms. Absent idle workers, machines, and materials, higher rates can help shift resources toward business equipment and nonresidential construction by discouraging consumer spending and housing or attracting foreign goods and services today.

Matt Klein The Overshoot
Date Posted:

Klein argues that, far from indicating a panic-driven bond sell-off, higher bond yields are a necessary concomitant of persistent 7% growth in nominal income, which in turn reflects continued high inflation and robust real spending.

Do higher interest rates help shift resources toward business investment?

Core argument: Incomes and spending are rising about 7% a year in dollar terms, which the author argues leaves interest rates low relative to reasonable expectations of inflation and growth.

Rates are still low relative to reasonable expectations of inflation and growth. Incomes and spending are currently rising about 7% a year in dollar terms. But unless there are loads of unused workers, machines, and raw materials just lying around, the only way to spend relatively more on essential machinery, equipment, and nonresidential construction is if someone spends relatively less on consumer goods, services, and housing. Higher interest rates can help to the extent that they can discourage those lower-priority activities and/or encourage people in the rest of the world to accept promises of goods and services in the future in exchange for actual goods and services today. In this context, the current level of interest rates looks downright benign.

Takeaways by Macro Roundup® AI

  1. Incomes and spending are rising about 7% a year in dollar terms, which the author argues leaves interest rates low relative to reasonable expectations of inflation and growth.
  2. Absent idle workers, machines, and raw materials, spending relatively more on machinery, equipment, and nonresidential construction requires spending relatively less on consumer goods, services, and housing, according to the author.
  3. Higher interest rates can aid that shift by discouraging lower-priority activities and encouraging people abroad to accept promises of future goods and services in exchange for actual goods and services today, leaving current rates benign in the author's view.

Related Articles:

  • AI, Productivity, and Rates: Part 2 — Inflation-protected U.S. Treasury yields rose from about 3.5% in early 1997 to about 4.5% by 2000, compared with roughly 2.4% on the 10-year and 3% on the 30-year today. The author argues that this 1990s experience helps calibrate expectations if new software technologies produce a comparable acceleration in productivity growth.
  • Don’t Draw The Wrong Conclusion From Treasury Yields — Ten-year real yields equal the average expected overnight rate over the next decade plus a term premium, and fiscal credibility or debt sustainability concerns would show up as a higher term premium. With the term premium and inflation expectations contained, the increase in bond yields reflects higher expected long-term overnight rates.
  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.

AI Summary. A decomposition of the 2.54 percentage-point rise in the 10-year US Treasury yield attributes 1.56 points, nearly two-thirds, to a higher term premium rather than expected future short-term rates. The author argues the premium had earlier turned negative as the Federal Reserve absorbed long-dated Treasury and mortgage-backed issuance, removing interest-rate risk.

Hanno Lustig The Two Cents
Date Posted:
Is Database:
Database

Lustig presents a decomposition that attributes 156bp of the 254bp rise in the 10-year yield since March 2022 to an increase in the term premium, which he associates with the additional duration risk borne by investors as the Fed reduced its balance sheet.

Is the term premium driving most of the yield increase?

Core argument: Of the 2.54 percentage point increase in the 10-year Treasury yield since March 2022, 1.56 points — nearly two-thirds — comes from a higher term premium, according to the author's decomposition.

I plot a decomposition of the increase in the 10-year yield into a term premium component and a future short rate component. According to this measure, a big chunk —1.56 pps (or nearly 2/3 rds)— of the 2.54 pps increase in the 10-year yield since March 2022 is actually due to an increase in the term premium. That premium (the red line in the figure) turned negative around 2015, and [when] it bottomed out in 2020, yields (black line) were trading 135 bps below the path of future short rates (blue line). That’s not entirely surprising: The Fed was absorbing a large share of Treasury issuance at the long end of the yield curve —as well as MBS issuance— effectively removing a great deal of interest rate risk from the market.

Takeaways by Macro Roundup® AI

  1. Of the 2.54 percentage point increase in the 10-year Treasury yield since March 2022, 1.56 points — nearly two-thirds — comes from a higher term premium, according to the author's decomposition.
  2. The term premium turned negative around 2015 and bottomed in 2020, when 10-year yields traded 135 basis points below the path of future short rates.
  3. The author attributes the 2020 trough in the term premium to the Fed absorbing a large share of long-end Treasury and MBS issuance, effectively removing interest rate risk from the market.

Related Articles:

  • What Are Bond Markets Telling Us? — There is little evidence that fears of a Greek-style solvency crisis are driving U.S. interest rates, since long-term "breakeven" inflation expectations have changed little. Prices for credit default swaps, which insure against a U.S. government default, have also moved little.
  • What Are US Treasury Markets Really Telling Us? Part I — Comparing US Treasury yields to AAA corporate bonds combined with credit default swap insurance creates a synthetic Treasury, and the resulting spread — the convenience yield investors give up for safety and liquidity — has disappeared, suggesting investors are indifferent between the two on safety and liquidity. The author argues this is bad news for US taxpayers.
  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.

AI Summary. Japan's 10-year government bond yield reached 3%, its highest since 1996, after years near zero. The yield was half that level a year earlier, and the speed of the shift is reverberating through Japan's economy and global financial markets.

John Cheng Bloomberg
Date Posted:

Japan’s 10-year government bond yield rose 6bp to hit 3% for the first time since 1996.

Are Japanese long-term bond yields rising sharply after years near zero?

Core argument: Japan's 10-year government bond yield rose as much as six basis points to touch 3%, its highest level since 1996 and the first time it has reached that level this century.

Japan’s 10-year government bond yield touched 3% for the first time this century, an important milestone for a debt market that is returning to normality after benchmark borrowing costs languished near zero for years. The yield rose as much as six basis points to 3% on Tuesday, the highest since 1996. It was half this level around this time last year, underscoring the speed of the change, which is reverberating through Japan’s economy and global financial markets.

Takeaways by Macro Roundup® AI

  1. Japan's 10-year government bond yield rose as much as six basis points to touch 3%, its highest level since 1996 and the first time it has reached that level this century.
  2. Japan's 10-year government bond yield stood at half its current level a year earlier, underscoring the speed of the shift in the country's benchmark borrowing costs.
  3. Japan's debt market is returning to normality after benchmark borrowing costs languished near zero for years, with the move reverberating through Japan's economy and global financial markets.

Related Articles:

  • Where is the Global Debt Crisis Most Acute? — A proxy for strain at the long end of government bond markets — the gap between the 10-year yield expected in 10 years' time and today's 10-year yield, scored against its own history — shows Japan as an outlier among the G10 economies.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • The Carry Trade That Can’t Be Unwound — Japan's consolidated public sector has liabilities of 255% of GDP, with asset purchases having shortened their duration and bank reserves at the Bank of Japan — floating-rate liabilities — worth 75.5% of GDP, down from 90.7%. Its largely unhedged 56%-of-GDP position in foreign securities and 50%-of-GDP equity holdings would take losses if the yen appreciates and real rates climb.

AI Summary. US nominal pre-tax corporate profits in the national accounts grew 23% over the past year, a pace not seen outside post-recession spikes since the mid-2000s. Wider margins were the key driver, as domestic profit growth far exceeded the 8% rise in corporate value added, pushing margins near all-time highs while the labor share hit new lows.

Abiel Reinhart J.P. Morgan
Date Posted:
Is Database:
Database

US corporate profit margins rose ~250bp y/y in Q2 and are approaching an all-time high. Reinhart notes that tech and communications services drove ~58% of recent S&P 500 profit growth, even as the sectors have been “steadily losing employment since late 2022.”

Are wider margins driving surging corporate profits as labor's share falls?

Core argument: Higher margins were the key driver of profit growth, as 23% y/y domestic profit growth far exceeded the 8% rise in corporate value added.

Nominal pre-tax corporate profits in the national income and product accounts (NIPA) were very robust in both 2Q (41% [annual rate]) and over the last year (23%). Excluding post-recession spikes, we haven’t seen a year this strong since the mid-2000s. Higher margins [were] the key driver [of profit growth], as 23% y/y domestic profit growth was far in excess of the 8% increase in corporate value added. Profit margins (pre-tax profits divided by value added) increased close to 250bp over the last year, and are approaching all-time highs, whereas the labor share is hitting new lows.

Takeaways by Macro Roundup® AI

  1. Higher margins were the key driver of profit growth, as 23% y/y domestic profit growth far exceeded the 8% rise in corporate value added.
  2. Profit margins, measured as pre-tax profits divided by value added, increased close to 250bp over the last year and are approaching all-time highs, while the labor share is hitting new lows.

Related Articles:

  • US Corporate Profits Surge To Record As Worker Payouts Wilt — US pre-tax corporate profits reached an annualised $4.8tn, or 18% of national income, the highest share since the aftermath of World War II, according to Bureau of Economic Analysis data. Employees' share from wages and benefits fell to 60%, the lowest since the 1950s, with the decline gaining pace in recent years.
  • Are US Corporate Profit Margins Too High? — US after-tax non-financial corporate profit margins remain elevated by historical standards, estimated at 7.6% versus a post-1949 high of 8.2%, while employee pay as a share of non-financial corporate gross value added has fallen from 66% to 56%. One argument holds that subdued demographic growth leads companies to prioritize maximizing margins over expanding capacity.
  • The Record Divide Between Corporate Profits and Worker Pay — Labor's share of gross domestic income fell to 51%, the lowest since records began in 1947, while profits' share rose to 12.1%, the highest since 1950. Inflation-adjusted hourly wages are up 3% since the end of 2019, compared with a 50% rise in profits.

AI Summary. Survey data indicate 60% of U.S. adults say the term "working class" describes them well, including half of those with a bachelor's degree and half of upper-income Americans. Identification is highest among blue-collar workers at 77%, versus 61% in other occupations, and ranges from 52% of Asian adults to 62% of White adults.

Steven Shepard, Hannah Hartig, Andy Cerda and Jocelyn Kiley Pew Research Center
Date Posted:
Is Database:
Database

60% of Americans say “working class” describes them “extremely” or “very” well. Republicans are more likely than Democrats to identify as working class – strikingly 61% of Republicans who have a family income of at least $155,600 identify as working class, compared to 38% of such Democrats.

Do most Americans identify as working class across income and education levels?

Core argument: 60% of U.S. adults say the term "working class" describes them well, an identity adopted across income and educational groups, including half of those with a bachelor's degree and half of upper-income Americans.

Most Americans think of themselves as “working class” today: Overall, 60% of U.S. adults say the term describes them well. And the identity is widely adopted by people across all income and educational groups – including half of both Americans who have a bachelor’s degree and those who are upper-income. Those working in blue-collar occupations are particularly likely to identify as working class (77%), [as are] a majority of those working in other occupations (61%). White adults are more likely than Black adults to identify as working class. About six-in-ten White (62%) and Hispanic adults (59%) overall view themselves as working class, as do roughly half of Black (54%) and Asian adults (52%).

Takeaways by Macro Roundup® AI

  1. 60% of U.S. adults say the term "working class" describes them well, an identity adopted across income and educational groups, including half of those with a bachelor's degree and half of upper-income Americans.
  2. Workers in blue-collar occupations identify as working class at a rate of 77%, compared with 61% of those in other occupations.
  3. About 62% of White and 59% of Hispanic adults view themselves as working class, as do roughly 54% of Black and 52% of Asian adults.

Related Articles:

  • America’s Support for Capitalism Has Declined Over Last Decade — Just under half of Americans say capitalism is working very or somewhat well, down from 60% about a decade ago, according to a Wall Street Journal-NORC survey. Only 12% say democracy is working very or extremely well, and 16% say average citizens have considerable influence on politics.
  • Political Representation Gaps and Populism — A study comparing survey responses of citizens and parliamentarians across 27 European countries finds that policymaking reflects voters' economic attitudes well, but the average parliamentarian is about one standard deviation more culturally liberal than the national mean voter. The author finds this cultural gap spans nearly all issues, countries, and established parties, and that right-wing populists fill it.
  • The DSA Sweet Spot: Highly Educated, Downwardly Mobile — US voters most likely to identify as "very liberal" hold postgraduate degrees but household incomes of $30,000–$60,000 a year, an unusual combination given that education and income are typically positively correlated. In the Democratic Socialists of America's most recent member survey, 80% of members aged 25 or older had bachelor's degrees while 45% reported household incomes below $60,000.

AI Summary. Major cloud providers posted annual revenue growth of 37% at Amazon Web Services, 43% at Microsoft Azure and 82% at Google Cloud, with rising revenue backlogs of $514bn and $496bn respectively at Google Cloud and Amazon Web Services. Earnings growth appears highly contingent on continued hyperscaler capital spending and research, which rose from $460bn to $870bn.

Michael Cembalest J.P. Morgan
Date Posted:

Since the start of the data-center buildout, S&P earnings breadth has “eclipsed” that which would be historically implied by the ISM manufacturing survey. Cembalest argues earnings growth “appears highly contingent” on continued hyperscaler spending.

How dependent is earnings growth on hyperscaler capital spending?

Core argument: Q2 annual cloud revenue growth ran 37% at AWS, 43% at Microsoft Azure and 82% at Google Cloud, with Google Cloud's backlog up $52bn to $514bn and AWS's backlog at $496bn, up 36% q/q.

The Q2 earnings season was positive for hyperscaler annual revenue growth: AWS 37%, Microsoft Azure 43% and Google Cloud 82%. Rising revenue backlogs reinforce evidence of AI monetization: Google Cloud’s backlog increased $52B to $514B, and the AWS backlog rose to $496B, up 36% q/q. Earnings growth is also more broad-based than it was in 2024-2025 when AI was the primary driver. Earnings growth appears highly contingent on continued hyperscaler capital spending and R&D which rose from $460B in 2024 to $870B over the last 12 months. The share of S&P 500 companies with positive expected earnings growth is normally well-predicted by the ISM manufacturing survey. But since the AI capital spending boom began, earnings breadth has eclipsed the improvement in manufacturing surveys; this suggests a powerful trickle-down effect from hyperscalers to other sectors.

Takeaways by Macro Roundup® AI

  1. Q2 annual cloud revenue growth ran 37% at AWS, 43% at Microsoft Azure and 82% at Google Cloud, with Google Cloud's backlog up $52bn to $514bn and AWS's backlog at $496bn, up 36% q/q.
  2. Hyperscaler capital spending and R&D rose from $460bn in 2024 to $870bn over the last 12 months, and earnings growth appears highly contingent on that spending continuing.
  3. The share of S&P 500 companies with positive expected earnings growth has eclipsed the improvement in the ISM manufacturing surveys that normally predict it, suggesting a trickle-down effect from hyperscalers to other sectors.

Related Articles:

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  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • The Buyers of AI Are Still Waiting for the Payoff — Companies in the S&P 500 outside the technology sector are spending heavily on artificial intelligence without showing gains in profit margins, with health care margins halved since 2015, consumer staples near 6%, and consumer discretionary near 8%. So far the artificial intelligence capital spending boom appears in sellers' margins rather than buyers'.