Torsten Sløk @apolloglobal notes the median time from the start of the Fed’s hiking cycle until unemployment bottoms is 14 months. We are 13 months into the current hiking cycle.
The unemployment rate falls when the Fed hikes rates, see chart below. In fact, the declining unemployment rate is precisely the reason why the Fed is raising interest rates. And the chart below suggests that when the unemployment rate starts moving higher is when the Fed stops hiking. Looking back in history, the median time it takes from when the Fed starts hiking until the unemployment rate bottoms and moves higher is 14 months, and using this historical pattern as a guide, with the first Fed hike in March 2022, we should begin to see the unemployment rate increase within the next couple of months. The bottom line is that it usually takes 12 to 18 months for the Fed to soften the labor market, and today is no different.
Real hourly earnings for the bottom 10% earners rose by 6.4% between January 2020 and September 2022. Real hourly earnings for the top 10% and median earners were down in real terms.
America’s lowest-earning workers are enjoying higher wage growth than top earners, after taking into account the effects of the recent bout of high inflation. Since 2020, real wages for the bottom 10 percent of the workforce have returned to their pre-pandemic level. In contrast, top earners and those on average incomes have taken a substantial hit once the effect of price growth is taken into account. Real hourly earnings for the lowest earners rose by 6.4 percent between January 2020 and September 2022.
Doug Sosnik documents that voting behavior has polarized around educational attainment resulting in a new political geography of eight battleground states which have educational levels near the national average.
In a sharp contrast to a previous era, college educated voters are now more likely to identify as Democrats, and those without college degrees - particularly white voters, but increasingly all Americans – support Republicans. Culturally, a person’s educational attainment increasingly correlates with their views on a wide range of issues, including abortion, attitudes about LGBTQ+ rights, and the relationship between government and organized religion. This educational sorting has made the vast majority of states no longer politically competitive. It is the battleground states in the middle - where education levels are neither disproportionately high nor low - that will decide the 2024 presidential election. Democrats will likely enter the General Election with 222 electoral votes, compared to 219 for Republicans. That leaves only eight states, with 97 electoral votes – Arizona, Georgia, Michigan, New Hampshire, North Carolina, Nevada, Pennsylvania, and Wisconsin – up for grabs. The education levels in these states are at or near the national average - Pennsylvania (23rd), Georgia (24th), North Carolina (25th), Wisconsin (26th), Arizona (30th), and Michigan (32nd) - not disproportionately highly educated nor toward the bottom.
Millennial wealth is now keeping pace with prior generations at this point in their life cycles. @jean_twenge
Millennials, as a group, are not broke—they are, in fact, thriving economically. That wasn’t true a decade ago, and prosperity within the generation today is not evenly shared. But since the mid-2010s, Millennials on the whole have made a breathtaking financial comeback. The Federal Reserve Bank of St. Louis made big headlines in 2018 when it announced that among families headed by people born in the 1980s (older Millennials), median wealth was 34 percent lower than what you’d expect based on the wealth of previous generations at the same age. The report, which analyzed data through 2016, theorized that Millennials might be a “lost generation” when it came to wealth. But when the St. Louis Fed updated its analysis of Millennial wealth a few years later, using 2019 data, it found significant progress. By then, older Millennials lagged only 11 percent behind previous generations at the same age. That progress was uneven: The gap was larger for Millennials without a college degree (19 percent) and even more so for Black Millennials (50 percent). Younger Millennials (born in the ’90s and still in their mid-20s at the time) also faced a bigger gap. Still, since 2019, both housing and the stock market have increased in value, last year’s swoon notwithstanding. Recent analysis by the Fed, including data through the middle of 2022, has shown average Millennial wealth to be neck and neck with the wealth of Gen X at the same age.
In real terms, the Case-Shiller national index (blue line) is 4.6% under its recent peak and 11% above the 2006 bubble peak. @calculatedrisk
In real terms (using CPI less Shelter), the National index is 4.6% below the recent peak, and the Composite 20 index is 6.4% below the recent peak in 2022. In real terms, national house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak, but real prices are historically high. Affordability was essentially unchanged in February as a slight increase in prices was offset by a slight decrease in mortgage rates. In October 2022, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%.
New research shows that a major increase in federal student loan funding that started in 2006 had the effect of dramatically increasing tuition without improving either inclusion or the future earnings of graduates. @JeffDenning @Econ_Sandy @AEI
In 2006, the federal government essentially uncapped student borrowing for graduate programs with the introduction of the Graduate PLUS loan program. We find that access to additional federal loans increased previously constrained students’ borrowing and shifted the composition of their loans from private to federal debt. However, the increase in borrowing limits had no effect on graduate student enrollment or the racial and gender composition of entering graduate students. We find little evidence of short or longer-run effects on the human capital accumulation of students who were or would have been constrained by federal borrowing limits in the absence of Grad PLUS, even though cumulative debt significantly increased for these students when they gained access to Grad PLUS loans. This suggests that access to additional liquidity did not constrain graduate student borrowers’ human capital investments prior to the implementation of Grad PLUS. We also find little evidence of an impact on later earnings, consistent with no change in human capital accumulation. Where we do see effects ison program prices. Grad PLUS-driven increases in federal student loans significantly increased program prices.
.@tylercowen argues that the diffusion of AI will enable important companies to run with a small number of employees managing automated AI-based systems.
Consider ChatGPT, which has been described as the most rapidly growing consumer technology product in history. It is produced by OpenAI, headquartered in San Francisco. Byone recent estimate the company has about 375 employees. By contrast, Meta, even after some layoffs, currently has more than 60,000. OpenAI will make more hires. Still, it may be time to reset expectations for what a major tech company looks like. Important businesses with a small number of employees will need to hire exactly the right people to oversee the larger automated and AI-managed superstructures. Talent selection will rise in importance as a skill, and the people in these smaller units will command very high compensation. Investing will evolve as well, with Americans less likely to own businesses in their stock portfolios. If businesses become smaller overall, they will not have the same need to go public to raise capital for expansion. They will be privately held. Venture capital will rise in importance, but since most solo investors face SEC restrictions on making venture investments, they will have to put their money elsewhere.
According to the UN, India’s population will overtake China’s this year if it hasn’t already. India’s population isn’t expected to peak until 2063.
The United Nations has said India’s population is projected to surpass China’s sometime this year. Many demographers estimate it could happen this month, if it hasn’t already. India’s population is expected to reach 1.429 billion by the end of the year, according to the U.N. China will fall to second place, with 1.426 billion people. Both dwarf the U.S. at a projected 340 million. India’s population is expected to keep growing for the next four decades, peaking at nearly 1.7 billion in 2063.
Stock-based compensation was around 6-8% of total compensation for public American firms, up 5x from 2006. At approximately 1.2% sales, stock-based compensation was up 6X since 2000. @mjmauboussin
In 2006, the year that companies had to reflect SBC as an expense on the income statement, total SBC expense for companies in the Russell 3000 was about $25 billion. The Russell 3000 is an index that tracks the largest stocks by market capitalization in the United States. We estimate that SBC was about $270 billion in 2022, or 6- 8 percent of total compensation for public companies in the U.S. Sales over the same period went from $11.5 to $21.1 trillion. Stock-based compensation (SBC) in 2022 was nearly 5 times what it was in 2006, measured as a percentage of sales, although total SBC remains less than 10 percent of total employee pay.
Nationwide, the difference between Republican vote share in rural vs urban areas increased to 21 percentage points in 2020, up from 10 pp in 2000 and 2pp in 1996. @SuzanneMettler1
Throughout the mid-twentieth century and as recently as the 1970s and 1980s, presidential candidates received fairly equivalent support from rural and urban dwellers, nationwide. Since the 1990s, however, the rural-urban political cleavage has grown steadily as shown in Figure 1. Although the rural-urban political divide in presidential voting has increased the most in the South, by 27 points between 1976 and 2020, it has widened in all regions over the same period, by seven points in the Northeast, 18 points in the West, and a striking 20 points in the Midwest. Urban areas captured a full 97% of all employment growth between 2001 and 2016. As the economic conditions in rural and urban areas diverged, the rural-urban political divide emerged.
Growth in the US has outpaced growth in other advanced peer economies. In 1990, the US accounted for 40% of the nominal GDP of the G7, today it accounts for 58%. @TheEconomist
America’s $25.5trn in GDP last year represented 25% of the world’s total—almost the same share as it had in 1990. On that measure China’s share is now 18%. In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In PPP terms the increase was smaller, but still significant: from 43% of the G7‘s GDP in 1990 to 51% now. America’s outperformance has translated into wealth for its people. Income per person in America was 24% higher than in western Europe in 1990 in PPP terms; today it is about 30% higher. It was 17% higher than in Japan in 1990; today it is 54% higher. America’s labour-force participation rate has been falling this century, largely because of men dropping out of the workforce. But this American oddity is not large enough to make up for the country’s advantage in raw numbers. Even with lower participation, the past three decades have seen America’s labour force grow by 30%. In Europe the number is 13%, in Japan, just 7%. America’s working-age population—those between 25 and 64—rose from 127m in 1990 to 175m in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m.
Chinese firms now make up 4 of the top 25 leading firms in research and development spending, according to a @foxjust analysis.
When I last compiled one of these lists five years ago, mobile infrastructure and device maker Huawei Investment & Holding Co. was in sixth place behind Microsoft, just as it is here, but it was the only Chinese company in the global top 25. It has been joined by TikTok owner ByteDance Ltd., WeChat owner and gaming giant Tencent Holdings Ltd. and e-commerce, payments and cloud-computing purveyor Alibaba Group Holding Ltd.
Torsten Sløk @apolloglobal reports that last week saw the largest two-week cut in bank lending in US history. “In short, the credit crunch has started.”
Weekly Fed data released every Friday at 4:15 pm shows how banks are responding to the SVB collapse and subsequent deposit outflows. The largest 2-week cutback in bank lending in US history. The largest 2-week cutback in bank lending to corporates in US history. Largest decline in lending to real estate on record. Fed hikes were already cooling the economy, and the latest weekly Fed data shows that the banking sector response since SVB is magnifying the speed of the slowdown. The bottom line is that the immediate risks in the banking sector are starting to fade, but the behavioral change in the banking sector is beginning to weigh on the economic outlook.
The French government reported that France had much lower income mobility than the US btw 2003-2019, with little movement in the top and bottom quintiles. Among those in the top 1% in 2003, 41% were still there in 2019. @markets
According to the first long-term study by France’s statistics agency Insee, there was a 71% correlation between the position of French people on the income scale between 2003 and 2019, with the richest and poorest groups least likely to change bracket. That inertia is greater than in the US, where a deeper history of income mobility studies has shown a higher probability of ascending or descending, the authors of the French report said. Among the lowest 20% in terms of income in 2003, 62% were still in that group in 2019. Only 2% of the group rose to the level of the 20% highest incomes.
Michael Cembalest @jpmorgan argues that the banking system is now stabilizing, with the pace of drawdowns slowing from mid-March.
The presence of unrealized losses on bank balance sheets is not abnormal, and is entirely consistent with a rising interest rate cycle. The problem this time: some banks were flooded with so many stimulus-related deposits at a time of low rates that their balance sheets are stuffed with low-yielding assets. And to reiterate, this is only a problem when large deposit outflows cause unrealized losses to be realized. The Fed’s new rules for the Discount Window allow banks to borrow against securities at book value rather than market value, so that should help. But it doesn’t address banks with underwater, high-quality loans or the flood of deposits departing for higher money market fund yields. Many system indicators are now stabilizing, but one news story, one rating agency action or an announcement from a single bank could reignite market/depositor concerns.
Torsten Sløk @apolloglobal writes that “it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy,” given that credit conditions for small businesses are at their worst levels since 2012.
Credit conditions have tightened significantly for small businesses after SVB failed, and firms with less than 500 employees account for almost 50% of total employment in the US economy. Small businesses borrow from small banks, and it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy.
.@martinwolf_ argues that a savings glut in Japan significantly constrains its policy options and makes loose monetary policy and high deficits its best overall option. Japan’s private sector gross savings averaged 29% of GDP from 2010-19 vs 22% in the US.
Ultra-low interest rates are, for example, intended to raise private investment and reduce private savings. But in practice, the private savings surplus, especially the corporate surplus, has remained huge. Loose monetary policy has facilitated crucial absorption (and offsetting) of surplus private savings via the excess of government investment over savings. These deficits averaged 5 per cent of GDP from 2010 to 2019. Finally, an average of 3 per cent of GDP went into net acquisition of foreign assets via Japan’s current account surpluses. So long as Japan continues to run huge excess private sector savings, policy has to find ways of either reducing or offsetting them. Japan’s economy is still trapped. It also has no easy way out.
Michael Cembalest @jpmorgan argues that effective load carrying capacity (ELCC) is a better metric than the levelized cost of energy (LCOE) since this metric reflects the intermittent availability of wind and solar power.
One example: assume that California builds a deeply decarbonized system with 20 GW of wind, 150 GW of solar and 75 GW of storage. This system would only have 50 GW of reliable load with which to meet demand (ELCC=50 GW). Alternatively stated: if this system needed 50 GW of reliable power and was designed with renewables only, it would need 245 GW of wind, solar and storage to make it work. The marginal ELCC of wind, solar and storage are at their highest when renewables are first added to the system; their contribution to system reliability falls rapidly after that. LCOE reflects none of these realities, which is why the ISOs and utilities shown in the text box look at ELCC instead.
.@TaxFoundation analysis finds that for every dollar earned by the lowest quintile of American households, they receive an additional $1.27 from the government. @tevermeer @ericadyork @alex_durante_ @JaredWalczak
The U.S. system of taxes and transfers is highly progressive. The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned. The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers. Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.
Over the past 25 years the number of Americans reporting “patriotism” was “very important” to them declined from 70% to 38% and “having children” declined from 59% to 30%. The number reporting “money” climbed from 31% to 43%. @WSJ
Patriotism, religious faith, having children and other priorities that helped define the national character for generations are receding in importance to Americans, a new Wall Street Journal-NORC poll finds. Some 38% of respondents said patriotism was very important to them, and 39% said religion was very important. That was down sharply from when the Journal first asked the question in 1998, when 70% deemed patriotism to be very important, and 62% said so of religion. The only priority the Journal tested that has grown in importance in the past quarter-century is money, which was cited as very important by 43% in the new survey, up from 31% in 1998.
.@AEI’s @swinshi revisits Raj Chetty’s data and argues that contrary to Chetty’s findings, slower economic growth has been a much more important driver of the reduction of absolute mobility than the rise in inequality.
Higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have increased it to just 57%. This is almost the mirror image of the Chetty findings. Chetty also reported trends looking at absolute mobility for the 1970 cohort as of age 40 rather than for the 1980 cohort at age 30 (Figure S12 in their paper.) These analyses showed that in the “high growth” counterfactual, instead of 56% of the 1970 birth cohort experiencing absolute mobility, 67.5% would have. Meanwhile, in the “low inequality” counterfactual, the rate was 74%. However, using my approach, the “high growth” scenario produced an absolute mobility rate of 78.5%, while the “low inequality” scenario featured a rate of 63%. Again, the Chetty conclusion about the importance of growth versus inequality reverses.
.@PaulKrugman suggests that wage growth for lower-income families has more than offset inflation, even accounting for their higher food and energy consumption.
The labor economist Arindrajit Dube has estimated hourly wage changes — by decile rather than quartile — over a longer period since the beginning of the pandemic recession. He finds that real wages for the bottom 40 percent of workers have increased. Lower-income families spend a higher than average share of their income on food and energy, which are also the categories that have seen the most inflation recently. My rough calculations suggest that even when you take these food and energy costs into account, lower-income families have done better, not worse, than others, at least in terms of inflation’s effects. But it does lessen that difference somewhat.
There has been a sharp uptick in the number of men working as stay-at-home parents. Almost 5% of stay-at-home parents are men, compared to about 1% in the mid-1990s. @bloomberg @jordan_yadoo
[The Census Bureau defines stay-at-home males] as husbands in opposite-sex marriages with children under 15 who specifically say they’re not working so that they can care for family and whose wives are either working or looking for work. Under those terms, men accounted this year for 5% of the one-fifth of US families with a stay-at-home parent, up from about 1% in the mid-’90s and representing 239,000 fathers. According to a broader analysis by the Pew Research Center—which expands the pool to include any father of a child under 18 who hasn’t been working, regardless of reason or marital status, and also incorporates men in same-sex relationships—the number of stay-at-home dads had swelled to about 2.1M by 2021, equal to 18% of all stay-at-home parents, up from 10% in 1989.
Young adults in both the UK and US are spending more time alone and increasingly reporting feeling “lonely.” @ft
On average, 53% of Americans aged over 65 spend more than eight hours of waking time on their own every day, according to my analysis of data from the American Time Use Survey. The trend remains unchanged for people over 60. But compared with a decade ago, the rise in the number of young people who spend more than eight hours on their own is alarming. Time on your own is one thing; feeling lonely is quite another. And young people seem worse affected by the latter. A March 2022 ONS survey found that 40% of women aged 16 to 29 in the UK report “feeling lonely often, always or some of the time,” compared with 22% of women over 70. For men, some 22% of this age group report feeling lonely, compared with 13% of the over-70s. And, of course, the impact of Covid lockdowns cannot be ignored.
2021 saw a record 48,953 gun deaths or 15 fatalities per 100,000 people. Black men aged 20-24 suffered 142 firearm homicides per 100,000 people in 2021, a 74% increase since 2014. @wsj
A record 48,953 deaths in the US, or about 15 fatalities per 100,000 people, were caused by guns last year, said the analysis published Tuesday in the journal JAMA Network Open. Since 1990, rates of gun-related homicide have been highest among Black men aged 20 to 24, the analysis said, with 142 fatalities per 100,000 people in this group in 2021—a 74% increase since 2014. Homicide rates are as much as 23 times higher among Black men, and as much as nearly four times higher among Hispanic men than among white men, the analysis said. Gun fatality rates from suicide were highest among white men aged 80 to 84 years, at 47 fatalities per 100,000 people in this group in 2021—a 41% increase since 2007, the analysis showed.
China’s trade surplus has continued to grow since the pandemic, with manufacturing exports ~ 14% of GDP. The trade surplus is poised to grow, as China’s bill for imported commodities falls. @Brad_Setser
The popular deglobalization narrative simply isn't in China's trade data -- manufacturing exports are up massively, and that has pushed the surplus up even as China's commodity import bill reached record levels (the commodity bill is poised to fall now, by the way.) China's currency is (still) managed (in my judgment, even if the PBOC's reported reserves don't change,) so movements reflect the interaction of market pressure and political decisions. But at some level, a weaker CNY, even with a massive trade surplus, reflects a judgment by China's policymakers that they need to sustain the rise in exports (relative to China's GDP) even as global demand for manufactures drops (to offset China's domestic weakness.)
Companies with market capitalization of over $200B currently represent 30-35% of total capitalization, up from the 10-15% share that was normal until 2016. @policytensor
The polarization in favor of the biggest firms peaked at the end of last year. The megacap-to-midcap ratio of market cap has been cut from four to three in the course of 2022. But three is far from a collapse of the megacap boom. The 10-15% that was normal until 2016 has since given way to 30-35% of total capital controlled by the megacaps. I have used biweekly rolling averages for the graph. Note that this is a bottom-up census rather than an estimate. I am just adding up reliable third-party data at the granular level; every single ticker for which there is price and market cap data. This is the broadest possible universe of US equities for which I can find kosher data.
A 2019 RAND study found 60% of American men in the 26-35 cohort who failed to graduate from high school had been arrested by age 26, and their arrest rate has been going up over time, reports @adam_tooze
60% of young men in America with less than high-school education have been arrested at least once by age 26. Strikingly, the report’s author James P. Smith found that the arrest rate has increased dramatically over time. Black men were significantly more likely to have been arrested. Of black men aged 26-35 in the study, 33% had been arrested by age 26 versus 23% for white men. Education plays an outsized role in explaining racial arrest differences, especially for men in the 26–35 age group. The overall higher rate of arrests by 26 among black adults in the 26–35 age group correlates with lower education levels. The study also found that having a more educated father was associated with lower rates of arrests and convictions by 26.
The MSCI India Index has outperformed the MSCI China Index through April 2022, according to @Wellington_Mgmt research, as noted by @tylercowen
Figure 1 shows the cumulative total returns posted by the S&P 500 Index, the MSCI China Index, and the MSCI India Index from December 31, 1992, through April 20, 2022. Our clients have been uniformly surprised that China’s long-term performance has been so much lower than that of the US and India, especially given all the investor focus on China in recent years. And they’ve been even more surprised that India – a market many clients have more or less ignored – has fared so well over the long run.