We found that only 52 of the [Fortune] 500 were born after 1990, our yardstick for the internet era. That includes Alphabet, Amazon and Meta, but misses Apple and Microsoft. Merely seven of the 500 were created after Apple unveiled the first iPhone in 2007, while 280 predate America’s entry into the second world war. In 1990 just 66 firms in the Fortune 500 were 30 years old or younger and since then the average age has crept up from 75 to 90. One explanation is that the digital revolution has not been all that revolutionary in some parts of the economy. Another is that inertia has slowed the pace of competitive upheaval in many industries, buying time for incumbents to adapt to digital technologies. A third explanation is that [incumbents’] scale creates a momentum of its own around innovation.

Related: The Economics of Inequality in High-Wage Economies and The Race of the AI Labs Heats Up and The National Economic Council Gets It Wrong on the Roles of Big and Small Firms in U.S. Innovation and The Size of Firms and the Nature of Innovation and Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data

The present value of short and long term expected earnings for S&P 500 firms, computed using a constant required return, fully explains observed stock market fluctuations btw 1980-2022. When long term earning growth (LTG) is high relative to historical standards, analyst forecasts of short and long term profits are systematically disappointed in the future, inconsistent with rationality. High LTG also correlates with higher survey expectations of stock returns, in contrast with standard theories, in which investors expect low returns in good times. High LTG thus proxies for excess optimism: it points to investors being too bullish about future profits and stock return. This evidence offers additional support to the hypothesis that boom-bust dynamics in non-rational expectations about the long-term act as an important driver of the volatility of key asset prices. A one standard deviation increase in LTG fuels an investment boom. Crucially, the investment boom sharply reverts 2 years later, and that reversal is fully explained by the predictable disappointment of the initially high LTG.

Related: Birth, Death, and Wealth Creation and Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs and The Economics of Inequality in High-Wage Economies

The yield on 10-year inflation-protected Treasuries on Monday pushed over 2% for the first time since 2009, extending its ascent from year-to-date lows near 1%. Not long after, the yield on 10-year Treasuries without that protection surpassed October’s peak, climbing nearly 10 basis points to as much as 4.35%, a level last seen in late 2007, before slightly paring the gain.

Related: What Have We Learned About the Neutral Rate? and In Search of Safe Havens: The Trust Deficit and Risk-free Investments! and Summers and Blanchard Debate the Future of Interest Rates

American Airlines pilots approved a new contract that would provide 46% in cumulative pay raises and retirement contributions over its four-year term, along with a bonus, improved scheduling, sick leave, and insurance benefits. The pact will add about $9.6 billion in incremental costs for the airline over its duration, the Allied Pilots Association said in a statement Monday. That makes it the most expensive labor contract ever for a US carrier, topping the $7.2 billion value of an accord Delta Air Lines Inc. pilots secured in March.

Related: UAW Warns Contract Talks With Big Three Carmakers Are Moving ‘Too Slow’ and Everyone Wants to Work at UPS After Teamsters Deal and The ‘Summer of Strikes’ Isn’t Living Up to the Hype

Saudi border forces have killed hundreds of Ethiopian migrants attempting to cross into the kingdom from Yemen over the past 18 months, according to a human rights group. New York-based Human Rights Watch alleges in a 73-page report that the security forces “fired explosive weapons” at migrants and in some cases asked them which of their limbs they would prefer to be shot. The kingdom is home to hundreds of thousands of Ethiopian workers.

Related: How a Vast Demographic Shift Will Reshape the World and Progressives Are Winning the Immigration Debate — But It Doesn’t Feel Like It

The ten-year Treasury Note interest rate closed at 4.30% on Thursday, the highest since 2007. Meanwhile, the three-month Treasury Bill rate closed at 5.56% and the 30-year Treasury Bond at 4.41%. All three are at or near their highest level in 16 years. CBO's most recent baseline projections are based on a ten-year rate of 3.9% and a three-month rate of 4.6% this quarter. Based on this, we estimate that interest rates across the yield curve average about 75bps above baseline projections. If rates remain 75bps above CBO’s projections, it could add $2.3T (6% of GDP) to the debt over the next ten years and $350B (0.9% of debt-to-GDP) to the deficit in 2033. Under that scenario, interest costs would exceed combined spending on Medicaid, SSI, and SNAP as well as spending on defense by next year. By 2026, the cost of interest would reach a record high 3.3% of the economy.

Related: American Gothic and Is a U.S. Debt Crisis Looming? Is it Even Possible? and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem

Every quarter, Fed officials project where rates will settle over the longer run, which is in effect their estimate of neutral. The median estimate declined from 4.25% in 2012 to 2.5% in 2019. After subtracting inflation of 2%, that yielded a real neutral rate (sometimes called “r*” or “r-star”) of 0.5%. In June, the median was still 0.5%. That also happens to track a widely followed model co-developed by New York Fed President John Williams that also puts neutral at 0.5%. A model devised by the Richmond Fed, which before the pandemic closely tracked Williams’s model, put the real neutral rate at 2% in the first quarter. Larry Summers has recently suggested neutral has gone up because of higher deficits and the investment to transition to a lower-carbon economy.

Related: Measuring the Natural Rate of Interest After COVID-19 and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet) and In Search of Safe Havens: The Trust Deficit and Risk-free Investments!

By any measure real rates have steadily risen as both actual and expected inflation have trended lower and nominal rates have trended higher. Without any change, policy would be unnecessarily tightening. Rates cuts and QT would together have a steepening impact on the curve and help address some concerns in the banking sector, whose margins have been squeezed by curve inversion. The Japanese experience with a persistently flat or inverted curve was poor growth and potential financial stability concerns as some investors reached for risk. This in part motivated the BOJ’s 2016 foray into YCC, which steepened the curve by raising 10 year JGB yields above the deposit rate. The financial system needs an upward-sloping curve to work well, so the Fed may be nudging it in that direction.

Related: Hidden to Market and Measuring the Natural Rate of Interest After COVID-19 and World Economic Outlook Chapter 2 The Natural Rate of Interest: Drivers and Implications for Policy

In the short run, the Fed should be aiming to stabilize inflation below 3% for at least six months. If it can achieve this goal, then it should shift to a higher target range for inflation when it updates its overall strategy around 2025. We have spent nearly half of the past 20 years with interest rates at the zero lower bound. Considerations led policy makers to conclude that 2% was the right number in the 1990s would lead them to consider something higher, like 3%, today to give the Fed more scope to cut interest rates and thereby stimulate the economy.

Related: It is Time to Revisit the 2% Inflation Target and When Should We Declare Victory Over Inflation? and What We’ve Learned About Inflation

The National Federation of Independent Business survey shows a sharp rise in 2021-22, then a steep fall that has brought us most of the way back to prepandemic inflation. This really doesn’t sound like an economy in which businesses are forgoing price hikes because of weak demand. It sounds like an economy in which inflation is coming down because of improved supply, not reduced demand.  Does this mean that the Fed was wrong to raise rates? Not necessarily. If it hadn’t raised rates, the economy might be running really, really hot. The Atlanta Fed’s GDPNow tracker currently shows the economy growing at 5.8 (!!!), which isn’t really plausible but does suggest a lot of heat; so the Fed may not have caused disinflation, but rate hikes may have been necessary to permit disinflation caused by other forces.

Related: The Unresolved Tension Between Prices and Incomes and What Have We Learned About the Neutral Rate? and Rate Cuts

[Meta’s] Code Llama will make it easier for companies to develop AI assistants that automatically suggest code to developers as they type, and it could siphon customers from paid coding assistants such as Microsoft’s GitHub Copilot, which is powered by OpenAI. Generating automated code suggestions has been among the most popular uses of LLMs, as code is based on language. LLMs also power conversational text services like ChatGPT. GitHub a year ago began charging developers $10 per month for Copilot, and a slew of other coding assistant companies have raised venture funding in recent months. Companies might gravitate to using an open-source coding model to develop their own coding assistant in order to safeguard their source code, said one person who has worked on Code Llama.

Related: Society's Technical Debt and Software's Gutenberg Moment and Integrating the Goldman AI Report Into Our Views

American nominal growth is clocking a 6.5% pace this year against 4.8% for China, according to Bloomberg Economics, which still sees the world's second-biggest economy expanding faster in real terms. The strengthening US dollar against the yuan has also contributed to China’s rival pulling away, for now, in the global race when GDP is measured in dollars.

Related: How Soon and At What Height Will China’s Economy Peak? and The Neoclassical Growth of China and US-China Relations Have Entered a Frightening New Era

Xi and some of his lieutenants remain suspicious of U.S.-style consumption, which they see as wasteful at a time when China’s focus should be on bolstering its industrial capabilities and girding for potential conflict with the West, people with knowledge of Beijing’s decision-making say. The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires.

Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and China’s Defeated Youth and Can China Fix Youth Unemployment Woes With Military Recruitment

China’s total fertility rate—a snapshot of the average number of babies a woman would have over her lifetime—fell to 1.09 last year, from 1.30 in 2020, according to a study by a unit of the National Health Commission cited this week by National Business Daily, a media outlet managed by the municipal government of Chengdu, the capital of Sichuan province. At 1.09, China’s rate would be below the 1.26 of Japan. Yi Fuxian, a scientist at the University of Wisconsin who has studied China’s demographics expects fewer than eight million newborns in China this year, based on indicators including marriage and newborn-medical-checkup data. That would be less than half the number in 2016, when China scrapped its one-child policy and recorded around 18 million births. By last year, the figure had fallen below 10 million.

Related: An Economic Hail Mary for China and China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism and China’s Population Likely Fell in 2022 as Births Hit New Low

There is in fact evidence that the natural rate of interest, or r-star, has in fact risen over the last year, and by some measures, it would appear as if r-star may be at levels not that far from those seen just prior to the financial crisis of 2008.  If that were the case, then a “soft-landing scenario where inflation fell back to 2% would be one where the Federal Fund Rate fell back to the 3 ½-4% level, rather than the 2 ½-2 ¾ % level implied by the HLW model or the FOMC’s “dot plots.”  In addition, if r-star has risen significantly, then recent Federal Reserve policy has not been as “restrictive” as many have suggested.  If that were the case, then one would have expected the economy to have performed better than the “consensus” forecast, which in fact has been the case. Related: The Evolution of Short-Run r* After the Pandemic and What Have We Learned About the Neutral Rate? and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

What if higher mortgage rates have turned the low-rate mortgages of 2021 into golden handcuffs, locking owners into their existing homes? 42% of American homeowners own their homes with no mortgage. Most existing homeowners with mortgages have large equity cushions by virtue of purchasing before the massive pandemic-era home price appreciation. Excluding people who owned their homes free and clear, the median level of housing debt is only 52% of the value of the home, and those homeowners with large equity cushions should also be less affected by lock-in. Related: The "New Normal" Mortgage Rate Range and The Great Pandemic Mortgage Refinance Boom

China’s current problems can be traced back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom. After years of building housing and offices at breakneck speed, the bloated property sector – which accounts for 23% of the country’s GDP (26% counting imports) – is now yielding diminishing returns. This comes as little surprise, as China’s housing stock and infrastructure rival that of many advanced economies while its per capita income remains comparatively low. The debt supercycle may have lasted longer than initially expected, perhaps because of the pandemic. But it was a critical piece of the story, and now, as China’s economy falters, it is the best explanation for what might come next. Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and China Begins Nationwide Push to Reveal Hidden Government Debt and Housing, Household Debt, and the Business Cycle: An Application to China and Korea

Property developer China Evergrande has filed for bankruptcy protection in the US, as the company pursues a prolonged restructuring agreement with international creditors that hold billions of dollars in bonds. Evergrande defaulted on its dollar-denominated debts in late 2021, sparking a sector-wide liquidity crisis that has weighed on China’s economic growth and put increasing pressure on policymakers in Beijing. The company has about $19bn in overseas liabilities, according to Bloomberg data. Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and China Begins Nationwide Push to Reveal Hidden Government Debt and Housing, Household Debt, and the Business Cycle: An Application to China and Korea

A careful reading of the present situation does not support the view that China's growth is now gripped by a severe cyclical downward spiral that will persist for several years. Falling retail prices could lead households to postpone consumption on the expectation that goods would become cheaper tomorrow. That would reduce consumption and economic growth. But the widely noted 0.3% decline in consumer prices in July 2023 compared with a year ago was mostly due to elevated food prices in the same period of 2022. Stripping out volatile prices of food and energy, core consumer prices in July rose by 0.8%, up from the 0.4% increase in June. It may be premature to raise the specter of deflation based on one month of data. Related: The Neoclassical Growth of China and China Stops Reporting Youth Unemployment as Economic Pressures Mount and China Cannot Allow Jobless Young To ‘Lie Flat’

A former Google researcher who co-authored a paper that kick-started the generative AI revolution has joined forces with an ex-colleague to found a Tokyo-based artificial intelligence start-up. Jones, Sakana’s chief technology officer, was one of eight Google researchers who collaborated on building a software known as the transformer, which underpinned the rise of generative AI, including chatbots such as ChatGPT and Bard, and image generators such as Stability AI, Midjourney and Dall-E. The Transformers research paper was first published in June 2017. Since then all of its co-authors have left Google, primarily to found their own start-ups. Jones was the last of the eight to exit Google. Related: The Economics of Inequality in High-Wage Economies and The Size of Firms and the Nature of Innovation and The National Economic Council Gets It Wrong on the Roles of Big and Small Firms in U.S. Innovation

Overall, despite differing methodologies and assumptions, the existing body of work on household savings following the pandemic recession firmly points to the rapid accumulation and drawdown of excess savings in the United States. The red area in Figure 1 shows our updated estimate for cumulative drawdowns, which reached more than $1.9 trillion as of June 2023. This implies that there is less than $190 billion of excess savings remaining in the aggregate economy. Should the recent pace of drawdowns persist—for example, at average rates from the past 3, 6, or 12 months—aggregate excess savings would likely be depleted in the third quarter of 2023. Related: The Rise and Fall of Pandemic Excess Savings and Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective and The Trickling Up of Excess Savings

When goods have strong positive externalities—such as decreasing our carbon emissions, improving supply chain resilience, or promoting national security—the market can underprovide, as private actors do not experience all of the social benefits of their production. In these instances, government action, such as by lowering the cost of production for the firm, can correct the failure of the market to provide sufficient supply and improve overall welfare. These funding streams, combined, are designed to de-risk new technologies, support the development of necessary infrastructure, and more, making new technologies and domestic manufacturing cost-competitive. Related: Making Manufacturing Great Again and Factory Boom Sweeps US With Construction at Record $190 Billion and Republican Districts Dominate US Clean Technology Investment Boom

Prices for reinsurance rose as much as 40% on Jan. 1 from a year earlier, according to a report by Gallagher Re, a brokerage firm that puts together reinsurance coverage deals. The price increases jolted insurers, who then made changes to where and for what they offered coverage. When State Farm announced in May that it would stop accepting new applications for certain policies in California, it cited “a challenging reinsurance market.” Allstate also cited reinsurance costs when it paused some of its activities in California. Last month, reinsurers specializing in agriculture insurance announced that they were pulling out of Iowa, where, three years ago, a severe windstorm caused nearly $4 billion in damage. Related: Why California and Florida Have Become Almost Uninsurable and Home Insurers Are Charging More and Insuring Less and Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse and Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks

In early US trading Thursday the 30-year Treasury yield rose as much as seven bps to 4.42%, slightly exceeding last year’s high. It was below 4% as recently as July 31. The US 10-year yield approached 4.31%, within a few basis points of its 2022 peak. The higher yields in the US continue to draw in buyers. Investors pumped $127 billion this year into funds that invest in Treasuries, on pace for a record year, Bank of America said last week. Related: In Search of Safe Havens: The Trust Deficit and Risk-free Investments! and The Fed and the Secular Decline in Interest Rates and What Have We Learned About the Neutral Rate?

Inflation is likely to trend at a faster pace than in the past, perhaps 2.5%. A real return, which could be 1.5% to 2% over time when thinking of the government’s increasing borrowing needs — driven by the need for more defense spending, the likelihood of some Trump administration tax cuts getting extended, and higher average interest costs on outstanding debt. A term premium, which is the compensation investors get for buying a longer-term security rather than rolling over investments in short-term ones. Typically this has averaged about 0.75 to 1 percentage point. Adding up the three components, then it’s likely investors over the next decade will be “looking at 4.75 on the 10-year — and it obviously could end up being higher than that.” Related: What Have We Learned About the Neutral Rate? and The 2023 Long-Term Budget Outlook and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem

China’s aging society problem will accelerate over the next decade, with the number of citizens aged over 60 expanding by an average of 10 million per year, according to a leading demographer, adding further strain to the state pension fund, elderly care facilities, and medical services. The acceleration will push the number of senior citizens to 520 million by 2050, or 37.8% of the population, according to Renmin University of China vice-president Du Peng. China had 209.78 million people aged over 65 last year, accounting for 14.9% of the population, up from 200 million in 2021, according to official data. Last year, 29.1% of Japan’s population were aged over 65, with 17% in the United States and South Korea and 7% in India, according to World Bank data. Related: China Is Facing a Moment of Truth About Its Low Retirement Age and China Is Dying Out and China’s Population Likely Fell in 2022 as Births Hit New Low

Unemployment among urban Chinese aged 16 to 24 has been running at over 20% for months, about double the age group’s pre-pandemic level. Our calculations show that in 2021 over 70% of those unemployed youngsters were graduates. To get a sense of how young people feel, we have interviewed dozens of them. Their message is strikingly consistent. “We have no hope,” says a 27-year-old in Huizhou. The malaise felt by him and his cohort has led to the emergence of a new nihilistic vocabulary, featuring phrases such as tangping (lying flat) and bailan (letting it rot). Using sentiment-analysis tools to extract feelings from text on social media, we found that the mood of young Chinese is growing ever darker. A surprising number of young couples are not even having sex. In a survey conducted in 2020, 14.6% and 10.1% of partnered men and women born between 1995 and 2003 reported having had no sex in the past year. Related: China Urges Jobless Graduates To ‘Roll Up Their Sleeves’ and Try Manual Work and Chinese Youth Suicide Rate Quadruples In Over A Decade and China’s Singles Fight Family Pressure to Get Married as Population Declines and China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism and A Revolution Is Coming for China’s Families

Despite continued low unemployment, our jobs-workers gap is trending down on the back of reduced job openings. And while average hourly earnings grew a faster-than-expected 0.4% in July, other wage indicators such as the Q2 ECI and the Atlanta Fed wage growth tracker measure came in on the softer side; all told, our GS wage tracker has slowed from a peak of nearly 6% in 2022 to the 4½-5% range now. Related: The Unresolved Tension Between Prices and Incomes and Furman On Jobs Report and Soft Landing Optimism Is Everywhere. That’s Happened Before

There is no better way to show the emptiness of "the Fed did it" argument than to plot out the US treasury bond rate each year against a crude version of the fundamental risk-free rate, computed by adding the actual inflation in a year to the real GDP growth rate that year. No one (including central banks) cannot fight fundamentals: Central banks and governments that think that they have the power to raise or lower interest rates by edict, and the investors who invest on that basis, are being delusional. While they can nudge rates at the margin, they cannot fight fundamentals (inflation and real growth), and when they do, the fundamentals will win. Related: The Fed and the Secular Decline in Interest Rates and What Have We Learned About the Neutral Rate? and The Evolution of Short-Run r* After the Pandemic

The leader of the United Auto Workers union on Tuesday asked members to grant him the ability to call a strike, arguing contract talks with the three major Detroit carmakers are moving too slowly. Earlier this year, the UAW gave each carmaker a list of demands that included pay raises of more than 40%, inflation protection, better treatment of temporary workers, and improved perks for retirees. The UAW also wants all workers paid the same wage, regardless of the job they do or whether they work on electric vehicles. If the union got everything it demanded it would cost carmakers $80 billion over the four years of the deal, Bloomberg has reported. Related: The ‘Summer of Strikes’ Isn’t Living Up to the Hype and Unions’ Inflation Warning? and Everyone Wants to Work at UPS After Teamsters Deal

Goldman Sachs economists argued the neutral rate will likely be higher than the Fed currently expects. "We expect the funds rate to eventually stabilize at 3-3.25%." If the neutral rate is in that range then the 30-year fixed mortgage rate will be in the low to mid 6% range. With a 3.25% Fed Funds rate, a 4.45% 10-year yield, we’d expect 30-year mortgage rates around 6.45%. Recent buyers, with 7%+ mortgage rates, might be able to refinance, but most buyers will be locked into their current rate. The bottom line is it appears 30-year mortgage rates will be in current range for some time (barring a crisis). Related: Could 6% to 7% 30-Year Mortgage Rates be the "New Normal"? and What Have We Learned About the Neutral Rate? and Rate Cuts

More than 40% of America’s scientific production—measured by the number of high-quality papers that U.S.-based scientists produce—involves cooperation with researchers abroad, according to Clarivate, a London-based data firm that tracks global scientific research. China and the U.S. are each other’s No. 1 partner in producing scientific research, with collaborative research between the two consistently among the most-cited papers across fields, according to an analysis of Clarivate’s data by Caroline Wagner, a professor of public policy at Ohio State University. The U.S. depends more heavily on China than China does on the U.S. in some strategic areas, according to an analysis by Clarivate of studies in respected journals shared exclusively with The Wall Street Journal. Related: Creating and Connecting US and China Science: Chinese Diaspora and Returnee Researchers and Xie Xiaoliang Is Latest Chinese Scientist to Give Up US Citizenship and Award-Winning Chinese Mathematician Sun Xin Returns from US to Work at Peking University

In July the PBOC and other banks collectively sold more foreign currency and FX forwards than in any month since January 2017. Is this meaningful? It depends on perspective. One potentially interesting question is how this might affect spreads on mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. After all, Chinese entities have been big buyers of agency MBS even when they were reducing (maybe) their holdings of U.S. Treasury notes and bonds. If they have now switched to selling reserve assets, or are simply buying less than before, that could have potential ramifications for convexity premiums and interest rate volatility. Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and The Neoclassical Growth of China and The Rise & Fall of Foreign Direct Investment in China

Most of the [IRA’s] spending comes in the form of tax credits that are uncapped, and those unlimited credits are designed to be rolled out over a 10-year span. In September 2022 CBO estimated the clean energy and climate portions of the bill would cost about $391 billion between 2022 and 2031. A team of researchers at the University of Pennsylvania’s Wharton School, working with Goldman Sachs, updated their own earlier estimate of $385 billion with a staggering new figure in excess of $1 trillion. The report’s authors cited “newer implementation” details and more optimistic assumptions about how much private capital will pour into the economy, particularly electric vehicles, in response to the promise of leveraging tax credits. Related: Making Manufacturing Great Again and Republican Districts Dominate US Clean Technology Investment Boom and Unpacking the Boom in U.S. Construction of Manufacturing Facilities

Our analysis suggests that in 2Q, San Antonio, Dallas, and Orlando have the most constrained housing supply as buoyant labor markets continue to attract people. St. Louis, Detroit, and Miami seem to have the highest housing stock relative to their population. The good news is that cities with lower housing supply are already seeing higher construction trends but if the current population dynamics are maintained there will continue to be a strong housing need in the growing parts of the country. Looking more broadly at population flow, Bank of America internal data suggests that in 2Q, 13 out of the 27 Metropolitan Statistical Areas (MSAs) we track continue to see positive year-over-year growth in population with Jacksonville and Columbus leading the gain. Charlotte, Nashville, and Las Vegas saw accelerating pace of increase in residents than in 1Q. Related: A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South and What’s the Matter With Miami? and Young Families Have Not Returned to Large Cities Post-Pandemic

The [homeless] data so far this year are up roughly 11% from 2022, a sharp jump that would represent by far the biggest recorded increase since the government started tracking comparable numbers in 2007. The next highest increase was a 2.7% jump in 2019, excluding an artificially high increase last year caused by pandemic counting interruptions. The Journal reviewed available data from more than 300 entities that count homeless people in areas ranging from cities to entire states, accounting for eight of every nine homeless people counted last year. The Journal’s tally thus far includes more than 577,000 homeless people. The biggest driver remains high housing costs, which are now taking a heavier toll following the wind down of pandemic-era relief spending and policies such as eviction moratoriums, according to advocates for the homeless.

The labor force participation (LFP) rate remains persistently low at 62.6% as of July 2023, almost a percentage point below its pre-pandemic level in February 2020.  We project that the trend in the aggregate LFP rate will decline an additional 1pp btw 2022 and 2032.  The projected decline comes entirely from changes in the population composition. Population aging looms large in this projection: we project the aggregate trend will decline as more of the population enters age groups with low participation rates. This is expected to more than offset the positive effect on LFP from the projected growth for people with higher educational attainment, as LFP tends to increase with education. Related: Labor Market Indicators Are Historically Strong After Adjusting for Population Aging and Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men and Where Are the Missing Gen Z Workers? and “The Great Retirement Boom”: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation

Underlying inflation has fallen by only about one pp – much less than the six pp decline in headline inflation. Moreover, this has happened while labor markets – understood broadly – have loosened considerably, although in a relatively benign manner, with job openings falling instead of unemployment rising. It is not clear how much further this cost-free disinflation can go. And, in fact, today many of the temporary factors appear to be mitigating inflation rather than fueling it. If inflation does painlessly fall to 2%, we should celebrate – and engage in more serious soul-searching regarding the standard economic models. But if it does not, the US Federal Reserve will need to be prepared to go further to bring inflation down to an acceptable range. Related: The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet) and What We’ve Learned About Inflation

It remains extremely difficult for me to reconcile persistent per-worker income growth of ~5% a year with any credible forecast of ~2% inflation. Just as investors and policymakers were right to look through the “transitory” inflation of 2021-2022, they should also strip out the “transitory” disinflation of 2022-2023 to get a handle on where such pressures will settle in the years ahead. Since inflation is just the difference between changes in nominal spending and real production, that means focusing on wage trends: the largest and most reliable source of financing for consumer spending…This explains Fed officials’ continued focus on “softening” the job market via higher interest rates. That presents a risk that interest rates may not come down as quickly as implied by market prices, which in turn could affect other asset valuations. Related: The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet) and What Have We Learned About the Neutral Rate? and Rate Cuts 

China has said it will stop publishing data on youth unemployment, weeks after the gauge hit a record level, in a sign of mounting pressure on policymakers as new data pointed to weakness in the recovery of the world’s second-largest economy. Youth unemployment, which China began reporting in 2018, hit 21.3% in June, but the figure was not included in a wider data release for July on Tuesday. Related: Why Has Youth Unemployment Risen So Much in China? and Can China Fix Youth Unemployment Woes With Military Recruitment Drive? and Chinese Professor Says Youth Jobless Rate Might Have Hit 46.5%

Why might the FOMC not cut? The simplest reason is that inflation might not come down quite enough. Another possible reason is that even if it does, if GDP growth is above potential, the unemployment rate is pushing below its 50-year low, and financial conditions have eased further on enthusiasm about a soft landing, then stimulating an already-strong economy by cutting might seem like an unnecessary risk, especially with the memory of the recent inflation surge still fresh. In that scenario, the FOMC could say that the short-run neutral rate is higher than common estimates of the medium-run neutral rate, and as a result the monetary policy stance is actually not so restrictive and the need to cut is not so immediate. Related: What Have We Learned About the Neutral Rate? and The Evolution of Short-Run r* After The Pandemic and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

The Fed started raising rates in March 2022, and the effects are clear. Higher costs of capital have pushed more and more companies into bankruptcy. This is the idea behind raising rates: to slow the economy down with the ultimate goal of getting inflation back to 2%. Every day there are companies that cannot get new loans or refinance, and this trend higher in bankruptcies will continue as long as interest rates stay high. Related: A Default Cycle Has Started and Most Global Economies Remain in Disequilibrium, Requiring Policy Action and Furman On Jobs Report

Excluding Treasuries, there are over $30t of debt securities outstanding. Credit spreads have widened since the lows of 2021, but remain within historical ranges. The slight deterioration seen recently in credit quality across a range of metrics most likely indicates normalization rather than the beginning of financial distress. Looking at bankruptcy filings, filings notably increased in 2023 but only from historically low levels. Given elevated inflation, nominal GDP growth remains high that thus supportive of further revenue growth to support interest expense payments. Interest expense burdens may also further ease next year as the Fed potentially cuts rates next year in line with declining inflation. The overall picture thus suggests a continued benign credit environment. Related: A Default Cycle Has Started and How Is the Corporate Bond Market Functioning as Interest Rates Increase? and Settling Into 4% Inflation?

The new industrial boom has mostly bypassed the areas hit hardest by the China Shock. Just 16 of the 100 most affected commuter zones have been the sites of any newly announced projects over the past two years. These areas are projected to receive just 11.4% of the value of those projects, or $57.4 billion. And, of that sum, a lone IBM announcement accounted for $20 billion. White House spokesman Michael Kikukawae says those zones represent only 4% of the US population, so the analysis understates their impact. Related: The Geography of Work and Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock and The Economics of Inequality in High-Wage Economies

More than 80% of investment in large-scale clean energy and semiconductor manufacturing pledged since last year’s passage of the Inflation Reduction Act and the Chips and Science Act is destined for Republican congressional districts, a Financial Times analysis found. Republicans’ success in attracting investment is partly due to their districts often having large swaths of available land and cheap labour, but states such as Georgia and Ohio have also rolled out their own hefty tax breaks and subsidies to attract developers, including through roadshows in Europe and Asia. Related: Small Towns Chase America’s $3 Trillion Climate Gold Rush and ‘Transformational Change’: Biden’s Industrial Policy Begins to Bear Fruit and Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities

China accounted for 13.3% of U.S. goods imports during the first six months of this year, below a peak of 21.6% for all of 2017. The current level is the lowest since 12.1% for the year in 2003, two years after China’s accession to the WTO. Starting in early 2019, China’s share of U.S. imports fell below the total share from a basket of 25 other Asian nations including India, Thailand, and Vietnam. That group of nations accounted for 24.6% of U.S. imports in the 12 months ending in June, compared with 14.9% for China, according to census data. When the dollar values of exports and imports are combined, Mexico is now the U.S.’s No. 1 trading partner, followed by Canada, pushing China to third place. Related: How America Is Failing To Break Up With China and Setser On China's Trade Surplus and Sester On Kearney Reshoring Index

When MPCs [marginal propensities to consume] are realistically large and the elasticity of substitution between energy and domestic goods is realistically low, there is a direct link between high energy prices and aggregate demand: increases in energy prices depress real incomes and cause a recession, even if the central bank does not tighten monetary policy. When nominal and real wage rigidities are both present, imported energy inflation can spill over to wage inflation through a wage-price spiral; this, however, does not mitigate the decline in real wages.. Fiscal policy, especially energy price subsidies, can isolate individual energy importers from the shock, but it raises world energy demand and prices, imposing large negative externalities on other economies. Related: The Many Channels Of Firms’ Adjustments To Energy Shocks: Evidence From France and Europe: Well-Positioned To Get Through Next Winter Without Major Gas Shortages and How Europe is Decoupling from Russian Energy

Trade surplus that had emerged in the wake of the euro crisis has returned with a vengeance, although the distribution of the surplus has shifted somewhat. At the European aggregate level, Germany’s investment slump and stagnant consumption were offset by building booms in Spain, Greece, and central and eastern Europe. Since the beginning of 1999, there has been more investment in fixed capital (buildings, equipment, R&D, etc) net of depreciation in Spain than in Germany, even though Spain has only half of Germany’s population and has had almost no net investment since 2010. There was just as much net investment in Italy from 1999 through 2011 as in Germany—and Italy was far from booming in the 2000s, as well as far smaller. Related: The New Geopolitics of Global Finance and Germany's Industrial Slowdown and Pettis On Pozsar

Xi Jinping said authorities must take “hard measures that grow teeth” to maintain 120mn hectares of cultivated land across the country — the level widely seen by Beijing as necessary to secure self-sufficiency. Authorities have reclaimed more than 170,000 hectares since 2021 as Beijing tries to reduce its reliance on imported food amid fears confrontation between China and the US could disrupt global supply chains. "China is preparing for the worst-case scenario in which it couldn’t buy any food from abroad”, said Yu Xiaohua, an agricultural economics professor at the University of Göttingen. “The authority is counting on the reclamation drive to improve the country’s grain self-sufficiency.” Related: Could Economic Indicators Signal China’s Intent To Go To War? and China Ups Food Security Drive, Plans To Grow 90 Percent Of Its Grain By 2032, Warning For US And Thai Farmers

Researchers from the Chinese Academy of Sciences’ Fujian Institute of Research on the Structure of Matter, found an ultra-sensitive magnetic detector could pick up traces of the most advanced submarine from long distances away. The result “provides a new solution for the detection and tracking of submarines”, according to the paper published on August 1 by the Chinese Journal of Ship Research. The journal is run by the China Ship Scientific Research Centre, which has a long and respected history of cutting-edge developments in ship and ocean engineering. The researchers calculated that the extremely low frequency (ELF) signal produced by a submarine’s bubbles could be stronger than the sensitivities of advanced magnetic anomaly detectors by three to six orders of magnitude. Related: Aukus Allies Unveil Plan to Supply Australia With Nuclear-Powered Submarines and Nearly 40% of US Attack Submarines Are Out of Commission for Repairs and UK and Australia Urge Washington to Ease Secrecy Rules in Security Pact

Removing London’s output and headcount would shave 14% off British living standards, precisely enough to slip behind the last of the US states. Britain in the aggregate may not be as poor as Mississippi, but absent its outlier capital it would be. By comparison, amputating Amsterdam from the Netherlands would shave off 5%, and removing Germany’s most productive city (Munich) would only shave off 1%. Most strikingly, for all of San Francisco’s opulent output, if the whole of the bay area from the Golden Gate to Cupertino seceded tomorrow, US GDP per capita would only dip by 4%. Related: From Strength To Strength and The Economics of Inequality in High-Wage Economies and Europe Has Fallen Behind America and the Gap Is Growing

Germany’s economy has eked out extremely low growth over the last 5 years—recent revisions to GDP data mean its output is once again barely above pre-pandemic levels, but that still means the country has seen less than 0.5% cumulative GDP growth since late-2018. German industrial investments have not recovered to pre-pandemic levels at a time when countries like the US are pouring record amounts of resources into factory construction and equipment purchases. Real German fixed investment in equipment remains below 2018 levels nearly 5 years later, despite a strong recovery in late 2022 and early 2023. Related: Germany Is Running Out of Workers, Putting Growth in Jeopardy and China’s Auto Export Wave Echoes Japan's in the ’70s  and Germany's Niche Companies Are a Model for Life After Globalization

In 2022, foreign investors purchased nearly $670 billion of long-term U.S. securities and short-term Treasury bills. Not only were the purchases by China, India, and the Middle East oil exporters in 2022 large compared to those by other countries, they were also sizable when measured against these countries' average purchases over the previous nine years. Net purchases in 2022 were well above average annual net purchases from 2013-2021 in every case. As before, under increased financial fragmentation, one would not expect these countries to be making larger purchases of U.S. assets compared to purchases in previous years. Related: How Was the U.S. Current Account Deficit Financed In 2022? and The New Geopolitics of Global Finance and Saudi Arabia's PIF and the New Petrodollar Recycling

Last year’s 9.56mm births in China represented the lowest total in modern history. “The expected number of births in 2023 is estimated to be around 7 million to 8 million,” Qiao Jie, dean of the Health Science Centre at Peking University, said on Tuesday. Last year, wedding registrations declined to 6.83 million, marking the ninth consecutive annual decline and reaching the lowest level since the late 1970s. Related: A Revolution Is Coming for China’s Families and China and India Have Fewer People Than the UN Thinks and An Economic Hail Mary for China

In terms of sea ice extent, this year has been particularly unusual. July’s sea-ice levels were three times further from the average than what had ever been seen previously. At the moment, Antarctica’s ice reflects a large amount of solar radiation back into space, helping keep the world cool. Only 0.2-0.4% of the continent is exposed above the ice at the moment, but that proportion is likely to increase with further warming. That reduces the albedo – or reflectivity – of the surface and increases the heat absorbed by the planet. It’s an effect we’re already seeing in the Arctic, which is now warming four times faster than the rest of the planet. Related: The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View and Antarctic Sea Ice Has Shrunk By An Area Nine Times The Size Of Britain and Antarctic Sea Ice Levels Dive In 'Five-Sigma Event', As Experts Flag Worsening Consequences For Planet

Within the next ten years, the federal government budget deficit relative to national income will grow significantly beyond historical experience.  We project that debt-to-GDP will be 134% in 2032 and 263% in 2052, compared to CBO’s 115% and 189%, respectively. Real interest rates rise in the long run in a ratcheting cycle of higher interest payments and growing deficits and debt. Our projection of national health expenditures relative to GDP in 2072 is 29.6%, compared to 28.4% by the Centers for Medicare & Medicaid Services used by the Medicare Trustees. These higher rates of healthcare inflation arise from labor shortage effects in an aging economy because healthcare is produced in a low productivity, labor-dependent sector. This rise in healthcare expenditures further deteriorates the federal budget and lowers consumer welfare. Related: The 2023 Long-Term Budget Outlook  and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem and Interest Costs Will Grow the Fastest Over the Next 30 Years

From the model’s perspective, short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate. The chart decomposes the change in real r* (black line) and its forecast (red line) between June 2022 and March 2023.  Note that these are changes in the real variable.  The chart shows that “financial’’ shocks (yellow) are the key driver of this change. These shocks capture the fact that financial conditions, as measured for instance by corporate spreads, have remained very resilient in spite of the increase in the policy rate (and of the recent banking turmoil). Related: What Have We Learned About the Neutral Rate? and Measuring the Natural Rate of Interest After COVID-19 and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

Although most projections are for the southwestward trend for the median center of US population to continue, without additional sources of water, changes in housing policy, and progress on climate change the southwestward trend will slow - or maybe even reverse. Climate change might make some areas further north more desirable. Perhaps the Carolinas (away from the coast), TN, and KY will see more growth. And maybe even areas further north that have more affordable housing will experience new growth. Climate change might make those areas - from MO to WV on up to the Great Lakes - more attractive over the next 50 years. For the southwestward trend to continue, there will have to be an increase in water supply, progress on global warming, and changes to housing policies (to make housing more affordable). Related: What’s the Matter With Miami? and Climate Change and the Geography of the U.S. Economy and A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South

2-month CPI rose from 3.0% in June to 3.2% in July. Overall real average hourly earnings (both private and production and non-supervisory which excludes managers) continue to rise. But they are 4% and 3% below their immediate pre-pandemic trend respectively.  Overall, assuming August is relatively moderate as well there is no reason for the Fed to raise rates at their September meeting. I outlined my views on this earlier. If some of the good news proves transitory, however, they'll need to go back & do more. Related: Settling Into 4% Inflation? and What We’ve Learned About Inflation and The Second Great Experiment Update

42% of adult Japanese women may end up never having children. In a more optimistic scenario, a quarter of women born in 2005 may end up not having offspring. The midpoint estimate by Japan’s National Institute of Population and Social Security Research calls for a third of them not having children. The percentage of childlessness is even higher for men, with as many as 50% never seen having children, according to the report. Related: Japan Demographic Woes Deepen as Birthrate Hits Record Low and How a Vast Demographic Shift Will Reshape the World and Inflation in The *Very* Long Run

The Biden administration will ban some US investment into China’s quantum computing, advanced chips, and artificial intelligence sectors, as it boosts efforts to stop the Chinese military from accessing American technology and capital. The new executive order unveiled by President Joe Biden on Wednesday will come into force next year and will also require companies to notify the government of other investments in the three Chinese sectors. The action will largely affect private equity and venture capital firms as well as US investors in joint ventures with Chinese groups. Related: US Adds 36 Chinese Companies to Trade Blacklist and China Fears Japan’s Chipmaking Curbs Go Further Than US Restrictions and The Rise & Fall of Foreign Direct Investment in China

In 2021 China exported nearly 1.6m cars. By 2022 it hit 2.7m. International sales are set to rev up further in 2023. Customs data show that the country shipped nearly 2m cars in the first six months of the year, or more than 10,000 a day. For all its manufacturing might, China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble. The arrival of battery-powered vehicles, which are mechanically simpler and easier to build, helped China catch up. State investment in the EV technology, an estimated $100bn between 2009 and 2019, put the country in pole position. Today battery-powered vehicles account for a fifth of car sales in China and a third of exports. In Japan and Germany only 4% and 20% of exports, respectively, are electric. Related: China’s Auto Export Wave Echoes Japan's in the ’70s and Can Volkswagen Win Back China? and The Chinese Carmakers Planning to Shake Up The European Market

Net FDI into China has been negative for four consecutive quarters (from Q3 2022 to Q2 2023). The bottom line is that foreign investors have shifted in recent quarters from reinvesting their earnings on their Chinese operations to repatriating those earnings. Whether this simply reflects cash management and carry considerations or is a harbinger of a slowdown in future foreign direct investment in China is too soon to say. If the recent trend to repatriate earnings is a signal about future investment intentions, it could have implications for future Chinese production and export capacity and economic growth.  Either way, the repatriation of foreign investors’ profits from their Chinese operations is negative for the CNY. Related: The Mysterious $300 Billion Flow Out of China and NYC Becomes One Billionaire Family’s Haven From China Property Crash and Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom

The variable that best captures the change in circumstances is the real Treasury yield—what investors expect to earn on a 10-year note after inflation. It was around zero in August 2011, soon to go negative. Today, it is 1.7%, near the highest since 2009. One takeaway is that the global saving glut—the wall of money in search of safe assets that kept yields down a decade ago—is no more. independent economist Phil Suttle estimates private investors will be asked to absorb government debt worth 7.7% of developed economies’ GDP this year and 9.2% next, more than double the 4.3% of 2011. Private borrowers thus face competition from governments for capital, which in the long run hurts investment and growth. We got a taste of that last week when yields jumped on news of larger-than-expected quarterly Treasury auctions. Related: Raising Anchor and American Gothic and Is a U.S. Debt Crisis Looming? Is it Even Possible?

Only three of the 15 most affluent metro areas in 1949 (San Francisco, New York and Washington) are still in the top 15, two (Buffalo and Cleveland) have fallen into the bottom 15 and four (Toledo, Dayton, Akron and Youngstown) have median incomes low enough to make the bottom 15 but not enough inhabitants to qualify. So there seems to be a lot more persistence at the bottom than the top. There’s also regional persistence, with Southern metros in the majority on the least affluent list in 1949 and now. On a regional level, things weren’t always so static — from 1929 until the 1970s, there was a lot of convergence in the BEA's estimates of state and regional per-capita personal income (that is, average income, as opposed to the median incomes). But they stopped coming together after that, and the Southeast and Southwest were the country’s poorest regions in 2022 just as they were in 1929. Related: The Economics of Inequality in High-Wage Economies and Young Families Have Not Returned to Large Cities Post-Pandemic and Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets

For many, Trump’s legacy will be his assault on the American democratic system. But, in important respects, Trump brought about a lasting revolution in US foreign and domestic policy. Trump repudiated the previous 40-yr pro-globalization consensus, argued that US policy towards China has failed, and that the Communist party will never be a “responsible stakeholder” in the int’l system. He made “great-power competition” with China the centerpiece of his approach to the world, pulled America out of the TPP, made a deliberate effort to hobble the WTO, imposed a raft of tariffs on China, and renegotiated NAFTA. The Biden administration has retained most of these Trump-era policies. Biden made no attempt to rejoin the TPP and continues to block the WTO's appellate court. Trump’s victory in 2016 also forced Democrats to take the plight and anger of US workers more seriously. “Bidenomics” are driven by a Trump-like desire to reindustrialize America and rebuild the middle class. Related: Bidenomics and Its Contradictions and Aukus Allies Unveil Plan to Supply Australia With Nuclear-Powered Submarines and US and India Launch Ambitious Tech and Defence Initiatives

UPS lowered its full-year profit forecast, in part due to rising costs after the tentative labor agreement. UPS said the guidance change was “primarily to reflect the volume impact from labor negotiations and the costs associated with the tentative agreement.” UPS shared some details of the new labor contract on its earnings call. Full-time drivers will make around $170,000 in annual pay and benefits by the end of the five year contract. Part-time union employees will earn at least $25.75 per hour and receive full health care and pension benefits. Related: Settling Into 4% Inflation? and The ‘Summer of Strikes’ Isn’t Living Up to the Hype and The Unexpected Compression: Competition at Work in the Low Wage Labor Market

In some of the materials used in batteries and more niche products, China’s market share is close to 100%. Goldman data suggests that China can build an EV factory in about a 1/3 of the time it takes in other countries while a battery factory in the US will cost nearly 80% more than in China. Bernstein says the cost of some manufacturing in the US can be three times more than in China. This highlights how China’s rivals must grapple with not only limited access to resources and upfront technology costs, but also labour shortages, wage inflation and higher environmental standards. Related: Can the World Make an Electric Car Battery Without China? and Why China Could Dominate the Next Big Advance in Batteries and China’s Curb On Metal Exports Reverberates Across Chip Sector

We consider three scenarios for the one-year period spanning 2023:H2 and 2024:H1. The first scenario ("Baseline") assumes that Europe maintains gas imports from Russia and all other sources at the same average level as in 2022:H2 and that gas consumption in each month is the same as its 2015–2021 average level.4 The second scenario ("Harsh Winter") is the same as the baseline, except that it assumes that next winter will be historically cold and, as a result, gas consumption in each month reaches its maximum 2015–2021 level. The third scenario ("Adverse Scenario") is the same as the baseline, except that it assumes that Europe's imports from non-Russian sources fall back to their 2015–2021 average in each month, while natural gas imports from Russia are the same as in the baseline. Related: How Europe is Decoupling from Russian Energy and Germany Opens Floating Gas Terminal at North Sea Port  and War in Ukraine Drives New Surge of U.S. Oil Exports to Europe 

Look at the countries that benefit from reduced direct Chinese trade with America. Caroline Freund of the University of California, San Diego found that countries which had the strongest trade relationships with China in a given industry have been the greatest beneficiaries of the redirection of trade, suggesting that deep Chinese supply chains still matter enormously to America. This is even truer in categories that include the advanced-manufacturing products where American officials are keenest to limit China’s presence. When it comes to these goods, China’s share of American imports declined by 14pp between 2017 and 2022, whereas those from Taiwan and Vietnam—countries that import heavily from China—gained the greatest market share. In short, Chinese activity is still vital to the production of even the most sensitive products. Related: Setser On Rumors Of Decoupling and US-China Trade is Close to a Record, Defying Talk of Decoupling and Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing

A US-based research center rebutted claims of a sensational breakthrough in the technology, heaping pressure on scientists to validate those findings as soon as possible.  The University of Maryland’s Condensed Matter Theory Center challenged claims made by the Seoul-based Quantum Energy Research Centre that it synthesized a material capable of conducting electricity with zero-resistance at room temperature and ambient pressure, known as LK-99. Related: Korean Team Claims To Have Created The First Room-Temperature, Ambient-Pressure Superconductor  and Origin Of Correlated Isolated Flat Bands In Copper-Substituted Lead Phosphate Apatite 

SpaceX launched 15 more of its Starlink internet satellites Monday night and landed the returning rocket on a ship at sea. A Falcon 9 rocket topped with the Starlink spacecraft lifted off from California's Vandenberg Space Force Base. The Falcon 9's first stage came back to Earth as planned, landing on the SpaceX drone ship Of Course I Still Love You about 9.5 minutes after launch. This was the second Starlink launch for SpaceX in as many days. A Falcon 9 lofted 22 of the satellites from Cape Canaveral Space Force Station in Florida on Sunday night. SpaceX has now launched 4,918 Starlink spacecraft to date, and more than 4,500 of them are currently functional. Related: Despite An Explosion, Elon Musk Is Closer to His New Space Age and SpaceX Rocket Explodes Before Reaching Orbit

The dashed line presents our baseline forecast of year-over-year shelter inflation over the next 18 months based on the average of cumulative shelter inflation forecasts at the CBSA level. Blue shading shows the area in which 95% of the model’s out-of-sample forecast errors fall, indicating the range of confidence regarding the accuracy of our model estimates. The solid line plots actual year-over-year shelter inflation. Our baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024. This would represent a sharp turnaround in shelter inflation, with important implications for the behavior of overall inflation. The deflationary component of this forecast would be the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09. Related: Rangvid On Housing Inflation and New Tenant Repeat Rent Index

The country’s large urban areas were hit hard by the pandemic and subsequent economic recovery on a number of fronts. Between 2020 and 2021, IRS data shows that net migration subtracted more than $68 billion (Adjusted Gross Income, or AGI) from large urban counties’ aggregate taxable income. Meanwhile migration added to taxable income in all other types of counties, even smaller urban peers. The scale of decline in large urban areas was equivalent to nearly two percent of total taxable incomes in such counties. In contrast, newcomers to rural counties have added more than 1.5% to taxable income in each of 2020 and 2021. Manhattan alone lost more than $16 billion in federally-taxable income (spread across more than 37,000 returns) through net migration, equivalent to more than 13% of remaining residents’ combined taxable incomes. Net migration out of San Francisco left that city’s federal income tax base more than $8 billion—or 20% —smaller between 2020 and 2021 alone. Related: Young Families Have Not Returned to Large Cities Post-Pandemic and Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets and Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy

Treasury plans to issue a bit more debt at each auction with the understanding a portion of the proceeds would be used to purchase old debt. In effect, the composition of Treasuries outstanding would be tilted towards the more liquid new issues. The program could one day be deployed to influence monetary conditions. For example, Treasury could effectively ease financial conditions by issuing short dated debt to purchase longer dated debt. There is no indication of this today, but treasuries and the central banks do not always have the same goal, and conflicts between the two are common in history.

Chipmakers have announced more than $200bn-worth of investments in America. By 2025 American chip factories will be churning out 18% of the world’s leading-edge chips. TSMC is splurging $40bn on two fabs in Arizona. Samsung of South Korea is investing $17bn in Texas. Intel, America’s chipmaking champion, will spend $40bn on four fabs in Arizona and Ohio. If all the planned investments materialise, America will produce enough cutting-edge chips to meet barely a third of domestic demand for these. Apple will keep sourcing high-end processors for its iPhones from Taiwan. So, in all likelihood, will America’s nascent AI-industrial complex. Related: Can Intel Become The Chip Champion The US Needs? and TSMC Delays Start of First Arizona Chip Factory, Citing Worker Shortage and The Extreme Shortage of High IQ Workers

To deny Trump the nomination, even if unsuccessful, could alienate the 1/3 of Republican voters who are strong supporters of Trump. They might not show up for Senate races without Trump on the ballot. Even if the quarter of Republicans who vehemently opposed Trump vote against Trump, they will [likely] revert to the GOP down ballot. That’s what happened in 2020. A nominee other than Trump might have a better chance of winning the presidency but could imperil hopes of winning back the Senate. A lot of Republicans would be okay with that outcome: Trump gets his comeback shot, loses, but does so with enough clout in Congress to rein in the Democratic president. And if Trump pulls off an upset, he does so with a Republican Senate and probably the House. But, given the narrowness of the current GOP House majority, if Trump gets thrashed in the general election, it could deliver both chambers of Congress and the White House for Democrats. Related: For Some Key Voters, Trump Has Become Toxic and The Road to A Political Realignment in American Politics and What Happened In 2022

Average sea surface temperatures across the globe have been rising by just over 0.1C/0.2F per decade since 1970 — about half as fast as the atmosphere. The overall increase in the past year is closer to 0.2C/0.4F, with much more intense marine heatwaves in some regions. On August 1, average global sea surface temperatures reached an all-time high just short of 21C/70F, Europe’s Copernicus Climate Change Service says. This record is particularly disconcerting because March is usually the hottest month for the world’s oceans. Related: What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet and Warming Could Push the Atlantic Past a ‘Tipping Point’ This Century and The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View

Volcanic eruptions typically cool the Earth's surface by releasing aerosols which reflect sunlight. However, a recent eruption released a significant amount of water vapor-a strong greenhouse gas-into the stratosphere with unknown consequences. This study examines the aftermath of the eruption and reveals that surface temperatures across large regions of the world increased by over 1.5°C for several years, although some areas experience cooling close to 1°C. Additionally, the research suggests a potential connection between the eruption and sea surface temperatures in the tropical Pacific, which warrants further investigation. Related: What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet and Warming Could Push the Atlantic Past a ‘Tipping Point’ This Century and The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View

We estimate that the average interest rate on the current stock of corporate debt will rise from 4.20% in 2023 to 4.30% in 2024 and 4.50% in 2025, based on our assumptions about the future path of Fed policy and market interest rates. This would imply that private sector interest expense as a share of current private sector gross output will rise from 3.35% in 2023 to 3.40% in 2024 and 3.60% in 2025, an increase of 0.25pp from 2023 to 2025.  The increase in interest expense that we estimate would therefore reduce capex growth by 0.10pp in 2024 and 0.25pp in 2025 and labor cost growth by 0.05pp in 2024 and 0.15pp in 2025. Related: Data Update 3 for 2023: Interest Rates and Bond Returns

Job churn is coming down, yet nominal wage growth has remained stubbornly stuck around 5% a year. Given the rough historical link between wages, output, and prices, the implication is that the trend growth rate of nominal gross domestic product (GDP) is now around 5-6% a year while trend inflation is around 4% a year. Related: What Have We Learned About the Neutral Rate? and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet) and Measuring the Natural Rate of Interest After COVID-19 

If you are using equity risk premiums or even earnings yield for market timing, recognize that having a high R-squared or correlation in past returns will not easily translate into market-timing profits, for two reasons. First, the past is not always prologue, and market and economic structures can shift, undercutting a key basis for using historical data to make predictions. Second, even if the correlations and regressions hold, you may still find it hard to profit from them, since you (and your clients, if you are a portfolio manager) may be bankrupt, before your predictions play out. Statistical noise (the standard errors on your regression predictions) can create havoc in your portfolios, even if it eventually gets averaged out. Related: The Benefit of Owning Stocks Over Bonds Keeps Shrinking and The Rasputin Effect: Global Resilience To Higher Rates and Most Global Economies Remain in Disequilibrium, Requiring Policy Action 

The phenomenon of the largest stocks delivering the best returns is new, in our opinion. In fact, from 1994 to 2013, an annually rebalanced portfolio of the largest 5 stocks (“Big 5”) in the US had a comparable return to the entire S&P 500. But both portfolios significantly lagged a large-cap value portfolio (per Ken French). The last 10 years have seen a concentration of returns to the tech sector and to a few companies within that sector. This is both notable and unusual. With the advent of exciting new technologies like AI and superconductors, we think it’s plausible that the top 5 largest companies 10 years from now may look quite different from the top 5 today. In which case, a diversified portfolio would likely serve investors better than a highly concentrated size-defined portfolio. Related: Birth, Death, and Wealth Creation and Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs and The Economics of Inequality in High-Wage Economies

You can get a debt spiral if r is significantly larger than g; in that case rising debt leads to faster accumulation of debt, and we’re off to the races. Even after the rate surge of the past few days, the interest rate on inflation-protected 10-year U.S. bonds was 1.83%, which is close to most estimates of the economy’s sustainable growth rate. If you take the low end of such estimates, we could possibly face a debt spiral, but it would be a very slow-motion spiral. Put it this way: If r is 1.8, while g is only 1.6, stabilizing the debt ratio with debt at 100% of G.D.P. would require a primary surplus of 2% of G.D.P.; increase debt to 150%, and that required surplus would increase only to 3%. Related: Summers and Blanchard Debate the Future of Interest Rates and Interest Costs Will Grow the Fastest Over the Next 30 Years and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem

CPI and PCE core inflation (orange and gray) are how the US calculates inflation less food and energy, but including housing. We do an economically sophisticated measure that tries to measure the "cost of housing" by rents for those who rent, plus how much a homeowner pays by "renting" the house to him or herself. You can quickly come up with the plus and minus of that approach, especially for looking at month to month trends in inflation. Europe in the "HICP core" line doesn't even try and leaves owner occupied housing out altogether. Jesper's point: if you measure inflation Europe's way, US inflation is already back to 2%. The Fed can hang out a "mission accomplished" banner. (Or, in my view, an "it went away before we really had to do anything serious about it" banner.) And, since he writes to a European audience, Europe has a long way to go. Related: Striking Similarities (and Differences) Between Inflation Today and In the 1970s 

We find that mismeasurement error has biased construction-sector productivity growth downward by 3⁄4pp per year at the very most. This brings an estimate of average productivity growth from 1987 to 2019 up to positive territory, but just barely (from negative 0.5% to positive 0.2%), and still about 1pp below productivity growth of the next-lowest major industries and more than 11⁄2pp below the average for the nonfarm business sector. Consequently, we conclude that productivity growth may well have been quite low in the construction industry, even if it has not been as low as implied by the official statistics. While this estimated growth rate is higher than the growth rate of the published data, it does not change the qualitative result that productivity growth in this sector has been quite low. And our estimate of productivity growth in the construction sector remains much lower than in other industries. Related: The Strange and Awful Path of Productivity in the U.S. Construction Sector and Construction Industry Has Work, Needs More Workers

US government scientists have achieved net energy gain in a fusion reaction for the second time. Researchers at the federal Lawrence Livermore National Laboratory in California, who achieved ignition for the first time last year, repeated the breakthrough in an experiment on July 30 that produced a higher energy output than in December, according to three people with knowledge of the preliminary results. The improved result at NIF, coming “only eight months” after the initial breakthrough, was a further sign that the pace of progress was increasing, said one of the people with knowledge of the results. Related: How US Scientists Moved One Step Closer to Dream of Fusion Power and When Will Fusion Be Ready for Prime Time? Watch These Three Numbers and Tech Billionaires Bet on Fusion as Holy Grail for Business

Beijing is trying to send strong signals about its preparation for an attack on Taiwan, with People’s Liberation Army soldiers pledging to sacrifice themselves. The pledges are part of the eight-episode documentary series Zhu Meng, or “chasing dreams”, aired on state broadcaster CCTV from Tuesday to mark the PLA’s 96th anniversary and show the readiness of military personnel to fight “at any second”. In one instance, a pilot in one of the PLA’s most advanced stealth fighter jets vows to launch a suicide attack if necessary.

Early-stage business activity across the United States remains robust through the first half of 2023, as the pace of new business formation strengthened over last year. Individuals filed nearly 2.7 million applications to start a business between January and June of this year, a 5% increase over 2022 and a staggering 52% increase over the same period in 2019. One-third of those filings were for new businesses likely to hire employees—a key subset of applications from the Census Bureau’s Business Formation Statistics demonstrating a “high propensity” to hire staff, if and when the business becomes operational. The volume of likely employer applications also remained well above prepandemic levels, surpassing the total from the first six months of 2019 by 36%. Related: Startup Surge Stood Firm Against Economic Headwinds in 2022 and Like the Broader Economy, the High Tech Sector is Becoming Less Dynamic and The Economics of Inequality in High-Wage Economies

American equity exceptionalism is possible, for at least two reasons. First, the US is set to capture a sizeable share of productivity benefits from technology such as artificial intelligence. Second, a moderating global economy could work against more cyclically biased equity markets overseas, favouring those geared towards organic growth drivers.  Over multi-year periods, domestic growth has been found to dominate local equity returns. A 2011 study by Clifford Asness, Roni Israelov and John Liew suggests that 39% of 15-year returns could be explained by domestic economic performance. Growth is fundamentally a function of labour and productivity. Given that most of the developed world (and China) faces at least directionally similar labour constraints, the US seems likely to be a relative growth winner thanks to prospects for greater productivity gains. Related: Market Resilience or Investors in Denial: The Market at Mid-Year 2023 and Most Global Economies Remain in Disequilibrium, Requiring Policy Action and Birth, Death, and Wealth Creation 

What are all those new Floridians doing for a living? Well, a significant number are retired. Retirees have been moving to Florida for the warm winters for a long time.  But there are a lot more potential retired migrants now than in the past: between 2010 and 2020 the overall U.S. population grew only 7.4%, but the population 65 and older grew 38.6%. And since retirees spend money on local services, the influx of seniors creates jobs for younger adults as well. Related: Miami Sees Its First Population Drop in Decades and A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South and Florida Ocean Temperatures At ‘Downright Shocking’ Levels

The six major US pharmaceutical firms that provide fairly detailed data reported making $215 billion worth of sales in the US for 2022. Given America's systematically higher prices, their sales abroad were logically more modest — totaling $170 billion. Despite this discrepancy, the companies reported earning very, very little in profits — in some cases, absolutely nothing — in the US. Of their $100 billion combined profit, the companies said $90 billion was made abroad, while a paltry $10 billion came from their US operations. That comes out to a profit margin of 5% in the US and a margin of over 50% abroad.

The unemployment rate fell back to 3.5%. Has been in a 3.4% to 3.7% band for 17 straight months. The last time this happened was Nov 2007. Given the recovery in the (age-adjusted) participation rate this has brought the employment-population rate for prime age workers (25-54) above the pre-pandemic rate. The wage growth slowdown earlier this year has largely gone away. Earlier this year average hourly earnings were growing at a 3.5% annual rate, now they're up to a 5% annual rate--unchanged since early 2022. Note, these are noisy and can be revised a lot. Overall this report is mixed for the inflation outlook: Jobs/hours: Cooling Unemployment rate: Neutral Wages: Heating I tend to think the order I listed them above is roughly right for what signals matter so think this report is slightly favorable for inflation.

While a simple read of the yield curve points to recession, the health of the US corporate sector does not: the corporate sector financial balance is still in surplus, a condition which has never preceded a recession. Central banks have only removed around one third of the $11 trillion in global liquidity they created in 2020/2021. There’s still plenty of liquidity in the system and the cost of money is not prohibitive. Excess US household savings are projected to run out sometime in 2024, and while current economic indicators are robust, there’s weakness in Conference Board leading indicators. The overall pulse does not point to a significant contraction, just to modestly weaker US conditions in 6-9 months. Related: Most Global Economies Remain in Disequilibrium, Requiring Policy Action

The U.S. federal budget deficit has widened by about 3-4pp of GDP since the start of 2022. The downturn in revenues is mostly attributable to the plunge in capital gains tax receipts after the windfall of 2021/2022, as well as the collapse in dividends paid by the Federal Reserve to the Treasury. Meanwhile, the increase in outlays is almost entirely attributable to the surge in interest payments on Treasury debt. Related: Net Interest Payments On External US Debt and The Budget and Economic Outlook: 2023 to 2033 

Inflation is the economic equivalent of a partial default. The debt was sold under a 2% inflation target, and people expected that or less inflation. The government borrowed and printed $5 Trillion with no plan to pay it back, devaluing the outstanding debt as a result. Cumulative inflation so far means debt is repaid in dollars that are worth 12.4% less than if inflation had been 2%. That's economically the same as a 12.4% haircut.  If you only repaid 87.6% of your mortgage, you can be sure the bank would see you as a worse credit risk going forward. The probability that the US inflates again, that in the next crisis they do the same thing, is unquestionably larger. The world's appetite for boundless amounts of US debt is unquestionably smaller. Related: What We’ve Learned About Inflation 

The median age at IPO was 7.9 years from 1976 to 2000 and rose to 9.5 years from 2001 to 2022. One implication of companies staying private longer is that wealth creation has shifted to private markets from the public markets. To illustrate the point, Amazon’s market capitalization was $749 million when it went public in 1997 and $1.3 trillion as of June 30, 2023 (in 2022 dollars). The company was three years old when it did its IPO. Essentially all of its wealth creation occurred when it was public. Hendrik Bessembinder, a professor of finance, has measured the wealth creation of more than 28,000 U.S.listed companies since 1926. A company creates wealth if it generates returns in excess of one-month Treasury bill rates. He found that from 1926 to 2022, just under 60% of them destroyed $9.1 trillion and the other 40% or so created $64.2 trillion. Just 2% of the sample created $50 trillion of the net total of $55.1 trillion, and the top 3 firms (Apple, Microsoft, and ExxonMobil) created almost $6 trillion. Related: Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs and The Economics of Inequality in High-Wage Economies

California has more billionaires  — 113 — than in any country except China. The ranks of mere millionaires have grown as well, far outpacing any loss of high-net-worth taxpayers during the pandemic. From the end of 2019 through 2021, California added more than 116,000 millionaire taxpayers, according to the state’s Department of Finance. The number of residents making more than $50 million surged 158% to 3,182. And that likely underestimates the riches. While the tax data reflects salaries along with income from stock and real estate sales, the ultra-wealthy often avoid income taxes by borrowing against their wealth instead of selling assets that would incur a tax burden. In total, more than 288,000 Californians, or 0.7% of residents, reported over $1 million in income in 2021. Related: The Population of California Declined, Again and Taxes, Revenues, and Net Migration In California and Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy

One of the leading short-term explanations is unusual patterns of wind and waves. Throughout June and July, gusts traveling from the Bellingshausen Sea towards the South Pole prevented ice from forming near the Antarctic Peninsula. Weather systems emanating from storms in the Indian Ocean—brought about by shifts in two regular atmospheric fluctuations, the El Niño Southern Oscillation and the Southern Annular Mode—may also have broken up sea ice as it began to form in East Antarctica.  The ring of sea ice around Antarctica holds in place the continent’s coastal ice shelves, which in turn do the same for its glaciers and ice sheets. If those ice shelves were to collapse—as the Conger shelf in east Antarctica did in 2022—the gates would open for continental ice to flow rapidly into the oceans. The west Antarctic ice sheet alone contains enough water to increase global sea level by 11 feet. Related: Antarctic Sea Ice Levels Dive In 'Five-Sigma Event', As Experts Flag Worsening Consequences For Planet and Antarctic Sea Ice Has Shrunk By An Area Nine Times The Size Of Britain

The planet’s average sea surface temperature spiked to a record high in April and the ocean has remained exceptionally warm ever since. The North Atlantic has seen some of the most exceptional warmth, with recent temperatures consistently reaching more than 2°F higher than what is typical for this time of year. Last week, one reading from a buoy recorded a stunning 101.1°F, possibly a world record for sea surface temperatures. The eruption of an underwater volcano in the Pacific Ocean near Tonga last year, which spewed tens of millions of tons of water vapor into the stratosphere, may have also influenced this year’s ocean temperatures. Water vapor, like carbon dioxide, is a greenhouse gas that traps heat near Earth’s surface. Scientists expect warm ocean conditions to continue into the fall, with El Niño intensifying in the months ahead. Related: Florida Ocean Temperatures At ‘Downright Shocking’ Levels

A one-time $5 trillion fiscal blowout causes a one-time rise in the level of prices, just enough to inflate away the value of the debt by $5 trillion. Then inflation stops, even if the Federal Reserve does nothing.  The Fed is still important in fiscal theory. The Fed bought about $3 trillion of the new debt and converted it to interest-paying reserves. Giving people checks backed by reserves is arguably a more powerful inducement to spend than giving people Treasury bonds. Now, by raising interest rates, the Fed lowers current inflation but at the cost of more-persistent inflation. That smoothing is beneficial.  These are core propositions of fiscal theory, stated ahead of time and at odds with conventional theories. Related: Waning Inflation, Supply and Demand and The Second Great Experiment Update 

I created a “broken-windows arrest rate” analogous to the violent and property crime rates by summing arrests in the eight categories, dividing them by the size of the city’s population, and expressing the result as the number of arrests per 100,000 population. To ensure that all these qualified as minor crimes, I included only arrests that were charged as misdemeanors, violations, or infractions, excluding arrests charged as felonies. The graph below shows the proportional change in those arrest rates using 2013 as the baseline. In New York and Los Angeles, the fall in arrests for broken-windows offenses was steep and steady from 2013 to 2020. Washington is different, with a sudden rise in broken-windows arrests in Washington in 2019. The anomaly was created entirely by a one-year spike in arrests for prostitution and solicitation, the result of a policy decision to clear the streets of prostitutes near hotels. If arrests for prostitution and solicitation are deleted from the Washington data, the trendline of broken-windows offenses shows the same unbroken decline as the trendlines for New York and Los Angeles. As of 2022, arrests for broken-windows offenses since 2013 had fallen by 74% in New York, 77% in Washington, and 81% in Los Angeles. There was no apparent “Floyd effect” in New York or Los Angeles. A case for a small effect can be made for Washington. Related: Pandemic Murder Wave Has Crested. Here’s the Postmortem 

The rate at which households saved out of income saw large fluctuations during the COVID-19 pandemic. In 2019 the saving rate hovered around 9%. After the saving rate spiked to unprecedented levels in 2020 and 2021, it fell dramatically in 2022. In June 2022 households saved less than 3% of DPI, which was close to a historically low level. As of May 2023, the saving rate remains low at 4.6%. Some households may be on a precipice where real income and real wealth do not show marked improvement. To maintain relatively healthy balance sheets, such households can moderate the pace of consumer spending (particularly goods spending). Alternatively, households can maintain the current trends in spending, increasingly financing spending with borrowing, and financial health could deteriorate in a worrying way. Related: Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective and The Rise and Fall of Pandemic Excess Savings

You can draw comparable charts for many other economic variables, some of them just showing levels like the two figures above, others showing deviations from the pre-2008 trend. Their consistent shapes all tell the same story: The U.S. economy remained significantly depressed for many years — indeed, a decade or so, after the financial crisis — and this lost decade could have been avoided with the right policies. How do we know that it could have been avoided? Because of what happened the past few years, when the U.S. economy, boosted by major federal spending programs, came roaring back from the Covid slump, regaining all the lost ground in just over three years. If America had done as well after the financial crisis, we would have been back on trend by mid-2011. Related: Unintended Consequences Accurately Predicted The Slow Recovery 

The strikers in 2018 and 2019 were mostly teachers and other state and local government employees, while this year most are employees of private companies. A lot of current private-sector organizing is on a location-by-location basis with strikes that don’t show up in the BLS counts because they involve fewer than 1,000 workers, with the more inclusive Cornell-ILR Labor Action Tracker counting 224,000 workers involved in stoppages last year, nearly double the BLS tally of 120,600. The 340,000 workers who didn’t go on strike at UPS because the company gave into their wage demands should probably count as a significant union victory even if doesn’t show up in the strike statistics. And according to the US BLS other main measure of strike activity, days on strike divided by total working time, this year may still prove a standout, at least by post-1980 standards. Related: America Is Barreling Toward a Summer of Strikes and Unions Inflation Warning 

While the Bank of Japan has signaled it will let yields to trade toward 1% from roughly 0.5% now, its decision to step into the market on Monday suggests that won’t happen anytime soon. Still, with domestic investors holding around $2.5 trillion of US stocks, bonds and credit, the very idea that Japan will one day join the developed world in retreating from zero rates has Wall Street sizing up a volatile fallout that could add fuel to the higher-for-longer interest rate era. Related: Raising Anchor and What Have We Learned About the Neutral Rate? and The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

In June, Xing Haiming, China’s ambassador in Seoul, publicly warned South Korea against “decoupling” from the Chinese economy under the influence of the US. South Korea has already embarked on an unmistakable — albeit untrumpeted — pivot away from the Chinese economy. According to data released by the Bank of Korea in June, South Korea exported more goods to the US in 2022 than it did to China for the first time since 2004 when China’s nominal gross domestic product was still less than that of the UK.

The BOJ’s low interest policy remains an anchor of global bond yields, but that anchor will soon be set at a higher level. U.S. bonds will appear even more unattractive to Japanese investors, whose exit from the market would allow U.S. bond yields to drift higher. The eventual Fed rate cuts would reduce FX hedging costs and potentially bring back some Japanese investors, but until then it looks like one more marginal source of demand is evaporating even as Treasury supply is set to increase. This suggests that Treasury yields will continue to drift higher. Related: American Gothic and China Isn't Selling Treasuries

Bloomberg calculates that US imports of tariffed goods from China are down about $150 billion from where they’d otherwise be. Mexico is filling much of the gap. The share of manufacturing in India’s gross domestic product stands at 13%, well below Modi’s 25% goal. China outperforms India in making sophisticated technology—the so-called value-add that leads consumers to pay more for items such as electronics. Chinese manufacturers’ value-add is currently 49%, compared with 20% for India’s, the government says. Related: Mexico Seeks to Solidify Rank As Top U.S. Trade Partner, Push Further Past China and Take Away China, and a Stealth Bull Market Emerges 

The extra reward for holding stocks instead of bonds has fallen to its lowest level in 20 years, threatening a recent hot streak for major indexes.  One method for gauging the value of stocks is to compare their earnings yield—calculated by dividing a company’s expected earnings over the next year by its stock price—to the yield on government bonds, considered the closest thing to a risk-free return. The gap between the earnings yield of the S&P 500 and the yield on the 10-year U.S. government bond dropped to around 1.1pp last week, its narrowest since 2002. The spread to the yield on the 10-year Treasury inflation-protected security, seen by some analysts as the better benchmark because corporate earnings tend to adjust with inflation, has similarly fallen to its lowest level since 2003, at around 3.5pp. Related: Market Resilience or Investors in Denial: The Market at Mid-Year 2023 and Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs 

Miami-Dade lost 79,535 people through net migration to other parts of Florida or other states between 2020 and 2022, according to an analysis of U.S. Census Bureau data by the Brookings Institution. Although foreign immigration offset some of the loss and helped the county’s population rise slightly last year, Miami-Dade County’s population still shrank between 2019 and 2022—its first population loss over a multiyear period since at least 1970, according to the Federal Reserve Bank of St. Louis. Home prices in Miami have soared 53% since June 2020, according to online listing site Zillow, the second most out of the top 50 metropolitan housing markets after Tampa. Related: Young Families Have Not Returned to Large Cities Post-Pandemic and Home Insurers Are Charging More and Insuring Less and A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South

A recent report of room temperature superconductivity at ambient pressure in Cu-substituted apatite (‘LK99’) has invigorated interest in the understanding of what materials and mechanisms can allow for high-temperature superconductivity. Here I perform density functional theory calculations on Cu-substituted lead phosphate apatite, identifying correlated isolated flat bands at the Fermi level, a common signature of high transition temperatures in already established families of superconductors. I elucidate the origins of these isolated bands as arising from a structural distortion induced by the Cu ions and a chiral charge density wave from the Pb lone pairs. These results suggest that a minimal two-band model can encompass much of the low-energy physics in this system. Related: Korean Team Claims To Have Created The First Room-Temperature, Ambient-Pressure Superconductor

For more than two decades, satellites have recorded fires across the planet’s surface. The data are unequivocal: Since the early 2000s, when 3% of the world’s land caught fire, the area burned annually has trended downward.  In 2022, the last year for which there are complete data, the world hit a new record-low of 2.2% burned area. While the complete data aren’t in for 2023, global tracking up to July 29 by the Global Wildfire Information System shows that more land has burned in the Americas than usual. But much of the rest of the world has seen lower burning—Africa and especially Europe. Globally, the GWIS shows that burned area is slightly below the average between 2012 and 2022, a period that already saw some of the lowest rates of burned area. Related: Canada Sees Its Farthest-North 100-Degree Temperature As Wildfires Rage 

Elon Musk is predicting U.S. consumption of electricity will triple by around 2045. “I can’t emphasize enough: we need more electricity however much electricity you think you need, more than that is needed.”  He anticipates an electricity shortage in two years that could stunt the energy-hungry development of artificial intelligence. For the past 20 years, U.S. electricity demand has grown at an average rate of 1% each year, according to a Deloitte study. PG&E expects electricity demand will rise 70% in the next 20 years, which, the California company notes, would be unprecedented. Similarly, McKinsey expects U.S. demand will double by 2050. Deloitte estimates the largest U.S. electric companies together will spend as much as $1.8 trillion by 2030. Related: Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables and Summers and Blanchard Debate the Future of Interest Rates

Not only has real per-capita consumption recovered to pre-COVID levels, but it has actually broadly returned to its pre-COVID trend at the fastest pace of any modern recession—in stark contrast to the permanent scars on consumption left by the 2008 recession. In fact, growth in real consumption of durable goods has not only vastly exceeded the pre-pandemic trend but briefly caught up with the pre-Great Recession trend, and remains high even as it hasn’t grown in several years. The 2010s saw durable goods’ share of spending sink by roughly 3% in 3 years and barely recover afterward. Not until the pandemic did durable goods consumption spending climb back to its pre-recession share of household budgets. That meant more than a decade of, effectively, household underinvestment in some of the most-important big-ticket items that provide long-term welfare and enhance people’s economic productivity—and that is being partially undone today.

The overall picture is that occupations where pay rose the fastest in 2021-2022 have since seen pay growth normalize, while jobs in the rest of the economy are still experiencing persistently faster pay growth. There has been some deceleration relative to the peak at the beginning of 2022, but it has been very modest.  One good reason to think that the “neutral” policy rate has gone up is that the post-2000 investment drought is finally ending thanks in no small part to the U.S. government’s subsidies. In this environment, short-term interest rates of 5.5%—which is what the U.S. endured in the second half of the 1990s without problems when inflation was slower—do not seem particularly high. If that is correct, then 4% yields on 10-year Treasury notes could be too low, which could also have implications for the appropriate discount rates for stocks. Related: What Have We Learned About the Neutral Rate? 

Arizona, Texas, North Carolina, Oregon, Illinois and Utah had the biggest total of approved increases, ranging from 20% to 30%. In states such as California, some insurers are halting sales of new policies. Companies are also pulling back from some areas vulnerable to disasters. The escalating cost of catastrophes is reflected in a steep increase in premiums for the reinsurance coverage that home-insurance companies buy to pass on some of their risk. Depending on the state regulator, those higher premiums can feed directly through to the price charged to homeowners. Data shows reinsurance premiums were up on average 33% for June 1 renewals, which includes many Florida carriers, and 50% for renewals at the start of this year. Related: Why California and Florida Have Become Almost Uninsurable and Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse and Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks

Sending electricity at very high voltage is more efficient, if more expensive, with losses potentially as low as 3% per 1,000km for direct current systems, which have less resistance. This is about 30-40% lower than for alternating current systems. “HVDC [high-voltage direct current] becomes economic at about the 60km mark” for subsea systems, says Ian Douglas, chief executive of cable company XLCC. Demand for high-voltage cables is booming, with the market climbing from a typical $3bn of new projects awarded per year between 2015-20 to $11bn in 2022. This year, the estimated value of new orders is likely to exceed $20bn before settling at $18bn-$20bn per year, according to Massimo Battaini, incoming chief executive of Prysmian. “We are fully booked until 2026/27,” he says. Related: Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables

When Plant Vogtle unit 3 finally delivers commercial electricity to the Georgia power grid, it will be the first nuclear reactor the country has built from scratch in more than three decades. The 1,100-megawatt Vogtle unit 3 was initially supposed to enter service in 2016. Georgia Power, the utility driving the project, most recently said it would start commercial operations in July after the latest delay caused by a degraded seal in its main generator. The $14bn original cost of Vogtle units 3 and 4 has now ballooned to more than $30bn. The cost for Georgia Power, with a 45% share of the project, will be about $15bn. Related: Pricey Things

Global warming no longer needs to be a theory; it’s a reality. Extreme heat is significantly more common in major cities these days (2019-23) than it was in the early 1950s. To be precise, there are 2.7 times as many days with mid-afternoon temperatures above 30 C in Athens; 3.7 times in Barcelona; 8.1 times in Paris; and an amazing 10.4 times in London. The mountains are seeing temperatures rise roughly as much as the beaches. The effects on snow cover in the Alps are all too familiar to European skiers. Short shores, long hills may not turn out to be the trade of the century. But short shores, long hills feels right. Related: Climate Change and the Geography of the U.S. Economy and Global Temperatures Have Broken Records Three Times In A Week 

The investigations so far show the Chinese effort appears more widespread — in the United States and at American facilities abroad — than they had initially realized. But officials acknowledge that they do not know the full extent of the code’s presence in networks around the world, partly because it is so well hidden. There is a debate inside the administration over whether the goal of the operation is primarily aimed at disrupting the military, or at civilian life more broadly in the event of a conflict. Related: Volt Typhoon Targets US Critical Infrastructure with Living-Off-The-Land Techniques and CIA Chief Warns Against Underestimating Xi's Ambitions Toward Taiwan 

The US will provide Taiwan with $345mn in weapons, marking the first time the Pentagon will send arms directly to the country. The White House on Friday announced its plan to provide weapons from US stockpiles in the first tranche of an annual $1bn “presidential drawdown authority” (PDA) Congress approved last year to support Taiwan. Successive US administrations have approved the sale of weapons to Taiwan. But this is the first time the arms have been directly provided under the PDA — the same authority that the Biden administration has been using to send weapons to Ukraine. Related: US To Link Up With Taiwan and Japan Drone Fleets To Share Real-Time Data and US Effort to Arm Taiwan Faces New Challenge With Ukraine Conflict 

Dale and Krueger had classified everyone who earned more than $200,000 into the same category, making no distinction between an affluent doctor earning $250,000 and Jeff Bezos. Chetty and his authors use a slightly different approach. They classify everyone’s income into percentiles—80th, 81st, etc. Among top students, 19% who attend the top schools make it to the richest 1% of the income distribution, versus 12% who didn’t attend. Chetty’s co-author Deming compares those upper-tail outcomes to winning the lottery: Elite schools have lots of lottery tickets lying on the ground, whereas most other colleges only have a few. For most people, the lottery ticket will be worth nothing. For a few, it is a jackpot. Related: Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges

Cur­rently, Medicare pays hos­pi­tal-owned fa­cil­i­ties two to three times as much as in­de­pen­dent physi­cian of­fices for the same ser­vice, ac­cord­ing to the Al­liance for Site Neu­tral Pay­ment Re­form. This cre­ates an enor­mous in­cen­tive for large hos­pi­tal chains to ac­quire out­pa­tient prac­tices. A re­port by the Physi­cian Ad­vo­cacy In­sti­tute found that the share of hos­pi­tal-owned physi­cian prac­tices more than dou­bled, from 14% to 31%, be­tween 2012 and 2018. By 2020 more than half of physi­cians worked di­rectly for a hos­pi­tal or at a physi­cian prac­tice owned by a hos­pi­tal, ac­cord­ing to the Amer­i­can Med­ical As­so­ci­a­tion.  Re­mov­ing these per­verse in­cen­tives could save pa­tients and tax­pay­ers be­tween $346 bil­lion and $672 bil­lion over the next decade.

Core PCE inflation came in very low (albeit a touch above expectations), the second lowest pace of the inflationary period. If you swap in new rents for all rents you see a more pronounced slowdown (although not nearly as dramatic as the same adjustment for the CPI). This is a 2.3% annual rate over the last 3 months. In sum, this tells the same story as the CPI: inflation is slowing, there is reason to believe there will be further slowing as shelter comes down but also some worries about some of the good news being transitory. But overall the June inflation data was good news. Related: A June Inflation Surprise and Is This Disinflation "Immaculate" or "Transitory"?

China imports nearly three-quarters of the oil it uses. The substance accounts for only 20% of the country’s energy use, but it would be crucial to any war effort. If China were to start increasing its reserves—it currently has enough to last three months at today’s consumption rate—that would be one of the best indicators that it is preparing for war. China imports more agricultural produce than any other country. Obsessed with food security, it already has enormous stockpiles. In 2021 an official said its wheat reserves could meet demand for 18 months. Over the past decade, China has greatly increased its purchases of wheat, corn, rice, and soybeans.

The historical record may not be particularly instructive in 2023, said Michael Feroli, the chief U.S. economist at J.P. Morgan. This has not been a typical business cycle, in which the economy grew headily, fell into recession, and then clawed its way back. Instead, growth was abruptly halted by coronavirus shutdowns and then rocketed back with the help of widespread government stimulus, leading to shortages, bottlenecks and unusually strong demand in unexpected parts of the economy. All of the weirdness contributed to inflation, and the slow return to normal is now helping it fade.

The wealthy save a much larger part of their income than do workers or the middle class, and use a much smaller part for consumption, rising income inequality automatically reduces overall consumption and forces up savings by effectively transferring income from high consumers to high savers. If lower consumption is not balanced by higher investment, total demand must decline. To prevent this from happening, Washington typically does one of two things. First, the Federal Reserve can implement policies that encourage household borrowing to fund additional consumption. In that case, the reduction in the income share of ordinary Americans is balanced by an increase in their borrowing, so the same level of consumption can be maintained. Second, Washington can itself borrow and use the proceeds to replace the demand lost by the reduction in household consumption. Related: Pettis On CBO Numbers 

The employment-to-population ratio (EPOP) has returned to its age (and gender)-adjusted prepandemic trend. The labor force participation rate (LFPR) age-adjusted in June 2023 was consistent with rates last seen in 2001. When looking over extended periods of time, labor market indicators should be age-adjusted to distinguish between secular demographic trends versus other cyclical economic effects. Second, after accounting for demographic shifts in labor supply and demand, the current U.S. labor market is unusually strong from a historical perspective, posting elevated and even record measures of participation and employment. Related: Unions’ Inflation Warning?

The Chinese and Korean booms are comparable with the booms that occurred in the United States and United Kingdom from 2001 to 2007. [Going forward] in both countries, consumer spending could be quite weak. This is an especially pronounced problem in Korea, where the debt service ratio has risen substantially and is now at an exceptionally high level. A rise in the debt service ratio during a household debt boom portends slower growth in the historical data, and Korea appears likely to follow that historical pattern. The allocation of production to real estate and construction activities over the past decade in China is historically unprecedented. It is difficult to imagine that the rate of activity in the real estate sector is sustainable, and it is difficult to see what sectors can take up the production slack if there is a continued decline in real estate activity. Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent?

A major physics journal is retracting a two-year-old scientific paper that described the transformations of a chemical compound as it was squeezed between two pieces of diamond. Such an esoteric finding — and retraction — would not typically garner much attention. But one of the leaders of this research is Ranga Dias, a professor at the University of Rochester in New York who made a much bigger scientific splash earlier this year, touting the discovery of a room-temperature superconductor. While Dr. Dias continues to defend the work, to some scientists, there is now clear evidence of misconduct. “There’s no plausible deniability left,” said N. Peter Armitage, a professor of physics and astronomy at Johns Hopkins University in Baltimore who is among the scientists who have seen the reports. “They submitted falsified data. There’s no ambiguity there at all.” Related: The Scientific Breakthrough That Could Make Batteries Last Longer and Room-Temperature Superconductor Discovery Meets with Resistance 

In their papers, the team claims to have measured samples of LK-99 as electricity was applied and found its sensitivity fell to near zero. They also claim that in testing its magnetism, it exhibited the Meissner effect—another test of superconductivity. In such a test, a sample should levitate when placed on a magnet. The team has provided a video of the material partially levitating. They claim that the levitation was only partial because of impurities in their material.

According to my calculations, the real (inflation-adjusted) interest rate is around 1.5%, which is one percentage point higher than the Fed’s estimate of the neutral real policy rate (which neither stimulates nor reduces economic activity). Prior to previous recessions, the real rate has been higher.  While current market pricing suggests that the Fed will increase the federal funds rate once more this cycle, I think that is optimistic. Between stubborn and high underlying inflation, financial conditions that aren’t tightening, and real interest rates that are lower than is typical before a significant economic slowdown, there are ample reasons for the Fed to raise rates more than economists and investors currently seem to expect. If that happens, the risk of recession will increase. Related: Furman On CPI Report and A Default Cycle Has Started 

The last time there was a major slowdown in the mighty network of ocean currents that shapes the climate around the North Atlantic, it seems to have plunged Europe into a deep cold for over a millennium. That was roughly 12,800 years ago when not many people were around to experience it. But in recent decades, human-driven warming could be causing the currents to slow once more.  New research published in Nature Communications [projects] the Atlantic Meridional Overturning Circulation, or AMOC could collapse around midcentury. Were the circulation to tip into a much weaker state, the effects on the climate would be far-reaching, though scientists are still examining their potential magnitude. Much of the Northern Hemisphere could cool. The coastlines of North America and Europe could see faster sea-level rise. Northern Europe could experience stormier winters, while the Sahel in Africa and the monsoon regions of Asia would most likely get less rain. Related: Antarctic Sea Ice Has Shrunk By An Area Nine Times The Size Of Britain and Florida Ocean Temperatures At ‘Downright Shocking’ Levels 

“No one noticed—but we noticed,” said Ford CEO James Farley on an earnings call last month, “something monumental happened in our industry, where China became the number one exporter of vehicles globally. It had always been the Germans or the Japanese.” Despite the record-setting rise in gross exports and China’s newfound motor vehicle trade surplus, net exports still remain below Japanese and German levels. The per-car value of Chinese vehicles still tends to be lower than their foreign competitors, and a lot of the rise in exports has been matched by a rise in imports. Related: China’s Auto Export Wave Echoes Japan's in the ’70s and The Chinese Carmakers Planning to Shake Up The European Market

The energy price shock also generates a fall in production and employment: a 10% increase in electricity price translates into a 1.6% fall in production and a 1.5% fall in employment. Energy efficiency increases at the firm level. Profits fall but modestly or only for the most gas-intensive firms. However, these negative impacts wane over time. Our interpretation is that during 1995–2019, firms adapted their technology and production processes to higher energy prices and a selection process eliminated those not able to adjust. All in all, these results suggest that firms are able to adjust and adapt strongly to energy shocks but that the competitiveness impact is significant.

Seven major automakers announced a plan on Wednesday to nearly double the number of fast chargers in the United States in an effort to address one of the main reasons that people hesitate to buy electric cars. The carmakers — BMW Group, General Motors, Honda, Hyundai, Kia, Mercedes-Benz Group,, and Stellantis — will initially invest at least $1 billion in a joint venture that will build 30,000 chargers on major highways and other locations in the United States and Canada. The United States has about 32,000 fast chargers — those that can replenish a drained battery in 10 to 30 minutes. The chargers will have plugs designed to use the connections used by most carmakers other than Tesla, as well as the standard developed by Tesla that Ford, G.M.,, and other companies have said they intend to switch to in 2025.

The reduction in interest and corporate tax rates was responsible for over 40% of the growth in real corporate profits from 1989 to 2019. Moreover, the decline in risk-free rates over this period explains the entirety of the expansion in price-to-earnings (P/E) multiples. These two factors therefore account for the majority of this period’s exceptional stock market performance. From 1989 to 2019, real corporate profits grew at the robust rate of 3.8% per year. This was almost double the pace seen from 1962 to 1989. The difference in profit growth between these two periods is entirely due to the decline in interest and corporate tax rates from 1989 to 2019. One way to see this is to compare the growth of earnings before subtracting interest and tax expenses (EBIT). In fact, real EBIT growth was slightly lower from 1989 to 2019 compared to 1962 to 1989: 2.2% versus 2.4% per year. The outlook for stock price growth is bleak. Related: The Curious Incident of the Elevated Profit Margins and Charlie Munger: US Banks Are ‘Full of’ Bad Commercial Property Loans 

The Bank for International Settlements (BIS) measure of China’s inflation-adjusted trade-weighted exchange rate (based on differences in consumer prices) is down by roughly 14% since the recent peak last March, which is the largest decline out of 64 countries tracked by the BIS. This appears to be a policy choice. While China’s official foreign reserves are substantially lower now than at the peak in 2014, the consolidated position of the PBOC and the state-run banks looks a bit different. As I suggested two years ago, there are good reasons to think that the PBOC has deliberately outsourced reserve management to Chinese banks (which among other things helps explain the continued reductions in reserve requirements). After the PBOC mostly stopped buying foreign currency reserves, it switched to lending increasingly large sums to the domestic banking system. Related: Setser On China's Trade Surplus and China's Surplus Again Topped 10% Of GDP

A wide range of banks have reported a squeeze on net interest margins as deposit funding costs have surprised to the upside. In a typical rate hiking cycle, interest income on bank assets tend to rise more quickly than interest paid on deposits. This led to a steady expansion of net interest margins over the past quarters that is suddenly reversing. Banks now see customers both shifting out of non interest bearing deposits and demanding higher interest for interest bearing deposits. This was widely reported in recent earnings calls by all but the largest banks. Related: All Clear and Bank Funding during the Current Monetary Policy Tightening Cycle

Markets are not taking the ongoing rise in default rates for HY and loans seriously. The reality is that more and more companies are defaulting because the cost of capital is higher, and Fed Chair Powell says that interest rates will stay at these levels “for a couple of years,” so tight monetary policy will continue to have a greater negative effect on the economy and capital markets. In fact, higher costs of capital is precisely how monetary policy works: By making it more difficult to get financing. Once there is a default by some household name in credit, we will likely see an overnight change in market sentiment from bullish to bearish. Related: Small Bank Thoughts John Cochrane and Credit Allocation and Macroeconomic Fluctuations 

In the last decade, fentanyl has become the leading cause of death for young adults in the US. Fentanyl now causes most of the more than 85,000 annual opioid overdose deaths in the US and Canada. All the fentanyl needed to supply the US for one year weighs the equivalent of 5 tonnes and would easily fit into one lorry, according to researchers at Rand Corporation. That compares with about 125 tonnes for heroin and even more for cocaine. Related: Only One Thing Will Solve the Fentanyl Crisis and Drug Overdose Deaths Topped 100,000 Again in 2022 

Chipmakers are on course to add about 115,000 jobs by 2030 [according to]  Semiconductor Industry Association (SIA). Based on a study of current degree completion rates, though, about 58% of those projected positions could remain unfilled. Not enough Americans are studying science, engineering, math and technology-related subjects, according to the SIA. And people from other countries who are acquiring those skills are leaving, the group said. At US colleges and universities, more than 50% of master’s engineering graduates and 60% of those with a Ph.D. in engineering are citizens of other countries. About 80% of those master’s graduates and 25% of those who earn doctorates depart the US — either by choice or because immigration policy doesn’t allow them to stay. Related: The Extreme Shortage of High IQ Workers and TSMC To Send Hundreds More Workers To Speed U.S. Plant Construction

The sea ice around Antarctica is in sharp decline, scientists observed an all-time low in the amount of sea ice around the icy continent, following all-time lows in 2016, 2017 and 2022. Usually, the ice has been able to recover in winter but this year is different. For the first time, the sea ice extent has been unable to substantially recover this winter, leaving scientists baffled. Physical oceanographer Edward Doddridge said vast regions of the Antarctic coastline were ice free for the first time in the observational record. "To say unprecedented isn't strong enough, for those of you who are interested in statistics, this is a five-sigma event. So it's five standard deviations beyond the mean. Which means that if nothing had changed, we'd expect to see a winter like this about once every 7.5 million years." Antarctic Sea Ice Has Shrunk By An Area Nine Times The Size Of Britain and Earth Keeps Breaking Temperature Records Due to Global Warming

Normally there is a fairly close inverse relationship between unemployment and quits, a quit-rate version of the famous Beveridge Curve linking unemployment to vacancies. During the pandemic and its aftermath, however, quits were much higher than the normal relationship to the unemployment rate would have predicted, presumably reflecting the dislocation of labor markets in a time of wild and crazy changes. Here too we see recombobulation, with the relationship of quits to unemployment moving back toward the historical norm, which is probably the main reason wage growth appears to be slowing. Stories about recombobulation — the fading away of pandemic-era distortions — driving disinflation are clearly supported by the data. Claims that Fed tightening drove it are sketchier and much more speculative. Which is not to say that the Fed was wrong to raise rates. Related: When Should We Declare Victory Over Inflation? and The Second Great Experiment Update and Fiscal Arithmetic and the Global Inflation Outlook

Adjusted durables remain volatile, of course, but over 3 months are now close to typical pre-pandemic lows. Services remain elevated, about 2ppts above pre-pandemic norms. Overall, the Fed can be encouraged by the disinflation of underlying core inflation—though the reading is still well above 2%.  There may be two risks ahead. The first would be if durables goods begin to show even sharper deflation, perhaps portending more general price pressures. The second is if service inflation becomes entrenched at current levels—lower than a year ago, but well above a rate consistent with the Fed’s target.

The unemployment rates in 25 states are currently at or within 0.1 percentage point of a record low [according to] Bureau of Labor Statistics data. In a dozen states and DC, the number of people on payrolls remains below pre-pandemic levels. That includes New York and Hawaii. Idaho, Utah, Texas, and Florida were among the states with the biggest gains in employment since February 2020. Related: Labor Inelasticity and Unions’ Inflation Warning? and America Is Barreling Toward a Summer of Strikes

American prime age 25-54 labor force participation is at a two decade high of 83.5% as an uptick in prime age female LFP has offset a decline in male prime age LFP since 2000. In the first months of the pandemic, nearly four million prime-age workers left the labor market, pushing participation in early 2020 to the lowest level since 1983—before women had become as much of a force in the workplace. Prime-age workers now exceed prepandemic levels by almost 2.2 million. The resurgence of midcareer workers is driven by women taking jobs. The labor-force participation rate for prime-age women was the highest on record, 77.8% in June. That is well up from 73.5% in April 2020. Related: The Labor Supply Rebound from the Pandemic and Where Are the Missing Gen Z Workers

Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college (Ivy League, Stanford, MIT, Duke, and Chicago) as those from middle-class families with comparable SAT/ACT scores. Two-thirds of this gap is due to higher admissions rates for students with comparable test scores from high-income families; the remaining third is due to differences in rates of application and matriculation.  The high-income admissions advantage at private colleges is driven by three factors: (1) preferences for children of alumni, (2) weight placed on non-academic credentials, which tend to be stronger for students applying from private high schools that have affluent student bodies, and (3) recruitment of athletes, who tend to come from higher-income families.  Highly selective public colleges that follow more standardized processes to evaluate applications exhibit smaller disparities in admissions rates by parental income than private colleges that use more holistic evaluations. Related: Why Do Wages Grow Faster for Educated Workers? and Multidimensional Human Capital and the Wage Structure and The Economics of Inequality in High-Wage Economies

The biggest recipient of Chinese investment so far this year is nickel-rich Indonesia, according to a preliminary estimate of Chinese investments compiled by the American Enterprise Institute. Direct overseas investment from China to the rest of the world fell by 18% from a year earlier by one new measure released recently. The latest level marks a decline of 25% from a peak in 2016, as overseas mergers and acquisitions have plummeted and Beijing has tightened rules to curb capital flight. Related: Exodus of Wealthy Chinese Accelerates with End of Covid Zero and Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom and The Mysterious $300 Billion Flow Out of China

A marked change in the occupational structure of jobs has meant that the proportion of low pay, low skill, informal sector jobs has been rising at the expense of higher paid, high skill jobs in manufacturing and construction. According to Stanford University professor Scott Rozelle, the ratio of informal to formal sector jobs 15 years ago was 40:60, but has now flipped. This is a particular problem for younger workers who are over-represented in low pay sectors and the gig economy. Related: China’s Youth Left Behind As Jobs Crisis Mounts and Why Has Youth Unemployment Risen So Much in China? and Can China Fix Youth Unemployment Woes With Military Recruitment Drive?

More than a century of long-term population growth in California could be over, according to new projections that show the state will have about the same number of people in 2060 as it does now. The California Department of Finance predicts that there’ll be 39.5 million people in the state by 2060. Just three years ago, forecasters were expecting the number to be 45 million — and a decade ago, the population was seen surging to almost 53 million. If there’s a bright spot in the forecast, the state is at least expected to recoup its pandemic population decline in the coming years — returning to its 2020 population level in the 2030s, before peaking in 2044. Related: Taxes, Revenues, and Net Migration In California and The Population of California Declined, Again

Related: War and Subsidies Have Turbocharged the Green Transition and Clean Energy Sets $1.1 Trillion Record That’s Bound to Be Broken 

In a landmark step for enhanced geothermal technology’s potential as a dependable carbon-free energy source, startup Fervo Energy has wrapped up a full-scale, 30-day well test at its Project Red site in northern Nevada, which was able to generate 3.5 megawatts of electricity. (One megawatt can power roughly 750 homes at once.) Project Red will connect to the grid later this year and power Google's data centers and infrastructure throughout Nevada. With the demo complete, Fervo is attempting to repeat its success at its southwest Utah site, which is currently under construction. With design improvements maximizing power output as expected, the Utah site is predicted to deliver about 400 megawatts by 2028, roughly enough electricity to power 300,000 homes at once. Related: This Geothermal Startup Showed Its Wells Can Be Used Like a Giant Underground Battery

Wildfires in California and hurricanes in Florida produced lots of claims. Housing prices and bills for construction and repairs have gone up, making claims larger. And insurance companies have had to pay more for reinsurance: Worldwide, average rates for reinsurance rose by a quarter last year and by another third this year, according to the London-based reinsurance broker Howden Tiger, an arm of Howden Group Holdings. Related: Climate Shocks Are Making Parts of America Uninsurable. It Just Got Worse and Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks and Your Homeowners’ Insurance Bill Is the Canary in the Climate Coal Mine 

We show that, rather than resulting from a smooth upward trend, the increase was almost entirely concentrated in the 2007-2010 period, the time of the Great Recession, a result not uncovered in prior work. The disproportionate increase in pain among the less educated is also shown to have occurred primarily at the time of the Recession, with either little or no trend before or after. The Recession jump occurred only at older ages and primarily only at the points during each cohort’s lifetime when they experienced the Recession. However, we too find the jump difficult to explain, for while there is necessarily a temporary decline in employment during a Recession, why there should be a permanent increase in pain as a result is unclear. Related: Drug Overdose Deaths Topped 100,000 Again in 2022 and America’s Work Ethic Is Under Assault 

TSMC Chairman Mark Liu said construction in Arizona is hampered by a shortage of skilled workers and that the company might have to bring in experienced technicians temporarily from Taiwan. He said this would delay the start of mass production of 4-nanometer chips in the first factory until 2025.  Previously TSMC described the 4-nanometer chip as the leading product of the first Arizona factory and said production would start in 2024. Overall, it expects to invest $40 billion in Arizona.   “We are now entering a critical phase of handling and installing the most advanced and dedicated equipment. However, we are encountering certain challenges,” Liu said. Related: TSMC To Send Hundreds More Workers To Speed U.S. Plant Construction and The Semiconductor Trade War

While small firms account for 49% of U.S. employment, they account for just 16% of business spending on R&D, while firms of more than 25,000 workers account for 36%. Likewise, small firms account for 18.8% of patents issued, while the largest firms account for 37.4% of patents. When ITIF surveyed almost 1,000 U.S. scientists and engineers involved in filing triadic patents (patents filed in the United States, Europe, and Japan), they found that approximately 75% of materials science and IT patents and 60% of life science patents were filed by firms with more than 500 employees. Countering the popular narrative that large firms are sluggish copiers and small firms the true innovators, firms with 500 or fewer workers in the sample accounted for only around 30% of patents, yet they employed 48.4% of workers. Related: Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data and The Economics of Inequality in High-Wage Economies

Dunn and Folk gathered 494 peer-reviewed papers, in which one of the five happiness strategies was evaluated against a control group. When they weeded out weakly designed work, only 57 studies were left. The vast majority of papers were too poorly designed to support their conclusions. The remaining subset of studies met at least one of two conditions for good science: They included sufficient numbers of study participants or the researchers committed to hypotheses or study plans before analyzing their data. These studies failed to confirm that three of the five activities made people happy. “The evidence melts away when you look at it,” Dunn said. A handful of scandals in psychology in the 2010s—including a bombshell paper that demonstrated the danger of p-hacking—sent shock waves through the field and forced researchers to re-examine the status quo. This reform isn’t limited to psychology. “Every field that has bothered to look at issues of rigor and reproducibility in their evidence has found challenges."

If 16 million non-students "lying flat" at home or relying on their parents were included, the rate at that time could have been as high as 46.5%,  Zhang Dandan wrote in an online article in respected financial magazine Caixin. The article by Zhang, associate professor of Economics at the university's National School of Development, was published on Monday but has since been removed. The official youth jobless rate, which only includes people actively seeking work, rose further to a record 21.3% in June after the world's second-biggest economy lost steam in the second quarter. Related: Why Has Youth Unemployment Risen So Much in China? and China’s Youth Left Behind As Jobs Crisis Mounts

While clearly not all of the foreign asset allocation that was previously done by Saudi Central Bank is now being done by the Public Investment Fund (PIF), some significant portion of it does seem to be. Hence a look at PIF’s Annual Reports can provide some basic insights into some aspects of the new form of petro-dollar recycling. In particular, we focus on the more transparent and traditional assets PIF shows on balance sheet. Of the roughly $777bn in total assets at end 2022, $305bn are listed as current assets, and $472bn are listed as non-current assets. However, of the non-current assets, nearly half—$225bn—are held as investment securities. Related: The New Geopolitics of Global Finance

The share of mega firms in novel patent applications had been declining for almost two decades but there has been a turnaround since the early-mid 2000s. By the mid-2010s, the share of mega-firms was the highest since 1980 when our sample starts. We show that mega firms are more likely to apply for novel patents even after controlling for various firm characteristics including size, industry, and the total number of patents. This finding also holds within firms––firms produce more novel patents than before as they become mega firms. This suggests that closing on market leadership is associated with more, not less new combinations. We also examine the opposite side of the spectrum, the not-yet-public VC-backed startups, and find that those also play a disproportionately large role in generating novel patents, especially “hit” novel patents, so that successful novel patents appear to be produced in a bi-modal pattern, both by super large mega firms and relatively small startups. Related: The Economics of Inequality in High-Wage Economies and Where Have All the "Creative Talents" Gone? Employment Dynamics of US Inventors 

More than 650,000 American workers are threatening to go on strike this summer — or have already done so — in an avalanche of union activity not seen in the US in decades. The combined actors and writers strikes in Hollywood are already a once-in-a-generation event. Unions for UPS and Detroit’s Big Three automakers are poised to join them in coming weeks if contract negotiations fall through. One Bank of America Corp. analyst put the odds of a United Auto Workers strike at more than 90%. And while logistics experts and financial analysts expected the Teamsters to reach a deal with UPS, their confidence has dwindled as the July 31 deadline approaches. Even before the 100,000-plus actors joined in last week, both the number of strikes and workers on strike were up in the first half of this year. Related: Unions Inflation Warning 

Consider the Social Capital Index developed by the Joint Economic Committee. States shaded red and orange have the lowest levels of social capital, whereas states shaded green and blue have the highest levels of social capital. Each of the five states in the lowest decile of social capital—Louisiana, Nevada, New Mexico, Florida, and Arizona—consistently rank below the median on each subindex, suggesting that each subindex captures related features of social capital. Similarly, the six states in the highest decile of social capital—Utah, Minnesota, Wisconsin, New Hampshire, Vermont, and Colorado—tend to rank above the median across subindexes. Of the 21 cross-state correlations among the seven subindexes, all but one are positive.

A sustained exodus over the next few years will likely continue to drive Chinese property investments abroad. About 712,000 people from the country will migrate to the US, Canada, and Australia from 2023 to 2025, a report by real estate firm Juwai IQI’s estimated. Capital flight from the mainland could reach $150 billion this year, as more people park their money abroad for fear of additional measures at home. Related: Booming Chinese Family Offices Recruit Top Bankers in Singapore and China Notes, July ’23: On Technological Momentum