Women now make up 35% of workers in the United States’ 10 highest-paying occupations – up from 13% in 1980. They have increased their presence in almost all of these occupations, which include physicians, lawyers, and pharmacists. Women remain the minority in nine of the 10 highest-paying occupations. The exception is pharmacists, 61% of whom are women. More broadly, the share of women across all 10 of these occupations (35%) remains well below their share of the overall U.S. workforce (47%). Women remain in the minority among those receiving certain bachelor’s degrees required for some high-paying occupations. Mathematics or statistics: 42% of recipients today are women, unchanged from 1980. Physics: 25% of recipients are women, versus 13% in 1980. Engineering: 23% of recipients are women, versus 9% in 1980.
Related: Harvard Study Finds 11% MBTA Gender Pay Gap Despite Guaranteed Equal Pay and Prime-Age Women Are Going Above and Beyond In the Labor Market Recovery and Women’s Evolving Careers Helped Shrink the Gender Pay Gap
You don’t double your vote share and surge into the lead simply by not being the other guy. Instead, the explanation appears to lie in a bold and explicitly pro-youth policy position: the Canadian Conservatives have come out as the party of housebuilding. Housing affordability crises are widespread across the West, but Canada’s is especially acute, now ranking as the second most important issue facing the country behind the wider cost of living crisis. For months, Canadian voters have said they don’t think the government is focused enough on tackling the problem, creating space for the opposition to make its own pitch. Canadian Tory leader Pierre Poilievre has grasped the opportunity with both hands. The 44-year-old, who assumed the party leadership just over a year ago, has made housing one of his principal causes, outlining proposals that would withhold funds from cities that don’t build enough houses, and give extra money to those that do.
Related: Millennials are Shattering the Oldest Rule in Politics and Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal? and Zero-Sum Thinking and the Roots of U.S. Political Divides
Last year, the added value of strategic emerging industries such as new-generation information technology, high-end equipment, and new energy vehicles made up more than 13% of GDP, according to the Ministry of Industry and Information Technology. Chang, from Fitch Bohua, said the automotive industry is particularly notable as China became the largest exporter of vehicles in the first half of 2023. The total number of exported cars reached 2.34 million, an increase of 77% compared to the same period last year. The added value of the automobile manufacturing industry increased by 11.4%, year on year, in the first nine months of 2023, 7.4pp higher than the added value of all industries with annual revenue above 20 million yuan (US$2.73 million) in the same period. As of the end of September, China had 18.2 million new energy vehicles on the road, leading the EV revolution with a 60% share of global electric car sales.
Related: Can China Reduce Its Internal Balances Without Renewed External Imbalances? and Why Are China’s Households in the Doldrums? and Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms
Chinese policy-makers are trying to prevent property-sector contraction from forcing them to cut back on overall investment by shifting investment from the degraded property sector towards manufacturing. But manufacturing already accounts for an outsized 27% of China's GDP, compared to 14% for the rest of the world, and absorbs a huge amount of low-cost investment. What's more, its biggest constraint is weak demand, not scarce capital. What is more, while expansion in property must be absorbed internally, expansion in manufacturing can only be absorbed internally if there is an equivalent expansion in consumption. Otherwise, it must be absorbed by the rest of the world. China comprises roughly 18% of global GDP but already accounts for 30% of global manufacturing. If manufacturing replaces property as the engine of economic activity, this suggests China's share of global manufacturing must rise faster than its share of global GDP.
Related: EU To Launch Anti-Subsidy Probe into Chinese Electric Vehicles and China’s Auto Export Wave Echoes Japan's in the ’70s and Breaking Down China’s Manufacturing
Chinese factories are replacing Western chemicals, parts, and machine tools with those from home or sourced from developing nations. China’s trade with Southeast Asia surpassed its trade with the U.S. in 2019. China now trades more with Russia than it does with Germany, and soon will be able to say the same about Brazil. German and Japanese automakers like Volkswagen and Toyota now account for about 30% of China’s auto market, down from almost 50% three years ago, as Chinese brands have expanded, according to the China Association of Automobile Manufacturers. U.S. imports from China in mid-2018 accounted for as much as 22% of all its imports. In the 12 months through August, that had shrunk to 14%, according to Census Bureau data, though in dollar terms bilateral trade has grown.
Related: Politics Poses the Biggest Threat to Economic Growth in China and How America Is Failing To Break Up With China
Our results have implications for a pressing question as we transition to a post-QE world: Who will buy Treasuries as the Fed reduces the size of its portfolio? Perhaps foreign governments, but they have not materially added to their Treasury portfolios in almost a decade. Moreover, they tend to hold shorter duration bonds, while the Fed’s portfolio is tilted more towards longer durations. More likely it will be private investors, whether U.S. or foreign, whose purchases react to yields and whose portfolios are tilted towards longer duration bonds.
Related: Slow Money and Resilience Redux in the US Treasury Market and Who Has Been Buying U.S. Treasury Debt?
The Treasury said on Wednesday that it would continue to increase issuance of shorter-dated notes at the pace it set three months ago while slowing the pace of 10- and 30-year bond issues. To satisfy its borrowing needs, the Treasury will raise the auction sizes of the two- and five-year notes by $3bn per month, with a rise in 10-year note auctions by $2bn and in 30-year bond auctions by $1bn. In August, the Treasury had increased its 10-year auctions by $3bn and its 30-year auctions by $2bn. In its quarterly refunding auctions next week, the Treasury Department will sell $112bn worth of debt, lower than the $114bn put on offer in the previous quarter. Primary dealers had anticipated the Treasury would auction $114bn this quarter too.
Related: Resilience Redux in the US Treasury Market and Maxing Out and Interest Expense: A Bigger Impact on Deficits than Debt
Debt Sustainability = When national debt grows slower than gross domestic product (GDP) or expected to stop growing before getting too high. Average interest rate on government debt (R) describes the growth of current debt, while G the average growth rate of U.S. economy represents its erosion (relative to GDP). When R<G, debt may be sustainable even when non-interest spending exceeds revenue. When R<G, one-time borrowing has little effect on long-term debt-to-GDP. For the last 15 years, R has been below G.
Related: When Does Federal Debt Reach Unsustainable Levels? and Are High Interest Rates the New Normal? and Living with High Public Debt
Cumulative real GDP growth over the last year to 2.9%, continuing to bounce back from its 2022 lows and returning to levels more in line with the high growth years of the 2010s. In fact, these numbers are so strong that GDP could shrink by 0.8% annualized in Q4 and still match the median FOMC participants’ growth projections from last month. Year-on-year growth in nominal, non-inflation-adjusted, economic output picked up again to 6.3%, but even still the inflation gap between real and nominal GDP growth shrank to the smallest level since early 2021.
Related: An Update from Our CIOs: Entering the Second Stage of Tightening and Why No Recession (Yet)? and Will A.I. Transform the Economy, and if So, How?
If you accept the premise that regulation locks in incumbents, then it sure is notable that the early AI winners seem the most invested in generating alarm in Washington, D.C. about AI. This despite the fact that their concern is apparently not sufficiently high to, you know, stop their work. No, they are the responsible ones, the ones who care enough to call for regulation; all the better if concerns about imagined harms kneecap inevitable competitors. In short, this Executive Order is a lot like Bill Gates’ approach to mobile: rooted in the past, yet arrogant about an unknowable future; proscriptive instead of adaptive; and, worst of all, trivially influenced by motivated reasoning best understood as some of the most cynical attempts at regulatory capture the tech industry has ever seen.
Related: Artificial Intelligence Is A Familiar-Looking Monster, Say Henry Farrell and Cosma Shalizi and Will A.I. Transform the Economy, and if So, How? and The Outlook for Long-Term Economic Growth
It does seem as if employers in the sector have made peace with having fewer workers — and not unreasonable to think that higher minimum wages are playing some role in their calculations. The shock of the pandemic and the accompanying labor shortages allowed for and in many cases required a rethinking of how to do business in a way that the pre-pandemic wage increases did not, and restaurants overall appear to have found a way to do this with less labor. The best measure of this is real output per hour worked, aka labor productivity. After years of little to no growth at full-service restaurants, it rose at a 1.2% annualized rate from 2014 to 2020, then jumped 21% in 2021. It receded a little last year, but most of its gains are still intact.
Related: Detroit Is Paying Up to End the UAW Strike. Now Carmakers Will Live With the Costs and The Unexpected Compression: Competition at Work in the Low Wage Labor Market and Wendy’s, Google Train Next-Generation Order Taker: An AI Chatbot
In collaboration with Bloomberg Economics, Bloomberg Businessweek took a dive into trade and investment data and found five nations straddling the new geopolitical fault lines: Vietnam, Poland, Mexico, Morocco, and Indonesia. As a group, these countries logged $4 trillion in economic output in 2022—more than India and almost as much as Germany or Japan. Despite their very different politics and pasts, they share an opportunistic desire to seize the economic windfall to be had by positioning themselves as new links between the US and China—or China, Europe, and other Asian economies. They represent 4% of global gross domestic product, yet they’ve attracted slightly over 10%, or $550 billion, of all so-called greenfield investment since 2017.
Related: How America Is Failing To Break Up With China and Hidden Exposure: Measuring U.S. Supply Chain Reliance and Sester On Kearney Reshoring Index
The World Bank envisages scenarios with small, medium, and big disruptions to supplies: the first would, it assumes, reduce supply by up to 2mn barrels a day (about 2% of world supply), the second would reduce it by 3-5mn barrels a day and the last would reduce it by 6-8mn barrels a day. Corresponding oil prices are estimated at $93-$102, $109-$121 and $141-157, respectively. The last would bring real prices towards their historic peaks. If the Strait were to be closed, the outcomes would be far worse. We are still in the fossil fuel era. A conflict in the world’s biggest oil-supplying region could be very damaging.
Related: The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications and US Shale: The Marginal Supplier Matures and U.S. Oil Boom Blunts OPEC’s Pricing Power
Some 69% of respondents to a Wall Street Journal survey in August said the country is headed in the wrong direction. Can inflation be the whole story? After all, since peaking at 9.1% in June last year, based on the consumer-price index, inflation has fallen to 3.7%. Some gauges put underlying inflation at around 3%, and the Federal Reserve thinks it is headed gradually to 2%, relieving it of any need to raise interest rates for now. And yet, sentiment is up only moderately since inflation began falling. The puzzle deepens when I plot the University of Michigan index since 1978 against the “misery index”—the simple sum of inflation and the unemployment rate. Based on historic correlations, sentiment has been more depressed this year than you would expect given the level of economic misery. I suspect a lot of pessimism about the economy is “referred pain.” Just as part of your body can hurt because of injury to another, pessimism about the economy may reflect dissatisfaction with the country as a whole.
Related: Why Less Engaged Voters Are Biden’s Biggest Problem and Have Workers Gotten A Raise? and The Unexpected Compression: Competition at Work in the Low Wage Economy
I’ve put together my own affordability index. I used median income from the Census Bureau (estimated 2023), assumed a 15% down payment, and used a 2% estimate for property taxes, insurance, and maintenance. For house prices, I used the Case-Shiller National Index, Seasonally Adjusted (SA). For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates). For August: a year ago, the payment on a $500,000 house, with a 20% down payment and 5.22% 30-year mortgage rates, would be around $2,201 for principal and interest. The monthly payment for the same house, with house prices up 2.6% YoY and mortgage rates at 7.07% in August 2023, would be $2,749 - an increase of 25%. However, if we compare to two years ago, there is huge difference in monthly payments. In August 2021, the payment on a $500,000 house, with a 20% down payment and 2.84% 30-year mortgage rates, would be around $1,652 for principal and interest. The monthly payment for the same house, with house prices up 15.9% over two years and mortgage rates at 7.07% in August 2023, would be $3,107 - an increase of 88%!
Related: US Housing Market Crash Turns Not-So-Sweet 16 and The "New Normal" Mortgage Rate Range and Could 6% to 7% 30-Year Mortgage Rates be the "New Normal"?
One notable innovation has been the accumulation of large foreign exchange reserves to fend off liquidity crises in a dollar-dominated world. India’s forex reserves, for example, stand at $600 billion, Brazil’s hover around $300 billion, and South Africa has amassed $50 billion. Crucially, emerging-market firms and governments took advantage of the ultra-low interest rates that prevailed until 2021 to extend the maturity of their debts, giving them time to adapt to the new normal of elevated interest rates. But the single biggest factor behind emerging markets’ resilience has been the increased focus on central-bank independence. Once an obscure academic notion, the concept has evolved into a global norm over the past two decades. This approach, which is often referred to as “inflation targeting,” has enabled emerging-market central banks to assert their autonomy, even though they frequently place greater weight on exchange rates than any inflation-targeting model would suggest. Owing to their enhanced independence, many emerging-market central banks began to hike their policy interest rates long before their counterparts in advanced economies. This put them ahead of the curve for once, instead of lagging behind. Moreover, emerging markets never bought into the notion that debt is a free lunch, which has thoroughly permeated the US economic-policy debate, including in academia. The idea that sustained deficit finance is costless due to secular stagnation is not a product of sober analysis, but rather an expression of wishful thinking.
Related: BIS International Banking Statistics and Global Liquidity Indicators at End December 2022 and Dollar Deleveraging
Chinese scientists have produced a chip that is significantly faster and more energy efficient than current high-performance AI chips when it comes to performing some tasks such as image recognition and autonomous driving, according to a new study. Although the new chip cannot immediately replace those used in devices such as computers or smartphones, it may soon be used in wearable devices, electric cars, or smart factories and help boost China’s competitiveness in the mass application of artificial intelligence, researchers wrote in a paper published in the journal Nature.
Related: China AI & Semiconductors Rise: US Sanctions Have Failed and Huawei’s Breakthrough Still Shows China’s Limits in Tech Race and US Restricts Nvidia Made-for-China Chips in New Export Rules
The tentative agreements, to be voted on in the coming weeks, include a 25% general wage increase over four years, which with cost-of-living increases would boost the top pay for production workers to about $42 an hour. By the end of the contract’s term in 2028, most of the Detroit companies’ unionized workers would make in the mid-$80,000s annually, before overtime pay. Ford executives are already talking about the need to offset the higher expenses in this latest deal. The automaker has said the UAW contract would add $850 to $900 per vehicle in additional costs. “We have work to do,” Ford Chief Financial Officer John Lawler said last week. “We have to identify efficiencies. We have to increase productivity. It is a record contract.”
Related: The Unexpected Compression: Competition at Work in the Low Wage Labor Market and Autoworkers Have Good Reason to Demand a Big Raise and Union Workers Score Big Pay Gains As Labour Action Sweeps US
The horizontal axis is age, from birth to 85-plus. The vertical axis compares consumption at each age with the average labor income of people ages 30 to 49 in that year. So, for example, people age 40 in 2021 had total consumption of 0.7, which is to say around 70 percent of average labor income for people ages 30 to 49. The last data point in each chart covers all ages 85 and up, not just age 85. (That’s why there’s such a jump in 2021 from age 84.) Here’s why that matters for the economy: When a larger share of resources are in the hands of the elderly — those eager to spend sooner rather than later — the economy’s saving rate, which provides funds for new investment, drops.
Related: The US Capital Glut and Other Myths
China has spearheaded record levels of central bank purchases of gold globally in the first nine months of the year, as countries seek to hedge against inflation and reduce their reliance on the dollar. The “voracious” rate of buying has helped bullion prices defy surging bond yields and a strong dollar to trade just shy of $2,000 a troy ounce. Overall, gold demand excluding bilateral over-the-counter flows was 6% weaker year-on-year at 1,147 tonnes.
Related: The New Gold Boom: How Long Can It Last? and Shadow Reserves — How China Hides Trillions of Dollars of Hard Currency and Setser On Chinese "De-Dollarizing"
Using Current Population Survey data, we find evidence that the incidence of underpayment rises substantially for workers across all racial and ethnic groups, in particular among the young, in the wake of minimum wage increases. The overall rise in the underpayment in the wake of minimum wages is equivalent to between 10 and 20% of realized wage gains across the full sample. In addition, we find evidence of two sources of heterogeneity in the rise in underpayment experienced by members of different racial and ethnic groups. Among young workers (those ages 16 to 21), we find evidence that the burden of underpayment falls disproportionately on African American workers. Underpayment may thus blunt the impact of minimum wage increases on wage gaps between young African American workers and other groups of young workers.
Related: Studies Debunk Evidence that Higher Minimum Wages Don’t Hurt Low-skilled Employment and Part II: CBO Report Shows Increasing the Minimum Wage Hurts Marginal Workers
According to the Times/Siena data, the 2020 general electorate was probably more Democratic and more supportive of Mr. Biden in 2020 than the 2022 midterm electorate, since a slightly higher proportion of Democrats and Biden ’20 voters skipped the midterms than Republican or Trump ’20 voters. On that basis, one would ordinarily assume that a higher-turnout election in 2024 would help Mr. Biden and Democrats, by drawing those drop-off voters back to the polls. Yet according to the same data — the same survey respondents — a higher-turnout election would not help Mr. Biden today, even though it would draw more Biden ’20 and more Democratic voters to the polls.
Related: Consistent Signs of Erosion in Black and Hispanic Support for Biden and How to Interpret Polling Showing Biden’s Loss of Nonwhite Support and Trump’s Electoral College Edge Seems to Be Fading
Britons who left the education system at 18 without a degree were paid an average of £14 an hour in 2022 (about $18 after adjusting for price differences). Their US counterparts earned only marginally more, at $19 an hour. Last year [British graduates’] median hourly earnings were £21, or just over $26. US graduates pocketed almost $36 an hour. On the eve of the global financial crisis 15 years ago, British graduates made just 8% less than US grads; that gap has ballooned to 27%. Across most of Britain, more than a third of graduates are working in jobs that do not require a degree — even in London, the figure is 25%. America has mountains of highly lucrative and skilled jobs chasing the best candidates, while Britain has mountains of skilled candidates chasing a small number of world-class graduate employment opportunities.
Related: Why Do Wages Grow Faster for Educated Workers? and Falling College Wage Premiums by Race and Ethnicity and The Economics of Inequality in High-Wage Economies
Declining RRP [reverse repo] balances will eventually overwhelm QT and lead to a net increase of money in the financial system. After [money market funds] lend money to the Treasury, the money moves from the RRP to the Treasury General Account [TGA] and then into the banking system through fiscal spending. In our two-tiered monetary system, this mechanically increases reserves (money for banks) and deposits (money for non-banks) in a manner similar to QE. However, the Fed’s QT program has also been pushing in the opposite direction and draining reserves at a rate of around $240b a quarter. The interaction between the two forces has resulted in a modest increase in bank reserves.
Related: A Beautiful Replenishment and Probing LCLoR
Inflation and excess savings have followed remarkably similar trends after the pandemic. Figure 6 shows excess savings (based on the 2016-2019 trend) and core CPI inflation one year later (note that inflation refers to the 2nd y-axis and the upper x-axis). The correlation is striking. Core inflation follows accumulated excess savings with a lag of one year. One year after excess savings started rising in 2020, inflation rose. Excess savings peaked in autumn 2021, as mentioned, and inflation peaked a year later. Since then, excess savings have declined and so has inflation with a one-year lag. It is tempting to conclude that excess savings caused this inflation episode. As you may recall, I agree that fiscal stimulus (which increased people’s disposable income and thus caused the accumulation of excess savings) contributed to this inflation episode, although I also believe that monetary policy and supply chain challenges played a role.
Related: Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective and Excess No More? Dwindling Pandemic Savings and Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon
Foreign direct investment into China is falling across multiple measures, adding to pressure on Beijing and local governments as they seek to counter an economic slowdown. Financial Times calculations based on Chinese commerce ministry data compiled by Wind show that FDI fell 34% to Rmb72.8bn ($10bn) year on year in September, the biggest decline since monthly figures became available in 2014. The weakness in FDI has been part of a steady march of disappointing economic readings since China lifted pandemic restrictions at the start of the year. While FDI leapt 15% in January on the previous year, it has recorded double-digit percentage declines every month since May.
Related: The Rise & Fall of Foreign Direct Investment in China and China’s Brain Drain Threatens Its Future and China’s Age Of Malaise
The Fed has since the beginning of 2023 steadily increased its estimate of the long-run fed funds rate. The implication for investors is that the Fed is beginning to see the costs of capital as permanently higher. A permanent increase in the risk-free rate has important implications for firms, households, and asset allocation across equities and fixed income.
Related: Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies and The Price of Money Is Going Up, and It’s Not Because of the Fed and What Have We Learned About the Neutral Rate?
In 1950, Africans made up 8% of the world’s people. A century later, they will account for one-quarter of humanity, and at least one-third of all young people aged 15 to 24, according to United Nations forecasts. The median age on the African continent is 19. In India, the world’s most populous country, it is 28. In China and the United States, it is 38. Within the next decade, Africa will have the world’s largest work force, surpassing China and India. By the 2040s, it will account for two out of every five children born on the planet. Adjusted for population size, Africa’s economy has grown by 1 percent annually since 1990, according to the global consulting firm McKinsey & Company. Over the same period, India’s grew 5% per year and China’s grew 9%.
Related: Demography Is Destiny in Africa and Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals and Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants
The housing plan was announced in 2018 by a conservative government, but it only started to take a tangible form more recently. It was part of a broader package signed into law that its supporters vowed would dismantle “parallel societies” by 2030. Among its mandates is a requirement that young children in certain areas spend at least 25 hours a week in preschools where they would be taught the Danish language and “Danish values.” The law mandates that in neighborhoods where at least half of the population is of non-Western origin or descent, and where at least two of the following characteristics exist — low income, low education, high unemployment, or a high percentage of residents who have had criminal convictions — the share of social housing needs to be reduced to no more than 40% by 2030. That means more than 4,000 public housing units will need to be emptied or torn down. At least 430 already have been demolished.
Related: Progressives Are Winning the Immigration Debate — But It Doesn’t Feel Like It and Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals and French Riots Show How Entrenched Inequalities Have Become
For the second year in a row, the number of illegal crossings at the U.S.-Mexico border surpassed two million, historic highs, according to government data released this month. Title 42, passed during the Trump Administration, had been used to quickly expel illegal migrants. The policy expired in May. Since then, the number of illegal border crossings has increased. Historically, most migrants have come from Mexico, Guatemala, Honduras, and El Salvador. More recently, migrants from other countries have accounted for nearly half of illegal border crossings. The Biden administration also ended the practice of detaining families in 2021. Families may be responding. Families crossing the border made up about a fifth of total border apprehensions. In both August and September, that share rose to about half.
Related: Monopsony, Efficiency, and the Regularization of Undocumented Immigrants and Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 and The Hard Truth About Immigration
After examining data from the Anglosphere (U.S., UK, Canada, Australia, and New Zealand), I’ve found that one trend stands out above all others: the spike in anxiety, depression, and self-harm among adolescent girls that began in the early 2010s. Since 2010, rates of self-harm episodes have increased for adolescents in the Anglosphere countries, especially for girls. By 2015, self-harm episodes were at record-high levels in all five countries. I have added a shaded area on all graphs from 2010 to 2015, which is the period that Jon calls “The Great Rewiring of Childhood” in his forthcoming book, The Anxious Generation. It’s the five-year period when adolescence changed to a phone-based form; adolescents went from nearly all owning flip phones (or other basic phones) to nearly all owning smartphones with high-speed data plans and continuous (and nearly unlimited) access to the internet and social media.
Related: Chinese Youth Suicide Rate Quadruples In Over A Decade and Suicide Rates for Girls Are Rising. Are Smartphones to Blame? and Is There Really a Generational Difference in Identifying as Lesbian, Gay, or Bisexual?
Middle-class Americans are richer than ever before, with real median US net worth rising a staggering 37% over the last three years and finally recovering from the 2008 recession. Wealth inequality, while still extremely high, fell to some of the lowest levels in the last decade. It is actually hard to oversell just how central the housing market has been to rising middle-class wealth—the median renter saw their real net worth increase by about $3.1k since 2019 while the median homeowner saw their real net worth increase by $101k, of which $63k came directly from home price appreciation.
Related: Median Income Is Down Again. Are There Any Silver Linings in the Data? and Unlike Others, the Top Earners See Strong Pay Growth Beyond Age 35 and Income Ladder Is Difficult to Climb for US Metro Areas
Year-on-year wage growth for union members reached 4.6% in the second quarter, according to the Bureau of Labor Statistics, catching up with higher pay rises that non-union workers had enjoyed since 2021. For union contracts ratified in the first two quarters of this year, first-year pay increases were especially strong at 7 and 6.1%, respectively, according to Bloomberg Law. The average increase over the preceding 10 years was 3%, records compiled by the legal research platform showed. The data, based on wage information from 425 contracts analysed by Bloomberg Law, provide an incomplete picture as companies are not required to make their agreements public. But they offer a snapshot of how workers have been able to command higher wages in the US’s post-pandemic economy.
Related: American Air Pilots Approve Record Contract With Higher Pay and Ford Agrees to 25% Wage Hike in Tentative Deal to End UAW Strike and The ‘Summer of Strikes’ Isn’t Living Up to the Hype
According to Bank of America internal data, average monthly childcare payments per household have increased steadily over the past three years. As of September, an average family spent over $700 per month, 32% higher than the 2019 average. Moreover, prices could rise further as the Child Care Stabilization program, which subsidized childcare providers and was part of the American Rescue Plan in 2021, expired on September 30. This could have a meaningful impact on consumers because over 12% of US households pay for childcare on a regular basis, according to the Department of Health & Human Services, and any further increase in prices would disproportionally weigh on families with young children. According to a recent survey by Care.com, for parents that pay for childcare, 67% are already spending 20% or more of their annual household income on such services.
Related: How Child Care Impacts Parents’ Labor Force Participation and Understanding The Missing Millions and Why Americans Are Having Fewer Babies
Private credit came of age after the 2008 financial crisis as an alternative to banks at a time when regulators were clamping down on risky lending by deposit-taking institutions. Today it’s become a serious rival to mainstream lending for all kinds of businesses, from real estate firms to tech startups. Data company Preqin said closed-end private debt funds using the five lending strategies [Direct lending, Distressed debt, Venture debt, Mezzanine finance, and Special situations] had around $1.6 trillion of assets under management globally as of March 2023, up from around $500 billion at the end of 2015.
Related: Where Are All the Defaults? and Higher Cost of Capital Continues and Credit Normalization
For the EU as a whole, GDP per hour worked has risen from about 72% of US levels back in the early 2000s to about 82% of US levels (blue dashed line). For Germany, with its very low level of average hours worked, GDP per hour worked was roughly equal to the US level back in the mid-1990s, then dropped off, and has now caught up again. For the EU as a whole, the lower per capita GDP–28% below the US level–is roughly two-thirds due to the fact that GDP per hour worked is below US levels, and one-third due to fewer hours worked. But for Germany (and for some other western and northern EU economies), the lower per capita GDP compared to the US level is entirely due to fewer hours worked.
Related: The Slowdown in Europe via Human Capital and Productivity Has Grown Faster in Western Europe than in America and Europe Has Fallen Behind America and the Gap is Growing
We find that, for neighborhoods in the same metropolitan-area income quartile, the denser the block group, the higher the share of teleworkable jobs. This surprising finding could arise for a number of reasons. First, if workers in industries with greater telework potential enjoy more leisure time in equilibrium, their willingness to pay for amenities that complement leisure increases, and such amenities may not be available in lower-density areas. Second, if workers value social interactions and interactions at work are less frequent, they may seek out social interactions in nonwork settings. Nonwork social interactions are more readily found in population dense areas. Third, and similarly, if in-person contact drives agglomeration effects, a shift to remote work makes such contact outside the workplace more valuable. Again, in-person contact is easier in more population dense areas. All these explanations point toward increased telework leading to a greater willingness to pay for housing in high-density places.
Related: Remote Work Is Less Common Than We Thought and Remote Work, Three Years Later and The Geography of Working From Home Begins to Shift Again
The homeownership rate as customarily reported by the Census Bureau is measured by household. Of the 25-to-34-year-olds who are heads of a household, 52.7% own their own homes. But of all the 25-to-34-year-olds in the US, only 32.6% do, down 20 percentage points from the late 1970s and almost 10 points since the mid-2000s. However you measure or slice it, there has been a modest resurgence in young-adult homeownership since 2016. It appears to have stalled earlier this year amid rising interest rates. A recession would almost certainly throw it into reverse. Let’s hope that doesn’t happen.
Related: Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past and Higher For Longer and The 2024 Housing Outlook and There’s Never Been a Worse Time to Buy Instead of Rent
The United Auto Workers reached a tentative labor agreement with Ford Motor Co., putting pressure on the carmaker’s two chief rivals to end a protracted strike that has cost the industry billions of dollars. Ford agreed to a record 25% hourly wage hike over the life of the contract, which exceeds four years. With cost-of-living allowances, the top wage rate is expected to increase by 33%. The top pay will be over $40 an hour, the union said.
Related: Autoworkers Have Good Reason to Demand a Big Raise and Auto Union Boss Wants 46% Raise, 32-Hour Work Week in ‘War’ Against Detroit and Kaiser Workers Launch Largest-Ever US Health Care Strike
Copper prices have dropped 4% this year to about $8,000 a tonne, down from more than $10,000 at their peak last year, as the growth in the world economy has cooled off and production at new mines in Peru and Chile has been increasing. Yet demand for the commodity is expected to take off to supply the green economy, as well as to support the economic rise of India and other developing nations. The living standards of the average westerner requires 200-250 kilogrammes of copper per person, versus 60kg on average globally, according to Anglo American, one of the world’s largest miners. It is used in everything from electrical wiring and household appliances to infrastructure such as trains. Its use will become ever greater as the world goes green, resulting in it being dubbed the “metal of electrification.”
Related: How to Avoid a Green-Metals Crunch and Copper Is Unexpectedly Getting Cheaper and Glencore Says This Time Is Different for Coming Copper Shortage
We first survey the pattern of trade changes between 2019 and 2022 (skipping the acute pandemic years of 2020 and 2021) and then define assumptions to estimate potential trade changes and decoupling between 2022 and 2025 under two scenarios: (1) no real trade growth and (2) trade growth at the same rate as nominal GDP growth. As trade growth has historically outpaced GDP growth, we estimate that US-China trade will likely expand between now and 2025, to around $855 billion (under the second scenario). Despite potential US “friendshoring”—reducing investments and supply dependencies in China and channeling them instead to “friendly” countries—it is not likely that aggregate US imports from alternative sources will increase dramatically over the next three years.
Related: Can China Reduce Its Internal Balances Without Renewed External Imbalances? and Breaking Down China’s Manufacturing and Mexico Seeks to Solidify Rank As Top U.S. Trade Partner, Push Further Past China
China’s Semiconductor Manufacturing International Corp. used equipment from ASML to manufacture an advanced processor for a Chinese smartphone that alarmed the US, according to people familiar with the matter. In a suggestion that export restrictions on Europe’s most valuable tech company may have come too late to stem China’s advances in chipmaking, ASML’s so-called immersion deep ultraviolet machines were used in combination with tools from other companies to make the Huawei Technologies Co. chip, the people said, asking not to be identified discussing information that’s not public. ASML declined to comment. There is no suggestion that their sales violated export restrictions.
Related: China AI & Semiconductors Rise: US Sanctions Have Failed and China Imports Record Amount of Chipmaking Equipment and Huawei Building Secret Network for Chips, Trade Group Warns
The cost of buying a home versus renting one is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis. In theory, buying and renting costs should be roughly matched, according to Matt Vance, head of multifamily research at CBRE. Although owners benefit when house prices go up, they also put more cash into their homes than tenants for things such as repairs and refurbishments. From 1996 to mid-2003, the average cost to buy or rent did indeed work out more or less equal. The current hefty ownership premium reflects the surging cost of debt, as rates on a 30-year mortgage reach 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space.
Related: The "New Normal" Mortgage Rate Range and Higher For Longer and The 2024 Housing Outlook and US Housing Market Crash Turns Not-So-Sweet 16
The uptick in default-free discount rates has been more than offset by a substantial decline in the risk premiums available on assets relative to cash. This helps explain why consumer and corporate borrowing is still roughly in line with pre-pandemic norms. It is certainly possible that the recent run of rapid growth is a one-off that will peter out on its own. It is difficult to overstate the (apparent) strength of consumer spending in the retail sales data. While these numbers may be revised in the future, the current reading is that total spending at stores, bars, and restaurants in September was 0.7% higher than in August on a seasonally-adjusted basis, which is equivalent to a yearly growth rate of 9%. Moreover, monthly growth rates in July and August were 0.6% and 0.8%. Over the past 6 months, retail sales have been growing at a yearly average rate of 7%.
Related: An Update from Our CIOs: Entering the Second Stage of Tightening and Soft Landing Summer and Why No Recession (Yet)?
We see a near doubling of profits (ordinary, as defined above, as a percent of GDP). The key drivers of this increase (compared to the lost decades) were a rise in dividends and a further decline in household savings (each accounting for roughly 40% of the difference in profits performance). The decline in household savings is perfectly consistent with the argument used previously (that deleveraging has reduced the interest expense for Japanese corporates). Recall that interest expenses are paid to someone – ultimately a household as a form of income. Hence, given a fall in income (due to lower interest expenses paid by firms), to keep consumption levels unchanged, a fall in household savings would be required. So once again we see the very clear impact of the role of deleveraging in improving Japanese profitability.
Related: The Curious Incident of the Elevated Profit Margins and Slow Burn Minsky Moments (And What To Do About Them) and Japan Demographic Woes Deepen as Birthrate Hits Record Low
Toyota says it is close to being able to manufacture next-generation solid-state batteries at the same rate as existing batteries for electric vehicles, marking a milestone in the global race to commercialise the technology. Its headway in manufacturing technology follows a “breakthrough” in battery materials recently claimed by the world’s largest carmaker by vehicles sold. It would allow Toyota to mass-produce solid-state batteries by 2027 or 2028. Solid-state batteries have long been heralded by industry experts as a potential “game-changer” that could address EV battery concerns such as charging time, capacity, and the risk of catching fire. If successful, Toyota expects its electric cars powered by solid-state batteries to have a range of 1,200km — more than twice the range of its current EVs — and a charging time of 10 minutes or less.
Related: Toyota Says Solid-State Battery Breakthrough Can Halve Cost And Size and Your Next Electric Vehicle Could Be Made in China and China Set to Overtake Japan as World’s Biggest Car Exporter
The International Monetary Fund’s latest projections estimate Germany’s nominal gross domestic product at $4.43 trillion this year, compared with $4.23 trillion for Japan. That would leave Germany lagging only the United States and China in terms of economic size. The projections come as the yen teeters close to the 160 mark against the euro and remains within striking distance of the 33-year low against the dollar that sparked a second round of currency intervention in October last year. The euro last reached 160 yen in August 2008. The IMF figures show that Germans are likely feeling a lot better off than Japanese, too. Average gross domestic product per person in Germany is projected at $52,824 compared with $33,950 in Japan.
Related: Germany's Industrial Slowdown and Germany Is Losing Its Mojo. Finding It Again Won’t Be Easy and Japan Demographic Woes Deepen as Birthrate Hits Record Low
According to China's State Administration of Foreign Exchange, which tracks monthly international financial transactions by domestic banks on behalf of businesses and households, the net outflow reached $53.9 billion in September. This is the largest amount since January 2016, when China logged a net outflow of $55.8 billion triggered by a sudden devaluation of the yuan called the "renminbi shock," among other factors. The exodus of funds related to direct investment, such as construction of manufacturing plants, was noticeable in the September figures. Wealthy Chinese are also shifting their assets abroad out of concern over the future of China, according to many analysts.
Related: Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom and The Rise & Fall of Foreign Direct Investment in China and The Mysterious $300 Billion Flow Out of China
More than three hundred thousand Chinese moved away last year, more than double the pace of migration a decade ago. Some are resorting to extraordinary measures. In August, a man rode a Jet Ski, loaded with extra fuel, nearly two hundred miles to South Korea. According to rights activists, he had served time in prison for wearing a T-shirt that called China’s leader “Xitler.” Others have followed arduous routes through a half-dozen countries, in the hope of reaching the U.S. This summer, authorities at America’s southern border reported a record 17,894 encounters with Chinese migrants in the previous ten months—a thirteenfold increase from a year earlier.
Related: China’s Brain Drain Threatens Its Future and Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom and The Mysterious $300 Billion Flow Out of China
Sustained higher mortgage rates will have their most pronounced impact in 2024 on housing turnover. Nearly all mortgage borrowers have interest rates below current market rates, strongly disincentivizing them from moving. As a result, we expect the fewest annual existing home sales since the early 1990s at 3.8mn. Limited available housing supply has kept homebuilding resilient to higher interest rates: despite 3½pp higher mortgage rates today, housing starts were 5% above 2019 levels in September. While vacancy rates remain at historic lows, we expect housing starts to decline by 4% to 1.34mn in 2024, reflecting sharply fewer multifamily starts.
Related: Have Rising Mortgage Rates Frozen the Housing Market? and The "New Normal" Mortgage Rate Range and US Housing Market Crash Turns Not-So-Sweet 16
Generally speaking, we find measures of typical and aggregate pay, adjusted by PCE inflation, have grown since 2019 and have kept pace with or exceeded longer-term trends. Results are more mixed when those measures are deflated by CPI; we still see gains since 2019, but Average Hourly Earnings and Total Compensation are below longer-term trend levels. In other words, nominal pay by these measures has done relatively well in keeping up with overall costs of living, measured by the PCE. In contrast, nominal pay has done less well in keeping up with increases in the costs of goods and services that are much more salient to consumers, measured by the CPI. For higher-wage workers, the ECI suggests that nominal pay has grown about in line with or more slowly than prices, while Average Hourly Earnings and Weekly Earnings show roughly no change or some small positive changes for higher-wage workers. Again, we see that deflating by CPI points to weaker pay growth across all groups.
Related: U.S. Incomes Fall for Third Straight Year and The Unexpected Compression: Competition at Work in the Low Wage Economy and Jason Furman On Employment Cost Index
The IMF expects combined deficits of eurozone governments will fall to 3.4% of GDP this year from 3.6% in 2022, and further to 2.7% in 2024. Those countries that were in crisis a decade ago are expected to have much smaller budget gaps. In Greece, the deficit is forecast to fall to 1.6% of GDP from 2.3% last year, while Portugal’s is expected to fall to 0.2% of GDP from 0.4%. Ireland is forecast to have a budget surplus for the second straight year. Italy and France, among others, continue to have deficits of roughly 5% of GDP.
Related: US Fiscal Alarm Bells Are Drowning Out a Deeper Problem and France Ready to Accelerate Spending Cuts as it Battles Persistent Deficits and Europe's Imbalances in Pandemic and War
Federal assistance generated fairly small (jobs) multipliers. We found that each $878,000 in federal assistance created or preserved one state or local job-year. About a third of the effect size is driven by spillovers from other states. More important than the point estimate itself, however, are the values we can rule out on the basis of our estimates’ confidence intervals. We can rule out an estimate that federal fiscal assistance saved a state or local government job-year at a cost of less than $428,000, making fiscal assistance far less effective at supporting employment during the pandemic than during the global financial crisis.
One-third of the children of the very richest families scored a 1300 or higher on the SAT, while less than 5 percent of middle-class students did, according to the data, from economists at Opportunity Insights, based at Harvard. Relatively few children in the poorest families scored that high; just one in five took the test at all. The researchers matched all students’ SAT and ACT scores for 2011, 2013 and 2015 with their parents’ federal income tax records for the prior six years.
Related: Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges and Why Do Wages Grow Faster for Educated Workers? and Multidimensional Human Capital and the Wage Structure
Some reports have suggested that increases appear primarily in LGB identification, but not much in behavior. In other words, more young adults identify as LGB, but they are not necessarily acting on it. At least in the data from the General Social Survey, that does not appear to be true: There has also been a significant increase in young adults having homosexual sex (men with men and women with women). In fact, slightly more American young adults have had sex with a same-sex partner — 20% (see Figure 4) than identify as gay, lesbian, or bisexual — 18.5% (see Figure 2). The increases are even larger for 27- to 41-year-olds (the next older age group), perhaps because they have had more time to accumulate sexual partners since age 18.
Related: Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past and Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal?
Border agents made 2.05 million arrests in the federal fiscal year that ended in September, new government data show, the second year in a row that figure has exceeded two million. In the past, the numbers have risen and fallen based on significant economic and policy changes like recessions and pandemic-era border restrictions. But they never exceeded 1.7 million and never stayed at an elevated level as long as they have the past few years. In the past, most migrants were single adults from Mexico looking for work. If caught by the Border Patrol, they could easily and quickly be deported. Now, a fast-growing share are families with children, who are difficult to deport to their home countries. The change started around 2014 and has exploded in the past two years.
Related: Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 and Rebound in Immigration Comes to Economy’s Aid and U.S. Will Build Stretch of Border Wall and Begin Deportations to Venezuela
Immigration has not been the dominant cause of post-1970s wage stagnation, despite the suspicious timing. You do not need to be able to read peer-reviewed articles in an academic journal to grasp this conclusion, although those articles support it. You simply need to notice that the regions attracting the largest number of immigrants are not the ones suffering the worst wage stagnation. But the story does not end here. The same evidence suggests that immigration has played a meaningful, if secondary, role in holding down wages. People sometimes claim that immigrants work in jobs that native-born Americans do not want. But Christopher Jencks, a social-policy professor at Harvard University, has pointed out that this statement is incomplete: Immigrants typically work in jobs that native-born Americans do not want at the wages that employers are offering. One reason that employers can offer such wages, Jencks adds, is the availability of so many immigrant workers.
Related: Why Immigration Is an Urban Phenomenon and Monopsony, Efficiency, and the Regularization of Undocumented Immigrants and Immigration and U.S. Labor Market Tightness: Is There a Link?
This paper combines administrative tax data and a model of global investment behavior to evaluate the investment and firm valuation effects of the Tax Cuts and Jobs Act (TCJA) of 2017. We have five main findings. First, the TCJA caused domestic investment of firms with the mean tax change to increase by roughly 20% relative to firms experiencing no tax change. Second, the TCJA created large incentives for some U.S. multinationals to increase foreign capital, which rose substantially following the law change. Third, domestic investment also increases in response to foreign incentives, indicating complementarity between domestic and foreign capital in production. Fourth, the general equilibrium long-run effects of the TCJA on the domestic and total capital of U.S. firms are around 6% and 9%, respectively. Finally, in our model, the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2% of baseline corporate revenue, as investment growth causes both higher labor tax revenues from wage growth and offsetting corporate revenue declines from more depreciation deductions. Consequently, the fall in total corporate tax revenue from the tax cut is close to the static effect.
Related: Who Gains from Corporate Tax Cuts? and End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns and Is the Tax Cut Paying For Itself? By a Mile
Bloomberg’s team of economists estimates that, adjusted for inflation, the natural rate of interest for 10-year US government notes fell from 5% in 1980 to a little less than 2% over the past decade. How much higher will the natural rate go? Bloomberg Economics’ model shows a rise of about a percentage point, from a trough of 1.7% in the mid-2010s to 2.7% in the 2030s. In nominal terms, that means 10-year Treasury yields could settle somewhere between 4.5% and 5%. And the risks are skewed toward even higher borrowing costs than that baseline suggests. According to Bloomberg Economics estimates, the combined impact of persistently high levels of government borrowing, more spending to fight climate change and faster growth would lift the natural rate to 4%, translating to a nominal 10-year bond yield in the region of 6%.
Related: What Have We Learned About the Neutral Rate? and Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies and In Search of Safe Havens: The Trust Deficit and Risk-free Investments!
We find that the elasticity of US supply has fallen over time, and is much smaller for public producers than for privates. We estimate that a 10% oil price increase boosts US liquids supply by around 1% or 200kb/d. Consolidation is likely to further depress the supply elasticity as inelastic public producers gain market share, and efficiency gains push the US lower on the cost curve. We see two takeaways. First, the trends in the Permian and ongoing capital discipline support our forecasts that US liquids supply growth slows in 2024 to 0.6mb/d (vs.1.4mb/d in 2023), and that Brent reaches $100/bbl in June. Second, our estimates imply that the US supply response to higher prices—caused by any geopolitical supply shock—would offset only about 20-25% of the initial shock, which underscores OPEC’s key role in balancing the market. While core OPEC countries currently have nearly 4mb/d of spare capacity, physical or political barriers to deploying spare capacity are the key upside risk to oil prices.
Related: The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications and Monday Chart and Portfolio Nuclear
The speed at which people can get from one place to another is one of the most basic measures of a society’s sophistication. It affects economic productivity and human happiness; academic research has found that commuting makes people more unhappy than almost any other daily activity. Yet in one area of U.S. travel after another, progress has largely stopped over the past half-century. The scheduled flight time between Los Angeles and New York has become about 30 minutes longer [since 1959.] In 1969, Metroliner trains made two-and-a-half-hour nonstop trips between Washington and New York. Today, there are no nonstop trains on that route, and the fastest trip, on Acela trains, takes about 20 minutes longer than the Metroliner once did.
Related: Leonhardt On Investment and US Capital is Depreciating Faster and Capital Allocation
US chips and green energy subsidies don't make anything cheaper, faster, or better. They just do what we already do in the US, at vastly greater cost, and in a different way. Even if electric cars did save carbon, they would not get you to the airport any faster. The problem with US public investment is not just lack of money. It is that the money we do spend goes down ratholes, so not spending is wise. Public teacher unions that deliver generations of children, mostly already disadvantaged, who cannot read or count. $4 billion per mile subways. Leonhardt mentions other countries' success with high-speed trains, without mentioning the poster child for all that is wrong with US public investment: the California railroad. 15 years and counting, $100+ billion dollars, not a mile of track laid yet. If it were not so perfectly obvious to voters that money will be wasted, they might support a lot more investment.
Related: Longer Commutes, Shorter Lives: The Costs of Not Investing in America and US Capital is Depreciating Faster and Capital Allocation
An estimated 900 million people around the globe face hunger or severe food insecurity daily. More than 1.4 billion additional people lack vital micronutrients, affecting their health and life expectancy. Globally, the prevalence of moderate to severe food insecurity was estimated at 29.6% in 2022, up from 22.7% in 2016. In Africa, the number of severely and moderately food insecure people rose almost 25% from 695 million in 2019 to 868 million in 2022. In Asia, the same group went from 982 million in 2019 to over 1.1 billion in 2022. The Food & Agriculture Organization of the United Nations (FAO) estimates that the pandemic increased incidence of hunger and lack of access to adequate food by over 300 million people from 2019 to 2020 alone.
Related: Feeding the Future: How Climate and Agriculture Intersect and China Ups Food Security Drive, Plans To Grow 90 Percent Of Its Grain By 2032, Warning For US And Thai Farmers and Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants
A Chinese reprint of a book about an emperor who ran his realm into the ground before committing suicide nearly 400 years ago has abruptly disappeared from book shelves in China and searches for it have been censored online. The Book Chongzhen: the Diligent Emperor of a Failed Dynasty, republished last month, recounts how the last emperor of the 1368-1644 Ming dynasty purged senior officials and mismanaged his kingdom before finally hanging himself on a tree outside the Forbidden City as rebels closed in on Beijing. The blurb on the book’s cover declares that the harder Chongzhen worked, the faster he brought about the collapse of the empire. “A series of foolish measures [and] every step a mistake, the more diligent [he was] the faster the downfall,” it says. The disappearance of a reprint of a previously published book, which would have been vetted by state propagandists before publication, is not common, publishers say.
Related: As China Ramps Up Scrutiny of Culture, the Show Does Not Go On and China’s Defeated Youth and The Root of China’s Growing Youth Unemployment Crisis
An analysis of observed maximum changes in wind speed for Atlantic Tropical Cyclones (TCs) from 1971 to 2020 indicates that TC intensification rates have already changed as anthropogenic greenhouse gas emissions have warmed the planet and oceans. Mean maximum TC intensification rates are up to 28.7% greater in the modern era (2001–2020) compared to the historical era (1971–1990). In the modern era, it is about as likely for TCs to intensify by at least 50 kts in 24 h, and more likely for TCs to intensify by at least 20 kts within 24 h than it was for TCs to intensify by these amounts in 36 h in the historical era. Finally, the number of TCs that intensify from a Category 1 hurricane (or weaker) into a major hurricane within 36 h has more than doubled in the modern era relative to the historical era.
Related: Analyzing State Resilience to Weather and Climate Disasters and Gulf Coast Temperatures Surge to Highest Levels Ever Observed and Why California and Florida Have Become Almost Uninsurable
In sharp contrast to this prior experience, from 2007 into 2021 the U.S. NFA position declined precipitously — by 60pp of U.S. GDP — before bouncing back somewhat in the first three quarters of 2022. And this has occurred despite the fact that U.S. current account deficits have narrowed relative to the early 2000s. We document that this unprecedented decline in the U.S. NFA position has been driven by a boom in the market valuation of the non-financial assets in U.S. corporations. Because foreigners’ gross holdings of equity in U.S. corporations have grown to be very large, this boom has mechanically increased the market value of U.S. liabilities to the rest of the world (henceforth, ROW). There has not been a similar boom in the valuation of corporations in the ROW over this time period, so U.S. residents have not enjoyed a similar revaluation of their gross foreign equity assets.
Related: The Economics of Inequality in High-Wage Economies and The Case For Continued American Equity Exceptionalism and Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks
People are seeing something that is making them more optimistic about the future—and are spending. They think r* is higher, and if people permanently think r* is higher, it is, whether or not there is good reason for their thoughts. This is a very, very hard argument to refute, or even to think about. It is that the market-equilibrium interest rate is much more a social fact, without secure grounding in technologies, or in permanent or persistent factors affecting human utilities and behavior, at least as we neoclassical economists think of it. I, at least, can get no purchase on this argument. So I throw it over the wall to the sociologists and psychologists, and hope someone over there catches it.
Related: What Is the Ten-Year Real Rate Going to Be? I: How We Got Here and Why We Should, but Won’t, Reduce the Budget Deficit and What Have We Learned About the Neutral Rate?
The Penn Wharton Budget Model (PWBM) notes that the only reason a debt crisis has not already occurred is that market participants assume a tax and spending correction is coming at some point. The PWBM brief also outlines the effects of real interest rate increases on future debt projections. In the base case, the authors project federal debt rising from 98% of GDP in 2023 to 189% in 2050. The Congressional Budget Office (CBO) forecast shows debt reaching 169 percent of GDP that same year. If the real average interest rate for U.S. borrowing rises by 50 basis points above the PWBM forecast of 2.3%, then federal debt would climb to 208% of GDP in 2050.
Related: When Does Federal Debt Reach Unsustainable Levels? and Interest Expense: A Bigger Impact on Deficits than Debt and Living with High Public Debt
Up in quality: With the Fed keeping rates higher for longer, higher debt costs will continue to weigh on earnings and interest coverage ratios over the coming quarters, and both IG and HY companies will experience higher refinancing costs. Large cap: A default cycle has started with bankruptcy filings rising, and default rates will continue to rise over the coming quarters, impacting in particular middle market companies. Lend to firms with low leverage and high interest coverage ratios: Lagged effects of monetary policy are slowing consumer credit growth with auto and credit card delinquencies rising and bank lending conditions tightening, leading to a significant slowing of loan growth impacting consumers and firms with weak balance sheets.
Related: Where Are All the Defaults? and Rates Are Up. We’re Just Starting to Feel the Heat and How Is the Corporate Bond Market Functioning as Interest Rates Increase?
An annual survey of Chinese military capabilities mandated by Congress said its stockpile of operational nuclear warheads reached 500 by May 2023, putting it on track to exceed projections. It forecast that China would likely have more than 1,000 operational nuclear warheads by 2030. The US has 1,550 deployed strategic nuclear warheads, as permitted under the New Start arms control treaty. Dennis Wilder, a former top CIA China expert, said the warning about conventional ICBMs was very concerning because they could destabilise the military balance and complicate the situation for military planners. “China could, in a US-China crisis, for the first time threaten strikes against major US population centers without having to cross the nuclear threshold, which risks a massive US nuclear barrage in response.”
Related: Japan Raises Military Spending To Counter China With More Missiles and Ships and Pentagon Plan to Buy Thousands of Drones Faces Looming Snags and US Nuclear Submarine Weak Spot In Bubble Trail: Chinese Scientists
Global electricity demand is projected to increase at a rate of 2.7% per year in the APS, more than doubling from just under 25,000 TWh in 2021 to nearly 54,000 TWh in 2050. The buildings sector continues to consume the most electricity, followed closely by industry, each accounting for more than one-third of total demand throughout the period. Transport makes up just 2% of global electricity demand currently, but this rises to 15% in 2050. Hydrogen production via electrolysis adds significantly to electricity demand growth, from less than 2 TWh in 2021 to over 5,700 TWh in 2050 in the APS. More rapid electrification of end uses in the NZE Scenario further accelerates electricity demand growth to 3.2% per year to 2050, reaching over 62,000 TWh in 2050. Demand growth is expected to be accompanied by improvements in efficiency. Hydrogen production and EVs account for more than half the growth in electricity demand to 2050.
Related: Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables and Elon Musk’s Latest Mission: Rev Up the Electricity Industry and What Have We Learned About the Neutral Rate?
A large amount of structural renormalization has occurred across the globe as market economies move towards their long-run tendency of surplus. Meanwhile, budget constraints haven’t had to harden significantly—financial conditions aren’t meaningfully much tighter than they were this last time last year, if anything they’re a tad looser. That powerful combination is what has allowed optimism and economic expectations to improve so much over the last year—and is a large part of why the Fed feels more confident in keeping rates “higher for longer.”
Related: Supply-Side Expansion Has Driven the Decline in Inflation and The "Easy Disinflation" Is (Mostly) Over. The Fed Grapples With What Comes Next
Small business payments to hiring firms, a leading indicator for payrolls, are gradually returning to 2019 levels. This is in line with the view that the labor market is normalizing to its trend growth. Overall, small businesses continue to face crosscurrents. On the positive side, US consumer spending has held up well, according to Bank of America internal data, which, in turn, points to healthy revenues for small businesses. However, higher interest rates and quality of labor have become more of a concern relative to a year ago.
Related: The Impact of Higher Rates on Small Businesses and Business Formation Boom and Surging Business Formation in the Pandemic: Causes and Consequences?
The strongest reason for weighing this slice towards India is not just that the country has averaged real GDP growth of more than 6% a year for the past 30 years; that growth has also translated into stock market returns in a way that China’s growth, for example, has not. Over the past 30, 20, 10, and five years, the Sensex has performed as well or better than the S&P 500, leaving other big markets far behind. India’s growth story is built on its remarkable increase in total factor productivity, the economy’s ability to generate output from a given amount of labour and capital. Aditya Suresh of Macquarie notes that TFP’s contribution to headline growth has averaged 1.3% between 2007 and 2022, against 0.9% in 1990-2006, far outpacing other EMs. Partly, the TFP boost has come from efficiency improvements in certain sectors, such as services exports (think ecommerce or consulting). But the biggest improvement is undoubtedly from better basic infrastructure.
Related: Indian Stock Market Surges as Foreign Funds Buy Into National Growth Story and India Equity: An Unsung Long-Term Performance Story and The Path to 2075 — Capital Market Size and Opportunity
China is likely heading into a messy and protracted debt debacle that will be at least equal in magnitude to the state-owned enterprises (SOEs) debt drama in the late 1990s. Except the outcome this time will likely be a prolonged economic malaise. At a fundamental level, most if not all economic crises are essentially debt crises in various guises. China’s is no exception. We believe the property sector crisis, which has largely peaked, is just a preview of the main event, which will see around 40% of local government financing vehicles (LGFVs) default on their debt. Defaults of this magnitude will affect regional banks that are most exposed to LGFV lending. We estimate total loss for LGFV creditors (including financial institutions such as banks and LGFV supplier/contractors) to be in the neighborhood of $5 trillion, or ~30% of China’s GDP.
Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and The Neoclassical Growth of China and China’s Defeated Youth
We expect reduced contributions from labor and capital to hold income growth below 4% absent an offsetting acceleration in TFP (total factor productivity) growth. A surge in TFP growth, however, seems unlikely, since productivity growth in China is already quite high, averaging 1.8% since 2009. Only five of the forty-three countries that reached China’s current income level in the past saw TFP growth that high over the subsequent thirteen years. Not one managed to exceed this pace by more than a few tenths of a percentage point. In short, China will need to achieve TFP growth in excess of the fastest historical precedents to meet official income goals. Moreover, these estimates assume that the official growth figures are accurate. If the lower growth rates of Harry Wu's work are correct, TFP growth has already fallen to about zero.
Related: China Slowdown Means It May Never Overtake US Economy, Forecast Shows and How Soon and At What Height Will China’s Economy Peak? and After Years of Sharp Decline, Will China’s Birth Rate Rebound?
The second stage of the tightening cycle can be clearly seen in the market action. Earlier in the tightening cycle, short-term interest rates rose and dragged long-term interest rates higher. Then, beginning in October 2022 and lasting almost a year, there was a reprieve. Hikes in short-term interest rates continued, but bond yields traded sideways, reflecting market expectations for future easing, combined with the Treasury circumventing the pressure on long rates by issuing T-bills funded by excess central bank reserves. In the third quarter, both conditions shifted as described above, initiating the next stage of the tightening cycle, led by long rates.
Related: Soft Landing Summer and Why No Recession (Yet)? and Fool Me Once
The P/E ratio for the S&P493 has fluctuated around 19 in 2023. And the P/E ratio for the S&P7 has increased from 29 to 45. The bottom line is that returns this year in the S&P500 have been driven entirely by returns in the seven biggest stocks, and these seven stocks have become more and more overvalued. What is particularly remarkable is that the ongoing overvaluation of tech stocks has happened during a year when long-term interest rates have increased significantly. Remember, tech companies have cash flows far out in the future, which should be more negatively impacted by increases in the discount rate. In short, something has to give. Either stocks have to go down to be consistent with the current level of interest rates. Or long-term interest rates have to go down to be consistent with the current level of stock prices.
Related: Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks and 7 or 493 Stocks: What Matters for the S&P 500? and A Few Stocks Drive the Stock Market: Dot.com Vs. Today Vs. the Last 100 Years
Manhattan was the biggest loser at $16.5 billion of outflows to other states, with nearly 28 cents of every dollar—equaling $4.6 billion in total going to the state of Florida. California saw the greatest losses at the state level, while Florida was the biggest beneficiary with a net gain of $39 billion from other states. Meanwhile, Manhattan saw huge outflows to surrounding suburbs and out-of-state destinations, the largest of which being Florida’s coast. Those seeking warmer weather and sunny beaches led the pack, as former New Yorkers took more than $2.9 billion to Miami-Dade County and $1.1 billion in taxable income decamped for Palm Beach County, FL. In fact, 27.7 cents of every dollar leaving Manhattan went to the state of Florida, equaling $4.6 billion in total.
Related: Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic and Young Families Have Not Returned to Large Cities Post-Pandemic and Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy
France’s proposed budget for 2024 will lead to a deficit of 4.4% of national output — well above the EU’s 3% target. The government expects the deficit to fall below that level by 2027, making it one of the last EU countries to comply. By the government’s own estimates, the cost of servicing the debt will rise to around €75bn annually in 2027, which would be the single biggest expense in the budget and more than is spent on education or defence. While France has shortened unemployment compensation from 24 months to 18 months in some cases and tweaked other aspects of the unemployment insurance programme, Finance Minister Le Maire said there was a “legitimate question” as to whether the country should go further as it seeks to induce people to go back to work.
Related: Europe Has Fallen Behind America and the Gap is Growing and From Strength To Strength and Productivity Has Grown Faster in Western Europe than in America
Here are the rates for the three non-homicide violent crimes. I’ve kept the cities in the safest-to-least-safe order determined by the Gallup poll. New York City is no longer such a standout on the safe side, although it still is on the safe side by every measure. Minneapolis is worst for robbery, New Orleans for rape, and Detroit — by a mile — for aggravated assault. After my experience compiling these statistics I have to say I’m not super-confident in their reliability. At the national level the errors seem mostly to cancel out, with the FBI data usually showing similar trends to those found in the Bureau of Justice Statistics’ annual crime victimization surveys. Then again, in 2022 the FBI statistics showed a decline in violent crime and the BJS survey a substantial increase, and the local data can be a mess.
Related: New York’s Subways Have Less Crime but More Violence and The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 and “New York, Just Like I Pictured It”
The study, published in Nature on October 18th, looked at changes to the virus’s genome over time and used data on reported outbreaks to track how it spread. In 2020, the rate of spread among wild birds was three times faster than that in farmed poultry, because of mutations that allowed the virus to adapt to diverse species. Outbreaks are usually seasonal, synchronizing with bird migration in Northern Hemisphere autumn. But since November 2021, they have become persistent. In 2022, the virus killed millions of birds across five continents and seeded outbreaks among farmed mink and various marine mammals.
Related: Bird Flu's Surge Has Scientists Seeking Clues to Prevent the Next Pandemic and Bird Flu Sample from Chilean Man Showed Some Signs of Adaptation to Mammals
The 2023 observations (in gray) fall in line with the historical relationship. That is, the association between liquidity and volatility in 2023 has been consistent with the past association between these two variables. This is true for the ten-year note as well, whereas for the two-year note the evidence points to somewhat higher-than-expected price impact given the volatility (as also occurred in fall 2008, March 2020, and 2022). While Treasury market liquidity has not been unusually poor given the level of interest rate volatility, continued vigilance by policymakers and market participants is appropriate. The market’s capacity to smoothly handle large trading flows has been of concern since March 2020.
Related: Liquidity Event and Resilience Redux in the US Treasury Market and Living with High Public Debt
Widely followed households surveys find that median inflation expectations are trending towards 2%, but they also show that the median is fragile. The New York Fed’s Survey of Consumer Expectations, a monthly survey of a nationally representative group of 1300, finds that around 40% of respondents expect inflation to be higher than 4% in the medium term. That result is notably higher than pre-2020 levels and has remained stable to rising over the past several months. A potential spike in commodity prices from geopolitical developments could very quickly push inflation upward and tip median expectations comfortably above 2%. A shift in expectations is not yet happening, but it would almost certainly prompt aggressive policy action.
Related: Inflation Expectations, the Phillips Curve, and Stock Prices and What We’ve Learned About Inflation and Rate Cuts
The strategy that identifies firms owner's incidence using the reduced-form effect on labor demand of incumbent firms delivers an estimate of 61.9% (SE = 11%). The second strategy that uses the effects of business taxes on local productivity (TFP) yields an estimate of the firm's owner share of 52.3% (SE = 34%). Our second main finding is that our extended structural model that incorporates these new moments delivers an estimate for firm owners of 53.3% (SE = 12%). Overall, our central estimate is that firm owners bear roughly half of the incidence, while workers and landowners bear 35-40 percent and 10-15 percent, respectively.
Related: End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns and Who Gains from Corporate Tax Cuts? and The Economics of Inequality in High-Wage Economies
The US is restricting the sale of chips that Nvidia designed specifically for the Chinese market and curbing exports to two Chinese artificial-intelligence chip firms, as part of sweeping updates to export controls that are designed to block China’s access to highly advanced semiconductor technology. The tighter controls will target Nvidia’s A800 and H800 chips, a senior US official said, which the American firm created for export to the Asian country after the Biden administration introduced its initial restrictions last October. Those curbs, including the updated rules released Tuesday, aim to prevent China from accessing cutting-edge technology with military uses.
Related: China AI & Semiconductors Rise: US Sanctions Have Failed and Huawei Building Secret Network for Chips, Trade Group Warns and China Imports Record Amount of Chipmaking Equipment
Most of Russia’s cumulative current account surplus reflects capital flight by both Russians and non-Russians, with perhaps at most ~1/3 of the surplus ($90 billion out of $262 billion) reflecting anything resembling the accumulation of sovereign wealth or “shadow reserves”. Russia’s net international investment position, which accounts for changes in asset valuation, paints the same basic picture even more starkly. According to the CBR, the value of Russia’s foreign assets as of June 30 2023 was $100 billion lower than on December 31, 2021, while the value of Russia’s liabilities to the rest of the world was down by $432 billion. These persistent pressures help explain why the ruble has depreciated so much—down by half against the U.S. dollar since June 2022—after Russia’s access to imports was restored.
Related: Pollution Reveals What Russian Statistics Obscure: Industrial Decline and Russians Have Emigrated in Huge Numbers Since the War in Ukraine and Russian Power in Decline
At age 25, individuals in the lowest lifetime earnings (LE) bracket earned an average of approximately $12,000, while those in the median and top brackets earned $28,000 and $39,000, respectively. As a result, the earnings gap between the highest and lowest earners—measured as the ratio of their average earnings—already stands at around 3.25 at the beginning of their working lives. Those at the top of the LE distribution witness a remarkable 435% surge in their incomes between ages 25 and 35. In contrast, median earners undergo a comparatively modest increase of over 65%, while those at the bottom experience minimal earnings growth, a mere 16% uptick. Interestingly, during the subsequent 10-year period (ages 35-45), the median LE group witnesses a significant deceleration in their earnings growth, plummeting from the previous decade’s 65% increase to approximately 15%. Meanwhile, the bottom LE group continues to undergo a gradual but consistent earnings growth of around 15%. The top LE group deviates substantially from the rest of the workforce. They once again experience surge in earnings, exceeding 150%, and by the time they reach age 45, they earned more than half a million dollars annually. Consequently, the earnings gap between the highest and lowest earners widens further, expanding from 15.3 to 33.1.
Related: The Economics of Inequality in High-Wage Economies and The Inheritance Of Social Status: England, 1600 to 2022
We estimate that higher rates will increase the interest burden for small businesses by just over 1pp by 2024, from roughly 5.8% of revenues in 2021 to around 7% in 2024. Under our current rates forecasts, we forecast this share would increase further to just under 8% as term loans gradually mature—above the pre-pandemic share of 6.8% but similar to that of the mid-1990s. In 2023, we expect small business interest payments as a share of output to increase by a little under 1pp. Since this sector accounts for around 15% of private-sector gross output and the ratio between private-sector gross output and US GDP is a little under 1.6, this implies a drag on economywide GDP growth of around 0.1pp.
Related: Higher Cost of Capital Continues and Credit Normalization and Soft Landing Summer
One reason we believe high-yield spreads haven’t spiked yet is the migration of lower-quality borrowers—those most likely to default—out of high yield and into the private credit market. According to Moody’s, the number of issuers with B3 debt has fallen as these issuers have departed for private credit. According to Moody’s, 62% of its rated universe, which includes both loans and bonds, is rated B2 (also known as B) or below, and, “In general, the high-yield bond market favors better-quality Ba [Moody’s term for BB] issuers, while the leveraged loan market is concentrated in LBOs that have had liquidity constraints on the heels of the Federal Reserve’s aggressive tightening.”
Related: Higher Cost of Capital Continues and Credit Normalization
The top panel in Figure 7 shows the r∗ estimates. Natural rates have fallen over time in all countries, but not monotonically, consistent with previous works documenting the decline of real rates over the long run. As recently as the 1990s, natural rates in these countries were between 100 and 600 bps. By the end of the sample 4 out of 10 countries have a negative r∗, and most others are between 0 and 50 bps. There is cross-country correlation, and natural rates have a positive correlation with the “global” component, and a considerable local component at high frequency. These comovements may reflect forces of market integration to some degree, as well as the effects of common factors.
Related: Measuring the Natural Rate of Interest After COVID-19 and In Search of Safe Havens: The Trust Deficit and Risk-free Investments! and Hitch Your Wagon to R-Star
What are the odds that bond rates are going to return to the 2010s normal? Low. But some mean-reversion is highly likely. How much? My guess is 0.5%-points, plus whatever in the recent interest-rate rise is an overreaction to shifts in the fundamental flow-of-funds supply-demand balance—but I run out of space here before I can even start analyzing that. Emerging market-rich, sovereign wealth fund, and exchange-reserve demand for US Treasuries continues to scale with the wealth of the world, or rather with the wealth of the world’s rich and the wealth and power of the world’s governments. I simply do not see the safe-asset shortage component of secular-stagnation low U.S. Treasury rates as being over.
Related: Why We Should, but Won’t, Reduce the Budget Deficit and 23% Increase in Treasury Auction Sizes in 2024 and Resilience Redux in the US Treasury Market
NYC has unique advantages regarding its outright size (output, labor force, purchasing power), business sector diversification, and global financial sector dominance. Many measures have now reached pre-pandemic levels, including the labor force, airport utilization, and seated diners. NYC residential and industrial vacancy rates are low, and NYC crime stats also compare favorably to other cities which sometimes comes as a surprise. But mass transit use is still 73% of 2019 levels, which is unsustainable given required capital and operating costs. NYC office vacancy rates of 18% are the highest since the early 1990s, leased-but-underutilized space is high and ~35% of work days are still done from home; office to residential conversions are unlikely to materially reduce the stock of underutilized office space given cost and complexity.
Related: Central Business Districts: City Strugglers and Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy and Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic
The black line shows the level of American labor productivity. The blue dashed line is a statistically estimated trend, estimated through 2019 and then extended. The trend is allowed to change after 2004; the slowdown in trend captures the end of the late-90s/early 2000s Internet-led boom. Starting in 2020, you can see the sizeable productivity boom, as the black line moved well above the trend. Press discussions at the time were often quite exuberant about the possibilities. Unfortunately, since that bump, productivity has retreated right back to its pre-pandemic trend or, even, by early 2023, a little below the trend.
Related: The Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends? and Will A.I. Transform the Economy, and if So, How? and The Economics of Inequality in High-Wage Economies
AI will flow through to productivity faster than past general-purpose technologies, but the peak impacts remain far off. AI will likely proceed more quickly for a few reasons. First, the uses of AI typically require less capex, so the marginal cost per unit of labor saved is lower than for past technologies. Second, that capex is more concentrated among major software players and therefore easier to coordinate; much of the adoption will take the form of AI tools being rolled out to software-as-a-service platforms that businesses already use. Finally, secularly low unemployment and high wage growth today may also increase the incentive to automate, although temporary cyclical pressures are unlikely to have a major impact on this decades-long process. Much of the impact of AI could come from accelerating the highest-value research and development work.
Related: Centaurs and Cyborgs on the Jagged Frontier and Generative AI at Work and AI, Mass Evolution, and Weickian Loops
Given our forecast that labor market rebalancing continues to unfold in a relatively controlled manner, we expect wage growth to gradually decelerate through end-2024, before stabilizing at levels roughly consistent with 2% target inflation. This slow deceleration in nominal wage growth—combined with a sharper deceleration in headline inflation—should lead real wage growth to swing comfortably into positive territory, thereby providing a strong tailwind for real income, consumer spending, and overall GDP growth in 2024.
Related: U.S. Incomes Fall for Third Straight Year and Growth in Working-Age Population Ends. That’s Not All Bad and The Unexpected Compression: Competition at Work in the Low Wage Economy
The percentage of Bank of America customers who received income from gig platforms through direct deposits or debit cards reached 3% in August 2023, up from 2.7% in April. This increase was driven particularly by ridesharing jobs and younger people, the former of which can be largely explained by strong travel-related spending. We also found that ridesharing gig workers do not tend to also have a traditional job and an increased supply of these workers has driven average monthly ridesharing gig pay down in recent months. Millennials and Gen Z have seen the biggest increase in gig work as they tend to be more exposed to the rising cost of living. But it seems gig work may not provide enough support: younger generations' credit and debit card spending growth has consistently lagged that of Baby Boomers since mid-March, according to Bank of America internal data.
Related: Do 60 Percent Of American Workers Have Insecure Jobs? and Upward Mobility Is Alive and Well in America
My calculations suggest the average age of death in [the shortest-lived 10%] is just 36 years old, compared with 55 in the Netherlands and 57 in Sweden. It hasn’t always been this way. In the 1980s, the most disadvantaged Americans lived about as long as their counterparts in France. By the early 2000s, lives at the bottom had lengthened considerably, and while a deficit was opening up, it wasn’t worrisome. But in the past decade, the lives of America’s least fortunate have shortened by an astonishing eight years. Wealthy Americans who live in the parts of the country with high opioid use and gun violence live just as long as those who live where fentanyl addiction and gunshot incidents are relatively rare. But poor Americans live far shorter lives if they grow up surrounded by guns and drugs than if they don’t.
Related: Comments On: "Accounting For the Widening Mortality Gap Between American Adults With and Without a BA" By Anne Case and Angus Deaton and Accounting for the Widening Mortality Gap Between American Adults With and Without a BA and Why Are Americans Dying So Young?
With about 66,000 students — more than the public school enrollment in Boston or Seattle — the Pentagon’s schools for children of military members and civilian employees quietly achieve results most educators can only dream of. On the National Assessment of Educational Progress, a federal exam that is considered the gold standard for comparing states and large districts, the Defense Department’s schools outscored every jurisdiction in math and reading last year and managed to avoid widespread pandemic losses. While the achievement of U.S. students overall has stagnated over the last decade, the military’s schools have made gains on the national test since 2013.
Related: ACT Scores Fell for Class of 2023, Sixth Consecutive Decline and NAEP Long-Term Trend Assessment Results: Reading and Mathematics and Looking For Flynn Effects on a Recent Online U.S. Adult Sample: Examining Shifts Within The SAPA Project
We use an event study approach, examining what happens when a firm begins supplying a foreign multinational for the first time. We uncover a sharp increase in productivity (which rises by about 8% after three years) and other performance measures (e.g. sales to firms other than the new multinational partner). The fraction of aggregate value accounted for by multinationals declined by about ten percentage points in Belgium in our sample period (2002 and 2014), which would suggest a strong headwind against productivity growth. However, in a novel result we are also able to document that when we look at similar events of starting a serious relationship with other “superstar firms” - defined as those who are in the top thousandth of the size distribution and/or export intensively - we find very similar performance impacts.
Related: The Economics of Inequality in High-Wage Economies and The National Economic Council Gets It Wrong on the Roles of Big and Small Firms in U.S. Innovation and Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data
The average score on the ACT dropped to a new 30-year low, indicating fewer high-school seniors are ready for college, the organization behind the college admissions test said. Test takers had an average score of 19.5 out of 36 in 2023, down 0.3 points from 2022, according to ACT. About 1.4 million high-school seniors took the ACT in 2023, up slightly from the year before, but still down from the more than two million who took it in 2017, according to ACT. Scores for the class of 2023 were down across all the subjects its test covers, ACT said. They fell 0.3 points for math, reading and science. They were down 0.4 points for English.
Related: Krugman’s Misleading Scandinavian Comparison and Looking For Flynn Effects on a Recent Online U.S. Adult Sample: Examining Shifts Within The SAPA Project and NAEP Long-Term Trend Assessment Results: Reading and Mathematics
About 4 million baby boomers, or 2% of the working-age population, are turning 65 each year, and while the number of Gen Zers turning 15 each year is 200,000 to 300,000 higher than that, more than 820,000 Americans ages 15 through 64 died last year, and about 700,000 died annually in the years leading up to the pandemic. Immigration is thus the only thing keeping the working-age population from shrinking. Immigration spurs economic growth while in some cases depressing wages for some native-born workers. But in the US, if the forecasts are correct, immigration will only keep the 15-to-64 population just about constant through 2100 (as opposed to the 20% decline forecast for the world’s high-income countries overall and the 62% decline forecast for China). We truly have entered a new era for working-age population growth.
Related: The Unexpected Compression: Competition at Work in the Low Wage Economy and Kaiser Workers Launch Largest-Ever US Health Care Strike and Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995
Paul Romer’s original model of economic growth assumed that a constant population of researchers would produce a constant growth rate in the economy. For example, if our economy has a million researchers working every year, its output should grow by 1% every year. Bloom et al noticed that the number of researchers in our economy has grown to 23 times its size in 1930 but the growth rate of the economy has been constant, even decreasing, over that period. So Paul Romer’s assumption that constant research input ==> constant growth rate seems unsupported by the data. Bloom et al explain the divergence between growing research input and constant economic growth by assuming that ideas get harder to find as we discover more of them. “Are Ideas Getting Harder To Find?” documents a serious problem with economic growth: our investments into research are growing fast but the rate of economic growth is constant at best.
Nonparticipation rates have increased with each generation of prime-age men. Millennials experience a notably different nonparticipation rate trajectory over their lifetime compared with previous generations, with rates starting at a higher level and declining more steeply until their mid-30s. This temporarily higher level of nonparticipation is driven by school enrollment. Even though nonparticipation rates for millennials are still higher than in previous generations, given the increasing educational attainment for younger generations and the trends we observe by education groups, the pace of the sustained rise in male nonparticipation rates may slow in the future, which could benefit economic growth.
Related: Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men and 20-40% of Declining Workforce Participation from Prime Working-Age Men Dropping Out (for Less Than 2 Years) to Increase Their Leisure and Econ Focus: Melissa Kearney
Even if there’s no immediate crisis, high-interest rates will almost surely crowd out private investment, hurting our long-term prospects. I’m especially concerned about the effects of high rates on investments in renewable energy, which are of existential importance. The federal government is essentially an insurance company with an army. Look at spending in fiscal 2023: Social Security, health care and other safety net programs accounted for most government spending. Add military spending and interest payments, and what’s left — NDD, for “nondefense discretionary” spending — is a small slice of the total. Furthermore, NDD has been squeezed by past austerity. So there’s no possibility for major spending cuts unless we slash programs that are extremely popular. The point is that the economics of deficit reduction are straightforward. It can be accomplished either by reducing social benefits or by raising taxes. Given that America has weak social spending compared with other countries, taxes are the most plausible route. But I don’t see any plausible political path to a tax increase that would make a large dent in the deficit.
Related: U.S. Deficit Explodes Even As Economy Grows and American Gothic and The Limits of Taxing the Rich
More than three-quarters of the foreign money that flowed into China’s stock market in the first seven months of the year has left, with global investors dumping more than $25bn worth of shares despite Beijing’s efforts to restore confidence in the world’s second-largest economy. The sharp selling in recent months puts net purchases by offshore investors on course for the smallest annual total since 2015, the first full year of the Stock Connect programme that links up markets in Hong Kong and mainland China.
Related: The Threat from China's Capital Flight and Net Outflow of Funds from China Hits 7-Year High in September and The Rise & Fall of Foreign Direct Investment in China
The unauthorized immigrant population in the United States reached 10.5 million in 2021, according to new Pew Research Center estimates. That was a modest increase over 2019 but nearly identical to 2017. The number of unauthorized immigrants living in the U.S. in 2021 remained below its peak of 12.2 million in 2007. It was about the same size as in 2004 and lower than every year from 2005 to 2015. The U.S. foreign-born population was 14.1% of the nation’s population in 2021. That was very slightly higher than in the last five years but below the record high of 14.8% in 1890. As of 2021, the nation’s 10.5 million unauthorized immigrants represented about 3% of the total U.S. population and 22% of the foreign-born population. These shares were among the lowest since the 1990s.
Related: Monopsony, Efficiency, and the Regularization of Undocumented Immigrants and Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 and Immigrants’ Share of the U.S. Labor Force Grows to a New High
The headline estimate for the United States is a roughly 5pp decline of the labor share between 1929 and 2022. The decline after World War II is even larger, at around 7pp. The great majority of U.S. industries exhibited labor share declines in recent decades. The United States is not unique, as we observe labor share declines in most countries of Europe and Asia and in emerging markets. It helps to organize factors affecting the labor share in five categories: technology, product markets, labor markets, capital markets, and globalization. The factors that have contributed to the labor share decline are intertwined. My view is that the most plausible causes have technological origin. Developments such as the information age and automation, manifesting through changes in the cost of capital and the structure of product markets, caused the labor share to decline. If technological advancements continue to favor capital indefinitely, the natural outcome is a transition to a world in which capital on its own produces the entire global income.
Related: The Unexpected Compression: Competition at Work in the Low Wage Labor Market and Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends and The Economics of Inequality in High-Wage Economies
Labor market tightness following the height of the Covid-19 pandemic led to an unexpected compression in the US wage distribution that reflects, in part, an increase in labor market competition. Disproportionate wage growth at the bottom of the distribution reduced the college wage premium and reversed almost 40% of the rise in 90-10 log wage inequality since 1980, as measured by the 90-10 ratio. The Unexpected Compression as measured by the fall in the 90-10 log wage ratio was nearly half of the Great Compression of the 1940s. The rise in wages was particularly strong among workers under 40 years of age and without a college degree. The post-pandemic rise in labor market tightness—and the consequent wage compression— represent a profound shift in US labor market conditions, seen most clearly in the rise of the wage-separation elasticity among young non-college workers.
Related: Perspectives on the Labor Share and Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends and The Economics of Inequality in High-Wage Economies
Improvements in labor-saving (automation) technologies are negatively related to the wage earnings of workers in affected occupation–industry cells. For instance, an increase in our exposure measure from the median to the 90th percentile is associated with a 2.5 pp decline in the total earnings of the average worker over the next five years. These earnings losses are concentrated on a subset of workers, since exposed workers experience a 1.2pp increase in the probability of involuntary job loss over the next five years. Importantly, the magnitude of these wage declines or job loss probabilities are essentially unrelated to observable measures of worker skill—measured by age, level of wage earnings relative to other workers in the same industry and occupation, and college education. Perhaps surprisingly, but consistent with our model, new labor-augmenting technologies also lead to a decline in earnings for exposed workers, though the average magnitudes are smaller. An increase in our exposure measure from the median to the 90th percentile is associated with a 1.3pp decline in earnings growth and a 0.5pp increase in the likelihood of involuntary job loss. However, unlike in the case of labor-saving technology, the effects of exposure to labor-augmenting technologies are fairly heterogeneous: it disproportionately affects white-collar workers (defined as those with college degrees, or those employed in non-manufacturing industries or in occupations emphasizing cognitive tasks); older workers; and workers that are paid more relative to their peers (other workers with similar characteristics in the same industry and occupation).
Related: Perspectives on the Labor Share and AI Isn’t Good Enough and The Economics of Inequality in High-Wage Economies
Cumulative growth in hourly compensation has exceeded inflation since the end of 2019, though it remains slightly below the trend of strong growth seen in the latter half of the 2010s. The real wage distribution has compressed—that is, lower-wage workers have seen proportionally larger gains than higher-wage workers, although this effect is lessened by the fact that low-income households have faced greater inflation than high-income households.
Related: Have Workers Gotten A Raise? and Is the Fed Peaking Too Soon? and The Economy Is Great. Why Are Americans in Such a Rotten Mood?
We continue to see only limited recession risk and reaffirm our 15% US recession probability. We expect several tailwinds to global growth in 2024, including strong real household income growth, a smaller drag from monetary and fiscal tightening, a recovery in manufacturing activity, and an increased willingness of central banks to deliver insurance cuts if growth slows. More disinflation is in store over the next year. Although the normalization in product and labor markets is now well advanced, its full disinflationary effect is still playing out, and core inflation should fall back to 2-2½% by end-2024. The market outlook is complicated by compressed risk premia and markets that are quite well-priced for our central case.
Related: Soft Landing Summer and Inching Toward Equilibrium and U.S. Wage Growth Is Slowing, Somewhat
Higher short and now long rates continue to flow through to credit and interest costs. This is setting up a dynamic that we are calling “the grind”— a gradual decline in growth and in the health of corporate and household balance sheets —that we expect to be a dominant driver of economies and markets over the next 12-18 months. Earlier in the tightening cycle, short-term interest rates rose and dragged long-term interest rates higher. Then, beginning in October 2022 and lasting almost a year, there was a reprieve. Hikes in short-term interest rates continued, but bond yields traded sideways, reflecting market expectations for future easing combined with the Treasury circumventing the pressure on long rates by issuing T-bills. In recent months both conditions have shifted, initiating the next stage of the tightening cycle, led by long rates.
Related: Macro Outlook 2024: The Hard Part Is Over and Inching Toward Equilibrium and Why No Recession (Yet)?
The U.S. Treasury market is in the midst of major supply and demand changes. The Federal Reserve is shedding its portfolio at a rate of about $60 billion a month. Overseas buyers who were once important sources of demand—China and Japan in particular—have become less reliable lately. Meanwhile, supply has exploded. The U.S. Treasury has issued a net $2 trillion in new debt this year, a record when excluding the pandemic borrowing spree of 2020. “U.S. issuance is way up, and foreign demand hasn’t gone up,” said Brad Setser, senior fellow at the Council on Foreign Relations. “And in some key categories—notably Japan and China—they don’t seem likely to be net buyers going forward.” In response to recent demand weakness, Treasury has shifted to issuing shorter-term bonds that are in higher demand, helping to restore market stability. Foreigners, including private investors and central banks, now own about 30% of all outstanding U.S. Treasury securities, down from roughly 43% a decade ago.
Related: Setser On Foreign Demand For Treasuries and Preferred Habitats and Timing in the World’s Safe Asset and Resilience Redux in the US Treasury Market
Energy risks to the US are generally much lower than in the 1970’s. The US is a net energy exporter vs its net import position in the 1970s. The oil intensity of US GDP growth is 65% lower than it was in the 1970’s. Annual global oil consumption growth has declined from 8%-10% in the early 1970s to 0%-2% today. Geopolitical benefits to OPEC of an oil embargo would be less clear now: 75% of Saudi oil exports go to Asia, China gets half its oil from the Middle East and the US gets most of its imported oil from Canada, Mexico, and other non-OPEC sources. Saudi Arabia also has spare capacity to bring online if needed. The Biden Administration, in an act of geopolitical malpractice, opted not to refill the Strategic Petroleum Reserve before the conflict erupted; the SPR is down ~50% from its peak and at its lowest level since 1983.
Related: The Economic Consequences of the Israel-Hamas War and US Shale: The Marginal Supplier Matures and U.S. Oil Boom Blunts OPEC’s Pricing Power
Examined our favorite quality metric, gross profit/assets (GP/A), over time by sector for “small” US companies, which we define as between $400M and $4B in market cap today, or the equivalent percentile rank by market cap historically. We made the decision to exclude the health-care industry entirely given the significant proliferation of unprofitable pharma and biotech stocks, which tripled in proportion from 5% of small stocks in 1995 to 16% of stocks in 2021. We were curious whether the degradation in quality still held once we excluded this mix shift impact. The chart below shows the contribution to aggregate small-cap US GP/A by sector (e.g., IT GP/A multiplied by IT proportion of total market cap). Most notable is the broad-based decline in quality from the early 2010s to today. The most impacted sectors include IT, consumer discretionary, and industrials. We find it notable that US large caps trade at a premium to the rest of the world, while the median US small cap stock.
Related: Inching Toward Equilibrium and Market Bipolarity: Exuberance versus Exhaustion and Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks
What was each generation’s work ethic like when they were young? Nationally representative surveys like Monitoring the Future can show us this – it has asked U.S. 12th graders, most of whom are 18 years old, about their work attitudes since 1976. Up until a few years ago, the work ethic news was positive for Gen Z (those born 1995-2012, and 18 years old 2013-2030). After declining from Boomers to Millennials, work ethic made a comeback among Gen Z 18-year-olds in the 2010s. Until it didn’t. The number of 18-year-olds who said they wanted to do their best in their job “even if this sometimes means working overtime” suddenly plummeted in 2021 and 2022. In early 2020, 54% of 18-year-olds said they were willing to work overtime. By 2022, it was 36%. That’s a (relative) drop of 33% in just two years.
Related: Young Men Are Gaming More. Are They Working Less? and Is Technology Changing the Value of Leisure? and Do 60 Percent Of American Workers Have Insecure Jobs?
We show for a sample of 21 economies—20 non-Euro-zone OECD countries and an aggregated version of 17 Euro-zone countries—that headline and core inflation rates in 2020-2022 responded positively to a theory-motivated government-spending variable. This variable includes cumulated increases in spending-GDP ratios divided by the pre-pandemic level of the debt-to-GDP ratio and by the average duration of the outstanding debt. In contrast, across 17 Euro-zone countries, differences in the government-spending variable do not generate significant differences in inflation rates. We also find in the sample of 21 economies that, while positive and statistically significant, the coefficient that gauges the response of the inflation rate to the scaled measure of government spending is significantly less than one, the value predicted when all of the extra spending is “paid for” through surprise inflation. The point estimates of coefficients of 0.4-0.5 suggest that 40-50% of the extra spending was financed through inflation, whereas the remaining 50-60% was paid for through the more conventional method of intertemporal public finance that involves increases in current or prospective government revenue or cuts in prospective future spending.
Related: What We’ve Learned About Inflation and Fiscal Arithmetic and the Global Inflation Outlook and When Will There Be No More Excess Savings Left?
Stabilizing the debt ratio implies reducing primary deficits to zero. For both economic and political reasons, there is no way governments can do this quickly. A drastic, immediate consolidation would most likely be catastrophic, both economically in triggering a recession, and politically, by increasing the share of votes going to populist parties. In the United States, where the primary deficit is around 4 percent and (r - g) looks positive at this point, the challenge is even stronger. And, given the current budget process dysfunction, one must worry that the adjustment will not take place any time soon. Thus, the debt ratio is likely to increase for quite some time. We have to hope that it will not eventually explode.
Related: R versus G and the National Debt and Living with High Public Debt and Is the Fiscal Picture Getting Better or Worse? Yes.
The share of bills is set to gradually rise next year, but the trajectory of the increase may not be aggressive enough to support the market. Under Treasury Borrowing Advisory Council’s recommendation, the amount of new money raised next calendar year through coupons would be around $1.8t. Assuming $2.5t in privately held borrowing for 12 calendar months, net bill issuance next year looks to be around $700b. This would take some pressure off the market by increasing the share of bills to around 22% of marketable debt outstanding. A recession and rate cuts would likely boost Treasury demand, but current U.S. economic strength suggests they are more likely to occur later next year after the market is forced to digest a significant amount of issuance. The more likely sequence may be a sharp rise in yields that then leads to both a recession and rate cuts, which together finally create strong demand for Treasuries.
Related: US Treasury To Slow Pace Of Longer-Dated Debt Issuance and Preferred Habitats and Timing in the World’s Safe Asset and Resilience Redux in the US Treasury Market
Using administrative tax data in combination with the Survey of Consumer Finances and other data sources, this paper develops new estimates of the distribution of income in the U.S. since the 1960s. Our analysis examines levels and trends in all parts of the distribution in addition to top income shares. Our estimates for pre-tax income, based on distributing total national income, show that the top one percent share declined from 11.1% to 9.4% from 1962 to 1979 and then increased to 13.8% by 2019. Viewed over the full period, the top share increased by only 3 percentage points. While our pre-tax income measure includes labor and investment income, it provides an incomplete picture of economic resources available to individuals. A broader measure that includes Social Security benefits and other transfers lowers top one percent shares and results in a smaller increase. Our estimates for after-tax income indicate that the top one percent share increased only 1.4 percentage points since 1979 and only 0.2 percentage points since 1962.
Related: The Cost of Thriving Has Fallen: Correcting and Rejecting the American Compass Cost of Thriving Index and New Evidence Eviscerates Relevancy of Piketty’s Claim Capital Has Grown at Expense of Labor and The Economics of Inequality in High-Wage Economies
There is a lot of interest in foreign demand for US Treasuries (and US bonds generally) these days, given the scale of forthcoming issuance. And in aggregate foreign demand for US bonds has actually been pretty strong, in line or above the post-global crisis norm. The higher frequency data from the Fed (and now the Treasury) based on the valuation-adjusted monthly survey data tells the same story -- solid overall demand, with a modest shift toward Agencies in the last 12ms. Treasury demand appears to be coming largely from private investors -- which makes sense given that reserve growth has been weak and Treasuries offer an absolute yield pickup. China on net has sold Treasuries in the last 12ms of data even adjusting for Belgium/Euroclear. Foreign demand for long-term Agencies has been quite strong -- and China was a net buyer there over the last 12ms of data.
Related: Just One More and Preferred Habitats and Timing in the World’s Safe Asset and Resilience Redux in the US Treasury Market
The biggest source of underlying inflationary pressure in the U.S. economy—unusually rapid wage growth—has been receding rapidly in recent months, although not by enough (yet) for policymakers to be confident that they are on track to reaching their 2% yearly inflation goal. The question is whether this process will continue, and if not, what that would mean for interest rates. American workers’ wages are still rising faster than in the decade before the pandemic, but the pace of increases has slowed sharply and is now comparable to the late 1990s and 2006-2007. So far, wage growth has slowed substantially without much increase in joblessness or precarity. That is good news for workers, as well as a welcome vindication for those of us who believed that much of the outsized pay gains in 2021H2-2022H1 were one-offs associated with job market churn, reset expectations of working conditions, and sectoral shifts. The question is whether the slowdown we have already experienced is sufficient to satisfy Fed officials—and if not, what it would take for wage growth to slow even more.
Related: Is the Fed Peaking Too Soon? and Why No Recession (Yet)? and An Update from Our CIOs: Entering the Second Stage of Tightening
The short-term interest rate is a key variable in managing these conditions and is once again the central bank’s primary policy lever (since interest rates are far enough above zero). The central bank pulls the lever in order to steer the economy toward equilibrium. This is challenging when you start from a major disequilibrium because policy actions affect changes in spending, output, and inflation with significant lags (the process can take years), and in the meantime, markets are responding to central bank actions and having their own impact on the path of the economy. Recently, equity yields have changed little as bond yields have risen significantly, such that equity pricing has moved further from equilibrium. The last time we were here was 2000, which was followed by a decade of poor equity returns.
Related: An Update from Our CIOs: Entering the Second Stage of Tightening and Soft Landing Summer and Why No Recession (Yet)?
Slowing growth would produce a peak U.S. population of almost 370 million before an ebb to 366 million in the final years of the century, according to the bureau. The projections outline a nation growing slowly compared with recent decades. Annual growth rates have fallen from 1.2% in the 1990s to 0.5% today and would fall to 0.2% by 2040. Small differences add up through compounding: The projected U.S. population in 2040 is 355 million, 25 million fewer than projected for that date in 2015. The difference is more than the current population of Florida. In 2022, preliminary data showed the U.S. birthrate was about 19% lower than in 2007. Death rates remain about 9% higher than 2019, the last year before the pandemic. By 2038, deaths would exceed births under the most likely scenario.
Related: Why Americans Are Having Fewer Babies and Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 and Millennials Aren’t Having Kids. Here Are The Reasons Why
We show that Japan’s government has engineered a sizeable duration mismatch on its consolidated balance sheet. The Japanese government implements a sizeable carry trade, and it earns high realized asset returns while its borrowing rates decline. Japan’s government has realized an ex-post excess return of about 2.13% per annum above its funding cost by going long in long-duration risky assets, financed with mostly short-duration funding in the form of bank reserves, T-bills, and bonds. This investment strategy has allowed the government to earn more than 3% of GDP from its risky investments.
Related: The Bank of Japan’s Seductive Widow-Maker Trade and Japan Demographic Woes Deepen as Birthrate Hits Record Low and Inflation in The *Very* Long Run
America’s GDP jumped by 4.9% at an annualised rate in the third quarter of the year. Nearly 80% of output is now made up of services, but one might expect manufacturing at least to pull its weight, given its supposed powers. In fact, labour productivity in manufacturing fell by 0.2% at an annualised rate, meaning that the boost to growth was driven by services. To make matters worse, productivity in the manufacturing sector has been in secular decline since 2011—the first decade-long fall in the available data. During the 1990s and 2000s manufacturing productivity soared, with the production of computers and electronics, especially semiconductor chips, leading the way. Gains seem to have topped out at around the time things went wrong more broadly, in the early 2010s. All told, more than a third of the overall slowdown in manufacturing since 2011 is accounted for by computers and electronics.
Related: The Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends? and Bottlenecks: Sectoral Imbalances and the US Productivity Slowdown and American Labor’s Real Problem: It Isn’t Productive Enough
A decade ago, foreigners owned 33% of US government debt. That number has now declined to 23%.
Related: Preferred Habitats and Timing in the World’s Safe Asset and US Treasury To Slow Pace Of Longer-Dated Debt Issuance and Resilience Redux in the US Treasury Market
The 6 Largest Deficit Reduction Deals Since 1983 Were:1983 Social Security Deal (Saved 0.52% of GDP). The 1985 Gramm-Rudman Hollings Act (1.72%). The 1990 Bush “Andrews Air Force Base” Deal (1.45%). The 1993 Clinton Budget Deal (1.08%). The 1997 Balanced Budget Deal (0.72%). The 2011 Budget Control Act (1.01%) Savings scored at the time of enactment. Many cuts were later reversed, and the 1985 law was invalidated by the Supreme Court and replaced with a 1987 version.
Related: When Does Federal Debt Reach Unsustainable Levels? and Living with High Public Debt and Did the U.S. Really Grow Out of Its World War II Debt?
Average funding costs for the $8.6tn market in the highest quality corporate bonds, known as investment grade, are now above 6%, according to Ice BofA data. Although that is three times their lows of below 2% in late 2020, market participants are relatively sanguine about the health of these high-quality companies. There is more concern about less creditworthy borrowers in the $1.3tn non-investment grade market, often called junk or high-yield. Coupons now average 9.4%, more than double their lows in late 2021. Moody’s predicts the US default rate will peak at 5.4% in January, but if conditions worsen it could soar as high as 14%.
Related: Credit Market Outlook: Default Rates Rising, But Credit Spreads Remain Tight and Rates Are Up. We’re Just Starting to Feel the Heat and The Corporate Debt Maturity Wall: Implications for Capex and Employment
American teenagers are increasingly less likely to have a romantic partner—a boyfriend or girlfriend—than they once were 56% of Gen Z adults report having had a boyfriend or girlfriend as a teenager, while 41% say they did not have this experience. Nearly seven in 10 (69%) millennials and more than three-quarters of Generation Xers (76%) and baby boomers (78%) say they had a boyfriend or girlfriend for at least some part of their teen years. Working a part-time or summer job was once a ubiquitous experience for cash-strapped teenagers, but today’s teens are less likely to take on these responsibilities. 58% of Gen Z adults say they had a part-time job at some point during their teen years. Close to four in 10 (38%) Gen Z adults say they did not have a part-time job as a teenager. For previous generations, part-time work was much more prevalent. Seven in 10 (70% ) millennials, nearly eight in 10 (79%) Generation Xers, and 82% of baby boomers worked in a part-time position as a teenager.
Related: Is There Really a Generational Difference in Identifying as Lesbian, Gay, or Bisexual? and Millennials are Shattering the Oldest Rule in Politics and Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past
Foreign firms yanked more than $160 billion in total earnings from China during six successive quarters through the end of September, according to an analysis of Chinese data, an unusually sustained run of profit outflows that shows how much the country’s appeal is waning for foreign capital. The torrent of earnings leaving China pushed overall foreign direct investment in the world’s second-largest economy into the red in the third quarter for the first time in a quarter of a century.
Related: China Suffers Plunging Foreign Direct Investment Amid Geopolitical Tensions and The Rise & Fall of Foreign Direct Investment in China and China’s Age Of Malaise
While China accounts for 18% of global GDP, it accounts for only 13% of global consumption and an astonishing 32% of global investment. Every dollar of investment in the global economy is balanced by $3.2 dollars of consumption and by $4.1 in the world excluding China. In China, however, it is offset by only $1.3 of consumption. What is more, if China were to grow by 4-5 percent a year on average for the next decade, while maintaining its current reliance on investment to drive that growth, its share of global GDP would rise to 21% over the decade, but its share of global investment would rise much more — to 37% . Alternatively, if we assume that every dollar of investment globally should continue to be balanced by roughly $3.2 dollars of consumption, the rest of the world would have to reduce the investment share of its own GDP by a full percentage point a year to accommodate China.
Related: Can China Reduce Its Internal Balances Without Renewed External Imbalances? and Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and China’s Auto Export Wave Echoes Japan's in the ’70s
Women in their early 20s embraced childlessness first, with a sharp rise beginning around 2002. That happens to be when the first millennials, born in 1981, entered that age group. For women in their later 20s, the jump in childlessness happened in 2006, just as the first millennials arrived. As you ascend the age spectrum, the millennial echo follows. When the oldest millennials hit their 40s, even 40-year-olds become more likely to go childless. Just about every source we consulted pointed to the broader economic climate. If women are able to follow through on their delayed family plans, much of the rise in childlessness could be erased, but with older millennials in their 40s, time for a reversal may be running out.
Related: Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past and A Visual Breakdown of America’s Stagnating Number of Births and Why Americans Are Having Fewer Babies
The deterioration in Mr. Biden’s standing is broad, spanning virtually every demographic group, yet it yields an especially deep blow to his electoral support among young, Black, and Hispanic voters, with Mr. Trump obtaining previously unimaginable levels of support with them. Mr. Biden barely leads at all among nonwhite voters under 45, even though the same voters reported backing Mr. Biden by almost 40 points in the last election.
Related: Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? and Trump’s Electoral College Edge Seems to Be Fading and Why Less Engaged Voters Are Biden’s Biggest Problem
Debt Sustainability = When national debt grows slower than gross domestic product (GDP) or expected to stop growing before getting too high. Average interest rate on government debt (R) describes the growth of current debt, while G the average growth rate of U.S. economy represents its erosion (relative to GDP). When R<G, debt may be sustainable even when non-interest spending exceeds revenue. When R<G, one-time borrowing has little effect on long-term debt-to-GDP. For the last 15 years, R has been below G.
Related: When Does Federal Debt Reach Unsustainable Levels? and Are High Interest Rates the New Normal? and Living with High Public Debt
We study the employment consequences of deindustrialization for 1,993 cities in six countries: France, Germany, Italy, Japan, the United Kingdom, and the United States. We focus on former manufacturing hubs—defined as Local Labor Markets that in the year of their country’s manufacturing peak have a manufacturing employment share in the top tercile of their country’s distribution. While on average former manufacturing hubs lost employment after their country’s manufacturing peak, a surprisingly large share in each country was able to fully recover. We find that in the two decades before the relevant country’s manufacturing peak, cities with a high share of college-educated workers experienced a similar rate of employment growth as those with a low share of college-educated workers. By contrast, in the decades after the manufacturing peak, the employment trends diverge: cities with a high initial share of college-educated workers experience significantly faster employment growth.
Related: Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium and Bottlenecks: Sectoral Imbalances and the US Productivity Slowdown and The Economics of Inequality in High-Wage Economies
Britons who left the education system at 18 without a degree were paid an average of £14 an hour in 2022 (about $18 after adjusting for price differences). Their US counterparts earned only marginally more, at $19 an hour. Last year [British graduates’] median hourly earnings were £21, or just over $26. US graduates pocketed almost $36 an hour. On the eve of the global financial crisis 15 years ago, British graduates made just 8% less than US grads; that gap has ballooned to 27%. Across most of Britain, more than a third of graduates are working in jobs that do not require a degree — even in London, the figure is 25%. America has mountains of highly lucrative and skilled jobs chasing the best candidates, while Britain has mountains of skilled candidates chasing a small number of world-class graduate employment opportunities.
Related: Why Do Wages Grow Faster for Educated Workers? and Falling College Wage Premiums by Race and Ethnicity and The Economics of Inequality in High-Wage Economies
In 1950, Africans made up 8% of the world’s people. A century later, they will account for one-quarter of humanity, and at least one-third of all young people aged 15 to 24, according to United Nations forecasts. The median age on the African continent is 19. In India, the world’s most populous country, it is 28. In China and the United States, it is 38. Within the next decade, Africa will have the world’s largest work force, surpassing China and India. By the 2040s, it will account for two out of every five children born on the planet. Adjusted for population size, Africa’s economy has grown by 1 percent annually since 1990, according to the global consulting firm McKinsey & Company. Over the same period, India’s grew 5% per year and China’s grew 9%.
Related: Demography Is Destiny in Africa and Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals and Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants
The housing plan was announced in 2018 by a conservative government, but it only started to take a tangible form more recently. It was part of a broader package signed into law that its supporters vowed would dismantle “parallel societies” by 2030. Among its mandates is a requirement that young children in certain areas spend at least 25 hours a week in preschools where they would be taught the Danish language and “Danish values.” The law mandates that in neighborhoods where at least half of the population is of non-Western origin or descent, and where at least two of the following characteristics exist — low income, low education, high unemployment, or a high percentage of residents who have had criminal convictions — the share of social housing needs to be reduced to no more than 40% by 2030. That means more than 4,000 public housing units will need to be emptied or torn down. At least 430 already have been demolished.
Related: Progressives Are Winning the Immigration Debate — But It Doesn’t Feel Like It and Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals and French Riots Show How Entrenched Inequalities Have Become
The horizontal axis is age, from birth to 85-plus. The vertical axis compares consumption at each age with the average labor income of people ages 30 to 49 in that year. So, for example, people age 40 in 2021 had total consumption of 0.7, which is to say around 70 percent of average labor income for people ages 30 to 49. The last data point in each chart covers all ages 85 and up, not just age 85. (That’s why there’s such a jump in 2021 from age 84.) Here’s why that matters for the economy: When a larger share of resources are in the hands of the elderly — those eager to spend sooner rather than later — the economy’s saving rate, which provides funds for new investment, drops.
Related: The US Capital Glut and Other Myths
It does seem as if employers in the sector have made peace with having fewer workers — and not unreasonable to think that higher minimum wages are playing some role in their calculations. The shock of the pandemic and the accompanying labor shortages allowed for and in many cases required a rethinking of how to do business in a way that the pre-pandemic wage increases did not, and restaurants overall appear to have found a way to do this with less labor. The best measure of this is real output per hour worked, aka labor productivity. After years of little to no growth at full-service restaurants, it rose at a 1.2% annualized rate from 2014 to 2020, then jumped 21% in 2021. It receded a little last year, but most of its gains are still intact.
Related: Detroit Is Paying Up to End the UAW Strike. Now Carmakers Will Live With the Costs and The Unexpected Compression: Competition at Work in the Low Wage Labor Market and Wendy’s, Google Train Next-Generation Order Taker: An AI Chatbot
Chinese factories are replacing Western chemicals, parts, and machine tools with those from home or sourced from developing nations. China’s trade with Southeast Asia surpassed its trade with the U.S. in 2019. China now trades more with Russia than it does with Germany, and soon will be able to say the same about Brazil. German and Japanese automakers like Volkswagen and Toyota now account for about 30% of China’s auto market, down from almost 50% three years ago, as Chinese brands have expanded, according to the China Association of Automobile Manufacturers. U.S. imports from China in mid-2018 accounted for as much as 22% of all its imports. In the 12 months through August, that had shrunk to 14%, according to Census Bureau data, though in dollar terms bilateral trade has grown.
Related: Politics Poses the Biggest Threat to Economic Growth in China and How America Is Failing To Break Up With China
This paper combines administrative tax data and a model of global investment behavior to evaluate the investment and firm valuation effects of the Tax Cuts and Jobs Act (TCJA) of 2017. We have five main findings. First, the TCJA caused domestic investment of firms with the mean tax change to increase by roughly 20% relative to firms experiencing no tax change. Second, the TCJA created large incentives for some U.S. multinationals to increase foreign capital, which rose substantially following the law change. Third, domestic investment also increases in response to foreign incentives, indicating complementarity between domestic and foreign capital in production. Fourth, the general equilibrium long-run effects of the TCJA on the domestic and total capital of U.S. firms are around 6% and 9%, respectively. Finally, in our model, the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2% of baseline corporate revenue, as investment growth causes both higher labor tax revenues from wage growth and offsetting corporate revenue declines from more depreciation deductions. Consequently, the fall in total corporate tax revenue from the tax cut is close to the static effect.
Related: Who Gains from Corporate Tax Cuts? and End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns and Is the Tax Cut Paying For Itself? By a Mile
The IMF expects combined deficits of eurozone governments will fall to 3.4% of GDP this year from 3.6% in 2022, and further to 2.7% in 2024. Those countries that were in crisis a decade ago are expected to have much smaller budget gaps. In Greece, the deficit is forecast to fall to 1.6% of GDP from 2.3% last year, while Portugal’s is expected to fall to 0.2% of GDP from 0.4%. Ireland is forecast to have a budget surplus for the second straight year. Italy and France, among others, continue to have deficits of roughly 5% of GDP.
Related: US Fiscal Alarm Bells Are Drowning Out a Deeper Problem and France Ready to Accelerate Spending Cuts as it Battles Persistent Deficits and Europe's Imbalances in Pandemic and War