Worker pay actually fell in the past two years after accounting for inflation. Inflation-adjusted average hourly earnings—or real earnings—were down 1.7% in December 2022 from a year earlier, following a 2.1% decline in December 2021 [from a year earlier].

Inflation seems to be waning. Is this not a victory lap for "team transitory," the view that inflation is just "supply shocks" that go away on their own? No. A "supply shock" would raise prices temporarily, and then prices would fall back down to normal once the supply shock is over. A supply shock all on its own cannot permanently raise the price level. How is the price level doing? The cumulative inflation has shifted up the price level by something like 10-20%, depending on what you think about the earlier trend.  The fiscal theory or "demand" view says that this price level shock is permanent, or at least until something else comes along; a fiscal retrenchment would be necessary to lower the price level back to where it was.

Traditional core and wage core still suggest inflation running hotter than the Fed’s 2 percent target, but not by all that much. Until mid-2022, inflation just kept getting more widespread, and you had to work ever harder to claim that at some fundamental level it wasn’t that bad. If you want a broader view, Mike Konczal of the Roosevelt Institute has an incredibly cool graphic showing the distribution of price changes across the economy.

The behavior of US inflation during the past 5-10 years has been strikingly similar to the behavior of inflation during the early 1970s. If this continues, inflation should be back on target in mid-2024. Core inflation followed headline inflation during the early 1970s, both when inflation rose and when it fell. Today, headline inflation has been falling for the past six months, while core inflation has not. This is worrying. It indicates that underlying inflationary pressures are more pronounced today than in the early 1970s. If correct, which I think it is, it will be more difficult to get inflation under control than in the early 1970s. Consequently, I believe the Fed should keep interest rates elevated for at least one more year.

The National Bureau of Statistics confirmed on Tuesday that China’s overall population dropped by 850,000 people to 1.4118 billion in 2022, down from 1.4126 billion a year earlier. The national birth rate fell to a record low of 6.77 for every 1,000 people as Chinese mothers had only 9.56 million babies – the nation’s lowest total in modern history and the first time the figure fell below 10 million.

It is also really a long-term problem whose effect will be overwhelmed by the near-term adjustment process. If Beijing succeeds in redistributing income to households in a non-disruptive way, a declining working population can drive more than enough growth in domestic demand. What is more, as direct and indirect wages rise, this will put pressure on China to invest in increasing worker productivity rather than invest in expanding economic activity and the building of railroads to nowhere. On the other hand, if Beijing doesn't redistribute income to households in a non-disruptive way, China will anyway suffer a brutally difficult transition once unsustainable debt levels force it to cut back on non-productive investment.

The graph shows household mortgage debt as a percent of GDP through Q3 2022 (based on the Fed’s Flow of Funds report). The "bubble" is pretty obvious on this graph, and the sharp increase in mortgage debt was one of the warning signs. The blip up in Q2 2020 was related to the collapse in GDP rather than an increase in mortgage debt. The bottom line is there will be an increase in foreclosures over the next year (from record low levels), but there will not be a huge wave of distressed sales as happened following the housing bubble. Most homeowners have significant equity, were well qualified, and have a mortgage with low rates that they can afford. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.

JPMorgan Chase said it might be forced to pay more for deposits this year in what analysts called “a warning shot for the entire industry”. JPMorgan said deposits in the fourth quarter were $2.4T, down 4% from a year earlier. This was the bank’s first year-on-year decline since 2016. Investors and analysts anticipate that banks will eventually have to reward deposit holders with better rates to retain their business and JPMorgan said it expected that would be the case in 2023.

The 12-month median wage change is now back to where it was in the second half of the 1990s—not exactly a period of excessive price increases outside of Beanie Babies and stocks. That could soon be corroborated by the Employment Cost Index (ECI), which Fed officials and others regularly view as the single best indicator of wages. The ECI only comes out once a quarter, and the latest data right now are from 2022Q3. If the Q4 number were to move in line with the most recent hourly earnings numbers and the Atlanta Fed’s median wage change tracker, then the job market would no longer a worrying source of inflationary pressure. This could be noise, but it is looking increasingly likely that inflation may in fact normalize without policymakers having to push the economy into a downturn.

Still, even if a lot of wage and price growth does prove tran­si­tory, that won’t nec­es­sar­ily com­fort the Fed. When of­fi­cials be­gan us­ing the term “tran­si­tory” in March 2021, the un­em­ploy­ment rate was 6% and con­sumers ex­pected about 3% in­fla­tion in the com­ing year. In other words, the main de­ter­mi­nants of un­der­ly­ing in­fla­tion—ag­gre­gate sup­ply and de­mand and ex­pec­ta­tions—jus­ti­fied a san­guine out­look. Not anymore. Un­em­ployment is now 3.5% and con­sumers ex­pect 4.6% in­fla­tion in the com­ing year, ac­cord­ing to the Uni­ver­sity of Mi­chigan. This is why the Fed can’t sig­nal an end to in­ter­est rate in­creases yet and the risk of a re­ces­sion can’t be dis­missed.

The sharp, secular decline in the world real interest rate of the past thirty years suggests that the surge in global demand for financial assets outpaced the growth in their supply. This phenomenon was driven by faster growth in emerging markets, changes in the financial structure of both emerging and advanced economies, and changes in demand and supply of public debt issued by advanced economies. The net foreign liabilities of advanced economies grew massively.  The net foreign assets of advanced economies, as a share of their collective GDP, fell from close to zero at the beginning of the 1990s to about -20 percent in 2020.

Over the last 50 years, the Alps experienced a 5.6% reduction per decade in snow cover duration, which already affects a region where economy and culture revolve, to a large extent, around winter. Here we present evidence from 572 ring-width series extracted from a prostrate shrub (Juniperus communis) growing at high elevation in the Val Ventina, Italy. These ring-width records show that the duration of current snowpack cover is 36 days shorter than the long-term mean, a decline that is unprecedented over the last six centuries.

The consumer-price index, a measurement of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1% in November and well below a 9.1% peak in June. Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Core prices increased at a 3.1% annualized rate in the three months that ended in December, the slowest pace in more than a year.

The broad story continues to be that goods prices have gone from unusually large increases to unusually large decreases. And services prices have slowed a little from their rapid summer pace but continue to grow very quickly. Excluding housing (which is ~40% of core) and used cars, super-core inflation was consistently modest for the last three months at a 1.8% annual rate over this period. That is the lowest since February 2021. Overall, 3 consecutive months of relatively moderate core inflation. And some positive developments yet to happen, like future shelter slowdown. But a bit less moderation than hoped & the job of getting inflation to 2% or even 3% is still not done.

The first step is to throw out any plans that depend on the House firebrands playing ball. They aren’t bluffing. Biden and congressional Democrats need to accept this reality and start working on a deal today. They should acknowledge the more widely shared Republican argument that federal spending has reached problematic levels – a conviction founded at least partly on the American Rescue Plan’s role in sparking inflation – and they should then find some spending that can be cut. In exchange, the debt ceiling should be raised high enough that it will be many years before it can again be used as a weapon. Second, responsible members of Congress must make plans to avoid a default. One idea worth exploring is to use a discharge petition to force a debt-ceiling increase to the floor of the House in the event that McCarthy is unwilling to do so.

In fact, the massive buildout of US LNG export capacity (America became the world’s number one LNG exporter last year) combined with the total collapse in Russian natural gas supplies to Europe has meant that the EU now gets more gas from the US than the Russian Federation. In Euro terms, the EU now actually imports slightly more total energy (including oil, petroleum products, coal, etc.) from the US than Russia. Barring a rapid about-face in Russian energy politics, this gap will likely only continue to grow—American LNG export capacity is expected to increase in 2023, especially as the Freeport LNG facility in Texas recovers from its accident last year, and the EU already banned further imports of Russian crude just over a month ago.

China is moving away from its “three red lines” policy of limiting leverage in the property sector, after its effort to reduce risky lending and real estate speculation helped fuel a wave of defaults and triggered a slump in the property market. Beijing is now easing constraints on developer credit and even rolling out potential loans following a severe downturn that saw housing and land sales collapse, threatening a major pillar of an economy already ailing from coronavirus lockdowns. Officials at multiple state-owned banks said they had effectively shelved the leverage curbs — whose three red lines refer to targets for debt, equity, and assets for individual companies — in their assessment of borrowers. Late last year, state-owned banks announced hundreds of billions of dollars of potential new lending to property developers.

For now, Beijing seems to want to stabilize the property sector and slow the pace of adjustment to reduce financial distress. It is not clear, however, that this is a realistic goal. In a speculative market, it is the expectations of rising prices that generate the demand for more rising prices, and once these expectations are reversed, it is very hard to prevent prices from falling. With real demand expected to fall sharply in the next few years, it will be impossible to wring speculation out of the property market without much lower prices and a significant increase in the spread of financial distress.

The US and Japan have announced they are extending their security alliance to space in a push to defend against attacks on satellites amid growing concern about the threat from China. “We agree that attacks to, from or within space present a clear challenge,” said US secretary of state Antony Blinken after he and US defense secretary Lloyd Austin met their Japanese counterparts in Washington on Wednesday. “We affirm that, depending on the nature of those attacks, this could lead to the invocation of Article 5 of our Japan-US security treaty,” Blinken added, pointing to the section of the treaty stipulating that an attack on either party would prompt the other to “act to meet the common danger.”

Pinning down just how much firms depend on outsiders is tricky—companies do not advertise this sort of thing. A measure, “outsourcing intensity,” [tracks] a firm’s external purchase commitments in the upcoming year as a share of its cost of sales.  The Economist has calculated the measure using data from financial reports for a sample of large listed firms from America and Europe. Average outsourcing intensity across our sample has nearly doubled from 11% in 2005 to 22% in the most recent year of data (either 2021 or 2022). This growth is especially pronounced among tech titans such as Apple and Microsoft; businesses that grew little over the analyzed period, such as Unilever, a British consumer-goods giant, saw only small increases. This is consistent with research which finds that as firms grow ever larger and adopt more technologies, thus becoming more complex and unwieldy, they outsource more operations—precisely as Coase would have predicted.

Figure 2 shows the net departure rates from the state by income tax bracket between 2003 and 2018. Since 2003, only middle-income earners in the 9.3 percent income tax bracket have entered California at higher rates than left during any year over the time period. The top bracket, and the highest earners within the top bracket in particular, display the highest net out-migration rate over the whole period. Higher-income earners who leave the state are not being replaced by other high earners at the same rate. California's top earners are particularly mobile, showing the highest rates of departure around tax policy changes such as Proposition 30 in 2012 and the Tax Cut and Jobs Act (TCJA) of 2017 as well as the COVID-19 pandemic in 2020. Consequently, potential net outflows of taxable income spiked to nearly $4 billion in the year TCJA was implemented and $10.7 billion around COVID-19. High-earning movers have been consistently more likely to leave California for zero-income tax states since 2012, and those who experienced larger tax increases under TCJA were more likely to depart.

The total size of the banking sector was little changed over 2022, but the static surface obscures a boom in lending of epic proportions. Banks changed the composition of their assets by replacing their cash and security holdings with loans to the real economy. Around $1.2T in loans were made in 2022, a level around three times higher than that of recent years. The same explosive growth is also seen in credit unions, which are functionally similar to small banks. Credit union loans outstanding grew $0.23T from 2021Q3 to 2022Q3 (Q4 data not available), a level also there times higher than in recent years. Loan growth was strong across categories and appeared to persist despite rising rates. The huge credit growth in 2022 can be likened to the prior fiscal stimulus, with the exception that the money must one day be repaid. Borrowers have $1.5T more in purchasing power that they did not have before. The need to repay the money may affect their spending decisions and willingness to take on additional debt, but credit cycles can last for years.

The government’s official data for the total number of births in 2022 — expected to be released next week — will probably show a record low of 10 million, according to independent demographer He Yafu. That would be less than the 10.6 million babies born in 2021, which was already the sixth straight year of decline and the lowest since the founding of the People’s Republic of China in 1949. He added that the country likely recorded more deaths last year than the 10.1 million people who died in 2021, in part because of the spread of Covid infections.

The debt ceiling of $31.3 trillion is expected to be hit sometime early in the autumn.  Daniel Clifton of Strategas notes: “McCarthy agreed to allow three House Freedom Caucus members to sit on the Rules Committee and these members are likely going to demand spending cuts, which do not have the support of a majority of House Republicans, let alone Democrats, as a condition of raising the debt ceiling. The importance of this cannot be overstated. Legislation has to go through the Rules Committee to be placed on the floor under regular order in the House. Conservatives have weakened the Speaker and have leverage.”

The global balance of payments has to add up (at least in theory). But it is still surprising how well the surplus of East Asia and main oil exporters lines up with the deficits of the US and a few others -- (excluding the EU makes everything line up better). To make sure I don't completely bury the lede -- the surplus of the Asia + oil block has doubled since 2020 ... so there have to be some offsetting adjustments in the global deficit. The recycling is taking place in rather complex ways, as the big surplus countries aren't just adding to their reserves/ it isn't flowing directly into bonds.

In my sample, I include all publicly traded firms with market capitalizations that exceed zero, traded anywhere in the world. While there are risks in bringing in very small and lightly-traded companies, with shaky data, into the sample, I include them to avoid the biases that will be created in industry averages by looking at just larger publicly traded companies or just US-listed companies. In January 2023, I ended up with 47,913 publicly traded firms in my sample, with the pie chart above providing a geographic breakdown.

This paper examines the impact of Medicaid expansions to parents and childless adults on adult mortality. Specifically, we evaluate the long-run effects of eight state Medicaid expansions from 1994 through 2005 on all-cause, healthcare-amenable, non-healthcare-amenable, and HIV-related mortality rates using state-level data. We utilize the synthetic control method to estimate effects for each treated state separately and the generalized synthetic control method to estimate average effects across all treated states. Using a 5% significance level, we find no evidence that Medicaid expansions affect any of the outcomes in any of the treated states or all of them combined. Moreover, there is no clear pattern in the signs of the estimated treatment effects. These findings imply that evidence that pre-ACA Medicaid expansions to adults saved lives is not as clear as previously suggested.

The weakened ozone layer, which is vital to protecting life on Earth, is on track to be restored to full strength within decades — the latest success of a global effort by nations to stop using chemicals that had been destroying the critical layer in the upper atmosphere. In a report for the United Nations, scientists said Monday that if countries continue to maintain the bans on chlorofluorocarbons and other chemicals, ozone levels between the polar regions should reach pre-1980 levels by 2040. Ozone holes, or regions of greater depletion that appear regularly near the South Pole and, less frequently, near the North Pole, should also recover, by 2045 in the Arctic and about 2066 in Antarctica.

Total weekly wages paid to employees—the number of workers on payroll times the average workweek times average hourly pay—is now rising at a yearly rate of less than 4%. That is a dramatic deceleration from March-September 2022, when aggregate wage income was still rising about 7.5% annualized. If this holds up, even the most persistent components of inflation should quickly come back into line. The number of people quitting rose so much in November—the latest month for which we have data—that the proportion of workers quitting their jobs for better prospects elsewhere rose for the first time since the spring. Until that changes, it is hard for me to imagine (nominal) wage growth slowing down much more than it already has, even if nominal labor income growth has already decelerated sharply thanks to the slowdown in hours worked.

When the income of the children is compared with the inflation-adjusted income of their parents using the real income quintiles of their childhood in 1982-86 rather than the income quintiles of 2013-17, measured mobility is dramatically greater. Only 28% of children reared in the bottom quintile had adult incomes that would put them in the bottom childhood quintile, and 26% rose all the way to the childhood top quintile, which required a minimum income of only $111,416 (in 2016 dollars) for a family of four in 1982-86. A family of four with that income in 2013-17 would have been in the middle quintile based on 2013-17 income distribution.

In recent years, however, the amount of energy that the US exports has actually started to blot out the energy it still imports. Enough so, that the US has finally moved out of its post-war energy deficit, into a small surplus. In other words, from a trade balance perspective, its current account in energy terms is now positive. Here, we examine this trade balance not in dollar terms, but in energy content terms. And as you can see, after running in the red for a long time (certainly longer than is covered in the chart) the US has now moved into the black. Net imports, which used to be positive, are now negative. That’s a powerful position to be in, and we saw an example of this power just this year, when American LNG started making its way to Europe, during Putin’s war of aggression.

Although not everyone in semiconductor manufacturing requires a PhD, pretty much everyone has to be of above-average intelligence, and many will need to be in the top echelons of IQ. At the very top of semiconductor manufacturing, you are going to need workers with IQs at or higher than 1 in a 1000 people and there are only 164,000 of these workers in the United States, and US might be able to place only say 100,000 high-IQ workers in high-IQ professions. It’s very difficult to run a high-IQ civilization of 330 million on just 100,000 high-IQ workers. To some extent, we can economize on high-IQ workers by giving lower-IQ workers smarter tools and drawing on non-human intelligence. But we also need to draw on high-IQ workers throughout the world–which explains why some of the linchpins of our civilization end up in places like Eindhoven or Taiwan.

The US and Japanese armed forces are rapidly integrating their command structure and scaling up combined operations as Washington and its Asian allies prepare for a possible conflict with China. The two militaries have “seen exponential increases . . . just over the last year” in their operations on the territory they would have to defend in case of a war, Lieutenant General James Bierman, commanding general of Marine Forces Japan, told the Financial Times in an interview. “Why have we achieved the level of success we’ve achieved in Ukraine? A big part of that has been because after Russian aggression in 2014 and 2015, we earnestly got after preparing for future conflict: training for the Ukrainians, pre-positioning of supplies, identification of sites from which we could operate support, sustain operations,” he said. “We call that setting the theatre. And we are setting the theatre in Japan, in the Philippines, in other locations.”

Commodities strategists at TD Securities are on the case, speculating in a note published on Monday that the gold whale could be the Chinese official sector. “Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets. What is less clear is what has driven these massive purchases.” While TD might be able to trace buying to China, it’s not entirely clear to them what’s driving those purchases. Here, the strategists theorize about a number of possibilities stretching from extra demand stemming from recent reopening measures as well as restocking ahead of China’s Lunar New Year. But there’s also the possibility that China is purchasing gold for strategic, rather than strictly economic factors.

Across fields, we find that science and technology are becoming less disruptive. Figure 2 plots the average CD5 [an index that characterizes how papers and patents change networks of citations in science and technology] over time for papers (Fig. 2a) and patents (Fig. 2b). For papers, the decrease between 1945 and 2010 ranges from 91.9% (where the average CD5 dropped from 0.52 in 1945 to 0.04 in 2010 for ‘social sciences’) to 100% (where the average CD5 decreased from 0.36 in 1945 to 0 in 2010 for ‘physical sciences’); for patents, the decrease between 1980 and 2010 ranges from 78.7% (where the average CD5 decreased from 0.30 in 1980 to 0.06 in 2010 for ‘computers and communications’) to 91.5% (where the average CD5 decreased from 0.38 in 1980 to 0.03 in 2010 for ‘drugs and medical’). For both papers and patents, the rates of decline are greatest in the earlier parts of the time series, and for patents, they appear to begin stabilizing between the years 2000 and 2005. For papers, since about 1980, the rate of decline has been more modest in ‘life sciences and biomedicine’ and physical sciences, and most marked and persistent in social sciences and ‘technology’.

The negative impact of the Great Recession on aggregate hours worked and the ensuing slow recovery through 2019 materialized almost exclusively along the extensive margin. However, of the 3% decline in annual hours worked per person (including those who do not work) between 2019 and 2022, more than half is accounted for by the intensive margin. That is, focusing only on the extensive margin (lower employment and participation rates) will underestimate the total decline in labor supply by more than half. The most striking fact is the lower participation of young male cohorts without a bachelor's degree, whose participation rate is up to 7pp below that of older cohorts at the same age. The Great Recession seems to be casting a very long shadow, even on those who were in their teens when it happened.

Nonfarm payrolls increased 223,000 in December, capping a near-record year for job growth, a Labor Department report showed Friday. The advance followed a 256,000 gain in November. Average hourly earnings rose 0.3% from a month earlier and 4.6% from December 2021 after November’s previously eye-popping gain was revised lower. The unemployment rate decreased by 0.1 percentage point to 3.5%, matching a five-decade low, as participation inched higher. The labor force participation rate — the share of the population that is working or looking for work — ticked up to 62.3%, and the rate for workers ages 25-54 rose.

The CPI inflation rate over the past 12 months has been an alarming 7.1%. But the U.S. economy got there by averaging an appalling 10.6% annualized inflation rate over the first seven months and a mere 2.5% over the last five. The PCE price index tells a similar story, though a somewhat less dramatic one. The 5.5% inflation rate over the past 12 months came from a 7.8% rate over the first seven months followed by a 2.4% rate over the last five. If you concentrate instead on “core” inflation, which excludes food and energy prices, annual inflation over the past five months has run higher: a 4.7% annual rate for the CPI and 3.7% for the PCE. So the Fed’s fight against inflation isn’t over.

[The above chart] plots the change in the smoothed jobless unemployment rate (first derivative) on the horizontal axis and the change in the change (second derivative) on the vertical axis. Recession months are depicted as red dots and expansion months as green dots. This predictor is almost as accurate as the slope of the yield curve but is more accurate at shorter horizons. The jobless rate does not currently signal an impending recession, nor do other macroeconomic time series analyzed using the same methodology. In general, however, examining these series suggests that the business cycle is at a maturing stage when expansions typically come to an end.

The Global Supply Chain Pressure Index peaked at 4.3 standard deviations above its historical mean at the end of 2021, after which it declined substantially. The initial period of decline saw it drop to 2.8 by March 2022, after which it temporarily increased in April, primarily due to pandemic lockdowns in China and the Russia-Ukraine war. The GSCPI then experienced five consecutive months of declines, reaching a low of 0.9 in September. However, the past three months have witnessed a pause in the reversion to the historical average, with the index increasing by a total of 0.29 points in October and November before declining by 0.05 points last month, leaving the total three-month increase at about a quarter point. We can partly attribute the recent slowdown of the GSCPI’s return to its historical average to worsening supply conditions in China, which have also spilled over into its neighboring trade partners.

A change in the underlying plumbing of the financial system is making it unlikely that QT can run its expected 2+ year course. An ideal QT would drain liquidity in the overall financial system while keeping liquidity in the banking sector above a minimum threshold. The marginal buyer of short-dated Treasuries over 2022 Q3 appears to surprisingly be U.S. households. Federal Reserve data show that household purchases of Treasuries surged to record levels on a seasonally adjusted annual basis as [money market funds] notably shrank their holdings. Households appear to have replaced money market funds as the marginal buyer of bills and are funding their purchases out of funds held in the banking sector.

From March 2020 to August 2021, consumers amassed a peak $2.1 trillion in excess savings relative to the pre-pandemic trend. Since August 2021, consumers have drawn down on these excess savings. Household debt payments were 9.8% of disposable personal income in Q4 ’22 vs. a peak of 13.2% in Q4 of ’04.

The figure above plots the estimated average change in net worth per head of household age category during 2022. People between the ages of 55 and 74 lost, on average, over $100,000 in net worth due to falling asset returns between January and October 2022. This partly reverses some of the net worth gains in 2020-21, which were particularly high for these age groups. This is explained by the high exposure (in absolute terms) of people in these age groups to asset classes such as stocks and bonds, which performed reasonably well in 2020-21 but posted significant negative returns during 2022. Focusing on only people between the ages of 51 and 65, whose decision to participate in the labor force tends to be more sensitive to wealth effects, we find that the decline in asset values may have caused an extra 170,000 people to return to the labor force. This corresponds to an increase in the LFP rate of 0.06 percentage points, or about 16% of the total increase observed through October 2022.

We find evidence of a decline in the size of the persistent component of core PCE inflation starting in September 2022. The decline follows a long period of high and essentially constant inflation persistence. Dissecting the layers of aggregate inflation provides further insights: core goods and core services ex-housing have been moderating since early 2022, reflecting the evolution of the common component, while housing has continued to move up, driven by its own sector-specific trend. The chart below shows a sectoral decomposition of the increase in inflation from its pre-pandemic average. The chart shows that the persistent component of housing represents a fair amount of the overall increase in trend, comparable to the contribution of core goods and core services ex-housing.

Computer security experts were struggling this week to assess a startling claim by Chinese researchers that they have found a way to break the [RSA algorithm,] the most common form of online encryption, using the current generation of quantum computers, years before the technology was expected to pose a threat. Peter Shor, the Massachusetts Institute of Technology scientist whose 1994 algorithm proving that a quantum machine could defeat online encryption, noted that the Chinese researchers had “failed to address how fast the algorithm will run”, and said that it was possible it “will still take millions of years”. He said: “In the absence of any analysis showing that it will be faster, I suspect that the most likely scenario is that it’s not much of an improvement.”

About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame. Nearly four in ten previously laid-off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey.

After last year’s selloff, we’re much closer to the end of the young unprofitable companies/mega-valued unprofitable companies repricing than the beginning. By the time Peloton is priced at 1x sales rather than its peak level of 19x sales at the end of 2020, it’s time to start thinking about whether unprofitable companies can become profitable or not. Many unprofitable companies are in that position since the market did not require them to be profitable. The aftermath of the 2000-2002 dot-com crash is interesting in this regard: The chart above shows the performance of tech companies from 2000 to 2004 based on their initial and subsequent profitability.  Companies that remained unprofitable continued to languish. However, unprofitable companies that became profitable by 2004 rallied sharply, catching up to companies that had been profitable all along. This incorporates the benefit of perfect hindsight; still, it does indicate that for stock pickers that sift through the wreckage to try and identify survivors, there may be attractive opportunities. The size of ["unprofitable in 2000" cohort that became profitable by 2004] was roughly 50% of the “unprofitable in 2000” universe.

Employees of embattled tech groups are flooding secondary markets — where stakeholders in a private company sell shares to third parties — as the industry’s former darlings such as Klarna and Stripe have been forced into aggressive cost-cutting measures, according to brokers and investors. For many workers who have lost their jobs, their shares vest within 60 days, forcing them to sell during the worst downturn in a decade. Some companies are offering an extension on this timeframe, according to brokers, although some sellers want to get out of their holdings over fears the market rout will get worse next year. However, trading in many of these companies showed a return to, or an improvement on, pre-pandemic prices, following a significant jump in valuations during a VC fundraising boom in 2021.

Roughly 70 special-purpose acquisition companies have liquidated and returned money to investors since the start of December. That is more than the total number of SPAC liquidations in the market’s history, according to data provider SPAC Research. SPAC creators have lost more than $600 million on liquidations this month and more than $1.1 billion this year, the data show. There are still nearly 400 SPACs together holding about $100 billion that have yet to find deals, according to SPAC Research. There are another roughly 150 SPACs holding about $25 billion that have reached merger agreements but haven’t closed them.

The blue dots in the figure show three “normal” subperiods, in which [annualized PCE] inflation was between 1% to 3% and real consumption growth was about 2% to 3%. There is also a positive relationship between consumption growth and inflation. The red dots show two high inflation subperiods, from April 2021 to February 2022 and from March to July 2022. Although inflation was very high (about 6%) in both periods, consumption growth was average. This suggests the high inflation was because of something other than growing demand. In that case, inflation during these periods may be associated with supply disruptions, or other components of demand (e.g., government consumption), rather than high real consumption growth. Since March 2022, the Federal Reserve has raised interest rates, so the second period highlighted in red also corresponds to a period of tightening monetary policy. From March to July 2022, inflation continued at 6%, and consumption growth was slightly higher than in the previous months. This pattern suggests that monetary policy, at least during those months, didn’t yet reduce consumption growth. The last four months are depicted with green dots [with seasonally-adjusted monthly PCE and real consumption growth rates annualized.] Two patterns are clear. First, inflation is significantly lower in the four months and is now close to 1%. Second, real consumption growth was very high during August and October but finally decreased to an annual rate of just over 0% in November. Thus, only the data corresponding to November suggests that the monetary mechanism described above may be working.

American manufacturing firms are also citing materials and labor shortages as major constraints to production at the highest levels in decades. Everywhere you look, supply chains seem to be in disarray—and demand seems to be off the charts.

For the first time in nearly a decade, the two largest players in online advertising are no longer raking in the majority of U.S. digital-ad dollars, a decline that industry insiders expect to continue in years to come. Alphabet Inc.’s; Google and Facebook parent Meta Platforms Inc. accounted for a combined 48.4% of U.S. digital-ad spending in 2022, according to estimates from research firm Insider Intelligence Inc. Their combined U.S. market share hadn’t been under 50% since 2014, said Insider Intelligence, which expects that number to drop to 44.9% this year.

John Fetterman bettered Biden’s margin across almost the entire state on his way to defeating Republican Mehmet Oz by about 5 percentage points, his largest improvements over Biden tended to be in red-leaning counties with higher shares of white residents without a college degree. In counties with a population that’s at least 60 percent white without a college degree — which together produced about 36 percent of the state’s 2022 vote — Fetterman’s margin was 7 points better than Biden’s, on average, compared with just 3 points better elsewhere.

Republicans won the national House popular vote by three percentage points — 51 percent to 48 percent. They still won by two points after adjusting for races in which only one major party was on the ballot. Republican candidates won the most votes for U.S. House in all four of the crucial Senate states where Republicans fell short: Pennsylvania, Arizona, Georgia, and Nevada. The “MAGA” Republicans — as characterized by The Cook Political Report, based on their backing from Mr. Trump in the primaries — ran far behind the mainstream Republicans.

For first time in four decades, wage inequality falling, due to rising lower tail. Despite inflation, real wages rising among young HS grads, 1st quartile workers. It’s tempting to attribute this change to ‘tight’ labor markets—but what does this mean in practice? The simplest explanation is that labor markets are operating on a higher point on the labor demand curve. Evidence indicates this explanation too simple: Competition has intensified. Distinction is critical: Rising competition means higher wages that better reflect productivity and higher aggregate productivity — a double dividend.

In the decades before the pandemic, the wages of lower-paid, less skilled hourly employees steadily lost ground to those of skilled workers, college graduates, managers, and professionals. In the two years since, those trends have sharply reversed. We don’t know if this narrowing in inequality will last. Perhaps it is a function of labor shortages that, like semiconductor shortages, will disappear as the pandemic recedes. Maybe it is the result of a tight labor market whose days are numbered as the Federal Reserve seeks to cool the economy. Some of this was catalyzed by the pandemic, which shrank the supply of people willing to do traditionally low-paid work. Many dropped out of the labor force, retired, or died from Covid-19. The college-educated labor force was 5% larger last month than in February 2020; the high school-educated and high school dropout labor force is 4% smaller. (Data between the two periods isn’t strictly comparable.)

Another big winner in the U.S.-China trade war could be Mexico. It has lower wages than China, an established manufacturing sector anchored by the automotive industry, and the perfect geographic position for serving the U.S. market—particularly since the rise of videoconferencing, which has increased the importance of being in the same time zone. Analysts at Bank of America already see some evidence that this is happening, with U.S. imports of Mexican manufactured goods roughly 60% higher than before the pandemic as of October. Interestingly, Mexico has gained share of U.S. imports in some low-tech industrial sectors such as plastics and textiles, while China has lost share.

There is a stronger economic reason for Washington to encourage switching production from countries with large-persistent trade surpluses to countries, like Mexico, with balanced trade, or even trade deficits. Because wages and household income comprise a higher share of Mexican output, when an American business shifts production to Mexico, this will likely increase US imports from Mexico. This is not what happens when a US business relocates to a trade surplus country. In that case, because their workers receive a much lower share of what they produce, and their businesses a higher share, part of the country's export revenues are converted into savings.

By my calculations, members of Britain’s “silent generation”, born between 1928 and 1945, were five percentage points less conservative than the national average at age 35, but around five points more conservative by age 70. The “baby boomer” generation traced the same path, and “Gen X”, born between 1965 and 1980, are now following suit. Millennials — born between 1981 and 1996 — started out on the same trajectory, but then something changed. The most likely explanation is a cohort effect — that millennials have developed different values to previous generations.  This is borne out by US survey data showing that, having reached political maturity in the aftermath of the global financial crisis, millennials are tacking much further to the left on economics than previous generations did, favoring greater redistribution from rich to poor.

Millennials are roughly equal in wealth per capita to Baby Boomers and Gen X at the same age. Gen X is currently much wealthier than Boomers were at the same age: about $100,000 per capita or 18% greater. Wealth has declined significantly in 2022, but the hasn’t affected Millennials very much since they have very little wealth in the stock market (real estate is by far their largest wealth category.)

There is clear evidence that more people are drinking too much. Deaths from alcohol-induced causes rose from 39,043 in 2019 to 54,258 in 2021, according to the Centers for Disease Control and Prevention, and the population-adjusted death rate is now more than double what it was in the 2000s. Provisional data also show an encouraging decline in alcohol-induced deaths in the first half of 2022, although that trend could change as final numbers become available. Even after the big increases of the past couple of years, US alcohol consumption likely still lags that of many affluent countries, especially in Europe. And yes, Americans drank lots more back in the 1970s — not to mention the 1830s, when estimated per-capita consumption was nearly three times what it was in 2020.

Since January 2021, the Biden Administration has enacted policies through legislation and executive actions that will add more than $4.8 trillion to budget deficits between 2021 and 2031. The $4.8 trillion is the net result of roughly $4.6 trillion of new spending, about $500 billion of tax cuts and tax breaks, and $700 billion of additional interest costs that are partially offset by $400 billion of spending cuts and $600 billion of revenue increases.

Why has work collapsed in the bottom decile? Here we might have a big debate. $11.76 per hour (2017) isn't a lot. But the previous graphs certainly contain a suggestion worth pursuing: The effective marginal tax rate in the lowest three quintiles is effectively 100%. Earn a dollar and lose a dollar of benefits. Why work? Gramm Ekelund and Early are careful, and don't make any causal assertions here. They don't really even stress the fact popping from the table as much as I have. But the fact is a fact, a nearly 100% tax rate + an income effect isn't a positive for labor supply, and the amount of work in lower quintiles has plummeted.  This is a book about facing facts and this one is undeniable.

According to World Health Organization estimates, life expectancy in 2019 for 15-year-old Russian males was essentially indistinguishable from 15-year-old males in Haiti. This is not a typo. The estimate for both Haiti and Russia was 53.7 years. That teenage Russian male stood worse survival chances in Russia than in 23 of the 46 countries the United Nations categorizes as “least developed” — among them Mali, Yemen, and even war-decimated Afghanistan. Projecting from 2019 survival trajectories, over one in four 20-year-old males will die before their 60th birthday. The corresponding risk in Europe is only half that high — and those European aggregates, remember, are distorted by including Russia in them.

Bank of Japan Governor Haruhiko Kuroda shocked markets by doubling a cap on 10-year yields, sparking a jump in the yen and a slide in government bonds in a move that helps pave the way for possible policy normalization under a new governor. The BOJ will now allow Japan’s 10-year bond yields to rise to around 0.5%, up from the previous limit of 0.25%, while keeping both short- and long-term interest rates unchanged, according to a policy statement Tuesday. “Whatever the BOJ calls this, it is a step toward an exit,” said Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official. “This opens a door for a possible rate hike in 2023 under a new governorship.”

The move puts the yen’s role as a cheap funding currency in doubt and potentially sets in motion a mass reshuffling of global capital. With higher rates now on offer from Japanese government bonds, there’s a chance that money is pulled from foreign investments and plowed into domestic ones. That could potentially add to worries over who will be buying US government debt in the midst of higher inflation, new regulatory requirements for big investors, and perhaps new competition from Japanese government bonds.

A sharp decline in venture capital dealmaking, alongside a closed market for initial public offerings, has resulted in a funding crunch for many private technology companies over the past year. Company founders have entered into debt-focused deals such as bridge loans, structured equity, convertible notes, participating bonds and generous liquidation preferences. These moves are designed to avoid a dreaded “down round” — accepting funding at a far lower valuation than a company had previously secured. New VC deals fell 42% in the first 11 months of this year to $286bn, compared to the same period last year, according to investment data company Preqin. Silicon Valley law firm Cooley said the total value of late-stage VC deals it advised on had slumped almost 80% this year.

Researchers at the BLS and Cleveland Fed released a data series today that might be the single most important new inflation indicator. The New Tenant Repeat Rent Index uses the same microdata that goes into the official Consumer Price Index to select only samples with rental turnover and to assign price shifts to when they happened, not when the units were surveyed. The New Tenant Repeat Rent Index, therefore, leads official inflation data in the CPI by 1 year. The good news is that the New Tenant Repeat Rent Index suggests that the worst of housing inflation is likely behind us, and price decelerations should pass through to official inflation data soon. Critically, New Tenant Repeat Rent index also shows lower overall price growth than private data.

Apple plans to move some MacBook production to Vietnam for the first time next year as the U.S. tech group continues diversifying its production base away from China amid escalating tech tensions between Washington and Beijing. Apple has tapped its top supplier, Taiwan's Foxconn, to start making MacBooks in the Southeast Asian nation as early as around May, sources briefed on the matter said. Apple has been working to add production sites outside of China for all of its major product lines, but doing so for the final one, the MacBook has taken longer due to the complex supply chain needed for making laptop computers. "After the MacBook production shifts, all of Apple's flagship products basically will have one more production location beyond China ... iPhones in India and MacBooks, the Apple Watch and iPads in Vietnam," one person with direct knowledge of the matter told Nikkei Asia. "What Apple wants now is an 'out of China' option for at least part of production for all of its products."

We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators.

Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life.

On a per-person basis, Britain’s economy has grown by 7% in real terms since 2007. That is just ahead of Canada and France, both at 6%, but behind America, Australia, and Germany, which sit at 13-16%. Unfortunately, much of Britain’s meager growth has come not from working more efficiently but rather from working more. Over the past 15 years, British labor productivity has climbed by just 4%, slightly behind France’s 6% and far worse than the other countries’ double-digit gains.

The NHS is in poor shape. It has 6.8m people on waiting lists, up from 4.2m before the pandemic. EU countries in the OECD, a club of mostly rich countries, have an average of 3.7 doctors per 1,000 people (Austria has 5.4). Britain has 2.9.

When we look at the series for employed and non-employed (unemployed or out of the labor force) respondents separately, as in the chart below, we observe that the average reservation wage has been increasing for both groups since late 2017, but more so since the onset of the pandemic. In addition, the chart displays the increase since the onset of the pandemic (since March 2020) to be more pronounced for employed respondents. Specifically, while the average reservation wage increased by 19.4% between March 2020 and November 2022 for employed respondents, it increased by around 12 percent for non-employed respondents in the same time period. Among the employed respondents, we observe the highest rise in this time period for those without a college degree (a 27% increase).

As this chart shows, there is a big difference between what the market and the Fed thinks. And this divergence will define the first part of 2023 trading. What does the Fed see causing the funds rate to stay at 5.125% next year? Start with the labor market. The simple truth is the jobs market is NOT weakening. And the Fed is not changing unless it shows UNMISTAKABLE signs of weakening.

We do, however, have some direct evidence on inflation expectations. For example, here are the results of an ongoing survey by the New York Fed. People do expect elevated inflation over the next year, probably because they’re extrapolating from elevated gas prices earlier this year. But medium-term inflation expectations are quite low. There’s just no sign of inflation getting entrenched.

There does seem to be a connection between the acceleration in wage growth over the past year or so and the acceleration in the inflation rate of services other than housing, electricity, and gas. One could reasonably quibble that “services excluding housing and energy services” is 32% health care prices charged by providers to insurers (including Medicare and Medicaid), 13% imputed financial and insurance services, plus 9% “social assistance” (excluding child care) and non-profits. None of those prices are necessarily linked to wages. But these problematic categories do not explain why inflation has accelerated. In fact, excluding those categories, along with other non-market PCE, makes core services inflation looks substantially worse, as can be seen in the difference between the green line and the orange line in the chart above.

The single biggest factor in the 2023 outlook is how firms will respond to a likely reduction in demand. Will businesses announce substantial layoffs, as usual? Or will the difficulties in finding and retaining qualified workers lead them to sacrifice short-run profits to keep people on the payroll? (Many have already been laid off in the tech sector, but that is because those companies binge-hired in 2020 and 2021.)

Scientists are getting older. Above is the share of employed US PhD scientists and engineers in three different age ranges: early career (under 40), mid-career (ages 40-55), and late career (ages 55-75). The figure covers the 26 years from 1993-2019. Over this period, the share of mid-career scientists fell from about half to just under 40%. Most (but not all) of that decline has been offset by an increase in the share of late career scientists. And within the late career group, the share older than 65 has more than doubled to 27% over this time period. Yu and coauthors still find a sharp fall off in both productivity and citations to top papers after 25 years of career experience. For a scientist who first published at the age of 25, that’s 50 years old. The share of scientists who fall into this “late career” demographic has been on the rise.

Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year, while Vietnam’s rose to 2.7%, according to Census Bureau data. The numbers reflect trends that both predate the pandemic and were accelerated by it. China’s share of US goods trade, which stood at 13.2% in October, has been edging down since it peaked on a full-year basis at 16.4% in 2017.

Germany has opened its floating liquefied natural gas terminal in the North Sea port of Wilhelmshaven, marking a crucial milestone in its quest for energy independence from Russia. Since the start of the year, the government contracted five floating storage and regasification unit, each with a capacity of 5bn cubic meters a year of gas. It also pushed through the construction of new permanent LNG import terminals, one of which will be built in Wilhelmshaven. Germany would soon have an LNG import capacity of 30B cubic meters per year on its northern coasts. “That is equivalent to more than half of the entire volume of pipeline gas that flowed to Germany from Russia last year,” Olaf Scholz, the chancellor, said.

The most important thing to know about the US data on foreign holdings of US Treasury securities is that the US doesn't really know who holds US Treasuries. US Treasury holders, in rank order, Japan, China, the UK, Belgium, the Caymans, Luxembourg, Switzerland, and Ireland Only Japan and China (and, to a degree Switzerland) are real holders; the rest are financial and custodial centers. The second most important thing to know -- apart from the continued (apparent) purchases of Treasuries from private investors abroad (even if the buyers are the Caymans and the UK in the transactional data) -- is that China isn't selling. It is, in fact, rather remarkable that after adjusting for the Belgian holdings (a euroclear account used by the PBOC it seems), China's visible holdings of US bonds have stayed constant for the last 5ys (at ~ $1.6 trillion).

Liquefaction capacity has been below fleet capacity for the past 18 years or so, with a growing gap that is projected to widen through 2027. These patterns suggest that liquefaction will likely be an important bottleneck for the future growth of LNG trade. Figure 3 shows that, after Russia's invasion of Ukraine, there have been increased investments in LNG fleets (new orders in Panel A) and LNG liquefaction terminals (number of terminals expected to be completed in Panel B).

Public filings to Norway’s population registry show that at least 30 billionaires and millionaires swapped the prosperous Scandinavian nation for the lower-tax Alpine jurisdiction in 2022. The group of rich Norwegians who left for Switzerland this year had a combined fortune of NKr29B [$3B] and paid NKr550M in tax [$550M], according to the country’s open-access annual tax returns. The 2022 exodus is greater than in the previous 13 years combined, newspaper Dagens Naeringsliv calculated. At the heart of the debate is Norway’s wealth tax which is levied on all net fortunes greater than NKr1.7M ($173,000) at a rate of 1.1 per cent for the richest. Switzerland also has a wealth tax but offers deals for foreigners.

Over the next five years, Tokyo plans to spend ¥43tn ($313bn) to strengthen its defense capabilities, bringing military expenditure to roughly 2% of its current gross domestic product.  The budget includes ¥5tn to buy Tomahawk cruise missiles from the US, expand the range of its domestic surface-to-ship cruise missiles and develop hypersonic weapons, according to the medium-term Defence program. Another ¥3tn will be spent on enhancing integrated air and missile defense capabilities, including a radar upgrade for the Patriot missile system to counter hypersonic weapons. The largest portion of the military spending, ¥15tn, will be designated to strengthening the SDF’s basic needs, including ammunition stockpiles and fuel tanks, reflecting concerns that Japan’s armed forces will not have the capability to persevere in a prolonged conflict such as one over Taiwan.

First, remittances are a one-way street. If the Fed has positive earnings, it remits the earnings to the Treasury. But if the Fed incurs losses, the Treasury isn’t required to cut a check to the Fed to cover those losses. Instead, the Fed “prints” the difference. It simply pays the excess interest expense with newly created dollars, in the same way that it prints dollars to buy bonds in QE. The Fed keeps track of its cumulative losses, and when the Fed starts earning money again in the future, it will first go to recoup those losses before remittances to the Treasury resume. In other words, the positive balances shown in the graph above are in-period (since earnings are constantly swept to the Treasury), while the losses over the past several months are cumulative, since they accrue over time.

The historical narrowness of the incoming GOP majority becomes clear when comparing this cycle to previous elections over the past decade. House Republicans won the majority by 6,670 votes, or 0.006 percent of the nationwide popular vote. Had Democrats won an additional 6,671 votes across five districts, they would have maintained their majority. In 2020, Democrats won 222 seats. But their majority rested on the 34,734-vote combined margin of victory in their five closest victories. Those decisive votes were just 0.023 percent of the 152,576,055 ballots cast nationwide.

A simple ratio known as Q provides an easy and intuitive way to understand if scientists are making progress: It’s energy released divided by energy used. A Q below one means the reaction consumed more energy than it produced. A Q above one means more energy was produced than consumed. In this latest experiment, scientists put in 2.05 megajoules of energy and got 3.15 megajoules out. Q was 3.15 divided by 2.05, or about 1.5. To generate 3.15 megajoules of energy, the lab consumed about 300 megajoules of energy to fire its laser. The Q value for the entire reactor is about 0.01—roughly 1% of break-even. “If you gain a factor of 10 on the fusion and 10 on the efficiency, that gives you a factor of 100 roughly,” said Jonathan Menard, chief research officer at Princeton Plasma Physics Laboratory. “That would be in the ballpark of break-even. Both of those are theoretically possible.” With government support that could take one to two decades, he said.

Median household income from market activities – labor, business, and capital income, as well as retirement income from past services – was not stagnant from 1990 to 2019. Instead, after adjusting for inflation, it grew by 26%. This is in line with wage growth. By my calculations using Bureau of Labor Statistics (BLS) data, inflation-adjusted average wages for nonsupervisory workers grew by around one-third over this period. After factoring in social insurance benefits (from Social Security and unemployment insurance, for example), government safety-net benefits (such as food stamps), and federal taxes, the CBO finds that median household income increased by 55% from 1990 to 2019, which is significantly faster than wage growth and certainly not stagnate. The bottom 20% of households enjoyed even greater gains, with market income growth of 51% and after-tax-and-transfer income growth of 74%.

While nominal levels of growth might be slowing, inflation-adjusted growth is rising as the economy slowly gets back to normal from the many disruptions that wreaked havoc during the pandemic. So even though the labor market is softer, worker fortunes are looking brighter. We normally think about real economic growth as a function of employment growth and productivity growth. What we’re now experiencing — supply chains healing, companies’ labor needs easing, and workers reaping the benefits of lower prices with a boost to their inflation-adjusted wages — could be called productivity growth.

The US has placed three dozen Chinese companies on a trade blacklist, in another escalation of its effort to slow China’s development of advanced chips and technologies for military uses such as hypersonic weapons. The commerce department put 36 Chinese groups on the “entity list”, a move that means American companies will require extremely hard-to-obtain licenses to export critical technologies to those customers in China.

About four-in-ten U.S. adults (41%) have experienced high levels of psychological distress at least once since the early stages of the coronavirus outbreak, according to a new Pew Research Center analysis that examines survey responses from the same Americans over time. Experiences of high psychological distress are especially widespread among young adults. A 58% majority of those ages 18 to 29 have experienced high levels of psychological distress at least once across four Center surveys conducted between March 2020 and September 2022.

The November CPI is in, and inflation continues to moderate despite interest rates that, while rising, are still below current inflation. In the conventional "adaptive expectations" view, inflation is unstable unless the Fed moves interest rates quickly, and inflation will spiral away unless interest rates rise above the current rate of inflation. In the more radical "rational expectations" view, inflation is stable and will eventually go away on its own even if the Fed does nothing. (So long as fiscal policy doesn't add fuel to the fire. Also, it allows for more dynamics; inflation can go up before coming back, and the long run can take a long time.)

Total CPI inflation does not look that different from CPI inflation, excluding food, energy, shelter (which weirdly includes hotels and dorms in addition to housing), and used vehicles. In both cases, the near-term picture is that prices are rising around 4-5%, which is substantially slower than in the first half of 2022 but still faster than before the pandemic. The basic problem is that the prices of services other than energy and shelter are still rising relatively quickly.

There is a widespread labor shortage, as evidenced by the “Help Wanted” signs everywhere, yet there are also falling after-inflation wages. We economists cannot fully explain these circumstances. But they may suggest that employers simply are not willing to agree to higher wages, perhaps due to business uncertainty. And if a labor shortage won’t push them to increase real wages, perhaps a higher rate of inflation won’t either. In short, one of the main effects of a permanently higher inflation target may be lower real wages. A lot of workers may not be too happy with their situation. There remains a risk that these workers, in lieu of bargaining for higher wages, will quit the labor force entirely, or perhaps just further disengage from their jobs.

I use, as a marriageability threshold, the 25th percentile of pretax earnings among married fathers aged 25–29 who were sole breadwinners. The other choice involves what year to use as a reference point for “the past.” [The available data] is poorly suited for [estimating the tax burdens of young male sole breadwinners] before 1979. For that reason, I use 1979 as my reference point. Rather than [the share of single men earning pretax incomes less than the 25^th percentile of married men] falling from 72% to 57%  from 1969 to 2019, marriageability [only] falls … from 63% to 58% [from 1979 to 2019].

President Joe Biden announced a $36 billion bailout for the Central States Pension Fund, one of the nation’s biggest multi-employer plans, touting the help for union workers and retirees as he looks to mend ties with organized labor after a contentious rail deal. Biden said the aid would help 350,000 union workers and retirees, who would have faced benefit cuts estimated at 60% over the next few years. The Central States bailout would help 40,000 workers and retirees in Michigan, 40,000 in Ohio and 22,000 in Wisconsin.

We've gone from the low-return world of 2009-21 to a full-return world, and it may become more so in the near term.  Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Here's one example: In the low-return world of just one year ago, high-yield bonds offered yields of 4-5%. A lot of issuances was at yields in the 3s, and at least one new bond came to the market with a "handle" of 2. Today these securities yield roughly 8%.

The reaction produced about 3.15 megajoules of energy, which was about 150 percent of the 2.05MJ of energy in the lasers. Does this mean they have cracked fusion power? No. Achieving energy gain has been seen for decades as a crucial step in proving that commercial fusion power stations are possible. However, there are still several hurdles to overcome. First, energy gain in this context only compares the energy out to the energy in the lasers, not to the total amount of energy pulled off the grid to power the system. In fact, each shot requires 330MJ of electrical energy, delivered in a 400-microsecond burst. Scientists estimate that commercial fusion will require fusion reactions that generate between 30 and 100 times the energy going in.

Researchers in China claim to have produced hydrogen by splitting seawater without the need to desalinate or purify it first.  Heping Xie at Shenzhen University and Zongping Shao at Nanjing Tech kept the electrolyser separate from the seawater with a waterproof, breathable membrane. A bit like a sieve, the membrane keeps anything other than pure water vapor from entering the electrolyser. As the water vapor is drawn in and converted to hydrogen, more is pulled in from the seawater to take its place. It is, they reported recently in the journal Nature, a self-sustaining system. The scientists installed a prototype in China’s Shenzhen Bay and produced more than 1mn liters of hydrogen over 133 days without any reported deterioration.

Excluding food and energy, the consumer price index rose 0.2% in November and was up 6% from a year earlier, according to a Labor Department report Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure. The overall CPI increased 0.1% from the prior month and was up 7.1% from a year earlier, as lower energy prices helped offset rising food costs. The median estimates in a Bloomberg survey of economists called for 0.3% monthly increases in both the core and overall measures.

Terrific CPI report. This is my own concept that swaps in spot rents for all rents using the private measures from Apartment List and Zillow. This is NOT a good measure of the cost of living but may be a better way to think about where inflation is going. Overall lowest core since what turned out to be the false dawn in the summer of 2021. I feel better about it now because of what we’re seeing with commodity prices, supply chains, inventories, and housing. Some of this good news is probably transitory. But still a lot of good news.

This graph shows the year-over-year change in Core CPI ex-Shelter (blue) and the one-month change annualized (red). The year-over-year change was at 5.2% in November, down from 5.9% in October. And the annualized one-month change was negative in both October and November! Core CPI ex-shelter fell at a 1.5% annual rate in November. My view is inflation will ease quicker than the Fed currently expects, and a pause in rate hikes should be considered.

While total public and private debt hit a record $235 trillion last year, it plummeted when expressed as a percentage of economic output, which rebounded last year after the steep Covid-19 recession of 2020. Total debt fell to 247% of global gross domestic product last year, IMF data showed. That’s 10 percentage points less than in 2020 but is still the second-highest reading in history.

U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.

China is working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, three sources said, in a major step towards self-sufficiency in chips and to counter U.S. moves aimed at slowing its technological advances. Beijing plans to roll out what will be one of its biggest fiscal incentive packages over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources. The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

In his reconciliation of his own results with those of the Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s.

The federal Lawrence Livermore National Laboratory in California, which uses a process called inertial confinement fusion that involves bombarding a tiny pellet of hydrogen plasma with the world’s biggest laser, had achieved net energy gain in a fusion experiment in the past two weeks, the people said. The fusion reaction at the US government facility produced about 2.5 megajoules of energy, which was about 120% of the 2.1 megajoules of energy in the lasers, the people with knowledge of the results said, adding that the data was still being analyzed.

The growth rate of US utility-scale battery storage capacity is outpacing the early growth rates seen in utility scale solar. That’s according to a new EIA outlook on grid-level storage: “The remarkable growth in US battery storage capacity is outpacing even the early growth of the country’s utility-scale solar capacity. US solar capacity began expanding in 2010 and grew from less than 1.0 GW in 2010 to 13.7 GW in 2015. In comparison, we expect battery storage to increase from 1.5 GW in 2020 to 30.0 GW in 2025.” New wind and solar + storage is probably at the current line of scrimmage with new natural gas. The former comes in around $28-$30/MWh without storage, and the latter comes in around $45-$74/MWh. But natural gas has higher value to the grid compared to wind and solar when they’re not paired with storage.

The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.