Macro Roundup: Week of October 21, 2024
Summary of Economic Articles & Papers From Ed Conard's Researchers
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Poverty, Hardship and Government Transfers Bruce Meyer, Jeehoon Han, and James Sullivan National Bureau of Economic Research
CPS disposable income data indicate a large poverty decline in 2021 and a large increase in 2022, while consumption poverty steadily declined over 2021-2022, partly explained by savings from 2021 unemployment and COVID-era cash transfers. @AEIecon
Poverty calculated using CPS income data with imputed taxes and tax credits indicate a large poverty decline in 2021 and a large increase in 2022, [while] consumption-based poverty calculated from the CEX show a steady decline in poverty. Spending data from the Fed’s SHED data also suggest consumption [of the poor] grew more than income in 2022. The puzzle is at least partially resolved by a pronounced increase in saving in 2021 followed by dissaving in 2022 by those with low income or consumption, and an increase in borrowing in 2022. This consumption smoothing behavior sharply contrasts with past evidence of hand to mouth consumption at the bottom of the income distribution and shows that the permanent income model has surprising applicability to the poor in certain circumstances.We estimate income poverty under counterfactual policy scenarios that exclude the enacted programs or the extension of discontinued programs. These indicate [that] while the expanded Child Tax Credit led to a significant decline in poverty, other policies including the stimulus payments and Pandemic unemployment benefits, played a similar or even larger role.
Related: The Great “Transfer”-mation and Evaluating the Success of the War on Poverty since 1963 Using an Absolute Full-Income Poverty Measure and The Impact of Unconditional Cash Transfers on Consumption and Household Balance Sheets: Experimental Evidence from Two US States
US Interest Burden Hits 28-Year High, Escalating Political Risk Viktoria Dendrinou Bloomberg
The US is spending 3.06% of GDP or 18% of federal revenue on debt service, the highest level since 1996. Interest payments are higher than defense spending for the first time.
The Treasury spent $882 billion on net interest payments in the fiscal year through September — an average of roughly $2.4 billion a day. The cost was the equivalent of 3.06% as a share of gross domestic product, the highest ratio since 1996. The net interest bill exceeded the Defense Department’s spending on military programs for the first time, according to data from the Treasury Department and the Office of Management and Budget. It also amounted to about 18% of federal revenues — almost double the ratio from two years ago.
Related: The Fiscal Impact of the Harris and Trump Campaign Plansand When Does Federal Debt Reach Unsustainable Levels? and Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle
United States' Changing Net IIP Chris Marsh Money: Inside and Out
Net foreign claims on US assets are now 80% of US GDP, the most negative in history. @GeneralTheorist notes that this is partly a result of elevated U.S. equity prices, and may be resolved by a stock market correction rather than a fall in the dollar.
The US net IIP debit is the largest of all time and has turned negative for all major asset categories in recent years—while the US external flow position is about to turn negative on all major categories. Does any of this matter? Seen from the perspective of the US dollar, the continued widening of the US net IIP debit position might suggest that at some point dollar weakness may be needed to facilitate external flow adjustment. However, growing equity liabilities means external adjustment can be achieved through other means—in particular, asset price adjustment. For example, a correction in US equity values would contribute to the rebalancing of the US net debit position without necessarily requiring dollar adjustment. So the growing external net debit position of the United States ironically might not call for more dollar adjustment. Then again, an equity correction would have wider implications for the US economy than simply contributing to a stronger external position—something that would not be good news for either the US economy or the world.
Related: The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States and US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat and The Great Rotation (Part 2)
Sucking The World Dry (The US Dependence on Foreign Inflows) Andrew Lees MacroStrategy Partnership
Andrew Lees @MacrostrategyP argues that the US current account deficit is being funded in part by the flight of capital from Europe, which cannot continue indefinitely.
With a negative net national savings deficit, rather than the U.S. accumulating capital, it is consuming it. Most of this is from selling capital stock to foreigners and consuming the proceeds, and some is more directly, from not replacing aging capital stock. Either way, without restructuring the economy, the cost of servicing the outstanding stock of debt and unproductive government spending exceeds the capacity of the domestic economy to generate savings, and with a negative net international investment position, is reliant on the generosity of foreigners to fund its spending. Without the recent questionable upward revision to the U.S. personal savings rate, the net national savings deficit would be even more substantial. Through the consumption of capital, the U.S. potential GDP growth rate is declining rapidly, dependent not on productivity but this continuous flow of funds which will eventually exhaust. Whilst this flow of funds has obviously helped drive the relative growth of the U.S. and its market performance, it has been at the expense of world growth which has continued to trend lower, meaning it is not a sustainable position.
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Related: United States’ Changing Net IIP and The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United Statesand The Economics of Inequality in High-Wage Economies
Updating Our Long-Term Return Forecast For US Equities to Incorporate the Current High Level of Market Concentration David Kostin, Ben Snider, Ryan Hammond, et al. Goldman Sachs
.@GoldmanSachs estimates that the S&P 500 will deliver an annualized nominal total return of 3% over the next decade, roughly 1% on a real basis. The 13% annualized return over the last decade exceeded the long-term mean of 11%.
We estimate the S&P 500 will deliver an annualized nominal total return of 3% during the next 10 years (7th percentile since 1930) and roughly 1% on a real basis. We model prospective long-term equity returns as a function of five variables: starting absolute valuation, stock market concentration, economic contraction frequency, corporate profitability, and interest rates. The S&P 500 index during the past decade has posted an annualized total return of 13%. The annualized return translates into a cumulative 233% total return across the period. Dividends contributed 54 pp (roughly 1/4) of the total return. Of the remaining 178% of price gain, 127 pp (nearly 3/4) was attributable to increased earnings during the period and 52 pp (approximately 1/4) was attributable to valuation expansion. Increased sales, higher operating margins, and lower tax rates contributed to annualized earnings growth of 7% over the period while the forward P/E multiple expanded from 16x to 22x. The 13% annualized stock market return during the past ten years exceeded the long-term average of 11%.
Related: US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat and Which U.S. Stocks Generated the Highest Long-Term Returns? and Stock Market Concentration
The US Is The World’s Science Superpower — But For How Long? Jeff Tollefson and Richard Van Noorden Nature
Over the past 5 years, the US has won more science Nobels than the rest of the world combined. The US science workforce is highly reliant on non-native talent: 43% of doctorate-holders in the US STEM workforce are foreign-born.
More than 1/3 of science and engineering PhDs granted [in the US] last year went to international students (those on temporary visas), with the share at 59% in computer science. Most of these students come from China and India. And when asked, 77% of Chinese students who earned doctoral degrees in the United States said that they intended to stay in the country, according to 2022 data, a proportion that has dipped only slightly over the previous five years. More generally, the United States remains the world’s top venue for international students, according to data from the Organisation for Economic Co-operation and Development, hosting 15% of all students worldwide in 2020, the latest comparative figures available. But there are signs that the United States might be losing its edge. Its share of international students is declining, down from 23% in 20005. And although enrolment numbers have recovered to an all-time high after a brief pandemic dip there remains a question about whether top talent from China continues to view the United States as an attractive destination.
Related: China Has Become a Scientific Superpower and The Extreme Shortage of High IQ Workers and Top Talent, Elite Colleges, and Migration: Evidence from the Indian Institutes of Technology
Outlook for India: Strong GDP Growth, Low Inflation Torsten Sl?k, Utsav Baijal, Rajvi Shah and Shruti Galwankar Apollo
The Indian stock market as measured by the BSE 500 has outpaced the S&P 500, Hang Seng and NIKKEI 225 since 2000. Projected to grow at 6-8% over the next five years, India will soon be the world’s third-largest economy, surpassing Japan.
India, world’s fifth largest economy is projected to grow at 6-8% over the next five years and surpass Japan to become the third largest economy. Outlook for India remains healthy on the backdrop of strong GDP growth, under control inflation, rising capex, improving fiscal and current account balance and favorable demographics. Consumer and corporate confidence is upbeat. Household balance sheets are healthy and consumer spending is strong. Corporate profitability continues to rise with interest coverage ratio rising and interest burden falling. The financial sector has seen significant transformation with digitalization and bankruptcy law enactment. Bank lending has been solid, and the Indian stock, bond, and private markets continue to grow at a rapid pace.
Related: Where Can Investors Find Geographic Diversification Today? and Apple’s India iPhone Output Hits $14 Billion in China Shiftand India At The Centre
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