Macroeconomics

Snippets on the big picture.

Macroeconomics

Savings by Wealth Level

  • This chart disaggregates bank deposit data, using it as a proxy for household savings.
  • The wealthiest 10% of households account for 70% of the increase in savings between Q1 2020 and Q1 2021.
  • Wealthy households have a much lower marginal propensity to consume.
  • This effect, however, is likely to be overpowered by the sheer magnitude of the increase in savings.
  • Source: BCA Research.
Macroeconomics

EM vs. DM PMIs diverging

  • “It is not just Asia which is seeing renewed weakness of manufacturing performance, however, with output in Russia coming close to stagnation again in June as rising virus numbers disrupted the economy, and a further steep fall in output was recorded in Mexico.
  • As a result, while developed world production continued to grow at a rate close to decade-highs in June, emerging market output growth came close to stalling, its lowest since June 2020.“
  • Source.
Macroeconomics

Africa

  • Starting with cliches is a good way to start this fantastic piece on Africa.
  • It covers everything from demographics to key venture players to opportunities.
  • Well worth a read for those interested in this continent.
  • Let this map just sink in.
  • There are 1.2bn people in Africa, a number that will double in 30 years to 2.4bn.
  • Roughly 50% will be under 25 years old. The staggering stats go on.
Macroeconomics

UK Housing Affordability Pt 2

  • “However, house prices are close to a record high relative to average incomes. This is important because it makes it even harder for prospective first time buyers to raise a deposit. For example, a 10% deposit is over 50% of typical first time buyer’s income. A potential buyer earning the average wage and saving 15% of take home pay would now take five years to raise a 10% deposit.”
  • Nationwide House Price Index June 2021.
Macroeconomics

UK Housing Affordability Pt 1

  • “Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows – in fact, on this measure affordability remains broadly in line with its long run average, as shown in the chart“
  • Nationwide House Price Index June 2021.
Macroeconomics

Rosenberg Slides

  • Good slide deck from David Rosenberg.
  • It is interesting because it goes against a lot of consensus views.
  • (1) The demand boost is largely temporary (fiscal stimulus) and will start to subside e.g. consumer discretionary was actually up last year.
  • (2) Supply will eventually catch up (lumber production +20%, booming semiconductor exports Taiwan/Korea, lots of full container ships at US ports).
  • Inflation depends largely on the labour market and that still has considerable slack (U-6 rate is 11% vs. 8% pre-Covid, slide 79 Atlanta Fed Wage Tracker is benign).
  • Things like commodities (China is delevering anyway) and ISM diffusion indices (see chart) don’t drive inflation.
  • Have a look and make up your own mind.
Macroeconomics

US Inflation Peaking?

  • A useful inflation tracking index (consisting of seven measures of inflation) that is both more timely and overcomes the challenges of each individual measure.
  • The latest update (7th June) – pictured – suggests inflation could be peaking.
  • For the first time this year the mean and median are holding steady.
Macroeconomics

US Labour Market

  • A big debate is going on about the tightness of labour markets in the US.
  • This chart from Pantheon Macro is instructive – 5 million people are missing from the labour force.
  • By Q3 factors holding individuals back will fade – enhanced unemployment benefit will expire (6th Sep) and all childcare/schools will likely be open.
  • Near term however we have lots of evidence of tightness (signing bonuses, rising wages) and the Fed is taking notice.
Macroeconomics

Inflation Debate

  • There is a considerable debate raging right now on the future level of inflation, exacerbated by the consensus busting April CPI print (here, here and here).
  • This piece, written by economists, is worth reading.
  • It proposes looking at median CPI to construct the Phillips curve, as it better reflects macroeconomic conditions.
  • The resulting relationship is stable pre- and post-pandemic and suggests, under bullish unemployment scenarios, that implied core PCE could hit 1.8-2.3% by 2023, “broadly consistent with the Fed’s average inflation targeting strategy with inflation modestly overshooting its long-term level following a number of years of undershooting it.“
  • They also don’t see, unlike others, temporary government spending causing an unanchored inflationary spiral given a better communication framework from the Fed and positive supply side effects of infrastructure spending.
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