Macroeconomics

Snippets on the big picture.

Macroeconomics

Savings Rate

  • “Observation of history also supports the notion that the saving rate is unlikely to sharply undershoot its pre-pandemic value. Consider the experience around World War II. During the war, the saving rate spiked as production and purchases of consumer goods and spending on leisure services were curtailed. At the conclusion of the war, despite the release of pent-up demand as returning service members married and started families, the saving rate declined to a level above its pre-war average and then trended higher for several years. Our forecast features a broadly similar result. The return of the normal relationship between spending, income, and wealth does not imply an undershoot of the saving rate. Without such an undershoot, the path of consumer spending, while strong, does not launch the economy into an inflationary boom.“
Macroeconomics

Future of Cities

  • A really brilliant interview with Enrico Moretti, a researcher in labour and urban economics.
  • He makes two points on the future of post-pandemic cities, which, due to agglomeration effects he sees as bright.
  • There will be two forces – the first as employers accept some working from home, workers will accept a longer commute if it is less frequent, thereby growing the size of cities and hence the amenities they support.
  • This process will also lighten the load on the urban core – thereby making it more attractive.
  • Which force will win out is yet to be seen.
Macroeconomics

UK Retail

  • Nearly 11,000 stores (defined as retail, restaurant and leisure premises) permanently disappeared from UK retail landscape last year.
  • This is largely coming from chain stores (-9,877) with the independent market shrinking only (-1,442).
  • The article does say that many more remain temporarily closed so the full impact is not clear.
Macroeconomics

Mortgage Payments

  • Alternative way of looking at the US housing market – suggesting it isn’t as frothy as it seems.
  • Adjusted for inflation and interest rates, using median house prices and a 20% downpayment the monthly mortgage payment in the US has actually come down over time.
  • This is especially so if you adjust for the “quality” of the median house.
Macroeconomics

Inflation Extrapolation

  • Nice chart from KKR showing how investors in the 2000s have over-extrapolated the persistence of early cycle inflation.
  • The reason this happens is early cycle pops in commodity prices and disposable incomes don’t flow through to core consumer prices.
  • Consumer goods themselves are also only a quarter of core CPI.
  • See page 17 of the report for details.
Macroeconomics

Inflation pt 2

  • Most indicators suggest inflation is heading higher in 2021, though there is some disagreement (here).
  • Here is one more from Nordea to add to the list.
  • The bank argues overshooting inflation will be harder to defend in an average inflation targeting regime than when it is below target.
  • The Fed and the market, as we wrote before, need to discern whether this is transitory or persistent.
Macroeconomics

Inflation

  • Inflation has been a big topic in markets recently.
  • This post is worth reading to understand the key distinctions between transitory and persistent inflation.
  • Interesting stat – sectors that are vulnerable to post pandemic consumption shifts are less than a quarter of PCE inflation component weights.
  • The bottom line is it is important, for markets and the Fed, to watch labour markets alongside inflation.
Macroeconomics

Market Inflation Expectations

  • “The five year constant maturity Treasury yield has risen; but after accounting for the estimated term premium, the increase is much more modest, if not negative. Moreover, expected 5 year inflation has not on net moved much over 2021.“
  • Correction: One needs to also adjust for the liquidity premium.
  • Source.
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