By Bilal Hafeez 16-09-2019
In: top-picks, Other

Top Picks: Growth & Labour Market


3rd December

Demographics and Technology Explain Secular Stagnation and More (Vox EU) Argues that lower fertility and population ageing are likely to generate more automation, which will lead to a reduction in GDP per capita growth and the labour income share. [More Populism]

Involuntary Part-Time Work a Decade after the Recession (Federal Reserve Bank of San Francisco) San Fran Fed identify shifts in the US labour market over the past decade.  The bottom line is that full-time work has become scarce and voluntary part-time employment has exceeded its pre-recession level. [More Populism]

The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (NBER Working Paper) Empirical evidence from major OECD countries shows that a 10% increase in government-funded R&D in the defense sector generates privately-financed defense R&D by 4.3% and encourages private investments in other nations. [Bullish Big Military Countries]

26th November

More negative economic trends are coming to the surface. Credit growth appears to be faltering, temporary hires are declining and trade restrictions are on the up.

Slouching Towards a Producer-led Recession? (Seeking Alpha) The often ignored US Senior Loan Officer Survey is showing contracting demand for commercial loans in Q3. Typically such dynamics are seen before recessions. [Bearish equities]

A Yellow Flag from Temporary Hiring (Angry Bear) Temporary hiring in the US is now showing a 7% y/y decline as of November. Only in 2007-2008 have we seen a worse number. This could be a harbinger of negative payrolls. [Bearish equities]

Does Intergenerational Mobility Increase Corporate Profits? (Fed Working Papers) Fed finds that companies based in areas with high intergenerational mobility move up and tend to see greater profitability. This likely reflects greater equality of opportunity.

Trade Restrictions Among G20 Economies Remain at Historic Highs (WTO) Latest WTO report for G20 economies finds that from mid-May to mid-October 2019 new import-restrictive measures covering USD 460.4 billion worth of traded goods were introduced. This represents a 37% surge over the previous period. [Bearish global companies]


19th November

There’s growing awareness that we may be experiencing decreasing returns to scientific research – this has major implications for policy and companies. Better then to rethink the work week, perhaps. In the short-term, though, politics will continue to be a big risk for economies.

On the Decline Of R&D Efficiency (VOX EU) The empirical evidence of Japan following the Great Recession suggests that the marginal benefits of R&D spending may not be sufficient to drive growth in developed economies. [Bearish high investment companies]

Is the Rate of Scientific Progress Slowing Down? (Marginal Revolution) In-depth review of different strands of literature and metrics such as total factor productivity, patent measures, researcher productivity, crop yields, life expectancy and progress of computing power, shows some evidence that the rate of scientific progress had indeed slowed down. [Bearish high investment companies]

Is Economic Winter Coming? (Project Syndicate) Former RBI governor and current Chicago Professor, Raghuram Rajan, argues that the biggest risk factor for a recession is the White House, not the Fed or any one sector of the economy.

Economics of A Four-Day Working Week: Research Shows It Can Save Businesses Money (The Conversation) Several businesses that adopt this scheme report an annual saving of GBP 92 billion and an experiment carried out by Microsoft Japan shows a 40% increase in productivity.

12th November

We focus on the much-feared trend of declining productivity and find surprising reasons behind it, such as obesity. Technology might also be hampering growth long-term. We also look at ways the US can learn from Australia’s mild and short-lived recessions.

Where Is That Confounded Recession? (Nevins Research) Daniel Nevins argues against the general market sentiment about an upcoming recession by conducting examinations on the housing sector, public policies and real spending capacity. [Bullish equities]

Why Does Australia Have Mini-Recessions? (EconLib) Scott Sumner argues that Australia’s recessions have been much milder than in the US, as they do monetary policy more efficiently. They track the price of money (exchange rate) rather than the rental cost of money. It is far more powerful and unambiguous.

What are the Real Reasons for Declining Productivity? (Mish Talk) Some of the Top 10 reasons include wrong measurement of productivity, time wasted on Facebook and surging obesity levels. [Bearish equities]

Is Rising Concentration Hampering Productivity Growth? (San Francisco Fed) The increase in productivity brought by the IT revolution for large firms in the US has caused lower profit margins across other businesses and a decrease in market competition. In the longer term, this phenomenon will lead to weaker growth in productivity. [Bearish small caps]

2nd November

This week we see a series of pessimistic signals around the future of the workforce. Automation could be a dehumanizing force, real wage growth has been sticky, and ageing populations create more than just financial problems.

My Favourite Job Market Paper So Far This Year (Marginal Revolution) Professor Tyler Cowen of George Mason University flags a recent MIT Paper about wage rigidity, finding that the real wages for the same position at the same establishment decrease over time. So stable jobs lead to lower wages. The solution would be reallocating similar jobs across firms.

Intergenerational Mobility of Immigrants in the US over Two Centuries (Abramitzky, Boustan, Jacome, Perez) Finds that the ‘American Dream’ rings true: children of immigrants from nearly every country have higher rates of upward mobility than US-born children.

What is the Problem with Rising Dependency Ratios in Japan – Part 1? (Economic Outlook) Japan’s rising dependency ratios result from its ageing and shrinking population. MMT advocate argues that these dynamics lead to real reductions in productivity and social resources, but do not cause fiscal issues. [Bearish rates]

26th October

Amid heated debates on Big Tech’s market power, the new legislation in California, called AB5 is gaining traction. We feature Laura Tyson, a former chair of the US President’s Council of Economic Advisers arguing that rather than allowing technology to accelerate the hollowing out of the middle-class, governments at all levels should be strengthening worker protections. We also feature analysis claiming that the determining factor behind your wealth seems to be pure luck.

Middle Management, Geographic Frictions, and Firm Establishment (VOX EU) Geographic frictions, such as the distance between a firm’s headquarter and its establishments, may adversely impact the firm’s performances. Hiring “middle managers” who function like CEOs in regional offices is an effective way to offset this negative externality. Argues middle management may be positive for international firms.

A New Approach to Protect Gig Workers (Project Syndicate) California has passed a new law to make it harder for the Ubers and Lyfts of the World to classify workers as independent workers instead of employees. Given that Trump is against the legislation, it can expected to spur major legal and political battles in 2020. Could see higher wages, so potentially negative gig economy companies.

If You’re So Smart, Why Aren’t You Rich? Turns Out It’s Just Chance (MIT Technology Review) Researchers from the University of Catania simulate how people utilise their talents to exploit opportunities in life and accumulate wealth. Results show that the wealthiest individuals are nowhere near “the most talented” – an important factor is, in fact, pure luck. Suggests taxing the rich.

19th October

The new IMF Managing Director, Kristalina Georgieva, started her mandate on a gloomy warning of a global slowdown. We look at what weak growth might mean for monetary policy and why ageing populations are even more of a threat than previously thought.

The World Economy: Synchronized Slowdown, Precarious Outlook (IMF Blog) IMF downgrades growth for 2019 to 3%, the slowest pace since the 2008 crisis. Also flags bubble risks of monetary policy and need for macro-prudential policies.

Sailing into Unchartered Demographic Waters (VOX EU) David Blooms discusses the implications of the global population ageing. He proposes reforms in healthcare policies, human capital management and social securities to take on these challenges.

Reviving Innovation in Europe (McKinsey) A highly fragmented market and a lack of scale are what hinder Europe’s edges on technology innovation, causing it to fall behind the US and China. McKinsey suggests five approaches that Europe plays to its strengths including building on its industrial strength.

12th October

Despite fears of doom and gloom across all indicators, the labour market is thriving in the US.

Initial Claims Still Positive, Negative Near term Recession(The Bonddad Blog) Debunks current predictions about a looming recession by scrutinising labour market data . The average on claims remains low and the monthly YoY% change is at the same level as last year – no worries in sight.

Predicting Recessions: Financial Cycle Versus Term Spread (BIS) Measuring the financial cycle has a better predictive power for incoming recessions than the more common measure of term spreads.

The Myth of Income Stagnation, Again (Dr. Ed’s Blog) Further analysis on the state of the labour market – this piece maintains that productivity growth is increasing and consequently results in a rise in wages. Thereby, undermines theories of income stagnation.

The Best Economic News No One Wants to Talk About (The Atlantic) Looks at why neither politicians nor the media want to highlight the healthy labour market – wage growth for low-income earners has doubled poorest workers are now paid more.

The Surprising Decline of Entrepreneurship and Innovation in the West  (The Conversation) Observes various indicators of entrepreneurship such as the ratio of new firms to total firms and concludes that they all point to a decline in overall innovation.

4th October

Aging populations across the Western World comes with a number of issues while it is transforming the labour market. Established tech exporters such as Japan are losing their edge. We also look at how tech is revamping retail banking.

Why Japan Lost its Comparative Advantage in Producing Electronic Parts and Components(VOX) A sharp appreciation of the yen after the Financial Crisis, caused by capital seeking safe havens has hurt Japanese competitiveness in electronic parts, their bread and butter. Yen export prices tumble relative to production costs. Highlights a need for “craftsmanship” instead of pure price competitiveness going forward.

Population Aging and Structural Transformation(Cravino, Levchenko, Rojas) Shows that the older the population of a country, the more expenditure end up in the service sector. Population aging played a much larger role than changes in real income in the structural change observed in the US between 1982-2016.

Seven Transformative Shifts in US Retail Banking Inflection Point (McKinsey) – Pinpointing to seven transformational shifts which are advancing changes in the US retail banking industry. They have to quickly adapt – a growing number of consumers are trusting Big Tech players (Amazon, Google, Apple and Facebook) with their money instead.

Financial integration in Europe through the lens of composite indicators (Hoffman, Kremer, Zaharia) Financial integration within the Euro area, within money, bond, equity and banking markets is an important driver of growth and heavily influences per capita GDP. Another testament against Brexit. 

28th September

How Informative Are Real Time Output Gap Estimates in Europe? (IMF) Basically finds that potential growth is typically over-estimated and real-time estimates of output gaps are useless in forecasting inflation/

One Ring to Rule Them All? New Evidence on World Cycles (IMF) Counterintuitive findsing that the world growth cycle is weak for most countries and that synchronisation between economies has not increased over time (at least for growth, rather than inflation).

Why Are Some Societies More Entrepreneurial than Others? Evidence from 192 Countries over 2001-2018  (Wharton) Academic paper finds institutional factors like R&D expenditure, STEM education and density of established firms has little bearing on rates of entrepreneurship. Instead, cultural factors like gender equality, societies that value performance and acceptance of status privilege/hierarchy matter more.

Financial Conditions and Purchasing Managers’ Indices: Exploring the Links (BIS) Finds that equity prices, credit spreads and the dollar predicts PMIs

Yield Curve Inversion and Recession Risk (BIS) Decomposing components of yield curve inversion finds mixed signals for recession.

Some Observations on Determining Business Cycle Chronologies (Econbrowser) Provides a survey of how recessions and business cycles are dated. There’s a big variety of definitions – and two negative quarters of GDP is not the best.

20th September

The economy is changing thanks to tech – but increasingly the response is for more regulation, whether gig workers or automation-linked processes. We shouldn’t also forget about the dramatic disruption of the retail sector.

Working Conditions on Digital Labour Platforms (VOX) Gig economy workers on these platforms have low wages and poor labour market protections. Expect this area to be regulated soon!

The Economic Consequences of Automation (Project Syndicate) Keynes expert Robert Skidelsky argues that much automation may lead to job losses even in long-run if Karl Marx was right in the need for “reserve army of the unemployed” to keep profits high. Argues for government intervention.

Annual Report on Global Preparedness for Health Emergencies (World Health Organisation) Get scared by reading about all the bad things that can happen (see chart)

Death of Shopping Malls and Department Stores in Five Charts (Mish Talk) Battery of charts showing the rise of online shopping and its deflationary impact.