Sunday, May 15, 2022

Bloomberg: ollar’s Strength Pushes World Economy Deeper Into Slowdown

via Bloomberg

Fed rate hikes and strong dollar are hurting global growth
Emerging economies are especially vulnerable as capital leaves


Enda Curran and

Amelia Pollard
May 14, 2022, 5:00 PM EDT

The soaring dollar is propelling the global economy deeper into a synchronized slowdown by driving up borrowing costs and stoking financial-market volatility -- and there’s little respite on the horizon.

A closely watched gauge of the greenback has risen 7% since January to a two-year high as the Federal Reserve embarks on an aggressive series of interest-rate increases to curb inflation and investors have bought dollars as a haven amid economic uncertainty.

A rising currency should help the Fed cool prices and support American demand for goods from abroad, but it also threatens to drive up the import prices of foreign economies, further fueling their inflation rates, and sap them of capital.

That’s especially worrying for emerging economies, which are being forced to either allow their currencies to weaken, intervene to cushion their slide, or raise their own interest rates in a bid to buttress their foreign exchange levels.

Both India and Malaysia made surprise rate hikes this month. India also entered the market too to prop up its exchange rate.

Advanced economies haven’t been spared either: In the past week the euro hit a new five-year low, the Swiss franc weakened to hit parity with the dollar for first time since 2019 and Hong Kong’s Monetary Authority was forced to intervene to defend its currency peg. The yen also recently toughed a two-decade low.

“The Fed’s rapid pace of rate hikes is causing headaches for many other economies in the world, triggering portfolio outflows and currency weakness,” said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.

While the combination of slowing US growth and an expected cooling in America’s inflation will ultimately see the dollar’s ascent slow -- which in turn will take pressure off other central banks to tighten -- it may take months to find that new equilibrium.

So far at least, traders are reluctant to call a peak in the dollar rally. That in part reflects bets at the end of 2021 that the greenback’s gains would fade as rate hikes were already priced in. Those views have since been shredded.

Developing economies are in danger of a “currency mismatch,” which occurs when governments, corporations or financial institutions have borrowed in US dollars and lent it out in their local currency, according to Clay Lowery, a former US Treasury assistant secretary for international affairs who’s now executive vice president at the Institute for International Finance.

Global growth will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the IIF. Economists at Morgan Stanley expect growth this year to be less than half of the pace in 2021.

As rates continue to rise amid on-going global volatility -- from the war in Ukraine to China’s Covid lockdowns -- that has led investors to leap for safety. Economies nursing current account deficits are at risk of more volatility.

“The United States has always been a safe haven,” Lowery said. “With rising interest rates both from the Fed and from market rates, even more capital could flow into the US. And that could be damaging for emerging markets.”

Outflows of $4 billion were seen from emerging economy securities in April, according to the IIF. Emerging market currencies have tumbled and emerging-Asia bonds have suffered losses of 7% this year, more than the hit taken during the 2013 taper tantrum.

“Tighter US monetary policy will have large spillovers to the rest of the world,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “The real kicker is that most economies outside the US are starting in a weaker position than the US itself.”

Weaker Outlook

The IMF sees growth in 2022 and 2023 lower than it did in January

Source: International Monetary Fund

Note: 2022 and 2023 are forecasts

Many manufacturers say the high costs they are facing means they aren’t getting much of a dividend from weaker currencies.

Toyota Motor Corp. forecast a 20% decline in operating profit for the current fiscal year despite posting robust annual car sales, citing an “unprecedented” rise in costs for logistics and raw materials. It said it doesn’t expect the weakened yen to deliver a “major” lift.

China’s yuan has slid as record flows of capital pull out of the

country’s financial markets. For now, it remains insulated from the wider dollar effect as low inflation at home allows authorities to focus on supporting growth.

But that’s causing yet another source of fragility for developing nations used to a strong yuan offering their markets an anchor.

“The recent abrupt shift in the renminbi’s trend has more to do with China’s deteriorating economic outlook than Fed policy,” said Alvin Tan, a strategist at Royal Bank of Canada in Singapore. “But it has definitely splintered the shield insulating Asian currencies from the rising dollar and precipitated the rapid weakening of Asian currencies as a group in the past month.”

In advanced economies, weakening currencies set up a “tricky policy dilemma” for the Bank of Japan, European Central Bank and the Bank of England, Dario Perkins, chief European economist at TS Lombard in London, wrote in a recent note.

ECB Governing Council Member Francois Villeroy de Galhau noted this month that a “euro that is too weak would go against our price stability objective.”

“While domestic ‘overheating’ is mostly a US phenomenon, weaker exchange rates add to imported price pressures, keeping inflation significantly above central banks’ 2% targets,” Perkins wrote. “Monetary tightening might alleviate this problem, but at the cost of further domestic economic pain.”

— With assistance by Maria Eloisa Capurro

Tuesday, May 3, 2022

CR: Rent Increases Up Sharply Year-over-year, Pace may be slowing


Rents have increased sharply over the last year, and this is likely due to both demand and supply issues. Also, rents dipped in 2020, so some of the recent increase is making up for the 2020 decline. For example, the Zillow measure of new leases is up 16.8% year-over-year in March, but is up 8.8% annualized over the last 2 years.

What drives demand for housing is household formation. Even though population growth in 2020 and 2021 was dismal, household growth appears to have picked up.

A few possible reasons for household growth include:

  • Some younger adults probably moved in with their parents or relatives (or stayed with them) during the worst of the pandemic in 2020 and started moving out in 2021.

  • Divorces might have increased in 2021 splitting households.

Unfortunately, we will not have data on household formation for some time. For example, data on divorces is only available through 2020 (provisional data shows divorces were down sharply in 2020).

Some other factors might include more properties being converted into short term rentals, removing them from the long-term rental housing stock, and also the eviction moratorium might have had some impact on rents.

The preference for single family homes (and the corresponding larger rent increases) is partially due to the pandemic, and the desire for more space - especially for people working at home. And with the rapid increase in home prices, and lack of for sale inventory, more people have been looking to rent single family homes instead.

On the supply side, the supply chain disruptions have constrained completions. Here is a graph of housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 811 thousand single family units under construction (SA). This is the highest level since November 2006.

Blue is for 2+ units. Currently there are 811 thousand multi-family units under construction.  This is the highest level since May 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are 1.622 million units under construction. This is the most since February 1973, when a record 1.628 million units were under construction (mostly apartments in 1973 for the baby boom generation).

Quarterly Apartment Tightness Index

The apartment tightness index from the National Multifamily Housing Council (NMHC) has been very useful in forecasting vacancy rates for apartments. Here are the results for the April survey: Apartment Demand Continues to Grow, but Investors Face Tougher Financing Conditions

Apartment markets tightened further according to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for April 2022, while financing became more costly. The Market Tightness (60) index was the only index to come in above the breakeven level (50) this quarter; the Sales Volume (50) index came in at exactly 50, with much disagreement among respondents; while both the Equity Financing (35) and Debt Financing (9) indexes indicated weaker conditions compared to three months prior.

“Demand for apartments continues to exceed supply, resulting in the fifth straight quarter of tightening markets,” noted NMHC’s Chief Economist, Mark Obrinsky. “Yet, even as rent growth and occupancy remain elevated, developers are struggling to build more housing due to the increasing cost of materials, a lack of available labor, continued obstructionism from NIMBYs, and, because of rising interest rates, an increasing cost of capital.”

  • The Market Tightness Index came in at 60 this quarter – above the breakeven level of 50 – indicating that market conditions have become tighter. While less than one-third (30 percent) of respondents reported markets to be tighter than three months ago, an even smaller share (10 percent) thought that markets have become looser. A majority of respondents (59 percent), meanwhile, thought that apartment market conditions were unchanged from last quarter.

emphasis added

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. 

Even though the index declined in April, this indicates market conditions tightened further in April for the fifth consecutive quarter, after being especially weak during the early months of the pandemic.

Note that a majority of respondents thought conditions was unchanged. This was up from 40% in the December survey, and up from a low of just 7% saying conditions were unchanged in the July 2021 survey.

Asking Rents Up Sharply Year-over-year, but Increases Slowing

From Apartment List National Rent Report

Welcome to the May 2022 Apartment List National Rent Report. Rent growth is continuing to pick up steam again, after a brief winter cooldown, with our national index up by 0.9 percent over the course of April. So far this year, rents are growing more slowly than they did in 2021, but faster than the growth we observed in the years immediately preceding the pandemic. Year-over-year rent growth currently stands at a staggering 16.3 percent, but most of that growth took place last spring and summer. Over the first four months of 2022, rents have increased by a total of just 2.5 percent, though we’re only beginning to enter the busy season for the rental market, when the bulk of annual rent growth typically occurs.

On the supply side, our national vacancy index dipped slightly this month, the first time that vacancies have tightened since last August. Our vacancy index currently stands at 4.6 percent, up from a low of 3.8 percent last August, but still well below the pre-pandemic norm. Rents increased this month in 93 of the nation’s 100 largest cities, with Sun Belt markets in Florida and Arizona continuing to see some of the nation’s fastest growth.

Our national rent index closed out 2021 with a 0.2 percent month-over-month decline, making December the only month last year in which rents fell. That price dip proved to be short lived, however, with rent growth returning to positive territory over the past four months. Our national rent index increased by 0.9 percent month-over-month in April. Rents grew nearly twice as fast at this time last year, with a 1.7 percent month-over-month increase in April 2021. In fact, this month’s increase looks more similar to the rates we observed in the years preceding the pandemic – from 2017 to 2019, month-over-month growth in April averaged 0.8 percent, just barely below this month’s 0.9 percent increase.

emphasis added

Rents are still increasing, but not as rapidly as a year ago.

CoreLogic also tracks rents for single family homes: Rent Growth Extends Record-Breaking Streak in February, CoreLogic Reports

CoreLogic … today released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and across major metropolitan areas.

U.S. rent prices continued their double-digit gains in February, rising 13.1% from one year earlier to hit another new record as the highest in the history of the index.

The 13.1% YoY increase in February was up from 12.6% YoY in January.

Rent Data

I’m going to update some of the data on rents. Here is a graph of several measures of rent since 2000: OER, rent of shelter, rent of primary residence, Zillow Observed Rent Index (ZORI), and (All set to 100 in January 2017)

Note: For a discussion on how OER, and Rent of primary residence are measured, see from the BLS: How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and rent of primary residence (Rent)

OER, rent of shelter, and rent of primary residence have mostly moved together. The Zillow index started in 2014, and the ApartmentList index started in 2017. Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through March 2022 (Apartment List through April 2022).

Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures are picking up.

The Zillow measure is up 16.8% YoY in February, down from 17.2% YoY in February. And the ApartmentList measure is up 16.4% as of April, down from 17.2% in March. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents. From Zillow:

“ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent.”

And from ApartmentList:

At Apartment List, we estimate the median contract rent across new leases signed in a given market and month. To capture how rents change in a market over time, we estimate the expected price change that a rental unit should experience if it were to be leased today.

Both of these measures reflect new leases, whereas most rental units don’t turnover every year (as captured by the BLS measures). This sharp increase in new lease rates should spill over into the consumer price index over the next year (as discussed in earlier article).

Clearly rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 4.5% YoY in March, from 4.3% YoY in February - and will likely increase further in the coming months.

My suspicion - based on all of the above data - is rent increases will slow over the coming months.

Monday, May 2, 2022

Matthew Yglesias: Overtreatment in American health care is a problem

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Overtreatment in American health care is a problem

An entrepreneurial, market-oriented system has some downsides.

One of my tweets last week was, unlike most of my tweets, generally popular and well received by progressives. It made the point that one of the structural features of the American health care system is that it's a basic consumer business, which means giving people medicine that they don't really need can be very lucrative. Apparel companies want to sell you lots of clothing; American doctors and pharmaceutical companies want to sell you lots of treatment.

To the extent that I got pushback from the left, it was from people questioning whether the innovation is real (also here and here) or saying that innovation is all publicly funded anyway.

I don't think that's correct. America's lack of price controls means that companies have a strong incentive to deliver new treatments here first. And the fat margins they can achieve in the U.S. market clearly drive more investment in treatments than in a more typical system. Reformers often say we could compensate with other pro-innovation policy ideas, and I totally buy that — we could. But if we just cut out the money, there really would be less innovation.

And America's biomedical innovation is genuinely impressive. One of the mRNA vaccines against Covid-19 was developed by an American company and the other was a joint U.S.-German effort. Paxlovid, a highly effective and underutilized Covid-19 treatment, also comes from an American company. If a rich person in a poor country decides to fly somewhere to get some very expensive health care, the destination is typically the U.S. Our health care system has a lot of failings in terms of access for the poor, annoying bureaucracy, and creating financial insecurity for people with chronic ailments. It's also pretty obvious that health care is not actually the primary factor in population-level health, and that Americans suffer from unusually high rates of obesity, lethal violence, and car wrecks.

That innovation is valuable, and any reforms should preserve that value. This is one reason I'm very interested in finding ways to make it cheaper and faster to do clinical research.

But the overtreatment issue is real. And as economist Dean Baker says, that extends to treatments that don't work at all or are even harmful.

Overprescription of opioids has caused a huge problem

As outlined in "Empire of Pain," America's devastatingly difficult opioid epidemic stems from profit-seeking pharmaceutical companies talking people into the idea that opioids are a useful treatment for chronic pain.

Chronic pain is a very real problem. You can understand why people were strongly motivated to believe that a great new treatment option was available; it just wasn't true. But in America, there was a lot of money to be made off of accepting the pharmaceutical companies' claims. This was not the case in Europe, and that led to a significant divergence in prescription practices.

And while it's easy to lay all of the blame on the Sacklers and the pharmaceutical industry, the doctors who do the prescribing deserve a share as well. In America's marketized, entrepreneurial health care system, a medical doctor is often also a small businessman whose job is to gin up business and drive sales. If a new product hits the market and 90 percent of the profession is cautious and responsible about its use, that's a chance for the other 10 percent to gain market share.

The market for quacks

One of the most striking things about health care is that the profession of doctor existed long before there were any scientifically valid medical treatments. When George Washington got sick, he was treated by a panel of doctors who bled him to death. People didn't go see doctors as much back then as they do now, but there were plenty around — it was a distinguished and high-status field, even though practitioners had no idea what they were doing.

Modern medicine is obviously a lot better than that, thankfully. But the same underlying dynamic still exists — there's plenty of money to be made selling supplements or "alternative" medicines that plainly don't work. When people are suffering, they will pay money for treatments whether or not there is solid evidence that the treatments are good for them.

We also see a lot of this in the unregulated supplement market. A 2017 Consumer Reporters article says "Liver Damager from Supplements is on the Rise," echoing problems that I've seen reported on going back to 2012 and which have been the subject of continuing work in subsequent years.

In 2019, Robert Fontana and Ammar Hassan, two liver doctors at the University of Michigan, reported on health risks associated with supplements:

These products are often purchased at health food stores or online in bulk. Over the past two decades, a significant increase in the incidence of liver injury related to the illicit use of [Annabolic Androgenic Steroids] AAS has been reported.

"Bodybuilding supplements that contain AAS can lead to liver damage, including severe cholestatic hepatitis, which can take months to resolve," Fontana says. "Additionally, various multi-ingredient nutritional supplements taken to enhance energy, increase performance and facilitate weight loss can lead to potentially severe, or even fatal, liver damage."

The dangers associated with overconsumption of steroids are pretty well known, but the authors note that overconsumption of green tea extracts also leads to liver damage.

And while actual medicines are more tightly regulated, the FDA doesn't step in to prevent aggressive sellers with asymmetrical information from selling people treatments that may not be useful.

Medical practice often isn't what it should be

Caesarian sections save lives and have for a long time. A C-section is also a major surgical procedure that is difficult to recover from, especially because the patient also typically has to care for a newborn baby. So ideally, doctors would perform this surgery only when necessary, not just willy-nilly. Yet as Lauren Sausser writes for Kaiser Health News, the extreme regional variation in C-section rates prompts the suspicion that doctors in the high-rate areas are reaching for this option too aggressively.

Sausser also notes some suspicious temporal patterns:

Some physicians say their rates are driven by mothers who request the procedure, not by doctors. But Dr. Rebekah Gee, an OB-GYN and former secretary of the Louisiana Department of Health, said she saw C-section rates go dramatically up at 4 and 5 p.m. — around the time when doctors tend to want to go home.

And as Gee explains, part of the issue is payments. A lot of states have their Medicaid programs structured so that from a doctor's point of view, a C-section is not only faster but more lucrative. You don't need to assume any cartoonish malfeasance on the part of providers to see how the objective structure of the incentives could bias their decision-making.

At any rate, I'm not really saying anything new here. Everyone who writes and thinks about health care has been saying for years that America's system of rationing health care based on the ability to pay leads to overtreatment of some even while access is denied to others. Some recommended reading if you're interested:

You can also find more academic treatments of the issue like "Overtreatment in the United States" with a team of authors in PLoS One from 2017. The BMJ has a "too much medicine" initiative.

Indeed, the hypothesis that American medical professionals' income is inflated by billing for unnecessary care isn't even controversial among medical professionals. A 2017 Johns Hopkins survey of 2,000 physicians found the controversy is why (not whether) doctors are billing people for so much unnecessary care — survey responses indicated that "physicians believe overtreatment is common and mostly perpetuated by fear of malpractice, as well as patient demand and some profit motives."

Obviously doctors like the malpractice theory because it is more flattering to them than the profit motive. But as Aaron Carroll details in this JAMA Forum, the malpractice concern is a minor factor at best. Malpractice laws vary from place to place, for example, but doctors don't tend to change their clinical practice when they move.

Doctors are selling products to clients. As with anything else, your best case scenario is to have a product that's genuinely useful. But on the margin, your incentives are to sell aggressively — a pattern you see in any industry.

A plot twist

So this is all pretty boring, conventional wisdom stuff. The problem of overtreatment has been widely discussed in the United States for years, and while there's plenty of disagreement and controversy about it, every significant institution I'm familiar with sees it as (1) a real phenomenon in general and (2) a plausible hypothesis for explaining specific trends.

For example, if you say that ADHD is overdiagnosed or anti-depressants are overprescribed, people may argue with you about whether your claim is accurate, but the question itself is seen as a reasonable concern. And in particular, if I were to say not that ADHD is overdiagnosed in general, but that there are specific doctors who are known for handing out Adderall like candy, then I think it becomes totally uncontroversial (read my mentions here to see how little controversy this stirred up). Googling "want to get Adderall fast," you can even see people buying ads against that search term touting their "patient-first & judgement-free" approach to prescription stimulants.

Where this kind of boring take is going to rocket to nuclear strength heat is that I was thinking about these long-running overtreatment issues when I read an article about the Center of Expertise on Gender Dysphoria in Amsterdam.

The clinic launched in the 1970s at a time when gender dysphoria treatment was rare and stigmatized. In the late-1980s, they first treated a 12-year-old and also developed the world's first protocols for treating trans teens. But over time, what was once seen as the most forward-looking and supportive clinic for gender-affirming health care has come to be seen as a hyper-cautious dinosaur compared to contemporary American gender clinics.

And in the United States, where the number of gender clinics has, in de Vries' words, exploded, many clinicians favor swifter assessments and the provision of puberty blockers, hormones, and gender affirming surgeries for young people at or near the moment they present with gender dysphoria. The careful therapeutic assessments that the Dutch clinic provides between each intervention, these clinicians now say, are too conservative — and possibly harmful to some young patients who could benefit from more immediate interventions.

De Vries and her colleagues are aware of these differing philosophies, as well as the criticisms of the Dutch clinic's more methodical approach to childhood gender transition. But they also believe that the scientific uncertainties obligate practitioners to provide sensitive all-encompassing support, and they argue that their stepwise and often slower pace allows them to do just that, while also providing children and their families needed room to more fully explore identity in all its complexity.

"We need time," de Vries said. "And we take time."

I think that if you tune out the culture war context in which this disagreement is situated, you have a specific instantiation of a general phenomenon here — the more entrepreneurial, market-oriented American health care system is more eager to make the sale — and there is a reasonable question as to whether an express lane to medication is in fact the right solution for public health. What's different is that if I said, "I'm concerned that some doctors are overprescribing Adderall," nobody would find that particularly interesting. Some might agree, others might disagree, but it wouldn't be a huge deal. The notion that nursing homes are over-using medication to address the needs of people in their care because that's faster and easier than labor-intensive interpersonal work is broadly accepted as fact.

The culture war context

In Texas, Greg Abbott and Ken Paxton have handed down directives to classify all medical treatment of transgender children as a form of child abuse.

That seems obviously outrageous to me (note that de Vries' clinic has, to the best of my knowledge, an excellent track record of success with these treatments) and is also causing secondary problems as child protective services workers resign rather than enforce unjust laws, depriving Texas of the ability to investigate real child abuses. Florida, similarly, is moving to block all gender-affirming care for transgender youth which is a major overreach.

I would in particular associate myself with this letter from Florida health care professionals that appeared in the Tampa Bay Times (emphasis added):

While we agree with the Florida Department of Health that guidance surrounding care of transgender youth "requires a full, diligent understanding of the scientific evidence," their statement fails to follow their own recommendations. Specifically, the Florida Department of Health cites a selective and non-representative sample of small studies and reviews, editorials, opinion pieces and commentary to support several of their substantial claims. When citing high-quality studies, they make conclusions that are not supported by the authors of the articles. And while they state that their guidance is consistent with recommendations from Sweden, Finland, the United Kingdom and France, in fact, none of these countries recommends against social gender transition, and all provide a path forward for patients in need of medical intervention. This stands in marked contrast to the categorical ban recommended by the Florida Department of Health.

The way a lot of people approach the world is that when something bad is happening, as it is in Texas and Florida, they don't want any intra-coalition quibbling or infighting. So progressives see that Ron DeSantis claims to be acting in accordance with the Swedish, Finnish, etc. guidelines and then criticize him for lying and leave it at that.

But the reason Florida cited those foreign guidelines is that it really is true that Sweden's National Board of Health and Welfare has adopted a more conservative approach to the use of puberty blockers than the current American standard, just as the Dutch clinic that pioneered gender-affirming youth care is more conservative than American clinics. And while the question of whether Texas and Florida have gone too far in restriction is important, so is the question of whether Sweden is right or American advocates are. And while I'm not certain about the answer to that question (though my guess is that Sweden is closer to the mark), I'm really certain that it is not currently getting the rigorous in-depth treatments that it deserves.