Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

Flash April PMIs point to slower growth in the US but a pickup in Europe and Japan

Outlook strengthens for US while it weakens for other major economies

Crude petroleum prices are having a big impact on inflation expectations

Inflation surprising to upside in the US; by contrast to the downside in the euro area

 Gross Domestic Income is catching up with GDP

FOMC expects GDP growth above trend over the next three years

US core CPI inflation has begun to reaccelerate

Fiscal-policy aided factory building in the U.S. provided an unusually large boost to growth last year

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Peter D'Antonio

Shashwat Indeevar

The Yale Environmental Performance Index (EPI) 2024 Report states that there is a positive correlation between a country’s living standards and its progress toward achieving environmental goals. We wanted to explore that relationship in hopes of both shedding light on paths to making further progress toward environmental sustainability and highlighting any roadblocks. As Brookings noted in its commentary, “Developing Countries are Key to Climate Action,” it is imperative that any solutions for global climate change take into consideration the competing goal of increasing living standards in developing nations.

We ran regressions on 175 countries in cross section to quantify how living standards (as measured by 2023 per capita GDP) affect progress on environmental issues (as measured by the 2024 EPI). From these data, we can verify that per capita GDP is strongly correlated with EPI scores. Like the Yale study, we noticed that the gains from higher per capita GDP diminish as nations become wealthier. We were able to model this by taking logs of per capita income. As the chart shows, an increase in per capita GDP from 4 to 5 ($10,000 to $100,000) is associated with an increase of 15 points in the overall EPI score. The goodness of fit (adjusted R2) for this regression is 60.4 percent.

240903PS1.jpg

In general, affluent societies can afford to devote more resources to improve the environment. But there is a tradeoff: As the Yale report notes, higher per capita GDP gives a nation the means to produce/purchase more goods and services, implying more GHG emissions, not less. For each nation, the balance of these competing wants – more goods versus a cleaner environment – will determine the progress toward environmental goals.

We extended this line of inquiry by asking if the tradeoff differs for various environmental goals. The Yale data identify three main goals – environmental health, climate change, and ecosystem vitality. We regressed per capita GDP against these three EPI subcomponents separately. Our hypothesis was that the correlation would be strongest where the environmental issues are most tangible for nations’ citizens – environmental health. The wealthier a nation is, the more society will be willing to spend to buy clean air and water, waste treatment, and elimination of poisons. People see the local environment every day and it impacts their lives directly. In contrast, nations may be less inclined to devote resources to environmental issues where their populations are not immediately affected, such as climate change and ecosystem vitality.

It turns out that per capita GDP actually is significantly correlated with all three environmental goals – environment, climate, ecosystems. However, the three correlations are very different in terms of degree. The following table shows that the standard of living is a selective driver of environmental goals.

240903PS2.jpg

Increases in per capita GDP are correlated with huge gains in the environmental health score (EPI-Environment), and the regression has by far the closest fit. The impacts of per capita GDP on climate (EPI-Climate) and ecosystem (EPI-Ecosystem) goals are much more muted, with weaker goodness of fit. The strong correlation with the Environment component is the main driver of the correlation with the overall EPI. These results imply that higher living standards alone are not enough to bring about meaningful improvements on climate change and ecosystem vitality.

Based on IMF Greenhouse Gas Emissions, we estimate that developing countries account for 75.8 percent of current emissions. This is likely to skew further as these countries industrialize. Less affluent nations have little incentive to make progress on climate and ecosystem goals. As the Brookings commentary points out, with limited resources, these countries have development imperatives that both supersede and counter environmental goals.

The only way to get buy-in on climate initiatives from developing nations is for developed nations to offer aid. Developed nations need to help with industrialization in exchange for movement away from polluting production processes, especially the burning of coal, and toward cleaner technologies.

More generally, we believe climate goals need to become bigger priorities, even in developed nations. As with any public good, government needs to take the lead because people and businesses will act in their best interest individually, resulting in a free rider problem – people get very little incremental personal benefit from their own expenditures on these initiatives. Also, governments need to more effectively educate their populations that progress on climate goals will improve lives in the future.

Note: We accessed the Yale EPI and the IMF GHG datasets from the Haver ESG database and the comparable country-specific GDP per capita figures from the Haver WDI database.

**References:**
Bhattacharya, A., Kharas, H., McArthur, J. W., (2023). Commentary: Developing Countries Are Key to Climate Action. Washington, DC: Brookings. March 3, 2023. [https://www.brookings.edu/articles/developing-countries-are-key-to-climate-action/ ](https://www.brookings.edu/articles/developing-countries-are-key-to-climate-action/ )

Block, S., Emerson, J. W., Esty, D. C., de Sherbinin, A., Wendling, Z. A., et al. (2024). 2024 Environmental Performance Index. New Haven, CT: Yale Center for Environmental Law & Policy. epi.yale.edu

Climate Goals Hinge on Support for Developing Nations

Joseph G. Carson

The ratio of the home price to median household income has nearly doubled since 2000. It's counterfactual to think that would have occurred if the BLS (Bureau of Labor Statistics) had not changed in 1999 its survey of owner-occupied housing to measure implicit owner-rents. Unbeknownst to many, the change has led to a significant undercount of housing and overall CPI inflation for decades.

In 1999, BLS made a significant change by 'simplifying the housing survey' to measure owners-rents in the CPI. It no longer tracked two types of housing units, owners and renters, with different characteristics and, in many cases, various locations. BLS argued that this change was necessary because it could no longer find an adequate sample of owner-occupied units for rent. BLS stated that the change was made to ensure the accuracy of the data, but the actual outcome was an understatement of housing inflation and overall inflation.

During the housing boom of the early 2000s, a crucial period that underscored the importance of accurate inflation data, I debated with BLS at an annual economic conference in 2004. Our research found that the rental survey underestimated actual or experienced inflation by several hundred basis points each year in the owner-occupied housing market. My main point was that the owner and rental markets were two distinct housing markets with different vacancy rates, and the latter was a primary determinant of rent changes.

BLS countered, stating, "There is no clear theoretical relationship between the homeowner vacancy rate and owners' equivalent rent." I emphasized that the practical relationship states otherwise. When housing prices are rising rapidly, and there is a short supply of housing units, why would owner-rents track the rental market and not the owner-housing market? Different markets yield different inflation.

This practical relationship, often overlooked, is crucial to understanding the actual inflation rates in the owner housing market. During the housing boom of the early 2000s, owners' rents increased between 2% and 3% per year, as they were linked statistically to rents of primary residences, while house prices rose at double-digit rates. Even today, owners' rents are not tracking house price inflation.

Many factors are behind house price inflation. Yet, if consumer price inflation tracked actual house price inflation versus a "hypothetical measure," it is hard to argue against the view the fact that overall inflation would not be higher, as official and market interest rates would be as well, resulting in a median house price much below current levels.

The change in the housing rent survey is a much more significant BLS blunder than the recent controversy over the overstatement of payroll job growth, as it affects reported inflation, inflation adjustments to entitlement programs, and, in some cases, workers' wages and official and market interest rates.

Another BLS Blunder: Basing Inflation Measurement on Theory and Not Logic or Reason

Charles Steindel

The Federal Reserve Bank of Philadelphia’s state coincident indexes in July were soft. Connecticut was (again) on top with a .8 percent gain from June, but Alabama was the only other state with an increase of as much as .5 percent. A full 22 states saw declines, led by a plunge of 1 percent in Massachusetts (suggesting that the Hartford-Springfield MSA performance was near zero?). And, over the 3 months ending in July, 14 states were down, with Massachusetts off 1.5 percent, and Missouri and Montana seeing 1 percent drops. Connecticut was also on top at this horizon, with an increase of 2.2 percent (clearly, something odd must be happening around the intersection of I-84 and the Mass Pike…). Over the last 12 months, 6 states were down, and another 7 saw increases of less than 1 percent. Continuing the New England focus, Rhode Island’s index was off 1.7 percent. Arizona had a 4.6 percent increase, and 4 other states—mainly in the west—had gains of 3 percent or more.

The independently estimated national estimate of growth over the last 3 months (.4 percent) seems a bit lower than the state figures would suggest, but the 12-month result (2.4 percent) looks to be roughly in line with the state numbers.


State Coincident Indexes in July 2024

Viewpoints: January 2018

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