Lumber and Labor Force

Episode Summary

Executive Summary: The episode opens with a review of strong U.S. and mixed global data, highlighting accurate real-time forecasting and signs of a still-booming U.S. economy. The main focus is a detailed, broadly supportive discussion of Biden’s American Family Plan and the broader Build Back Better agenda, emphasizing childcare, education, labor-force participation, long-run growth, and distributional fairness, while noting the plans are likely to pass via reconciliation in 2022.

Main Topics: Real-time economic indicators and forecast accuracy (Priority: 5/5): The hosts discuss Ryan Sweet’s strong forecast track record on high-frequency indicators and the importance of understanding data quirks, seasonality, and measurement issues. Housing market strength and moderation (Priority: 5/5): The team reviews housing-related indicators suggesting demand is cooling slightly but remains historically strong, with first-time buyer intent at a record high and little evidence of speculative flipping. U.S. growth, fiscal stimulus, and credit attribution (Priority: 5/5): They debate what drove the rebound—Congress, the Biden administration, vaccines, and the Fed—with agreement that fiscal policy and vaccines were central. European and emerging-market economic risks (Priority: 3/5): Chris notes Eurozone weakness from lockdowns and supply-chain issues, while Mark expresses greater concern about emerging markets such as Brazil and India. American Family Plan policy design and economics (Priority: 5/5): The speakers assess the plan’s childcare, education, paid leave, healthcare, and tax provisions, largely viewing it as a sensible public investment with long-run payoffs. Long-term growth, inequality, and budget accounting (Priority: 4/5): Mark argues the Build Back Better agenda can raise potential GDP, improve labor-force participation, and help reduce inequality, though benefits are understated in 10-year budget scoring. Legislative timing and reconciliation strategy (Priority: 3/5): They expect the plan to move through reconciliation, likely in late 2021 or early 2022, with skepticism that a bipartisan infrastructure deal will materialize.

Key Arguments: Real-time forecasting accuracy depends less on models alone and more on granular knowledge of each data series’ quirks, seasonality, and timing. U.S. housing remains fundamentally strong: demand is cooling only modestly, first-time buyer intent is at record highs, and flip activity is still far below bubble-era levels. The current economic rebound reflects massive fiscal support, vaccines, and supportive monetary policy rather than any single political actor. The American Family Plan is economically justified because childcare, education, and paid leave are classic public goods with high social returns. Higher taxes on wealthy households and capital gains are unlikely to cause major macroeconomic harm, though some regional tax migration may occur. Infrastructure and family-policy investments should raise long-run potential growth, but the biggest benefits will appear outside the standard 10-year budget window. The package is also framed as a way to direct growth benefits more toward lower-income households and reduce inequality. The plans are expected to pass through reconciliation, probably effective in 2022, with limited odds of a bipartisan compromise on infrastructure.

Data Points: Personal income growth: 21.5% - Ryan’s forecast matched the latest reading discussed at the start of the episode. Home purchase intent: 8.9% - Share of consumers planning to buy a home in the next six months, described as a record high. Consumers planning home purchase historical benchmark: Late 1978 - The 8.9% home-buying intention figure was said to be the highest since the late 1970s. Average home-buying intent in last expansion: A little over 5% - Used as a comparison for current housing demand strength. Prime homebuying-age population: 39 million people aged 26–34 - Demographic support cited for housing demand. Share of total population aged 26–34: 13% - Context for the prime first-time-homebuyer cohort. Share of home sales that are flips: Closer to 7%–8% - Todd Metcalf’s definition of flips; indicates limited speculation. Flip share in pre-financial crisis bubble: 20%–25%+ - Compared with current low flip activity. Added cost from lumber prices: $36,000 - Estimated increase in cost to a new home from higher lumber prices. Lumber price change: More than doubled over the past year - Cited as a major input-cost pressure on new-home construction. Median new house price: $350,000 - Current level cited by Mark. Median new house price pre-crisis: $250,000 - Used to show how much new-home prices have risen since the housing bubble era. Eurozone GDP: -0.6% - Chris’s chosen foreign indicator, signaling Eurozone weakness. U.S. GDP growth (Q1 annualized): 6.4% - Referenced as evidence of strong U.S. growth. Quarter-to-quarter GDP change before annualization: 0.6% - Noted as the number some media outlets reported instead of annualized growth. Excess savings in the U.S.: $2.3 trillion - Ryan’s estimate of accumulated household savings beyond a no-pandemic counterfactual. Potential GDP lift by 2031: 10 to 15 basis points - Estimated effect of incorporating the Build Back Better agenda into the baseline. Potential growth rate in 2031: A little over 2% per annum - Up from 1.9% previously, according to Mark. Previously assumed long-run growth: 1.9% - Benchmark for the economy before incorporating the new fiscal agenda. President’s proposed spending and tax credits: $4.5 trillion - Top-line scale of the broader Build Back Better agenda discussed. Tax increases proposed: $3.5 trillion over 10 years - Funding source in the president’s proposal. Modeled spending and tax credits assumed to pass: $3 trillion - Moody’s baseline assumption for the plan. Modeled tax increases assumed to cover: $2 trillion to $2.5 trillion in first 10 years - Moody’s baseline offset assumption.

Pivotal Quotes: "I think this is a slam dunk economically." — Chris Torites: Assessment of the American Family Plan as economically sound public policy. "It’s booming." — Ryan Sweet: Summary of U.S. economic conditions after reviewing the latest data and income strength. "If we’re going to make these big investments that have big payoffs, but only over a long period of time, somehow we’ve got to think differently about how we do the accounting and the budgeting." — Mark Sandy: Mark’s argument that standard 10-year scoring misses the real benefits of family and education investments.

Implications: Listeners should expect continued strong near-term U.S. growth and likely passage of major family-policy and infrastructure measures via reconciliation in 2022. The broader policy mix could modestly lift long-run growth while improving labor participation and distributional outcomes.