Member Briefing April 19, 2022
Industrial Production Climbs in March Driven by Automaker Rebound
Industrial production climbed 0.9% last month, the Fed said, more than expected and pushing the metric of industry output to an annualized rate of 8.1% for the first quarter. Manufacturing output for March also increased 0.9%. Industrial production year on year rose 5.47% .
Other highlights from the Fed on the state of the manufacturing sector:
- Total industrial production advanced 8.1 percent for the first quarter.
- The output of motor vehicles and parts jumped 7.8 percent.
- Consumer durables and transit equipment increased 5.2 percent.
- At 104.6 percent of its 2017 average, total industrial production in March was 5.5 percent above its year-earlier level.
- Capacity utilization climbed to 78.3 percent, a rate that is 1.2 percentage points below its long-run (1972–2021) average.
- Although, the capacity utilization is still below it’s long run average by 1.2% (from 1972), it still is at its highest level since January 2019. The 2018 cycle high reached 79.9%
Invasion of Ukraine Headlines
- Ukraine and Russia: What You Need to Know Right Now – Reuters
- Russia Unleashes Offensive on Ukraine, Ushering in New Phase of War – Politico
- At Least 7 People Killed in Russian Airstrikes in Lviv, Regional Governor Says USA Today
- Russia Says it Launched Mass Strikes on Ukrainian Military Overnight – Reuters
- Zelensky, IMF Chief Discuss Post-War Plans to Rebuild Ukraine – The Hill
- UN Official Says ‘Food is Being Used as a Weapon of War’ in Russia-Ukraine Conflict – Agence France-Presse
- Lonely Anatoly: The Russian Ambassador is Washington’s Least Popular Man – Politico
- Ukraine Completes Questionnaire for EU Membership – Reuters
- Ukraine War Deepens Debt Woes Across Developing World – WSJ
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Judge Strikes Down CDC Mask Mandate for Travel
A federal judge in Florida on Monday struck down the Centers for Disease Control and Prevention’s (CDC) mask mandate for travel on planes, trains and buses. Judge Kathryn Kimball Mizelle, an appointee of former President Trump, wrote that the CDC exceeded its statutory authority with the order. Mizelle added that the CDC had also failed to follow the rulemaking processes laid out in law and provide a sufficient justification for its mandate. The CDC had recently extended the order for 15 days, through May 3, amid some discussion of whether to end it. But the agency decided more time was needed to monitor an uptick in cases from the BA.2 subvariant of omicron.
The ruling can be appealed, but there could be confusion in the short term. The travel mask mandate was one of the few remaining mask orders, as states and localities across the country have largely lifted mask mandates for the general public. Philadelphia is a rare exception in reinstating a more general mask mandate in recent days due to the uptick in cases.
Goldman Sachs Sees 1 in 3 Chance of a Recession, Other Bank Predictions
The Goldman Sachs economics team says that there is now a 35% chance of a U.S recession over the next two years, with the labor market a particular problem for the Federal Reserve. The large gap between jobs and workers, which keeps wage growth elevated, has historically only declined during periods of economic contraction, chief economist Jan Hatzius and team wrote in a note out on Sunday.
- Deutsche Bank was the first big Wall Street bank to forecast a recession, saying in the first week of April a recession in late 2023 is now their base case.
- Wells Fargo stock strategist Chris Harvey said in a note last week that despite “daily calls for a recession from anyone with a megaphone, we do not expect one of the next 12 months. Rather, stagflation (high inflation/slower growth) likely will prevail.”
- Credit Suisse says “we only tend to get recessions 9 months after 3-month money inverts relative to 10-year.”
Predictions for a recession have been growing as the Fed tries to negotiate a soft landing for the economy at a time when inflation is at a level not seen in four decades.
US COVID – BA.2 Proves the Pandemic Isn’t Over, but People Are Over It
The Omicron subvariant is contributing to school and work absences, yet two years of dealing with Covid-19 have made people tired of taking precautions, getting tested and asking about other people’s status, say physicians, psychologists and behavioral scientists. If this is a pandemic wave, then many have decided the best response is a weary shrug.
Psychologists say it can be difficult to discern how seriously to take BA.2, given shifting guidance and sometimes difficult-to-parse public-health messaging. Avoidance takes various forms including refraining from asking friends about Covid exposures to avoid answers people may not want to hear. Some people say they won’t worry about BA.2 unless it is absolutely clear they need to. Nearly three-quarters of Americans polled by Monmouth University in mid-March agreed that Covid is here to stay, and people should get on with their lives.
Hochul Vows She Won’t Shut Down New York as COVID Cases Spike
Gov. Kathy Hochul said in a new interview that New York would never again be crippled by the COVID-19 pandemic, vowing to not reimpose COVID-related restrictions that ground the state to a halt even as cases begin to rise again.
The Democratic Party nominee for governor vowed to not reimpose COVID-related restrictions that ground the state to a halt — as the Big Apple faces an uptick in cases. “I’m going to protect the health of New Yorkers, but I’m also protecting the economy,” she told John Catsimatidis, host of “The Cats Roundtable,” in an interview out Sunday. “I’m not going to shut it down again, you can count on that.”
“Long Social Distancing” – Survey finds Several Million U.S. Workers Seen Staying Out of Labor Force Indefinitely
About three million workforce dropouts say they don’t plan to return to pre-COVID activities—whether that includes going to work, shopping in person or dining out—even after the pandemic ends, according to a monthly survey conducted over the past year by a team of researchers. The workforce dropouts tend to be women, lack a college degree and have worked in low-paying fields. The research team has named this phenomenon “long social distancing” and believes it will be one of the lasting scars of the Covid-19 pandemic.
Should the researchers’ predictions turn out to be true—that the labor force will be depressed for potentially years after the pandemic recedes—the implications for the world’s largest economy and the Federal Reserve are substantial. A sharp drop in the labor force at the pandemic’s start led to shortages of workers and products that have frustrated households, restrained economic growth and helped push inflation to a 40-year high.
Can COVID-19 Alter Your Personality? Here’s What Brain Research Shows
More than two years into the pandemic, it’s become clear that neurological problems from COVID-19 can linger or intensify. After recovering from the virus, an alarming number of patients remain shrouded in brain fog, suffering from anxiety or depression, unable to think straight or hold on to memories, and fumbling for words. Not all had been hospitalized; some had only mild infections.
While little is known about the mechanisms behind many of these symptoms, researchers increasingly believe that inflammation may play a key role. With COVID-19, a storm of inflammatory cytokine proteins can trigger an out-of-control immune response that might permanently damage or destroy brain cells. And with damage to the brain, Maura Boldrini, a neuroscientist and psychiatrist at Manhattan’s Columbia University Irving Medical Center. says, “we may not be the same person anymore.”
Biden to Require US-Made Steel, Iron for Infrastructure
New guidance issued Monday requires that the material purchased — whether it’s for a bridge, a highway, a water pipe or broadband internet — be produced in the U.S.. “There are going to be additional opportunities for good jobs in the manufacturing sector,” said Celeste Drake, director of Made in America at the White House Office of Management and Budget.
The guidance includes three standards for these requirements to be waived: if the purchase “would be inconsistent with the public interest”; if the needed materials aren’t produced “in sufficient and reasonably available quantities or of a satisfactory quality”; or if U.S. materials increase a project’s cost by more than 25%.
Forecast Sees Flat Steel Demand
Global steel demand growth for 2022 will rise just 0.4% year-over-year, according to the World Steel Assn.’s latest Short Range Outlook report. The ongoing decline, which began in mid-2021, is shaped by Chinese government restrictions on real-estate and construction growth along with rising inflation worldwide and the instability surrounding the Russian invasion of Ukraine. World Steel, a trade association representing steelmaking businesses in 64 countries, pegged the current year’s global steel demand total at 1.84 billion metric tons, to be followed by a 2.2% rise in 2023 to 1.89 billion metric tons.
In its previous SRO, World Steel set the 2022 demand target at 1.89 billion metric tons, which was a downgrade from the preceding forecast level of 1.92 billion metric tons. The global industry had rebounded in the first half of 2021, but by midyear a slowdown had begun – starting in China.
Utilities Plan Huge Electric Grid Upgrades, Adding to Power Bills
American utilities are planning their biggest spending increases in decades to upgrade aging grids, prepare for electric vehicles and make the transition to renewable energy—moves poised to further boost power costs as consumers face historic inflation.
The plans propose tens of billions of dollars in spending in the coming years to reduce carbon emissions, partly in response to state and federal mandates, and to replace aging infrastructure that has become more prone to failure. Edison Electric Institute, an industry trade group, expects that utilities will invest roughly $140 billion each year in 2022 and 2023, substantially more than any year since 2000, when the group began tracking spending.
Bank of America Beats Profit Estimates on Strength in Consumer Lending
Bank of America Corp reported a smaller-than-expected 13% fall in first-quarter profit on Monday, as strong growth in its consumer lending business helped cushion the blow from a slowdown in global deal-making. The bank reported a 9% rise in consumer banking revenue to $8.8 billion in the quarter ended March.
“First-quarter results were strong despite challenging markets and volatility,” Chief Financial Officer Alastair Borthwick said in a statement. However, total investment banking fees plunged 35% to $1.5 billion in the quarter.
California Dreaming – Lawmakers Propose 32 Hour, 4 Day Work Week for Private-Sector Companies with More than 500 Employees
A proposal in the California State Legislature would define the workweek in the state as 32 hours, not 40, for larger companies. By the end of this week, the California State Assembly’s Labor and Employment Committee is expected to decide if the bill will move forward. While the proposal is still many steps away from becoming law, if passed, the bill could affect more than 2,000 businesses. Earlier this month the California Chamber of Commerce added the bill to its “job killer list,” saying the legislation would significantly increase labor costs.
Research into the effectiveness of shortened weeks is mixed. Economic studies out of Germany and France found that fewer hours didn’t increase employment. A 2013 study on private companies in Belgium found that employees who worked between 25 and 35 hours a week were more productive than those who worked more or less than that.
China’s First Quarter GDP Beats Grew 4.8% Year-on-Year
China’s first quarter GDP grew faster than expected despite the impact of COVID lockdowns in parts of the country in March, according to data released by the National Bureau of Statistics Monday. First quarter GDP rose by 4.8%, topping expectations of a 4.4% increase from a year ago. Industrial production in March rose by 5%, beating the forecast for 4.5% growth. However, retail sales in March fell by a more-than-expected 3.5% from a year earlier. Analysts polled by Reuters anticipated a 1.6% decline.
Fixed asset investment for the first quarter rose by 9.3% from a year ago, topping expectations for 8.5% growth. Investment in manufacturing rose by 15.6% in the first quarter from a year ago, and infrastructure saw an 8.5% increase over the same period.
In the Chips: TSMC Reports Record First-Quarter Revenue
Taiwanese tech giant TSMC posted record revenue for the first three months of the year Thursday. Taiwan Semiconductor Manufacturing Company (TSMC) operates the world’s largest silicon wafer factories and produces some of the most advanced microchips. CEO C.C. Wei said first-quarter revenue was “above the high-end of our guidance mainly due to better demand from smartphone and automotive-related applications than our forecast three months ago.”
Its first-quarter revenue rose 36% on-year and 12% on-quarter, respectively, to a record Tw$491.1 billion (US$17.6 billion), according to a company statement. It also posted a 45% year-on-year profit of Tw$202.7 billion in the January-March period. That was up 22% from the 2021 fourth quarter.