Member Briefing April 26, 2023
What Recession? Global Consumer Giants Boosted by Spending, Higher Prices
Major global consumer-facing companies like McDonald's, General Motors and Nestle posted mostly buoyant results on higher prices, showing how consumers across major economies are still spending despite slowed economic activity. Shoppers have absorbed price increases for soda, appliances and other goods, offsetting concerns among investors that companies in Europe and the United States are set for a second consecutive quarter of declining earnings.
Consumers have more wiggle room in their budgets, said Ben Ayers, senior economist at Nationwide Economics, pointing to an increase in the use of revolving credit, along with the still-resilient job market. Several companies posted strong results based on robust pricing. Switzerland-based Nestle SA, the maker of Purina pet foods, increased prices by nearly 10% during the quarter even as sales volumes fell 0.5%. Similarly, beverage giant Coca-Cola Co said average selling prices rose by 11%, while rival PepsiCo Inc said its prices gained 16% in the first quarter. "Companies did not increase their business; they just were able to pass their costs and maintain their business," said Jack Ablin, Cresset Capital chief investment officer.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia's New T-14 Armata Battle Tank Debuts in Ukraine – Reuters
- Future U.S. Aid to Ukraine Turns on Kyiv’s Success on the Battlefield - WSJ
- Putin Ally Warns of Nuclear World War as Moscow Deploys New Tanks – The Independent
- Russia Panicking Over Vladimir Putin's Arrest Warrant, Officials Claim -NDTV
- New Defenses Show Russia On Defensive In Sevastopol As Ukraine Attacks – Naval News
- Ukraine’s ‘Killer’ Sea Drones With Low Visibility, High Maneuverability Pose Permanent Threat To Russian Navy- EurAsian Times
- Russia Convicts Ex-Police Officer Over Ukraine War Criticism – The Hill
- There is a Dogfight Between Swedish Gripens and American F-16s – The Economist
- Russia Suffering Worst Labor Shortage in 25 Years - Newsweek
- European Lawmakers Urge for Olympics Ban on Russia, Belarus - AP
- Interactive Map: Assessed Control of Terrain in Ukraine - Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
3M to Cut 6,000 Positions Globally to Improve Cash Flow
3M Co said on Tuesday it would cut about 6,000 positions globally as the U.S. industrial conglomerate looks to focus on high-growth businesses, including automotive electrification and home improvement. The move comes as an uncertain economy along with rising interest rates and stubbornly high inflation forces corporate America to get leaner in recent months. 3M has been struggling with waning demand for consumer electronics as sticky inflation makes buyers cut back on discretionary spending.
The restructuring, which is expected to hit all functions, businesses, and geographies, is aimed at reducing layers of management and the size of the corporate center, the company said. Tuesday's job cut is in addition to the reduction of 2,500 roles announced earlier this year. The company had about 92,000 employees, as of Dec. 31, 2022, according to its annual filing. 3M anticipates annual pre-tax savings of $700 million to $900 million upon completion of the cost-cut actions.
Here’s How Supply Chains Are Being Reshaped for a New Era of Global Trade
Industry experts say a “return to normal,” as the Federal Reserve Bank of New York described its Global Supply Chain Pressure Index in February, hardly means that companies are going back to conventional, some would say complacent, supply chains. Instead, say academics and consultants, the experiences during the pandemic, along with changes in geopolitics, are leading to broader, potentially long-lasting changes in how companies manage the flow of goods, from the sourcing of raw materials to manufacturing and distribution.
The changes on the surface include less reliance on Asia, particularly China, and the use of more automation technology to keep assembly lines and warehouse operations running. But there are more enduring changes, experts say, that will more broadly affect how companies get their raw materials and parts, where they produce goods and how they ship finished products to consumers.
COVID News –The ‘Arcturus' COVID Variant May be Causing a New Symptom
A new variant of COVID-19 starting to spread around the United States could be responsible for a new symptom that is unlike any we’ve seen with the virus so far. That variant, classified as XBB.1.16 by the World Health Organization, was designated as a “variant under monitoring” by the organization last month. Otherwise known as “Arcturus,” the subvariant of omicron has been reported in more than two dozen countries and is responsible for an estimated 9.6% of current cases, according to the Centers for Disease Control and Prevention.
Officials in India have said that the virus has caused fairly typical symptoms that mirror colds, but there’s potentially a new one: conjunctivitis, which can cause red, itchy eyes, or pink eye. That symptom has been more prevalent among children and young adults, but it has afflicted adults as well, according to officials.
Minimum Wage Plan in New York Could Reach $17, Sources Say
New York's state budget could lead to a minimum wage of $17 an hour in the coming years, sources familiar with the discussion said Monday evening. The wage would grow from $15 an hour to $17 in the New York City area by 2026, growing 50 cents a year starting in 2024. North of Westchester County, the wage would increase from $14.20 to $17 an hour by 2028. Future increases would be tied to inflation.
Gov. Kathy Hochul had backed the wage’s link to inflation as part of her initial budget plan. Democratic Sen. Jessica Ramos and Assembly Member Latoya Joyner had called for a wage to reach $21.25 an hour statewide. Lawmakers and Hochul are working this week to finalize a state budget that is expected to include the minimum wage provision. New York last increased the minimum wage at the end of 2016, when it gradually phased in to $15 in the New York City metropolitan area. North of Westchester, the wage increases have been subject to a board within the state Department of Labor after 2021.
New Home Sales Surge in March, Existing Home Sales Dip
Sales of new single-family homes increased by 9.6 percent above the revised rate from a month earlier to a seasonally adjusted rate of 683,000 units. Sales ticked up in the Northeast, Midwest and West. Even so, sales were down 3.7 percent from 707,000 at the same point last year. The seasonally adjusted number of new homes for sale at the end of March was 432,000, which means the supply of new homes would last nearly eight months at the current sales rate.
Meanwhile, existing home sales, which include transactions for single-family homes, townhomes, condominiums and co-ops, dipped by 2.4 percent last month to an annual rate of 4.4 million, according to data from the National Association of Realtors. Sales declined 22 percent year-over-year. But new home sales have ticked up in recent months as mortgage rates moderated following months of volatility and buyers have adjusted, Kelly Mangold of RCLCO Real Estate Consulting said in a statement.
Some State Legislators Want to Get Policy Decisions Out of New York's Budget
New York governors have a lot of leverage in the state budget talks when the state decides how to spend billions of dollars. Some state lawmakers want to claw some of that leverage back. Republican state Sen. Patrick Gallivan on Monday proposed a constitutional amendment that would block the governor from inserting non-fiscal measures in budget proposals.
Lawmakers have blamed the negotiations over non-fiscal provisions in this year's budget — including measures to address changes to the state bail law and housing — as being largely responsible for a budget that is yet to be adopted nearly a month after it was due. “When non-fiscal policies are inserted into the budget, the process gets bogged down, denying the Legislative Branch time to pursue meaningful analysis, review and debate of spending priorities. Substantive policy issues should stand on their own and only be considered through the traditional legislative process.” Gallivan said.
Mortgage Applications Decreased in Weekly Survey
Mortgage applications decreased 8.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 14, 2023.
The Market Composite Index, a measure of mortgage loan application volume, decreased 8.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 8 percent compared with the previous week. The Refinance Index decreased 6 percent from the previous week and was 56 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index decreased 9 percent compared with the previous week and was 36 percent lower than the same week one year ago.
Federal Rule Change Will Raise Mortgage Fees for Mortgages for Homebuyers with Good Credit. High-Risk Buyers Will Pay Less
Americans who have worked hard to build up their credit scores might not be too pleased with this week’s news that a new federal rule could reward those with lower credit at the expense of those with higher credit. Under the rule, homebuyers with a credit score of 680 or higher will reportedly have to pay about $40 per month more than people with worse credit when taking out a home loan of $400,000, according to The Washington Times.
The rule goes into effect on May 1, 2023 — just ahead of the peak spring buying season. It will impact mortgages from private banks across the nation based on loan-level price adjustments (LLPAs) established by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has long sought to give consumers more affordable housing options. The fear among housing experts is that the new rules will make an already challenging market even more challenging for homebuyers.
Earnings: General Motors Beats, Raises Forecast
General Motors on Tuesday raised key guidance for 2023 after reporting first-quarter results that topped Wall Street’s top- and bottom-line forecasts. The company reported adjusted earnings per share of $2.21 and Revenue of 39.99 Billion for the quarter. For the full year, GM is raising its adjusted earnings expectations to a range of $11 billion to $13 billion, or $6.35 to $7.35 a share, up from a previous range of $10.5 billion to $12.5 billion, or between $6 and $7 a share. GM also raised expectations for adjusted automotive free cash flow to a range of $5.5 billion and $7.5 billion, up from an earlier forecast of $5 billion to $7 billion.
GM said revenue during the first three months of this year was up 11.1% from roughly $36 billion a year earlier. Its net income during the first quarter, however, was down by roughly 18% to $2.3 billion compared to a year earlier.
Buying a New or Used Car is Easier Now, But Getting a Loan is Becoming Harder
New and used vehicles are a lot easier to find this year, now that supply chains are moving again. But now, car buyers may face another hurdle: getting a loan. Earlier this week, Ally Financial said it plans to tighten standards for auto lending. Wells Fargo also said it’s setting aside more cash in case its existing auto loans go bad. Lenders are worried that rising interest rates are making their loans too expensive.
“If people’s payments get much higher because of the interest rates, then the lenders are going to worry about defaults,” said Kathleen Engel, a professor at Suffolk University Law School. She said lenders are also worried that if a recession happens, some borrowers might lose their jobs — so they’re raising rates further to compensate for the risk. That also means they’re making fewer loans.
Blockchain in Manufacturing Can Improve Supply Chain
Though blockchain has mostly been associated with cryptocurrency, the immutability and transparency of a blockchain-powered network are actually perfectly suited for the complexities of supply chains. By enabling manufacturers to quickly and seamlessly share accurate supply-chain data with their many partners, blockchain can help companies simplify a host of essential processes, reduce operational hazards and ultimately meet demand with greater ease.
Blockchain technology, however, eliminates the probability of inaccurate data by logging the entire lifecycle of a manufactured product in a secure yet public database. This creates a single source of valid information for all supply chain partners. And once a block of information is logged onto the blockchain, it cannot be modified or deleted. So, not only can each party access the same information at any given moment, but they also have no reason to doubt the information’s accuracy. This dramatically reduces the risk of miscommunication, especially errors that arise from outdated information.
US Solar Equipment Manufacturers Seek Subsidy Clarity
The Biden administration’s Inflation Reduction Act is offering billions of dollars in tax incentives for facilities using American equipment to accelerate decarbonization of the U.S. power sector while creating domestic jobs. But the subsidies, signed into law last year, have yet to trigger a boom in U.S. solar manufacturing as investors await guidance on those perks. Their main question: will solar panels qualify if they are assembled in the United States using components made overseas?
As soon as this month, the U.S. Treasury Department is expected to release those details, the latest in a series of advisories on how companies can take advantage of the landmark law. A Treasury Department spokesperson said the agency was “focused on providing clarity and certainty for taxpayers and ensuring the bonus as written in the statute is workable for taxpayers.”
Sliding Diesel Prices Signal Warning for U.S. Economy
Wholesale diesel recently fell to $2.65 a gallon in New York Harbor, down from $5.34 last May, after Russia’s invasion of Ukraine sent commodity markets haywire and turned prices advertised at gas stations into street-level reminders of inflation’s 40-year highs. Record diesel costs made it more expensive to operate excavators at construction sites, run machinery on farms, and haul goods from ports, rail yards or factory floors.
Prices began falling months ago, when a warm winter cut demand for heating fuel and a reshuffling of global oil trade alongside Russia’s war left a glut of diesel supplies on the market. Now—with the Federal Reserve trying to cool business activity by raising interest rates—waning manufacturing output and trade have also dented U.S. appetite for the fuel. The darkening industrial outlook, which contrasts with low unemployment and a robust service sector, has pulled benchmark diesel futures down nearly 25% this year, to $2.53 a gallon. Federal record-keepers peg the year-over-year hit to domestic demand at 8.4%.
Orange County Begins Process to Rejuvenate Foreign Trade Zone
Orange County has held a federal license for a foreign trade zone for decades, but it has remained dormant, for the most part, in recent years. That may change now as the county is looking to revitalize the zone, where product components may be imported and remain tax-free until they are assembled and shipped out. County Economic Development Director Steven Gross said his office is receiving inquiries from companies interested in using the facilities.
“When they learn about it, they think we have a warehouse that is operating as a foreign trade zone that they could just drive up to and put their materials in, and we don’t have that, but maybe it is something that we should have. So, we are looking to see if there is an opportunity for business model in regard to the foreign trade zone,” he told the economic development oversight committee of the county legislature on Monday. When the foreign trade zone was first established some 40-plus years ago, the SAGE building at New York Stewart International Airport was the initial location.