Member Briefing April 4, 2023

Posted By: Harold King Daily Briefing,

ISM: US Manufacturing Sector March PMI Weakest in Nearly Three Years

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI fell to 46.3 last month, the lowest reading since May 2020, from 47.7 in February. Economists polled by Reuters had forecast the index dipping to 47.5. This is the lowest level in nearly three years. New orders continued to contract, and activity could decline further amid tightening credit conditions. It was the fifth straight month that the PMI remained below the 50 thresholds, which indicates contraction in manufacturing. But so-called hard data have suggested that manufacturing, which accounts for 11.3% of the economy, continues to grow moderately.

The ISM survey's forward-looking new orders sub-index fell to 44.3 last month from 47.0 in February. Work backlogs continued to shrink, reflecting the collapse in demand as well as improved supply chains. The survey's measure of supplier deliveries slipped to 44.8 from 45.2 in February. A reading below 50 indicates faster deliveries to factories.

Read more at Barron’s

War in Ukraine Headlines


Q1 2023 NAM Outlook Survey Shows Slight Improvement In Expectations

In the latest NAM outlook survey, 74.7% of respondents felt positive in their company outlook, up from 68.9% in the fourth quarter, which had been the lowest since the third quarter of 2020. Three-quarters of manufacturers cited the inability to attract and retain employees as their top primary challenge, followed by concerns about increased raw material costs and supply chain challenges.

More than 90% of respondents said that higher tax burdens on manufacturing income would make it difficult for their companies to expand their workforce, invest in new equipment or expand their facilities. Similarly, 93.9% suggest that increased regulatory burdens would weaken their ability to invest in their workers, equipment or facilities. More than 55% of respondents said that new proposed air standards from the Environmental Protection Agency would raise their costs of compliance, with roughly one-third suggesting that it would lead to increased permitting challenges and lessen investment and facility expansion plans.

Read more at CNN

World Bank Warns of Lost Decade for Global Economy

The World Bank is warning of a “lost decade” ahead for global growth, as the war in Ukraine, the Covid-19 pandemic and high inflation compound existing structural challenges. “Across the world, a structural growth slowdown is under way: At current trends, the global potential growth rate—the maximum rate at which an economy can grow without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s,” the World Bank said.

Potential growth dropped to 2.6% a year on average from 2011 to 2021, and will shrink further to 2.2% a year from 2022 to 2030, the bank said. About half of the slowdown is attributable to demographic factors. Questions surrounding global growth prospects will be in the air in Washington, D.C., at the spring meetings of the International Monetary Fund and World Bank from April 10 to 16. Policy makers and central-bank officials will join economists from around the world to discuss topics including inflation, supply chains, global trade fragmentation, artificial intelligence and human capital. 

Read more at the WSJ

COVID News – Scientists Fear ‘Catastrophe’ Should COVID, MERS Viruses Combine

The SARS-CoV-2 virus is highly contagious but the current dominant strains are not very lethal. Its much rarer cousin in the betacoronavirus family of pathogens, MERS-CoV, is highly lethal but not very contagious. Now imagine a blend of the two—a respiratory virus with the most dangerous qualities of both. Contagious and lethal. It’s a real risk, according to a new study from China. And it’s a strong argument for a new, more widely effective vaccine.

If a single person ever catches SARS and MERS at the same time through neighboring receptors and the two viruses combine, we could have a whole new pandemic on our hands—one that could be far worse than the current COVID-19 pandemic. The recombination risk is one driver of a global effort to develop new vaccines that could prevent, or reduce the severity of, infection by a variety of SARS viruses, MERS, and any hybrid of them. A universal vaccine for a whole family of viruses. Good news: Universal vaccines are in development. Bad news: They’re still a long way away.

Read more at Daily Beast

Centrist Democrats Hatch Secret Plan to Head off Debt Ceiling Calamity - The White House Wants No Part of It.

The rogue band of moderate Democrats has spent weeks constructing a break-glass deal with centrist Republicans in case the country goes all the way to the brink on the debt ceiling. As the summertime deadline for action approaches, they’re worried a prolonged standoff could lead to fiscal disaster. A group of House Democrats is secretly crafting a fallback plan to avoid an economy-rattling debt default.

The intraparty friction is growing as Washington’s debt crisis gets less theoretical and more urgent with each passing week. And the freelancing Democratic centrists may not have helped their cause by getting involved just as party leaders began seeing a political advantage in the fiscal fight — as long as they can keep the onus on Speaker Kevin McCarthy to unveil a plan that might pass the GOP-controlled House, with unpopular spending cuts likely to be attached.

Read more at Politico

Biden’s Nominee for Labor Secretary on Shaky Ground in Senate

President Biden’s nominee to run the Labor Department, Julie Su, is facing an uphill climb toward confirmation as lawmakers prepare for a bruising battle in the coming weeks once the Senate returns from recess. Congress heads into a two-week break with a few moderate Democrats concerned over if she’s the right person for the job, leaving her below the threshold of 50 votes needed for confirmation. Sen. Bill Cassidy (R-La.), the ranking member on the HELP Committee, pointed to Su’s stance on independent contractors and the gig economy.

During her time in California, Su was a leading proponent of California’s Assembly Bill 5 law that introduced a three-stage test to prove a worker is an independent contractor rather than an employee. “It’s actually the pressure of the issues,” Cassidy told The Hill of what could doom her nomination. “For all those gig workers who strongly object, that’s where the pressure comes from. We can’t pressure Democrats. But a lot of the Democratic senators are going to side with freedom or are going to side with unions. That’s kind of what it comes to.”

Read more at The HIll

DiNapoli Predicts Wall Street Bonuses Fell 26%

State Comptroller DiNapoli released his annual estimate of bonuses paid to employees of New York City’s securities industry this week. The average bonus for 2022 dropped to $176,700, a 26% decline from the previous year’s $240,400. As a result, bonuses returned to pre-pandemic levels after strong growth during the pandemic fueled record profits on Wall Street. In 2022, Wall Street’s pretax profits fell 56% from the previous year due to deep declines in investment-banking fees, which were driven by the Federal Reserve’s interest-rate hikes, inflation, and Russia’s invasion of Ukraine.

Wall Street bonuses have a significant impact on tax revenue for the State and City, and State Comptroller DiNapoli estimates that 1 in 11 jobs in New York City is either directly, or indirectly, associated with the securities industry.

Read more at the Comptroller’s website

With NY State Budget Overdue, Lawmakers Approve Stopgap Spending

New York lawmakers approved stopgap legislation to help keep state government running Monday as negotiations on the overdue budget continued behind closed doors.Gov. Kathy Hochul and legislative leaders, all Democrats, were unable to reach a deal on a state spending plan before the new fiscal year began Friday. The “extender” appropriations bill sent to the Legislature on Monday allows New York to meet payroll and other obligations through Thursday. The state Senate approved the extender bill Monday afternoon, and the state Assembly approved it later.

Changes to the state’s bail system, child care subsidies and other policies were being discussed by state leaders as part of the roughly $216 billion budget. Democratic state Sen. Liz Kruger said she was cautiously optimistic that bills for the spending plan could be considered by the Legislature by Thursday.


New York Comptroller Urges Legislature to Restore his Audit Power, Again

Three months ago, during the pomp of the state’s inauguration ceremony on Jan. 1, New York state Comptroller Tom DiNapoli thanked Gov. Kathy Hochul for signing a bill to restore his office’s power to pre-audit state development contracts. “As the state independent fiscal watchdog, I will continue to advance transparency and accountability in the finances and budget practices of our state and local governments,” DiNapoli said at the time.

But just weeks after DiNapoli publicly thanked her, Hochul proposed stripping his office of a different set of powers — this time, his pre-audit authority over executive branch spending. This time, DiNapoli appears to have the Legislature on his side – neither legislative one-house bill included the governor’s proposal. When asked why these powers are important, he said it gets back to transparency, accountability and ensuring a level playing field.

Read more at NY State of Politics

With the UAW’s New Leadership, Automakers Change Tack

“It’s a new day in the UAW,” Fain said to the assembled delegates in a speech lit with battle terms, as well as multiple references to Dr. Martin Luther King Jr. The speech signaled that the union leadership’s approach has vaulted from previous leaders’ more collaborative style in talks with the Detroit three automakers to a confrontational tone going into four-year contract negotiations with Ford Motor Co., General Motors Co. and Stellantis N.V. in September.

“If you look just at the OEMs, they are going to do the same preparation they’ve always done, which is really a very state-of-the-art, complete preparation,” said labor strategist and attorney Robert Chiaravalli, who works with Tier 1 and 2 automotive suppliers on labor negotiations. Going forward, the OEMs need to be prepping for a strike and determining how long they will let a strike go, he added. If the fighting stance spreads to suppliers with a unionized workforce, they’re in “much more vulnerable state because they don’t have the same type of labor relations, acumen and staff that the OEMs do.”

Read more at IndustryWeek

Surprise Oil Production Cuts Risk 'Exacerbating' Inflation Pressures And Harsher Fed Policy, Experts Warn

The world's largest oil cartel sent shock waves through markets on Monday after a surprise weekend decision to cut production—fueling a morning spike in oil prices and pushing some experts to warn the development could further exacerbate inflationary pressures, driving up the cost of transportation and making the Federal Reserve's job of taming inflation more difficult.

The "dramatic cut" will only add to global inflationary pressures, driving up the prices of production and transportation, and potentially further disrupting supply chains, explains Nigel Green, the CEO of wealth advisory deVere Group, noting "there's real concern" the surprise decision could prompt central banks to maintain interest rates "higher for longer... which will hinder economic growth." The International Energy Agency also issued a warning after the decision, lamenting the oil market was already set to tighten in the second half of the year and stating the new cuts "risk exacerbating those strains and pushing up oil prices at a time when inflationary pressures are hurting vulnerable consumers around the world."

Read more at Forbes

U.S. Campaigned to Stop Chinese Bid on Key Croatian Port

When a deal to remake the port at Rijeka’s emerged three years ago, it set off alarm bells in Washington: Three Chinese state-owned companies had won a bid for a 50-year deal to build and operate a modern new ship-container terminal at Rijeka, a deep-water port with easy access to central Europe’s markets. That news, according to U.S. and Croatian officials, sparked an intense, behind-the-scenes campaign by Washington that used diplomacy, declassified intelligence and other tools to persuade North Atlantic Treaty Organization ally Croatia to keep China out. U.S. officials also quietly backed an alternate offer led by Danish shipping giant A.P. Moller-Maersk A/S.

China has been expanding its interests in ports across Europe, in countries including Spain, Belgium and Greece, where it has a majority stake in the Piraeus port authority. Last year, Washington weighed in on China’s plan to take a commanding role in the port of Hamburg, which some members of German Chancellor Olaf Scholz’s coalition government also opposed. “We strongly suggested that there be no controlling interest by China,” a senior U.S. official said. 

Read more at the WSJ

Tesla First-Quarter Vehicle Sales Were Up 36%.

Tesla’s first-quarter vehicle sales rose 36% after the company cut prices twice in a bid to stimulate demand. The electric car, SUV and heavy truck maker said it delivered 422,875 vehicles worldwide from January to March, up from just over 310,000 a year ago. But the increase fell short of analyst estimates of 432,000 for the quarter, according to FactSet.

Tesla cut prices in early March on its more expensive models, the S and X, by $5,000 to as much as $10,000. In January it slashed the sticker numbers on several versions of its EVs, making some eligible for a U.S. $7,500 federal tax credit. Some versions of the top-selling Model Y small SUV saw price trims of nearly 20%, and the base price of the Model 3 small car was dropped by 6%.

Read more at Fortune

NASA Reveals Artemis II Crew, the First Moon Astronauts in 50 Years

NASA has selected the four astronauts who, for the first time in five decades, will embark on a journey that only 24 people have ever undertaken—around the moon and back to Earth. The U.S. space agency’s new lunar mission, called Artemis II, will have a crew that includes the first woman, the first Black person, and the first non-American to ever leave low-Earth orbit.

As soon as November 2024, NASA astronauts Reid Wiseman, Victor Glover, and Christina Koch, and Jeremy Hansen from the Canadian Space Agency (CSA) will launch on their 10-day mission. The crew, which includes three pilots and an engineer, has been charged with testing NASA’s newest lunar spacecraft, called Orion, on its first crewed flight.

Read more at NASA

As Dealerships Get More Stock, Auto Makers’ Sales Rebound in First Quarter

Car buyers are finally starting to see something they haven’t in a long time on dealership lots: more availability of cars and trucks. Inventory levels for new vehicles, constrained through much of the pandemic due to supply-chain snarls, have begun to bounce back, leading many car companies to report higher U.S. auto sales in the first quarter. The strong results are a sign that the car sector is moving past some of the acute shortages that have dogged business in recent years.

General Motors Co. said its U.S. sales jumped nearly 17.6% in the first quarter, helped along by strong pickup-truck demand and an increase in sales to fleet customers.  Hyundai Motor Co. reported a 16% increase in its U.S. sales for the January-to-March period. Nissan Motor Co. posted a 17% increase for the quarter, while Honda Motor Co.’s U.S. sales were up 6.8% over the prior year. Toyota Motor Corp. was one outlier, reporting a nearly 9% drop in U.S. sales for the January-to-March period.

Read more at the WSJ

The World’s Best Single Malt Whisky—According To The 2023 World Whiskies Awards

At a special event on March 30th in London, the World Whiskies Awards announced the winners for some of its most coveted categories. Hundreds of distillers and industry veterans in attendance that night patiently awaited the big reveal: World’s Best Single Malt. And many of them might still be busy picking their jaws up off the ballroom floor. The grand prize went not to a producer from the major malt making regions of Scotland, Ireland or Japan. Instead, it was collected by M&H out of Tel Aviv. Yes, the Tel Aviv in Israel.

The distillery, formerly known as Milk & Honey, won the accolade for its Sherry Cask expression—non-chill filtered and bottled at 46% ABV. It is the first whisky ever to be aged in Kosher sherry casks from the Jerez region of Spain. In the hot and arid Middle Eastern climate, the application of this cooperage has imbued the underlying whisky with a thumping melody of red fruit, dark chocolate and, ultimately, tobacco. It’s a complicated symphony to consider and one which lingers on the palate for far longer than you might suspect from a non-age-statement offering.

Read more at Forbes