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Member Briefing August 1, 2024

August 1, 2024

Posted By: Harold King in Daily Briefing,

Top Story

Fed Clears Path for September Rate Cut

Federal Reserve officials hinted they were moving closer to lowering interest rates when they agreed to hold them steady on Wednesday. “A reduction in the policy rate could be on the table as soon as the next meeting in September,” said Fed Chair Jerome Powell at a news conference after the meeting. “We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point.”

Officials made two important changes to their policy statement that acknowledged recent progress in their inflation fight and that pivoted closer to lowering rates without making any explicit commitment. They described inflation as “somewhat elevated,” a notable downgrade. And they underscored that this progress meant they could treat both sides of their mandate—to maintain low and stable inflation with sturdy labor markets—on a more equal footing for the first time since they rapidly raised rates starting two years ago to combat high prices.

Read more at The WSJ

Employment Cost Index Shows Inflation Pressures from Jobs Market Subsiding

The second quarter Employment Cost Index offers the latest sign that the downward trend in inflation is back on track after a derailment at the start of the year. The ECI came in touch softer than expected, advancing 0.9% over the quarter, or at a 3.7% annualized rate. The second quarter's moderation leaves it closely approaching a pace consistent with the Fed's inflation goal once accounting for productivity.

After a widespread pickup in the first quarter, the drivers of the second quarter's moderation in employment cost growth were broad-based. Private sector compensation cost growth advanced 0.9% over the quarter after a 1.1% rise in Q1, with wages & salaries and benefit cost growth moderating. The slowdown came despite another hefty increase to private sector union workers (+1.6%) to help catch up to the compensation gains with non-union workers since the start of 2020. Public sector employment costs also eased over the quarter but are still running ahead of private industry gains over the past year after having initially lagged this cycle.

Read more at Wells Fargo

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Policy and Politics

Tax Bill Vote Scheduled Today in Senate

Senate Majority Leader Chuck Schumer (D-NY) has scheduled a procedural vote on a bipartisan tax package, though the bill’s fate remains uncertain. The Tax Relief for American Families and Workers Act would restore expired tax policies that reduce the cost of manufacturers’ investments in R&D, equipment and machinery. Ahead of Thursday’s vote, the NAM called these policies “vital to manufacturing workers and America’s economic future.”

Thursday’s procedural vote requires 60 votes in the Senate, a difficult hurdle. Immediate R&D expensing, enhanced interest deductibility and 100% accelerated depreciation are top priorities in the NAM’s 2025 tax agenda. As Congress prepares to address scheduled expirations of other policies from the 2017 tax reform next year, the NAM will continue to call for restoration of these important pro-growth incentives. The Bill also includes COVID era tax credits that many Republicans, otherwise inclined to support the bill, to oppose it.

Read more at The Hill

Inaugural New York Reparations Commission Meeting Held in Albany

New York's commission tasked with studying reparations and the impacts of New York's role in the slave trade met for the first time Tuesday at the state Capitol — but the conversation grew tense at times when the group discussed which members should have leadership roles. Commissioners unanimously selected Seanell Hawkins, president and chief executive officer of the Urban League of Rochester, to chair the commission and lead the work to take place over the next year. Slavery was outlawed in New York State 197 years ago.

Eight of nine commissioners appointed by Gov. Kathy Hochul and legislative leaders earlier this year were present at Tuesday's inaugural meeting of the Community Commission on Reparations Remedies. The commission will regularly hold public meetings around the state for at least the next year to conduct the $5 million study to research potential slavery reparations, including impacts of original enslavement, segregation and Jim Crow and ongoing racism. "The point of this commission is to make sure that the history of our ancestors, which has been largely erased, is represented," said commissioner Linda Tarrant-Reid, an author and historian.

Read more at NYS of Politics

Which Upstate Cities Are Adopting ‘Good Cause’ Eviction And Rent Control?

Over the last few years, the state has passed new laws allowing upstate New York municipalities to adopt tenant-friendly housing policies – including rent stabilization and “good cause” eviction protections – that were previously exclusive to the New York City metropolitan area. The Housing Stability & Tenant Protection Act, passed in 2019, made all municipalities in the state eligible to declare a rental emergency and opt into rent stabilization. The law applies to buildings built before 1974 which contain six or more units. Once a municipality conducts a vacancy study and determines that the vacancy rate in applicable buildings is 5% or below, it can declare a housing emergency and allow a rent guidelines board to determine how much rents can increase each year.

The measure has been very divisive among upstate property owners. They have not hesitated to launch legal challenges against municipalities, usually challenging the vacancy study that empowered a municipality to opt in to the Emergency Tenant Protection Act (EPTA) in the first place. They have had mixed results thus far. Yesterday a Supreme Court Judge barred the City of Poughkeepsie from implementing their EPTA until they hear arguments in a lawsuit claiming that the study report produced by the City’s consultant, the Collective for Community, Culture and Environment (CCCE) contained factual errors and that it did not report all the vacancy information it had collected. CCCE is also named in the suit.

Read more at City & State and Mid-Hudson News

Health and Wellness

Eating Less Processed Red Meat Could Cut Your Odds for Dementia

Skip the bacon and those holiday hot dogs: A new study finds eating processed red meats raises your odds for dementia. Overall, just two servings per week of processed red meat was linked to a 14% rise in dementia risk, compared to folks who ate less than three servings per month. The findings were presented Wednesday at the Alzheimer's Association International Conference in Philadelphia. The study was led by Yuhan Li, now a research assistant in the Channing Division of Network Medicine at Brigham and Women’s Hospital in Boston. She conducted the study while a graduate student at the Harvard T.H. Chan School of Public Health. Li's team pored over 43 years' worth of data from 130,000 people in the long-running Nurses’ Health Study and Health Professionals Follow-Up Study. The researchers specifically looked at associations between red meat intake and dementia.

The finding made sense to Heather Snyder, vice president of medical and scientific relations the Alzheimer’s Association, given what experts know about diet and the brain. “Prevention of Alzheimer’s disease and all other dementia is a major focus, and the Alzheimer’s Association has long encouraged eating a healthier diet -- including foods that are less processed -- because they’ve been associated with [a lowered] risk of cognitive decline,” Snyder said in an association news release. “This large, long-term study provides a specific example of one way to eat healthier.”

Read more at US News and World Report

Election 2024

Industry News

Boeing Names Ortberg as CEO to Revive Embattled Planemaker

Boeing BA 0.77%increase; green up pointing triangle hired Robert “Kelly” Ortberg as its next chief executive, picking an aerospace veteran to steer the jet maker through its manufacturing turbulence and a regulatory storm. Ortberg ran one of Boeing’s big suppliers, Rockwell Collins, until 2018, when it merged with another aerospace manufacturer and eventually ended up part of RTX. He built a reputation on Wall Street as a savvy dealmaker and worked closely with airlines and the Pentagon, before abruptly retiring in 2021.

The 64-year-old takes over an American manufacturing giant that is grappling with quality issues, production slowdowns, high-stakes labor negotiations and a plunging share price. Boeing has lost nearly $25 billion since 2020 and its operations are burning through more than $1 billion a month. Ortberg also inherits federal probes, congressional inquiries and regulatory scrutiny. In July, Boeing agreed to plead guilty to misleading air-safety regulators in the run-up to two deadly 737 MAX crashes in 2018 and 2019. As part of the deal, the company agreed to hire an independent monitor to oversee its efforts to improve compliance and safety programs for the next three years.

Read more at Bloomberg

AMD Beats Q2 Targets On Record Data Center Sales

Advanced Micro Devices (AMD) late Tuesday beat analyst estimates for the second quarter thanks to record sales of processors for data centers. It also forecast sales above views for the current quarter. AMD stock rose in extended trading. The Santa Clara, Calif.-based company earned an adjusted 69 cents a share on sales of $5.84 billion in the June quarter. Analysts polled by FactSet had expected AMD earnings of 68 cents a share on sales of $5.72 billion. On a year-over-year basis, AMD earnings increased 19% while sales advanced 9%.

Data center revenue jumped 115% year over year to $2.83 billion. A steep ramp in shipments of AMD Instinct graphics processors for AI applications drove the sales increase, the company said. It also noted strong growth in 4th Gen AMD Epyc server processors. AMD's client segment posted sales of $1.49 billion, up 49% year over year, driven by sales of AMD Ryzen PC processors. Meanwhile, sales declined in AMD's gaming and embedded processor segments.

Read more at Investor’s Business Daily

Delta CEO Says CrowdStrike Tech Outage Cost It $500 Million

Delta Air Lines Chief Executive Ed Bastian said the carrier took a $500 million hit from the CrowdStrike technology outage that hurt its operations. With more than 5,000 flight cancellations over several days, Delta faced deeper disruption and took days longer than rivals to get back on track after the outage knocked key systems offline. The U.S. Department of Transportation is investigating how the airline handled the disruption and its customer response.

Delta has hired prominent litigator David Boies, chairman of the firm Boies Schiller Flexner, and notified CrowdStrike and Microsoft MSFT -0.89%decrease; red down pointing triangle to prepare for litigation. “We have no choice,” Bastian said on CNBC Wednesday. “Between not just the loss of revenue, but the tens of millions of dollars per day in compensation and hotels. We did everything we could to take care of our customers over that time.”

Read more at The WSJ

Boeing Reports Wider-Than-Expected Loss, Weaker Revenue

Boeing reported a bigger quarterly loss and weaker revenue than analysts expected as both its commercial airplane and defense programs continued to struggle. The company reported a loss per share of $2.90 and revenue of $16.87 billion. Boeing reported a net loss for the second quarter of $1.44 billion, or $2.33 per share, compared with a loss of $149 million, or 25 cents per share, during the year-earlier period. Boeing is trying to stabilize its operations after a door plug blowout from a nearly-new 737 Max at the start of the year reignited additional scrutiny from regulators and further slowed deliveries of new, more fuel-efficient jets to airlines.

On Wednesday, Boeing said it still plans to increase production of its Max planes to 38 a month. Analysts said Boeing was producing them in the mid-20s per month the last quarter. The company’s all-important commercial airplanes unit reported a 32% year-over-year drop in revenue to $6 billion. The company’s defense unit reported a 2% decline in revenue for the second quarter to $6.02 billion. The segment lost $913 million during the period, nearly double the $527 million it lost during the same quarter in 2023. Some of the losses “reflect higher estimated engineering and manufacturing costs, as well as technical challenges,” Boeing said.

Read more at CNBC

Microsoft Earnings Disappoint as Company Plays the AI Long Game

The headlines were strong for Microsoft, which beat forecasts on the top and bottom line: Microsoft reported $2.95 diluted earnings per share in the three-month period ending June 30, checking in just above consensus analyst forecasts of $2.94, up 10% year-over-year, while its $64.7 billion in quarterly sales beat estimates of $64.4 billion, up 15% year-over-year. The slide came as growth in Microsoft’s crucial AI businesses was worse than expected, as its 29% growth in its Azure cloud computing unit fell short of projections of 31%, and sales in its AI-heavy intelligent cloud division was $28.5 billion, below estimates of $28.7 billion.

With respect to guidance, Microsoft called for fiscal first-quarter revenue between $63.8 billion and $64.8 billion, implying 13.8% growth at the middle of the range. Analysts polled by LSEG were looking for $65.24 billion in revenue. The forecast included $15.25 billion in operating expenses at the middle of the range, under the StreetAccount consensus of $16.10 billion. Microsoft’s revenue during its 2024 fiscal year is roughly on par with the entire economies of Greece and New Zealand last year.

Read More at Forbes

Biden Reportedly Eases Planned Semiconductor Trade Rules

The Biden administration plans to unveil a new rule next month that will expand U.S. powers to stop exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers, two sources familiar with the rule said. But shipments from allies that export key chipmaking equipment - including Japan, the Netherlands and South Korea - will be excluded, limiting the impact of the rule. As such, major chip equipment manufacturers such as ASML and Tokyo Electron will not be affected. Shares in both companies surged following the news.

The rule, an expansion of what is known as the Foreign Direct Product rule, would bar about half a dozen Chinese fabs at the center of China's most sophisticated chipmaking efforts from receiving exports from many countries. Aiming to impede supercomputing and AI breakthroughs that could benefit the Chinese military, the U.S. imposed export controls on chips and chipmaking equipment for China in 2022 and 2023.

Read more at Reuters

Japan Orders 'Drastic Reforms' After New Toyota Certification Violations

The Japanese government ordered Toyota Motor on Wednesday to make "drastic reforms" after discovering new violations in the automaker's vehicle certification procedures. In a so-called corrective order, the transport ministry said on-site inspections had uncovered widespread, intentional misconduct and irregularities in seven additional models that had not been previously disclosed. Toyota said the corrective order instructed it to "make drastic reforms to ensure appropriate certification operations".

Toyota and four other vehicle makers admitted in June they had submitted either flawed or manipulated data when applying for certification of vehicles. Toyota's wrongdoing involved three production models - the Corolla Fielder, Corolla Axio and Yaris Cross - and discontinued versions of four other models, including one sold under the luxury Lexus brand. Toyota said it was planning to resume production for these models from the beginning of September after the transport ministry confirmed they met compliance requirements.

Read more at Reuters

GE Healthcare Cuts Revenue Growth Forecast For 2024 On China Woes

GE HealthCare cut its revenue growth forecast for the year on Wednesday, as a freeze in China's healthcare sector due to an anti-corruption drive dragged down sales of its imaging machines and other medical equipment, sending its shares down 10%. Beijing kicked off the year-long crackdown on the sector in July last year, targeting the bribing of doctors in drug and medical equipment sales that sent a chill through the industry and pummeled healthcare stocks.

The effects of the anti-corruption campaign and the delay in the China 2024 stimulus could likely hurt sales and orders in the near term, GE HealthCare said, while adding that it could not predict the exact duration or magnitude of the hit. A majority of GE HealthCare's revenue in China comes from the sales of ultrasound and imaging devices, with the Chinese market accounting for 14.2% of its total revenue in 2023. In the second quarter, the company's sales from China declined 18.3% to $583 million from a year earlier.

Read more at Reuters

Stellantis Offers Buyouts To US Salaried Workers To Cut Costs

Stellantis NV is offering buyouts to salaried employees to cut costs following a decline in net income during the first half of the year, underscoring executive promises that the company would need to make some hard decisions if it expected to compete. The voluntary separation packages are available for nonunion-represented employees in the United States at the vice president level and below in "certain functions," according to an internal memo obtained by The Detroit News. Unlike previous offers, there are no minimum years of service requirements.

Eligible employees will receive an email on how to access their individualized offers in mid-August, with the email stating they will include an "enhanced benefits package that has not been previously available." Stellantis declined to specify which functions would be targeted for reductions or how many of its 11,000 U.S. salaried employees would receive buy-out offers. The maker of Chrysler, Dodge, Jeep and Ram last week reported earning $6.1 billion, down 48% for the first six months, on net revenues of $92.2 billion, which was off 14% compared to a year earlier. Lower vehicle sales and product mix challenges contributed to the declines.

Read more at The Detroit News

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