Member Briefing October 12, 2023
IMF Cuts Growth Forecast for China and Euro Zone, Global Economy “Limping Along”
The International Monetary Fund on Tuesday cut its growth forecasts for China and the euro zone and said overall global growth remained low and uneven despite what it called the "remarkable strength" of the U.S. economy. In its latest World Economic Outlook, the IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0% but cut its 2024 forecast to 2.9% from its July forecast of 3.0%. World output grew 3.5% in 2022.
Stronger growth is being throttled by the lingering impact of the pandemic, the Ukraine war and increasing fragmentation, along with rising interest rates, extreme weather events and shrinking fiscal support, the IMF said. Total global output in 2023 is slated to be 3.4%, or roughly $3.6 trillion - below pre-pandemic projections. A fresh risk emerged in the form of the Israel-Palestinian conflict just as officials from 190 countries met in Marrakech for the IMF and World Bank annual meetings, but came after the IMF's quarterly outlook update was locked down on Sept. 26.
War in Israel Headlines
- Israel and Hamas: The Latest News – CNBC
- Israel’s Netanyahu, Opposition Agree on Unity Government and War Cabinet After Hamas Attack -AP
- Israeli Shekel Slumps To 7.5-Year Low Amid War With Hamas – Forbes
- Scene of Massacre Becomes Staging Ground for Israel’s Invasion of Gaza - WSJ
- Sole Gaza Power Plant Out of Fuel – The Hill
- Palestinians Scramble for Safety as Israel Pounds Sealed-Off Gaza Strip to Punish Hamas - Politico
- After its Brutal Attack, Hamas is Calculating its Next Move – The Economist
- GOP Calls for Biden to Freeze $6B Transfer in Iranian Funds – The Hill
- House Republicans Pour Cold Water on Linking U.S. Aid to Israel and Ukraine - NBC
- Sanders Calls Israel’s Siege on Gaza ‘a Serious Violation of International Law’ - Politico
- Who is Mohammed Deif, the Hamas Commander Behind the Attack on Israel? - Reuters
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine President Zelenskyy at NATO Defense Ministers Meeting Seeking More Support to Fight Russia - AP
- Finland: Baltic Sea Gas Pipeline Damage Likely From ‘External Activity’ – Washington Post
- Belgium Plans $1.8 Billion Ukraine Fund Using Taxes on Frozen Russian Assets - WSJ
- Ukraine’s Zelensky Makes Surprise Visit to NATO HQ in Brussels - NYT
- NATO to Respond if Baltic Sea Pipeline Damage Deliberate - Alliance Chief – Reuters
- The Tank War Enters New Phase as Russia's Most Advanced T-90 Destroyed - Telegraph
- Russia Presses Assault Near Avdiivka in Southeast Ukraine - NYT
- Kremlin Threatens Returning Russian Citizens with Exile—in Russia - Newsweek
- 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
US September PPI = 2.2% vs Higher Than Expected
The producer price index, which measures costs for finished goods that producers pay, increased 0.5% for the month, against the Dow Jones estimate for a 0.3% rise, the Labor Department reported Wednesday. That was less than the 0.7% increase in August. Excluding food and energy, the core PPI was up 0.3%, versus the forecast for 0.2%. Excluding food, energy and trade services, the index rose 0.2%, in line with the estimate. On a year-over-year basis, the headline PPI increased 2.2%, the largest move since April. The 12-month pace had slowed to as low as 0.2% in June but has been on the rise since.
Inflation pressures came primarily from final demand goods, which surged 0.9% on the month, while services increased 0.3%. Much of the goods prices increase came from gasoline, which jumped 5.4%. On the services side, prices for final demand services less trade, transportation and warehousing rose 0.3%, while final demand trade services costs increased 0.5%. Also in the services category, the costs for deposit services at commercial banks surged 13.9%.
Employers Eyeing More-Modest Pay Increases Next Year
A new survey out from consulting firm Mercer—which comes on the heels of several other compensation prediction surveys—finds that employers in the U.S. plan to raise their compensation budgets for merit increases by 3.5 percent for 2024, compared to the 3.8 percent they awarded in 2023. And they plan to raise their total salary increase budgets for nonunionized employees by 3.9 percent, compared to 4.1 percent in 2023. Mercer surveyed more than 900 organizations in August for the results. Employers seem more cautious, given economic fears and concerns over a recession. In fact, 45 percent of employers told Mercer that "economic uncertainty" is the primary reason for slowing annual salary increases.
Recent layoffs and financial strain on the tech industry also appear to be impacting merit budgets, with projected increases of 3.3 percent—a stark difference from historical trends, as the tech sector has typically led pay increases across industries. Several industries, including energy and consumer goods, though, are planning merit budgets above the national average, projecting an increase of 3.7 percent.
COVID Update - COVID-19, RSV, Flu or a Cold? Figuring Out What Your Symptoms Mean This Fall and Winter
The fall and winter are what many experts deem upper respiratory virus season, since so many different illnesses typically spike in cases. So, you might be wondering what your symptoms indicate. Is it COVID-19? RSV? the flu? Or maybe its a common cold? "These are all respiratory viruses. Very hard to tell them apart clinically," said Timothy Brewer, a professor of medicine and epidemiology at the University of California Los Angeles. "Clinically they can look identical and we're getting into what's known as respiratory virus season."
It's hard to know which virus you've come down with since many of the symptoms such as fever, runny nose, sore throat, coughing and general fatigue overlap. But what are the key differences? It's rare to have difficulty breathing with the cold or flu, but it can often be a symptom of COVID-19. Loss of taste or smell is also sometimes a symptom of COVID-19 but very rarely present with the flu, cold or RSV.
Read more at USA Today (Handy Symptom Chart Included)
Republicans Choose Scalise. House Recesses as He Looks to Secure Speakership Votes:
Rep. Steve Scalise (La.) came out on top as House Republicans met Wednesday to pick their nominee for Speaker. The conference was closely divided between the House majority leader from Louisiana and House Judiciary Committee Chairman Jim Jordan (R-Ohio). Indeed the final vote was close — a win by 14 votes. But a messy floor fight may be ahead, with a number of Republicans already noncommittal about supporting Scalise.
The House gaveled in briefly Wednesday after the conference vote, then recessed, presumably to allow him time to find enough votes to win the Speakership. And as they struggle to come to a consensus, Republicans are staring down a looming government funding deadline and the outbreak of war in Israel.
Read more and get the latest news at The Hill
UAW Hits Ford With a Surprise Strike of 9,000 Workers at the Kentucky Truck Plant
UAW President Shawn Fain called for a surprise strike of an estimated 9,000 workers late Wednesday with no warning at the Kentucky Truck Plant in Louisville, the Detroit Free Press confirmed. Thousands of workers walked out at 6:30 p.m. Kentucky Truck builds the Ford F-Series Super Duty, Ford Expedition and Lincoln Navigator. Super Duty is among the most profitable products the Dearborn automaker sells.
The UAW issued a news release that said: "In an unannounced move, 8,700 UAW members walked off the job today at 6:30 p.m. ET, shutting down Ford Motor Company’s iconic and extremely profitable Kentucky Truck Plant in Louisville. The strike was called after Ford refused to make further movement in bargaining. Fain said in a statement: "We have been crystal clear, and we have waited long enough, but Ford has not gotten the message. It’s time for a fair contract at Ford and the rest of the Big Three. If they can’t understand that after four weeks, the 8,700 workers shutting down this extremely profitable plant will help them understand it.”
Read more at Detroit Free Press
Some Bright Spots for Machine Tool Demand
U.S. machine shops and other manufacturers’ new orders for capital equipment totaled $404.2 million during August, +16.1% more than during July but -12.2% less than the total for August 2022. The eight-month total for 2023 new orders is now $2.23 billion, according to AMT – the Assn. for Manufacturing Technology’s monthly USMTO report, which is a -12.6% decline from the comparable total for 2022.
The month-to-month rise revealed some signs of strength in the manufacturing sector. An example of rising OEM orders is the volume of demand from automotive transmission manufacturers, whose three-month streak of orders are the highest since June to August 2017. Manufacturers of engines, turbines, and other power transmission technologies are also increasing orders, according to AMT, and the rate of increase is the largest sustained increase in orders since summer 2008. Manufacturers of engines, turbines, and other power transmission technologies are also increasing orders, according to AMT, and the rate of increase is the largest sustained increase in orders since summer 2008.
Read more at American Machinist
EU and US Seek Steel Deal That May Include Tariffs on China Exports
The European Union is working on an interim deal with the US that would introduce new tariffs aimed at excess steel production from China and other countries in order to end a Trump-era trade conflict. The levies would primarily be focused on imports from China that benefit from non-market practices, Bloomberg reported earlier this month. The provisional political agreement on the so-called Global Steel and Aluminum Arrangement is expected to be announced at an Oct. 20 summit in Washington, according to people familiar with the plans.
The deal — which would fall short of a legally binding agreement — seeks to settle a dispute that started when President Donald Trump slapped tariffs on metals imports from Europe, citing risks to national security. Failure to reach an accord by Oct. 31 would mean that levies on $10 billion of exports between the EU and US would automatically come back into force at the start of 2024.
Exxon Mobil to Buy Pioneer Natural Resources in $59.5 Billion All-Stock Deal
Exxon Mobil (XOM) has agreed to acquire Pioneer Natural Resources (PXD) for more than $253/share, in an all-stock transaction valued at nearly $60B. For Exxon, a deal would add valuable acreage near some of its own fields and make it the dominant producer in the Permian Basin. Pioneer is the Permian's largest operator at 9% of gross production, while Exxon is no. 5 at 6% of gross production.
The acquisition is the second in recent months for Exxon after it scooped up Denbury Resources (DEN) for almost $5B in an all-stock deal in July. Exxon has been flush with cash since earning a record $56B in profits last year, and has set aside tens of billions of dollars for M&A. While investor and political pressure has mounted on Exxon in recent years to shift towards a more renewable energy strategy, CEO Darren Woods has stuck to a heavy oil-dependent approach, setting a 1M barrel per day target in the Permian that will easily be reached with the latest deal.
Samsung Q3 Profit Beats Expectations, Raising Hopes of Chip Recovery
Samsung Electronics (005930.KS) on Wednesday said its preliminary third-quarter profit dropped by a smaller-than-expected 78%, as the battered memory chip market shows early signs of recovering from a severe downturn. Samsung shares opened 3.3% higher versus a 1.4% rise in the wider market (.KS11), as analysts said memory chip prices likely bottomed in the third quarter, with some types starting to rebound.
The world's largest memory chip and smartphone maker estimated its operating profit fell to 2.4 trillion won ($1.79 billion) in July-September, from 10.85 trillion won a year earlier in a short preliminary earnings statement. The profit beat a 2.1 trillion won LSEG SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate. "It's better than expected. Although the situation is not great in the chip business... the decline in memory prices is easing, and further drops will be limited," said Ko Yeongmin, an analyst at Daol Investment & Securities.
Import Cargo Slowing Along with Spending Growth
Import cargo volume at the nation’s major container ports has already hit its expected peak for the year and should gradually slow headed into the holiday season, according to the Global Port Tracker report released today by the National Retail Federation and Hackett Associates. ports handled 1.96 million TEU – one 20-foot container or its equivalent – in August. That was up 2.3% from July and was the busiest month this year so far but down 13.5% year over year. Ports have not yet reported September numbers, but Global Port Tracker projected the month at 1.94 million TEU, down 4.3% year over year. October is also forecast at 1.94 million TEU, down 3.1% year over year.
With consumers worried over the impact of inflation and high interest rates – particularly for groceries, automobiles and mortgages – discretionary spending growth is slowing and retail cargo imports are expected to decline, Hackett Associates Founder Ben Hackett said. Consumer spending grew 1.8% year over year in the second quarter rather than the 2.3% originally estimated, and NRF said last month that retail sales for the year could come in at the low end of its forecast of 4%-6% year-over-year growth.
Read more at The National Retail Federation
Covid and Cities, Price and Population Changes Thus Far
How will cities develop as the immediate health risks associated with the virus subside? To provide insights on this issue, we consider the impact of the pandemic on how people want to use space in cities and how these changes in the use of cities, in turn, shape the opportunities these cities offer, both as places to work and places to live. NY Fed economists summarize recent evidence about the evolution of housing prices, commercial property prices, and population in cities from the onset of the pandemic to early 2022.
They observe that residential prices increased, on average, while commercial property prices decreased. Beneath these averages, they find important differences in price changes within cities: residential prices increased in the suburbs relative to neighborhoods closer to city centers, where prices, in some cases, declined. This flattening of the property price gradient is associated with a significant relocation of residents and businesses away from downtowns. Across cities, they, so far, only observed minimal changes with small and temporary population outflows away from the largest cities.
The Great Resignation May be Over, But ‘Resenteeism’ is Here to Stay
While it may seem that the tables have turned in 2023 and the Great Resignation is coming to a close, due to economic uncertainty, high-profile layoffs, and the always looming threat of a recession employers should not get too comfortable. In the last few years, despite employee well-being coming to the fore, many of the measures taken have been too surface level to create lasting transformation. We may understand that engaged, happy workers perform better and are more productive; but when it comes to instituting the changes needed, many companies have fallen short.
Resenteeism is defined as when a worker stays in an unsatisfying job, due to a perceived lack of options, even as resentment toward their employer grows. Linked to this is “loud quitting.” Gallup’s 2023 State of the Global Workplace report found that roughly one in five workers are “loud quitting” at their jobs, which just means they’re “actively disengaged” at work. Resentful employees produce poor outputs and, therefore, bad results. They are more likely to produce work that is substandard, which therefore leads to decreased efficiency. This is especially true when mistakes need to be corrected.
Use of Weather Derivatives Surges as Extreme Climate Events Rock the Globe
Energy companies, hedge funds and commodity traders are stepping up their use of financial products that let them bet on the weather, as they seek to protect themselves against - or profit from - the increasingly extreme global climate. On the Chicago Mercantile Exchange, average open interest in weather futures and options was four times higher in the January to September period than a year earlier, and 12 times higher versus 2019. Weather derivatives let buyers hedge against the risk that the weather will damage their business. Unlike insurance, where companies must prove they have suffered a loss, they pay out based on indexes. These might track the temperature in Paris or rainfall in New York.
Weather derivatives were born in the late 1990s. Driven in part by U.S. energy company Enron, the market expanded and attracted speculators who were hunting for assets divorced from wider financial markets, before shrinking after the 2007-2008 financial crisis. This time, market players are hoping its growth will be more sustainable as climate change and concerns over energy supplies push businesses like big utilities to protect themselves using the contracts.