Member Briefing August 14, 2023
PPI = 3.2 - US Wholesale Inflation Rose More Than Expected in July
US wholesale inflation rose more than expected in July, reversing a yearlong cooling trend, the Bureau of Labor Statistics reported Friday. The Producer Price Index, which tracks the average change in prices that businesses pay to suppliers, rose 0.8% annually. That’s above June’s upwardly revised increase of 0.2% and higher than expectations for a 0.7% gain, according to consensus estimates on Refinitiv. Producer price hikes increased 0.3% from June to July, the highest monthly increase since January.
“Services and demand for services were the primary culprits behind the lift higher for producer prices,” said Kurt Rankin, senior economist for PNC Financial Services. Services prices rose 0.5% from June, the highest monthly increase since March 2022 for the category, BLS data shows. The food index, which had declined for three straight months, rose 0.5% in July, suggesting a 6.3% annualized pace of inflation
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine’s Slog Prompts Focus on Next Year’s Fight - WSJ
- Russia Quietly Launches Eastern Offensive With All Eyes on Ukraine’s Southern Push – The Hill
- Russian Warship Fires Warning Shots on Cargo Ship in Black Sea - Reuters
- Ukraine Uses Small-Unit Tactics to Retake Captured Territory From Russia - WSJ
- Ukraine Announces 'Humanitarian Corridor' for Ships Stuck in Black Sea Ports - Reuters
- Zelensky Cracks Down on Corruption in Military Recruitment - NBC
- Ukraine’s Sea Drones Alter Balance of Power in Black Sea - WSJ
- UK Defence Ministry: Kremlin May no Longer Fund Wagner Group – Reuters
- To March On Mariupol, Ukrainian Marines First Have To Break Through Urozhaine - Forbes
- 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
A Persistent Downturn in World Trade Suggests Deeper Changes May Be Under Way
Declining shipment counts, including slumping Chinese exports, suggest decades of global integration may be unwinding. Instead, shifting supply chains suggest trade is entering a new era in which the West and China do more business with their political friends and less with each other. The change toward more fragmented trade patterns would have significant implications for a shipping sector that has supported far-flung supply chains. For now, forecasters are projecting only meager global trade growth this year and a recovery next year well short of average yearly growth.
Geopolitical tensions, heightened by Russia’s invasion of Ukraine, are leading to more curbs in the U.S. and Europe on doing business with China. The sheer scale and complexity of global trade and investment links, however, mean any process of disentangling the world economy into blocks of like-minded countries is likely to be gradual and incomplete.
US Reports Big Interest in $52 Billion Chips Funding
The U.S. Commerce Department said on Wednesday that more than 460 companies have expressed interested in winning government semiconductor subsidy funding in a bid to boost the country's competitiveness with China's science and technology efforts. The Commerce Department began accepting applications in June for the $39-billion subsidy program for U.S. semiconductor manufacturing as well as equipment and materials for making chips but has not yet issued awards.
Once the Commerce Department decides on worthy projects, officials must decide how much to award in government funds -- and how to structure awards with a mix of grants, government loans or loan guarantees. The law also dedicates $11 billion for advanced semiconductor manufacturing research and development. The focal point will be the National Semiconductor Technology Center. Discussions are underway between the departments of Commerce, Defense, Energy, and National Science Foundation to establish the center "to better integrate research and development and workforce efforts across the semiconductor ecosystem."
COVID Update - What to Know About the Dominant Covid-19 EG.5 Variant, ‘Eris’
According to a CDC estimate from Saturday, the EG.5 variant, nicknamed “Eris,” makes up approximately 17 percent of all Covid cases in the U.S., making it the most dominant strain of the disease. That number is an increase from the roughly 12 percent share of EG.5-variant cases among all strains in a July 22 calculation. The dangers from Covid have sharply declined with vaccinations, but new variants have continued to arise.
The symptoms from the EG.5 variant are no different from previous variants: typical cold ailments such as sore throat, runny nose, congestion, cough and fever. Medical experts have said that EG.5 does not seem to cause more severe illness than previous strains of the coronavirus, and no figures from the White House or Capitol Hill have issued strong statements on the matter. “At this time, there is no evidence indicating EG.5 is able to spread more easily, and currently available treatments and vaccines are expected to continue to be effective against this variant,” a CDC spokesperson said.
With October 1 Deadline in Sight the Appropriations Fight is Underway in DC
Congress is in the midst of its annual spending fight, with the House and the Senate working to reconcile their different spending bills. Ideally, the two chambers reach a compromise by the end of September, avoiding a government shutdown. But despite the volume and intensity of this fight every year, the actual portion of federal spending being determined by what’s called the appropriations process is relatively small. The federal government spends more than $6 trillion in a given year in two categories: mandatory and discretionary.
And that discretionary spending is “probably roughly in the neighborhood of a third [of the budget], of which a bit more than half is defense,” said David Reich, a senior fellow at the Center on Budget and Policy Priorities. And all of these things are supposed to be included in 12 separate appropriations bills that go through each chamber of Congress, But, “the formal federal appropriations process is broken.” said Laura Blessing, a senior fellow at Georgetown University’s Government Affairs Institute. “The discretionary portion of the budget has been being squeezed over time … due to the aging of the population and high health care costs. So Social Security, Medicare, Medicaid — they are all growing faster than the overall economy and the overall budget, and they’re putting pressure on the other areas,” she said.
Fed Seen Pausing After Tame CPI Data, But Mission Not Over
Federal Reserve policymakers are unlikely to raise interest rates again in 2023 and will probably start cutting them early next year, traders bet on Thursday, after a U.S. government report showed consumer prices rose only moderately last month. Traders of futures tied to the Fed's policy rate now see less than a 10% chance that the U.S. central bank will increase its benchmark overnight interest rate from its current 5.25%-5.50% range at a Sept. 19-20 policy meeting.
They had seen about a 14% chance of a rate hike next month before the Labor Department report showed the July consumer price index (CPI) rose 3.2% from a year ago, following a 3% year-over-year increase in June. Traders are pricing in about a 28% chance of a rate hike by November, down from more than 30% before the release of the CPI report, with higher rates by December seen as even less likely. The Fed's first rate cut is priced into the futures contracts by March of 2024.
The FAA, Lacking Enough Air Traffic Controllers, Will Extend Limits on New York City-Area Flights
Facing a shortage of air traffic controllers, the Federal Aviation Administration said Wednesday that it will let airlines continue to limit flights in the New York City area into October without penalties that they would normally face for such reductions. Airlines that fail to use enough of their takeoff and landing rights or “slots” at those airports risk losing them to competitors. The FAA said, however, it will extend current easing of those rules through Oct. 28 because the staffing shortage is beyond the control of the airlines.
United Airlines, which has cut flights at its big hub in Newark, and trade group Airlines for America had asked FAA to extend the penalty waivers. The FAA said airlines have reduced their New York flights this summer by 6%, but increased the number of seats by 2% by using larger planes on average. In a report to Congress this spring, the FAA detailed its efforts to hire and train about 3,000 new air traffic controllers. The agency is only half-staffed at a key facility that directs planes in and out of the New York City area.
Yellow and Teamsters Continue War of Words
Company and union officials have stepped up their harsh exchanges, blaming each other for the demise of the 99-year-old less-than-truckload carrier and the loss of 30,000 jobs. The WSJ Logistics Report’s Paul Berger writes the conflict threatens to spill into Yellow’s bankruptcy court proceedings and affect the union’s organizing efforts at other companies. The Teamsters have decried “Yellow’s dysfunctional, greedy C-suite,” and say workers should be first in line for relief in the bankruptcy process.
Yellow officials say the union “intentionally triggered a death spiral” for the carrier, and says other companies and workers should take note of the trucker’s experience. The union under combative leader Sean O’Brien has organizing efforts around the U.S., including at Amazon. Labor experts expect other companies to point to Yellow’s failure to dissuade workers from unionizing.
AMD Opens Research, Design Facility In Fishkill
AMD, a California-based designer of high-performance semiconductors, has established a facility in Fishkill. The company has committed to creating up to 165 new jobs by 2025 as a result of the project. The new facilities will focus on the design and validation of mixed-signal integrated circuits and packaging for processors that are used in cloud computing, data centers gaming and PCs.
Founded in 1969, AMD drives innovation in high-performance and adaptive computing technologies that help to enable the future and push the boundaries of what is possible. AMD processors are at the heart of devices and services across a broad set of markets including cloud computing, enterprise, communications, healthcare, aerospace, automotive, PCs, gaming and more. Empire State Development is assisting AMD with the project by providing up to $5 million in performance-based Excelsior Tax Credits in exchange for the statewide job creation commitments.
Boeing Posts Quarterly Loss, but Aircraft Deliveries Drive up Cash
Boeing results topped analyst expectations Wednesday thanks to a pickup in commercial aircraft deliveries as the manufacturer increases production, but losses in its defense and space businesses drove the manufacturer into the red for the quarter. The company generated $2.6 billion of free cash flow in the second quarter, ahead of analyst forecasts, and reiterated its full-year guidance of between $3 billion and $5 billion of free cash flow. Adjusted loss per share was 82 cents. Revenue was $19.75 billion vs. $18.45 billion expected.
Boeing and main rival Airbus have both struggled to increase aircraft production in the wake of the Covid pandemic as some airlines face longer waits for new jets, just as travel demand rebounds. The company delivered 136 planes in the second quarter, up from 121 aircraft during the same period last year.
Health Care Costs are Main Driver Behind Anticipated Hike in ACA Premiums in 2024
Insurers anticipate a median 6% increase for Affordable Care Act health plan premiums in 2024, a KFF analysis found. Most proposed rate increases fall between 2% and 10%. “A key driver of the increase in premiums in 2024 appears to be rising health prices,” the report said. “While prices for health services tend to grow every year, it also appears that inflation in the rest of the economy may now be starting to flow into the health sector. Rising prices and utilization are not necessarily specific to the ACA individual market. Similar levels of medical trend were observed in small-group market filings as well.”
Because contracts between insurers and providers typically are negotiated for a year or longer, medical inflation often lags that in the rest of the economy. Looking ahead to next year, many insurers expect broader economic inflation to flow through to the health system and put upward pressure on premiums. Inflation also is affecting insurers’ administrative costs, such as staffing. Several other factors also affect rates including the end of the public health emergency.
Initial Jobless Claims Up to 248K
Jobless claims for the week ending August 5 came in at 248,000, up 21,000 from the week before and the second increase in a row. Economists had been anticipating 230,000 new claims. However, continuing claims painted a different picture: at 1.68 million, this was below the consensus estimate of 1.7 million from analysts. Continuing jobless claims remain well below the high of 1.86 million from mid-April.
The labor market has been a critical barometer of how the battle against inflation is going for the Fed. This latest data suggests that the jobs market, which has remained surprisingly resilient in the face of rising interest rates, is still a problem for the central bank - and could sustain interest rates at higher levels for longer.
Grupo Simec Idles Republic Steel Mills Indefinitely, Furloughs 500 Workers in Ohio and New York
Republic Steel’s parent company Grupo Simec announced last week it would indefinitely close two Republic Steel mills in Canton, Ohio and Lackawanna, New York. Five hundred employees who worked at the plants will be indefinitely furloughed, the group said. In a statement, Grupo Simec—which purchased Republic Steel in 2005—cited inflation and environmental concerns as the main reasons to close the mills. Steel production from both plants will move to its newer mill in Tlaxcala, Mexico.
In December 2022, the EPA settled a consent decree against Republic Steel that required it to reduce pollution from its Canton, Ohio mill, which the EPA said had “caused airborne lead levels in the surrounding area to exceed the National Ambient Air Quality Standards for Lead.” The consent decree also required Republic Steel to pay a $990,000 civil penalty. The Canton factory, near Republic Steel’s headquarters, had also previously been fined for excess lead emissions in July and August 2021.
The Latest Trend in Employee Retention? Even More Pet Benefits
Consider this: During the pandemic, nearly one in five households adopted a cat or dog, representing a whopping 23 million households, according to a survey of more than 5,000 U.S. residents by the American Society for the Prevention of Cruelty to Animals. Over the past three years, many employees worked from home with their pets—and now may be reluctant to return to in-person work and, in some cases, are seeking jobs that are more pet-friendly.
According to a survey by insurance carrier Nationwide, nearly one-third of pet owners surveyed said they would be more likely to stay at an employer that offered pet benefits; this is even more important to Gen Z (49%) and millennials (45%). In particular, these are the benefits that employees with pets are seeking, and what employers concerned about recruiting and retaining talent need to consider: 40%: Pet insurance, 29%: Paid time off to care for a pet, 27%: A pet-friendly office, 14%: Leave to care for a new pet.