Member Briefing August 15, 2023
U.S. Manufacturing Sector Reaping Benefits of Reshoring
Manufacturing firms began to offshore their operations from the U.S. to countries with lower labor costs several decades ago. But the COVID-19 pandemic, the war in Ukraine and concerns over China potentially looking to compel Taiwan’s unification with the mainland by force have driven efforts to re-shore manufacturing – in addition to government incentives and rising labor costs overseas.
In terms of what sorts of businesses are likely to benefit from reshoring manufacturing to the U.S., Chris Semenuk, who manages the Tema American Reshoring ETF said that firms making electric vehicle batteries and semiconductors are high-profile examples, but the kinds of businesses that provide necessary products and services to those big-name manufacturers could stand to reap relatively greater benefits. "There’s a whole host of medium- and small-cap businesses that are perfectly situated to benefit from reshoring," he said.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russian Rouble Sinks, Kremlin Blames Loose Monetary Policy - Reuters
- Russia Opens ‘Warning Fire’ on Black Sea Cargo Ship – The Hill
- Russia Equipping Submarines with Hypersonic Missiles - CNBC
- How F-16s for Ukraine Could Harm Russia Without Taking a Single Shot – Defense News
- Mines 2nd Only to Artillery As Cause of War Injuries: Ukraine Doctor – Business Insider
- Washington Open to Training Ukrainian Pilots on F-16s in US – Telegraph
- Four Russian Billionaires Sanctioned By U.S. For Allegedly Enabling Ukraine Invasion – Forbes
- Ukraine War Driving US Army Electronic Warfare Development – Defense News
- Russian Bombers Intercepted Heading to NATO Airspace – Telegraph
- 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
China’s Economic Challenges Continue as New Loans Plunge, Property Fears Loom
Credit data for July released Friday showed a slump in demand from businesses and households to borrow money for the future. Real estate problems persist with once-healthy developer Country Garden now on the brink of default. Consumer sentiment is weak. New local currency bank loans plunged by 89% in July from June to 345.9 billion yuan ($47.64 billion), less than half the 800 billion yuan analysts had forecast in a Reuters poll. The July new yuan loan number was the lowest since late 2009, according to Reuters.
China’s massive real estate sector, where the majority of household wealth is parked, has reemerged as an area of concern that it could drag down the broader economy. Developer Country Garden announced over the weekend it was suspending trading in at least 10 of its mainland-China traded yuan bonds. Last week, the company missed coupon payments on two U.S. dollar-denominated bonds, according to Reuters.
China’s Worsening Economy Is Hurting Corporate America
Companies embedded in China’s ailing manufacturing, construction and export industries are reporting weaker sales. In some cases, they are warning of further trouble to come as growth grinds to a near halt and economic readings are dour. The slowdown is registering in earnings results across a range of companies, from chemical giants DuPont and Dow to heavy-equipment suppliers such as Caterpillar. Some companies expressed disappointment with Beijing’s stimulus measures and cut their sales outlook for the country into this year.
Some executives warned of a global knock-on effect as customers in other geographies also feel the pain from reduced demand in China, resulting in a cutback in orders and lower revenue in other parts of the world. The pain isn’t being felt evenly. Companies tied to recovering sectors, such as domestic tourism, posted improving results. Hotel chain Marriott reported a surge in demand for its rooms in China amid a rebound in domestic travel, adding that it was generating more revenue per room now than in 2019.
COVID Update - New Covid Vaccines Are on the Way as 'Eris' Variant Rises
A new COVID vaccine is due out next month, but health experts and analysts say it is likely to be coolly received even as hospitalizations from "Eris", a variant of the Omicron form of the coronavirus, rise around the country. Some public health experts hope that Americans will welcome the new shot as they would a flu jab. But demand for the vaccine has dropped sharply since 2021 when it first became available and more than 240 million people in the U.S., or 73% of the population, received at least one shot.
Healthcare providers and pharmacies such as CVS Health (CVS.N) will start next month to offer the shot, updated to fight the Omicron version of the virus that has been dominant since last year. They will be fighting declining concern about the virus, as well as fatigue and skepticism about the merits of this vaccine, Kaiser Family Foundation Director of Survey Methodology Ashley Kirzinger said.
Biden Addresses UAW Concerns Amid EV Transition
President Joe Biden dipped a toe into the contract talks between automakers and the UAW on Monday, reaffirming his support for electric vehicle jobs as a path to the middle class while urging the companies to address the union’s concerns over the transition. “I support a fair transition to a clean energy future,” Biden said in a statement timed exactly a month before the United Auto Workers contract with Detroit automakers is set to expire Sept. 14. He went on to list things that are key union priorities, including honoring the right to organize unions, providing jobs “that can support a family,” and ensuring that industry “transitions are fair and look to retool, reboot, and rehire in the same factories and communities at comparable wages, while giving existing workers the first shot to fill those jobs.”
A senior administration official told POLITICO last week the UAW has no expectation Biden would discuss specific demands but that the union would like to see the president’s support of their perspective in the transition to a clean energy economy. “Companies should use this process to make sure they enlist their workers in the next chapter of the industry by offering them good paying jobs and a say in the future of their workplace,” Biden said in his statement, referring to the transition away from fossil fuels.
China’s Economic Miracle Is Turning Into a Long Slog
After growing strongly at the beginning of the year, triggered by Beijing’s abandonment of strict covid restrictions, China’s G.D.P. expanded by just 0.8 per cent in the three months from April to June. That’s well below the Chinese government’s growth target of around five per cent for all of 2023, and it’s far, far below the double-digit rates that the economy produced in its miracle days. And yet the Chinese government has resisted calls for a big fiscal stimulus.
Many analysts attribute some of the current weakness to public concerns about Chinese authorities’ economic stewardship. Last year, Xi Jinping’s Communist Party regime did an abrupt about-face on covid lockdowns and launched an aggressive campaign to rein in some of China’s most successful businesses, including the country’s big Internet companies. But the larger issue is the nationwide real-estate bust, which has left many Chinese banks burdened with bad debts, and many homeowners facing decreases in their net worth.
Manufacturing Affected by Supply Chain ‘Hangover’
The pandemic is safely behind manufacturers, but the after-effects haven’t faded just yet. That’s especially true for Eureka Manufacturing Co., the swimming pool product and custom manufacturer. Perhaps the most famous issue of the pandemic-era economy was the supply chain, which became a tangled mess as supply and demand whipsawed global networks. PS Industries, Inc., Sales and Marketing Director Mark Haaland said that PS Industries still sees some shortages.
“There are still items out there that are unreasonable ... a lot of stainlesses are getting really hard to find, especially some of the higher-grade stainless,” he said, owing to a trace element used in production that’s become scarce. Supply chain issues have persisted and shifted, Reuters reports, enough that Dean Croke, principal analyst for DAT Freight and Analytics, told the news service that supply chains are in the midst of a “long-term hangover.”
Read more at the Grand Forks Herald
Survey: Supply Chain Disruptions Costs Drop by Over 50% but Headwinds Remain
Financial losses due to supply chain disruptions dropped more than 50% on average in 2022, compared with a year earlier, but shortages and delivery delays remain challenges, according to a survey of companies released last week. Disruptions led to an average $82 million in annual losses per company last year in key industries like aerospace, compared with $182 million in 2021, and $184 million in 2020, supply- chain risk management company Interos told Reuters.
In this latest report, Interos surveyed 750 companies with annual revenues between $500 million and $50 billion from energy, financial services, oil and gas, healthcare, government and aerospace. "The key takeaway is that people recognize it's better than it was, but it will not go back to the way that it was in 2019," said Interos industry analyst Tim White. Labor and raw material constraints, as well as unforeseen disruptions remain supply chain headwinds, White said.
U.K. Economy Shows Surprising Resilience
Gross domestic product rose 0.2% from the first quarter, the biggest increase since the start of 2022, the Office for National Statistics said Friday. The Bank of England had expected a 0.1% expansion. Output in June jumped 0.5%, more than double the 0.2% pace expected by economists. Manufacturing and construction output were both stronger than expected in June, rebounding from the loss of a working day in May for King Charles III’s coronation. The figures point to momentum in the economy that’s likely to fan upward pressure on wages and prices, underpinning the case for more rate hikes.
“The better-than-expected GDP figures are likely to galvanize the Bank of England’s zeal to continue to raise interest rates,” said David Baker, a partner at Mazars. “The Bank will remain very concerned about the persistence of inflation and will reflect on near full employment and high wage inflation as reasons to keep policy tight.” The UK remains the only Group of Seven country that has yet to fully recover from the pandemic, with output last quarter 0.2% below its level at the end of 2019.
Americans Are Pulling Money Out of 401(K) Plans, Contributions Hold Steady
The number of Americans withdrawing funds from their 401(k) accounts increased 36% in the second quarter of 2023, when compared to 2Q 2022, a report from Bank of America has found. The news was not all bad, as the report found that overall balances increased nearly 12%. However, the study also found that 2.5% of 401(k) members borrowed from their workplace plan in 2Q 2023, up from 1.9% in the first quarter of the year. This was also higher compared year to year, as that number was 2.3% in 2Q 2022.
The report found that even with rising withdrawals, employee contributions remained steady, with the average rate remaining at 6.5% throughout the first half of this year. Meanwhile, more participants increased than decreased their rate of contribution (10.2% vs. 2.2%) in Q2. These contribution increases were led by Gen Z and millennial employees (the report said.
Amazon Considers Delivering Orders Without Boxes in Effort to Trim Packaging (and Costs)
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Millions of Amazon AMZN -0.11%decrease; red down pointing triangle orders are arriving on doorsteps across the U.S. without any extra packaging. A new television may sit in the manufacturer’s box at the door. A blender appears as if it were picked off a store shelf. The same for a box of baby wipes or trash bags. The change represents the next frontier in the tech giant’s overhaul of its delivery processes, one Chief Executive Andy Jassy hopes will appeal to customers who are put off by the volume of Amazon-branded boxes they receive and discard every week.
The company in the past year revamped its logistics network, enabling faster and more efficient deliveries. Eliminating or reducing packaging has become increasingly important for the company to maintain its dominance, reduce costs and reach its goals related to its climate impact. About 11% of items that the company delivers now arrive without extra packaging, or what the company calls “ships in own container,” Amazon said. Customers typically are able to choose at checkout if they want extra packaging or prefer their order without it.
U.S. Steel Puts Itself Up For Sale After Rejecting Cleveland-Cliffs
In a statement Sunday, Aug. 13, the U.S. Steel board said it has hired investment bankers and attorneys to help them look over those offers as well as others expected to follow now that the company, which is on track to ring up $20 billion in sales this year, is formally on the market, or "exploring strategic alternatives" in corporate speak. Shortly after U.S. Steel’s statement, the leaders of Cleveland-Cliffs went public with their cash-and-stock offer, which they said they first submitted July 28 but which was rejected Aug. 13 as “unreasonable.”
Burritt and his executive team recently reported second-quarter profits of $477 million, less than half those from the same period of 2022, on sales of $5.0 billion versus $6.3 billion. Year-over-year price drops of about 20% for both its flat-rolled and mini-mill products accounted for much of the profits drop and Burritt at the time called out “healthy sequential growth” in the mini-mill segment.
Boeing: Industry Needs 2.28 Million New Staff, 48,000 Planes Over Next 20 Years
Boeing’s Commercial Market Outlook (CMO) for the next twenty years looks promising in terms of the need for the number of aircraft. As a result of the aviation industry’s strong recovery from the global pandemic, airlines aim to create significant demand for air travel. Airlines, suppliers, and the aviation community utilize the CMO to prepare for and track changes to their individual networks. Boeing’s CMO suggests that more than 48,000 new aircraft will be needed by 2042.
Boeing also released the 2023 Pilot and Technicians Outlook (PTO), which forecasts a need for over 2.8 million new aviation personnel, including pilots, cabin crew, and aircraft technicians, in the next twenty years. While the forecast seems steep, Boeing provides calculated numbers for various geographical locations. With the global commercial airplane fleet expected to double by 2042, the industry-wide demand for nearly 2.3 million new aviation personnel will arise. Most airlines have recovered from the pandemic disruptions and are planning for long-term growth. In order to support the commercial fleet, new pilots, cabin crew members, and aircraft technicians are needed.
Prototype 'Brain-Like' Chip Promises Greener AI, Says Tech Giant
IBM said its prototype could lead to more efficient, less battery draining AI chips for smartphones. Its efficiency is down to components that work in a similar way to connections in human brains, it said. Compared to traditional computers, "the human brain is able to achieve remarkable performance while consuming little power", said scientist Thanos Vasilopoulos, based at IBM's research lab in Zurich, Switzerland.
Most chips are digital, meaning they store information as 0s and 1s, but the new chip uses components called memristors [memory resistors] that are analogue and can store a range of numbers. You can think of the difference between digital and analogue as like the difference between a light switch and a dimmer switch. The human brain is analogue, and the way memristors work is similar to the way synapses in the brain work. Prof Ferrante Neri, from the University of Surrey, explains that memristors fall into the realm of what you might call nature-inspired computing that mimics brain function. A memristor could "remember" its electric history, in a similar way to a synapse in a biological system. "Interconnected memristors can form a network resembling a biological brain," he said.