Member Briefing August 16, 2022
Empire State Manufacturing Survey – Activity Declines in August
Manufacturing activity declined significantly in New York State, according to the August survey. The general business conditions index plunged forty-two points to -31.3, the second largest monthly decline in the index on record, and among the lowest levels in the survey’s history. Forty-four percent reported that conditions had worsened. Here are some of the details
- The new orders index dropped thirty-six points to -29.6.
- The shipments index plummeted nearly fifty points to -24.1.
- The unfilled orders index fell to -12.7, indicating that unfilled orders shrank for a third consecutive month.
- The delivery times index declined to around zero the first month they have not lengthened in nearly two years.
- The inventories index fell to 6.4, signaling that inventories increased marginally.
- The index for number of employees moved down eleven points to 7.4, pointing to a small increase in employment.
- The average workweek index fell to -13.1, indicating a decline in hours worked.
- The prices paid index fell nine points to 55.5
- The prices received index was little changed at 32.7.
Looking ahead the index for future business conditions came in at 2.1, suggesting that firms were not optimistic about the six-month outlook. The indexes for future new orders and shipments were positive, but remained at low levels. Employment is expected to pick up, and delivery times are expected to decline over the next six months. Only modest increases in capital spending and technology spending are planned for the months ahead.
War in Ukraine Headlines
- Ukraine and Russia: the Latest News – The Guardian
- Russian Military Command Flees Kherson – Yahoo
- A Ukrainian Counter-Offensive in Kherson Faces Steep Odds – The Economist
- Ukraine Hits Russian Wagner Mercenary HQ in East – BBC
- Russia’s Goal in Attack on Nuclear Plant: Take the Electricity, Ukraine Says – WSJ
- ‘A Referendum is Not Right’: Occupied Kherson Looks to Uncertain Future – The Guardian
- Russia Reopens Bond Market to ‘Not Hostile’ Investors – BBC
- Russians Fail to Block HIMARS Bridge Strike—Viral Video Purportedly Shows – Newsweek
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
China Shocks With Rate Cut as Data Show ‘Alarming’ Slowdown
China’s economic slowdown deepened in July due to a worsening property slump and continued coronavirus lockdowns. Retail sales, industrial output and investment all slowed and missed economists estimates in July. The surveyed jobless rate for those aged 16-24 climbed to 19.9%, a record high and headache for the Communist Party as it gears up for a major congress in coming months that’s expected to give President Xi Jinping a precedent-defying third term in power.
China’s leadership has ruled out large-scale stimulus and vowed to continue with its stringent Covid Zero policy, requiring authorities to shut down businesses and lock down the population when major outbreaks occur. That’s dimming the growth outlook for the rest of the year, which economists are downgrading further below 4%. China’s central bank cut both one-year and seven-day lending rates by 10 basis points, a move economists said would have little impact since Covid controls have made households and businesses reluctant to borrow. (See related story on industrial production below)
Global Manufacturing Loses Further Momentum as Developed World Output Contracts
The J.P. Morgan Global Manufacturing PMI declined to 51.1 in July, the lowest reading since July 2020. Manufacturers continued to grapple with economic uncertainties and lingering supply chain, inflationary, workforce and geopolitical challenges. New orders decreased in July for the first time since June 2020, and output and hiring have essentially stalled. Exports continued to contract. Yet, manufacturers also expressed cautious optimism about production over the next six months, albeit with that optimism at its weakest point since May 2020.
National PMI data indicated that the stalling of the upturn was largely due to weakness in developed nations, where production volumes contracted (on average) for the second month running and to the greatest extent since June 2020. Output declined in the US, the euro area, Japan and the UK.
U.S. COVID – Daily Incidences Fall
The US CDC is reporting 92.3 million cumulative cases of COVID-19 and 1,030,010 deaths. The current 7-day moving average of new daily cases is down over last week, dropping to 107,077 on August 9 from 121,260 on August 2. The average daily mortality remains relatively stable, at 395 on August 9. Both new hospital admissions (-0.8% over the past week) and current hospitalizations (-2.6%) remained relatively stable over the previous week, possibly reflecting the slight decrease in daily incidence.
Community transmission in the US is primarily driven by the Omicron BA.5 sublineage. BA.5 is now projected to account for 87.1% of sequenced specimens. The BA.4 sublineage accounts for about 6.6% of cases, while the BA.4.6 sublineage accounts for 4.8% of cases.
Global Weekly Coronavirus Deaths Have Fallen 9%, WHO Reports
The number of coronavirus deaths fell by 9% in the last week while new cases remained relatively stable, according to the latest weekly pandemic report released by the World Health Organization Wednesday. Officials warn that the WHO’s assessment of the pandemic is being compromised as countries around the world decrease COVID-19 testing and relax restrictions.
The U.N. health agency said there were more than 14,000 COVID-19 deaths in the last week and nearly 7 million new infections. The Western Pacific reported a 30% jump in cases while Africa reported a 46% drop. Cases also fell by more than 20% in the Americas and the Middle East. The number of new deaths rose by 19% in the Middle East, while dropping by more than 70% in Africa, 15% in Europe and 10% in the Americas.
COVID Immune Evasion
Immune escape, or immune evasion, is driving the COVID-19 pandemic’s extended life cycle. As the virus continues to infect humans, it will mutate and likely adapt to find its way around existing levels of vaccine-induced and natural immunity. The scientific community is not surprised that SARS-CoV-2 continues to evolve to evade our ever-changing immune systems, as many other viruses do the same. But because SARS-CoV-2 is a new virus to humans, attention is focused on emerging new variants and global anxiety is heightened, wondering what variant lies around the corner.
Currently, there are many questions about whether the Omicron subvariants BA.2.75 or BA.4.6 will cause the next wave of infections. This cycle of new variant-driven waves, each with increased immune evasion, describes the global experience with COVID-19 to date, and many assume the pattern will continue into the future. This is what allowed BA.4 and BA.5 to spread widely despite widespread recent infections with the Omicron BA.1 and BA.2 subvariants. In addition to increased variant surveillance, more must be done to help further prepare for future increases in COVID-19 cases. Many appear to be placing hope in the next generation of SARS-CoV-2 vaccines, which are expected to protect against a wider array of viral lineages.
U.K. Approves Covid-19 Booster Vaccine Targeted at Omicron
The U.K. became the first country to approve Moderna Inc.’s Omicron-targeting Covid-19 vaccine as a booster shot, paving the way for the variant shot to play a role in a planned fall vaccination campaign to shore up immune defenses against the virus. The so-called bivalent vaccine is directed against both the original strain of SARS-CoV-2, the virus that causes Covid-19, and the first Omicron variant, also known as BA.1, which drove large waves of infection over the winter.
Variant vaccines are likely to play a role in fall booster campaigns in the hope that they can strengthen immune protection against newer strains of the virus. The Covid-19 vaccines currently available are based on the original strain of SARS-CoV-2. The protection afforded by those shots has been blunted by the rise of successive new variants, although no variant has so far been found to totally evade immune defenses acquired from earlier vaccination or infection.
US Oil Production Hits 2-Year High, Inventories Grow
US crude oil and distillate inventories climbed by 5.5 million barrels and 2.2 million barrels, respectively, last week, while gasoline supplies shed 5 million barrels, the biggest decline in 10 months, the Energy Information Administration reported. Weekly domestic oil production edged up by 100,000 barrels per day to 12.2 million bpd, the highest since April 2020, while refinery capacity utilization jumped by 3.3 percentage points to 94.3%.
Gasoline inventories, however, fell by 5 million barrels in the week to August 5, compared with a modest increase of 200,000 barrels for the previous week. Gasoline production increased, averaging 10.2 million barrels daily last week, which compared with 9.3 million barrels daily a week earlier.
NYS Pension Fund Launches Review of Integrated Oil & Gas Companies
The New York State Common Retirement Fund (Fund) is evaluating 28 publicly traded integrated oil and gas companies to determine if they are prepared for the transition to a low-carbon economy, New York State Comptroller Thomas P. DiNapoli, the Fund’s trustee, announced today. Each company is being asked to provide information on its readiness to transition to the emerging net zero economy.
Integrated oil and gas companies – including ExxonMobil, Chevron, Shell, BP and others – engage in all facets of the oil and gas business, from exploration and production to transportation, refinement and retail sales. The actions come as part of DiNapoli’s comprehensive Climate Action Plan to mitigate investment risks posed by climate change and ultimately transition the Fund’s investment portfolio to net zero greenhouse gas emissions by 2040. DiNapoli also released the Fund’s second progress report regarding the implementation of the Climate Action Plan.
China’s Consumer and Factory Data Miss Expectations in July
China reported data for July that came in well below expectations. Retail sales grew by 2.7% in July from a year ago, the National Bureau of Statistics said Monday. That’s well below the 5% growth forecast by a Reuters poll, and down from growth of 3.1% in June. Within retail sales, catering, furniture and construction-related categories saw declines. Sales of autos rose by 9.7%.
Industrial production rose by 3.8%, also missing expectations for 4.6% growth and a drop from the prior month’s 3.9% increase. Fixed asset investment for the first seven months of the year rose by 5.7% from a year ago, missing expectations for 6.2% growth. Investment into real estate fell at a faster pace in July than June, while investment into manufacturing slowed its pace of growth. Investment into infrastructure rose at a slightly faster pace in July than in June.
Japanese Economy Recovers Pre-pandemic Size With 2.2% Growth
Japan’s economy recovered its pre-pandemic size in the April-June quarter thanks to strong consumer spending and higher exports, but inflation may start to weigh on growth later this year. The world’s third-largest economy after the U.S. and China expanded 0.5% in the three months to June from the previous quarter and 2.2% on an annualized basis, which reflects what would happen if the pace continued for a full year.
Adjusted for inflation and seasonal factors, Japan’s economy in the latest quarter was bigger than in the final quarter of 2019, the first time it has accomplished that since the Covid-19 pandemic hit in early 2020. In the April-June period, private consumption increased 1.1% from the previous quarter as consumers returned to stores and restaurants.
At 75, India is Finally Ready to Join the Global Party
Today, India marks its 75th birthday, no richer relative to the rest of the world than it was at independence, but very much on the upswing. India started out as the world’s sixth-largest economy, fell to 12th by 1990, and has since staged a comeback — to sixth place. Its average income was 18 per cent of the world average at independence, but that figure fell until the early 1990s, before climbing back up — to about 18 per cent.
This distressingly V-shaped development path is a legacy of India’s original choices. In other Asian nations, the state often granted people economic freedoms first, political freedoms later, as the country grew richer. In India, the state granted a poor nation political freedom first but in a socialist economy that has never fully embraced economic freedom.
Starbucks Alleges Federal Labor Officials Improperly Handled Union Elections
The coffee company alleged in a letter sent Monday to the National Labor Relations Board that federal officials there improperly oversaw mail-in elections at Starbucks locations in Buffalo, N.Y., Seattle and the Kansas City area this year. The alleged mismanagement unfairly assisted workers supporting the Starbucks Workers United union and influenced the election results, the company said. Starbucks Workers United, a union representing chain workers, said that the company’s letter reflected an attempt to manipulate the unionization process.
In its letter Monday, Starbucks said that the NLRB made individual arrangements for baristas to cast ballots in the Kansas City area election in ways that made it easier for union organizers to turn out favorable votes. The NLRB also gave Starbucks Workers United confidential information about turnout in the Kansas election while voting was still open, allowing the union to mobilize workers who hadn’t yet voted, Starbucks alleged.
Homebuilder Sentiment Plunges in July as Buyers Pull Back
The National Association of Home Builders/Wells Fargo Housing Market Index, a survey designed to gauge market conditions, found builder sentiment dropped 12 points to 55. That marked the largest single-month drop in the survey’s 37-year history with the exception of April 2020. Any rating above 50 on the index is still considered positive, but sentiment has now fallen 24 points since March, when mortgage rates began moving higher.
Sentiment stood at 80 in July of last year after hitting a record high of 90 in November 2020, when the pandemic sparked a rash of homebuying among people looking for more space in less urban areas. Now, concerns about inflation and recession are among the factors taking a toll on builder sentiment. Of the index’s three components, builder sentiment about current sales conditions dropped 12 points to 64, while sales expectations for the next six months fell 11 points to 50 and sentiment about buyer traffic declined 11 points to 37. That last component is now solidly in negative territory.