Member Briefing August 17, 2023
US Industrial Production Returns To Growth In July
US industrial production rose sharply in July after two straight months of decline, lifted by a jump in automobile products and "very high temperatures," the Federal Reserve said Wednesday. Overall industrial production rose by 1.0 percent in July, lifted by a 5.2 percent rise in the production of motor vehicles and parts, the Fed announced in a statement. While the rebound is positive news for producers, a downward revision to the manufacturing data from earlier this year means the July manufacturing index now sits below its level in July 2022.
- Manufacturing output, the majority of industrial production, increased 0.5% last month, also following declines in the two prior months.
- Motor vehicle and parts production jumped in July.
- Utilities output increased 5.4% in July as hot weather raised energy demand.
- On a 12-month basis, overall industrial production fell 0.2% and manufacturing production was down 0.7%.
- Manufacturing output has fluctuated as the Federal Reserve increased interest rates to slow the economy and bring down inflation.
- Capacity utilization edged up to 79.3% in July, from a revised 78.6% the prior month, the Fed said.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine Reports New Attack on Grain Silos but Cargo Ship Sets Sail - Reuters
- Amid Attacks, Ukraine’s Grain Exports Get a Lifeline From Romania - NYT
- Ukraine Defies Russian Threat of Naval Attack as Container Vessel Leaves Odesa – Financial Times
- Russia’s Central Bank Can’t Stop Ruble Trouble - WSJ
- Spectre of Hyperinflation Hangs Over Putin as Russian Economy Crumbles – The Telegraph
- Ukraine Liberates Another Key Village in Southeast - Politico
- Russian Defense Minister Says Ukraine Depleted, War Showing Weakness of Western Weapons - Yahoo
- Has Shown Scant Interest in Prisoner Swaps for Dozens Held in U.S. Prisons - WSJ
- The Collapsing Soviet Army Left Behind Dozens Of IMR-2 Engineering Vehicles. The Ukrainian Army Eagerly Snatched Them Up – 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
Housing Starts Climb in July - Single-Family and Multifamily Construction Diverge
Residential construction continues to gradually gain steam. Total housing starts rose 3.9% to a 1.45 million-unit pace during July. The diverging trend between single-family and multifamily activity was once again evident, with single-family starts improving and multifamily starts declining during the month. Building permits took a similar trajectory, although the total increase in permits was fairly modest.
Single-family construction continues to be propelled by a sturdy stream of buyers who have become disenchanted with the resale market where inventory is low and prices are high. By contrast, a more challenging lending environment and robust pipeline of new apartment supply set to deliver over the next few years looks to be discouraging multifamily developers from moving forward with new projects. Looking ahead, higher mortgage rates over the past few weeks looks to be taking some of the wind out of the sails of the single-family sector. During August, the NAHB builder sentiment index fell for the first time in seven months alongside the recent leg-up in financing costs. The increase in mortgage rates is likely to exert renewed pressure on homeownership costs and bolster rental demand, which could help the headwinds facing the multifamily sector die down a bit.
NY Fed Survey: August Service Sector Activity “Unchanged” from July
Business activity was unchanged in the region’s service sector for a second consecutive month, according to the August survey. The headline business activity index held steady at 0.6. Identical to last month, 29 percent of respondents reported that conditions improved over the month and 29 percent said that conditions worsened. The business climate index edged up four points to -24.3, its fourth consecutive monthly increase, a sign that the business climate remains worse than normal but less so than in recent months.
The employment index was little changed at 5.4, pointing to another modest increase in employment levels. The wages index climbed six points to 38.9, suggesting a small pickup in wage increases. The pace of price increases steepened somewhat: the prices paid index rose six points to 56.3, and the prices received index rose three points to 24.6. The index for future business activity was little changed at 20.7, and the index for the future business climate moved up twelve points to 4.2, its first positive reading in more than a year. Employment is expected to grow modestly in the months ahead, and capital spending plans picked up.
COVID Update - Dartmouth Researchers Part of Effort to Develop Nasal Spray COVID-19 Vaccine
Researchers at Dartmouth Hitchcock Medical Center are part of a team working to develop the first nasal spray COVID-19 vaccine on the market. Dartmouth Health officials said the vaccine will not require refrigeration and won't need to be administered by a medical professional, so it could be easily distributed in developing parts of the world. Intranasal vaccines have been used to protect against other viruses, such as measles and rubella.
The work is being undertaken in collaboration with the National Institutes of Health and Exothera, a viral vector manufacturer based in Belgium. DHMC is the sole research and development site for the vaccine, and clinical trials are planned in the U.S. and Africa. China has developed a nasal vaccine that's used as a booster dose, and other intranasal vaccines have been under development.
Read more at WMUR (New Hampshire)
Capitol Hill Commission Urges Overhaul of Pentagon Budget Planning
A congressionally mandated commission on Tuesday took its first shot at convincing the Pentagon and Congress to reform its budget planning process. The Commission on Planning, Programming, Budgeting and Execution Reform released an interim report detailing 13 improvements that could be implemented now and another 10 suggestions that require additional stakeholder feedback before the final report is due in March.
“We’re looking at a number of improvements,” Commission Chairman Bob Hale, a former Pentagon comptroller, told reporters at a Defense Writers Group roundtable on Tuesday. “Can we make PPBE better able to foster innovation — because we know how important that is to national security — and to adapt more quickly to changing requirements?” The recommendations for immediate implementation include: Improved Pentagon information sharing with Congress, Consolidating budget line items, Bolstering the Pentagon’s budget management workforce, Modernizing information systems, Streamlining disparate budget data sets within Pentagon budget offices.
Fed Minutes: Officials See ‘Upside Risks’ to Inflation
Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated. That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.
However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee. “With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
Dutch Economy Enters Recession as Inflation Bites
The Dutch economy has entered a recession as it shrank 0.3 percent on a quarterly basis in the second quarter, a first estimate published by Statistics Netherlands on Wednesday showed. The euro zone’s fifth largest economy shrank for the second consecutive quarter, after a 0.4- percent contraction in the first three months of the yea
The first recession since the pandemic was driven by a drop in consumer spending and exports, as surging inflation drove up food prices and energy bills in the Netherlands and its trading partners. Consumer spending fell 1.6 percent, while exports were 0.7 percent lower than in the first three months of the year. Inflation in the Netherlands has dropped since hitting a peak of 14.5 percent in September last year, but was still relatively high at around 6 percent in the second quarter of 2023.
UK Basic Wage Growth Hits Record, Adding to Bank of England's Worries
Official data showed some fresh signs of cooling in the jobs market with the unemployment rate unexpectedly rising to 4.2% from 4.0%, the highest since the three months to October 2021 and climbing more quickly than the BoE has forecast. But the 7.8% increase in basic earnings - the strongest in records data back to 2001 - represented further impetus for Britain's high rate of inflation with many employers resorting to increased pay offers to retain or attract staff. Pay growth looks set to overtake the rate of consumer price inflation which is forecast to have slowed to 6.8% in July.
BOE Governor Andrew Bailey said earlier this month that the BoE was getting close to pausing its run of interest rate increases. Bailey and his colleagues may take comfort from some signals of a cooling in the labour market beyond the data on pay. As well the surprise rise in the unemployment rate, the number of people in employment fell by 66,000 and job vacancies extended their run of falls to their lowest since mid-2021, also dropping by 66,000 on the quarter to 1.02 million.
Buffet’s Berkshire Hathaway Cuts GM Holdings – Buys Homebuilders
Warren Buffett's Berkshire Hathaway revealed new positions in three US homebuilders on Monday, sending shares of each company higher as the billionaire bets on the US housing market. Berkshire's biggest new position is in D.R. Horton, with the firm holding nearly 6 million shares of the homebuilder worth more than $720 million as of June 30. Berkshire's holdings in NVR tallied closer to $70 million, with its position in Lennar coming in at around $17 million as of the end of Q2.
Berkshire also cut the bulk of its exposure to gaming company Activision Blizzard and automaker General Motors. The investment firm reduced its GM shares from about 40 million to about 22 million.
Home Depot Beats Earnings Estimates Though Sales Slide
Home Depot topped earnings expectations Tuesday, but posted a 2% year-over-year sales decline as customers remained wary of big purchases and major projects. It marked the first time in three quarters that the company beat Wall Street’s revenue expectations. Yet the Atlanta-based home improvement retailer reiterated its muted forecast for the fiscal year despite the beat, saying it still expects sales and comparable sales to decline between 2% and 5% compared with the year-ago period. It had lowered the forecast last quarter.
The company reported net income for the three-month period that ended July 30 of $4.66 billion, or $4.65 per share, down from $5.17 billion, or $5.05 per share, a year earlier. Revenue fell year over year from $43.79 billion.
Target Earnings: Q2 Sales Fall, Profits Rise, Forecast Cut
Target’s second quarter sales were hit by inflation and a negative reaction by some customers, widely publicized on social media, to its Pride merchandise. The Minneapolis retailer expects high interest rates, which makes credit cards more expensive to use, and higher prices on food to continue to put a strain on customers and on Wednesday, the chain cut its profit and sales expectations for the year. In lowering its forecast, Target also cited the end of the student loan moratorium, which had provided one-time college students a little more financial breathing room.
Profit came in above expectations, however, as the Minneapolis chain brought inventories closer in line with cautionary spending on discretionary items by customers. Target earned $835 million, or $1.80 per share, in the quarter that ended July 29. That compares with $183 million, or 39 cent per share, in the year-ago period. Sales fell nearly 5% to $24.77 billion as shoppers focused more on groceries than discretionary items.
The U.S. Is Turning Away From Its Biggest Scientific Partner at a Precarious Time
One of the most productive scientific collaborations of the 21st century is pulling apart, as deteriorating relations between the U.S. and China lead researchers to sever ties. The decoupling, which began in recent years with investigations into Chinese researchers in the U.S., has accelerated as tensions have risen between the superpowers. Now some U.S. lawmakers are pushing to let a landmark agreement to cooperate on science and technology, signed in 1979 and renewed routinely since, expire this month.
While the U.S. remains the world’s pre-eminent science power, fundamental scientific research has grown borderless in the era of globalization, much as business has. More than 40% of America’s scientific production—measured by the number of high-quality papers that U.S.-based scientists produce—involves cooperation with researchers abroad. China and the U.S. are each other’s No. 1 partner in producing scientific research, with collaborative research between the two consistently among the most-cited papers across fields, according to an analysis of Clarivate’s data by Caroline Wagner, a professor of public policy at Ohio State University.
Public Charging Issues May Short-Circuit EV Growth, J.D. Power Find
A new report from J.D. Power found customer satisfaction with public Level 2 charging is down 16 points to 617 on a 1,000-point scale, the lowest level since the study began in 2021. Satisfaction with fast chargers declined even further and is down 20 points to 654. Brent Gruber, executive director of the EV practice at J.D. Power, warns that low charging satisfaction scores that continue to fall could hinder EV acceptance rates. "It's really a cautionary statement – this is not good. And if we keep doing what we’re doing, it’s going to get much worse.”
The study, which surveyed more than 15,000 battery electric vehicle and plug-in hybrid owners during the first half of the year, measures electric vehicle owner satisfaction for Level 2 charging stations (which take four to 10 hours to take an EV from empty to 80% charged) and DC fast charger stations (which take as little as 20 minutes to provide the same amount of charge). The study factors in the ease and speed of charging; the station’s physical condition, availability and convenience of its location; things drivers can do while charging and how safe they feel at the location; the ease of finding the location; and the cost of charging and ease of payment.