Member Briefing August 18, 2022
Conference Board: CEO Confidence Deteriorated Further in Q3
The Conference Board Measure of CEO Confidence declined for the fifth consecutive quarter in Q3 2022. The Measure now stands at 34, down from 42 in Q2. The Measure has fallen deeper into negative territory, to lows not seen since the start of the COVID-19 pandemic in 2020, but consistent with prior contractionary periods. (A reading below 50 points reflects more negative than positive responses.)
The Q3 survey asked CEOs to describe the economic conditions they are preparing to face over the next 12-18 months. An overwhelming majority—81%—said they were preparing for a brief and shallow recession, with limited global spillover, while only 7% said they do not expect a recession. Thus far, however, CEOs do not seem to be experiencing the recessionary conditions that typified recent contractions. In fact, three-quarters of CEOs say demand has risen or held steady over the past three months.
War in Ukraine Headlines
- Ukraine and Russia: the Latest News – The Guardian
- China to Send Troops to Russia for ‘Vostok’ Exercise – Reuters
- Behind Enemy Lines, Ukrainians Tell Russians ‘You Are Never Safe’ – NYT
- Ukraine Has Telegraphed its Big Counteroffensive for Months. So Where is it? – Politico
- Ukraine Carries Out Emergency Drills Near Nuclear Plant on Frontline – US News
- Security Situation in Crimea Deteriorates for Moscow – CNBC
- Ukrainian Troops Go Through Urban Combat Training in the UK – Military Times
- U.S. to Buy Ukraine Grain, as Ship Traffic Increases – WSJ
- Russia Replaces Black Sea Fleet Chief After Crimea Setbacks – Reuters
- U.S. Veterans Race to Train Ukrainians as Marines; ‘Time Is Not on Their Side’ – WSJ
- Ukraine Expects Biggest Convoy of Ships to Load Since Grain Export Deal – Reuters
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
U.S. Retail Spending Held Steady in July
Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July compared with the prior month’s revised 0.8% increase, the Commerce Department said Wednesday. But a measure of spending that strips out gasoline and auto sales rose 0.7% last month from June, showing shoppers maintained the ability to spend with much of the spending moving online.
Shoppers have maintained spending despite the highest annual U.S. inflation in four decades, though they are getting less for their money because of higher prices. The retail sales figures aren’t adjusted for inflation. Spending at gasoline stations, which makes up about one-tenth of retail outlays, fell 1.8% on the month. Vehicle sales, which make up about a fifth of retail outlays, declined 1.6% as inventory shortages lingered.
Wave of Port Strikes Put Global Supply Chains Under Fresh Pressure
A fresh wave of labor strikes at U.K. ports triggered by the spiraling cost of living are adding further strain to battered supply chains, just as they begin to recover from the COVID-19 pandemic. More than 500 stevedores at Britain’s fourth largest port, Liverpool’s Peel Port, voted Monday to strike after rejecting a 7 percent pay hike. Staff are demanding pay increases in line with soaring inflation — already more than 9 percent, and rising fast.
Pandemic-induced sky-high shipping container prices that spurred inflation, and bottlenecks created as people rushed to buy goods are finally receding, Rogers added, making the timing of the latest wave of strikes “particularly unfortunate, coming at the start of the peak shipping season.” Experts warn the specter of widespread industrial action will stunt the U.K.’s stuttering economy and may have damaging knock-on effects for nearby shipping routes at a critical time — adding fresh pain points to already-clogged global trade arteries.
U.S. COVID – Serial Testing
The US FDA this week recommended that people use serial testing—taking multiple COVID-19 tests over several days—to reduce the risk of a false-negative result and to help prevent people from unknowingly spreading the SARS-CoV-2 virus to others. People who test negative on an at-home antigen test should take a second or third test to confirm their result, even if they do not have symptoms.
Specifically, the FDA recommends the second test be taken 48 hours after the first test. For those without symptoms but with a known exposure, the agency goes further to say that a third test should be taken another 48 hours after the second test to be even more confident of a negative result. Repeated testing is not a new concept, but this updated recommendation demonstrates the need for continued vigilance in driving down SARS-CoV-2 transmission. While not at odds with the US CDC’s new COVID-19 guidance on quarantine and isolation, the FDA’s recommendation does appear to place more emphasis on assuring lower likelihood of person-to-person transmission following exposure.
NOVAVAX Seeks Emergency Use Authorization for Booster
Novavax announced August 15 that it has submitted an application to the US FDA for emergency use authorization (EUA) of its recently authorized SARS-CoV-2 vaccine as a booster dose. If authorized, the booster dose could be administered to qualifying adults who previously received full courses of Novavax or other SARS-CoV-2 vaccines. The Novavax vaccine is an adjuvanted protein-based vaccine, a more traditional vaccine technology than the platform used in mRNA vaccines. Experts have hoped that this tried-and-true formulation may convince more unvaccinated people to receive their primary courses, although uptake in the US has been slow.
Based on clinical trial results, the Novavax vaccine appears to remain relatively effective against SARS-CoV-2 variants, including the Omicron and Delta variants of concern. It is less clear how effective this formulation is against BA.5 specifically, but vaccine experts have been looking forward to Novavax’s EUA booster submission to provide another tool in the fight against the wide variety of Omicron subvariants.
Hudson Valley Under Drought Watch
The State Department of Environmental Conservation has issued a drought alert for all Hudson Valley counties with the exception of Westchester. That county remains at normal status due to the satisfactory storage levels. All other counties – Rockland, Putnam, Dutchess, Orange, Ulster, Sullivan, Columbia and Greene are all under a drought watch. A watch is the first of four levels of state drought advisories, which are watch, warning, emergency, and disaster. No mandatory restrictions are in place under a state drought watch.
“This year’s below normal precipitation and above-normal temperatures continue to combine to exacerbate low water levels and the environmental impacts of the dry continues and encourage residents throughout the state to monitor usage and avoid wasting water,” said Environmental Conservation Commissioner Basil Seggos.
NLRB and Justice Ink Labor Enforcement Agreement
The U.S. Department of Justice (DOJ) Antitrust Division and the National Labor Relations Board (NLRB) signed a joint memorandum of understanding (MOU) with the stated objective of “promoting the free flow of commerce and fair competition in labor markets.” Both DOJ and the NLRB said they “share an interest in promoting open and competitive labor markets, including through protecting American workers from collusive or anticompetitive employer practices and unlawful interference with employees’ right to organize.”
“Protecting competition in labor markets is fundamental to the ability of workers to earn just rewards for their work, to live out the American dream, and to provide for their families,” said Jonathan Kanter, assistant attorney general of the DOJ Antitrust Division. “By cooperating more closely with our colleagues in the NLRB, we can share information on potential violations of the antitrust and labor laws, collaborate on new policies and ensure that workers are protected from collusion and unlawful employer behavior.”
Fed Sees Interest Rate Hikes Continuing Until Inflation Eases Substantially, Minutes Show
Federal Reserve officials at their July meeting indicated they likely would not consider pulling back on interest rate hikes until inflation came down substantially, according to minutes from the session released Wednesday. During the meeting policymakers expressed resolve to bring down inflation that is running well above the Fed’s desired 2% level.
They did not provide specific guidance for future increases and said they would be watching data closely before making that decision. Market pricing is for a half-point rate hike at the September meeting, though that remains a close call. Meeting participants noted that the 2.25%-2.5% range for the federal funds rate was around the “neutral” level that is neither supportive nor restrictive on activity. Some officials said a restrictive stance likely will be appropriate, indicating more rate hikes to come.
UK Inflation Hits Double Digits for First Time Since 1982
Consumer price inflation in Britain jumped to 10.1% in July, the highest since February 1982, making it the first major rich economy to see price growth hit double digits as surging food costs intensifieda squeeze on household budgets. The increase from June’s annual rate of 9.4% was above all economists’ forecasts in a Reuters poll and fuelled bets by investors that the Bank of England will keep on hiking interest rates quickly.
Citi economist Benjamin Nabarro said that, after the latest figures, he now expected inflation to peak above 15% early next year. “With the Bank focused on signs of more persistent inflationary pressures, we think a hawkish reaction is now all but inevitable,” he added.
Smallsat’s Supply Chain Woes
Makers of small satellites are struggling to source components due to supply chain issues caused by the global coronavirus pandemic and the war in Ukraine. “We get surprised sometimes because there are certain things that we think should be available and they aren’t,” said AAC Clyde Space CEO Luis Gomes.
Microchips are in short supply. So are electronic components, certain thrusters, steel bearings for reaction wheels and various gases. Demand for space-related parts and materials “was exploding before COVID and before the war,” which “have exacerbated the supply issues,” said Alexandre Najjar, Euroconsult senior consultant. “Overall, the supply issues are driving cost increases and lead time. We see delays, delays, delays everywhere.”
Freight Rates Have Likely Peaked
U.S. freight rates increased 28% year over year, but declined almost 2% month over month in July, a likely signal that the U.S. market has reached peak freight rates, according to the July Cass Freight report, just as peak shipping season encompassing both back-to-school and the holidays begins.
The report comes as major retailers are set to report earnings this week. Walmart and Target have cited the need to shift inventory due to changing spending patterns and inflationary pressures on the consumer. The Cass Freight report also follows a better-than-expected inflation reports last week that signal a potential slowdown in inflation.
The Motor City is Moving South as EVs Change the Automotive Industry
Detroit is the city that “put the world on wheels,” but it’s towns like Spring Hill, Tennessee and others in neighboring states that are attracting the most investments from automakers in recent years, as production priorities shift to a battery-powered future with electric vehicles.
Auto executives say they’re investing in the South for a combination of reasons: lower energy costs, available workforce and livability among them. Many southern states also come with other benefits, potentially controversial, such as all-in lower pay for workers, millions in tax breaks and a largely non-unionized workforce in many of the Republican-controlled, right-to-work states.
American Airlines Agrees to Buy 20 Boom Supersonic Jets
American Airlines agreed to buy 20 planes from Boom Supersonic, betting on the future of an ultra-fast plane that is still years away. American put down a nonrefundable deposit on its initial 20 aircraft, known as the Overture, and has the option to purchase 40 more, the companies said Tuesday. The companies didn’t disclose additional financial details of the transaction.
Aerospace startup Boom is developing new planes capable of traveling at supersonic speeds, faster than the speed of sound. Overture is being designed to carry 65 to 80 passengers at Mach 1.7 over water, or 1.7 times the speed of sound—about twice as fast as commercial planes can fly today.
California Could Keep Nuclear Plant Running
Gov. Gavin Newsom has proposed keeping open California’s last nuclear plant for up to another 10 years as the state wrestles with how to meet power demand while it reduces its reliance on fossil fuels for energy. Plans to start closing the Diablo Canyon Power Plant over the next three years would be halted at a cost of up to $1.4 billion under draft legislation Newsom sent to legislators late Thursday, angering some of the governor’s environmentalist allies.
Diablo Canyon provides nearly a tenth of the state’s electrical power. Critics have long sought its closure for reasons that include the potential danger of a radiation leak because of earthquakes along the seismically active central coast of California. It was scheduled to close by 2025.
Germany to Keep Last Three Nuclear-Power Plants Running in Policy U-Turn
Germany plans to postpone the closure of the country’s last three nuclear power plants as it braces for a possible shortage of energy this winter after Russia throttled gas supplies to the country, said German government officials. While temporary, the move would mark the first departure from a policy initiated in the early 2000s to phase out nuclear energy in Germany and which had over time become enshrined in political consensus.
While a formal decision could be weeks off, the government believes two key conditions allowing a temporary extension of the life of the three remaining plants, now expected to close on Dec. 31, have been met: Germany is facing a likely shortage of gas and letting the reactors operate longer poses no safety concern, the officials said.