Member Briefing August 2, 2023
ISM: US Manufacturing Activity Contracts for a Ninth-Straight Month
The Institute for Supply Management’s gauge of factory activity edged up to 46.4 last month, according to data released Tuesday. Readings less than 50 indicate contraction, and the latest figure came in just below expectations. Measures of new orders and production improved in July, with the former rebounding to a nine-month high. Even so, both remained in contractionary territory. The group’s gauge of exports, meanwhile, fell to its lowest level this year as outbound shipments of US goods continued to decline.
While other parts of the economy remain firm, high interest rates paired with an ongoing rotation in consumer preferences toward services have stifled the manufacturing sector. Sluggish demand abroad has proved to be an additional headwind. While other parts of the economy remain firm, high interest rates paired with an ongoing rotation in consumer preferences toward services have stifled the manufacturing sector. Sluggish demand abroad has proved to be an additional headwind.
War in Ukraine Headlines
New Georgia Nuclear Reactor Enters Operation, Making History
The first American nuclear reactor to be built from scratch in decades is sending electricity reliably to the grid, but the cost of the Georgia power plant could discourage utilities from pursuing nuclear power as a path to a carbon-free future. Georgia Power Co. announced Monday that Unit 3 at Plant Vogtle, southeast of Augusta, has completed testing and is now in commercial operation, seven years late and $17 billion over budget.
A fourth reactor is also nearing completion at the site, where two earlier reactors have been generating electricity for decades. Unit 4 is scheduled to enter commercial operation by March. The third and fourth reactors were originally supposed to cost $14 billion, but are now on track to cost their owners $31 billion. That doesn’t include $3.7 billion that original contractor Westinghouse paid to the owners to walk away from the project. That brings total spending to almost $35 billion.
Hot Weather Affecting Productivity Across Industries
Extreme heat is becoming more common and its impact on workers is felt across industries and the country, with new research showing factories, warehouses, restaurants, airlines and other industries are joining already affected sectors like agriculture and construction that experience challenges due to extreme heat. Heat exposure can lead reduced work hours, lower productivity and increased absenteeism, and its economic impact was estimated at $100 billion in 2020 but projected to reach as high as $500 billion annually by 2050.
Productivity drops by as much as 4 percent per degree when temperatures rise above 27° Celsius (80° Fahrenheit) in workplaces requiring manual labor. In highly automated settings, this effect is not observed. 4. A 1-degree increase in the ten-day temperature average raises the probability that a worker will be absent by as much as 5 percent. Absenteeism increases in both the labor-intensive and automated manufacturing processes.
COVID Update - HHS Announces the Formation of the Office of Long COVID Research and Practice
Two new clinical trials to test potential treatments for long COVID are now set to launch, the National Institutes of Health said Monday, opening enrollment for the first of an array of federally-funded studies aimed at evaluating treatments for long-term symptoms still faced by many COVID-19 survivors. Another arm of the trials, titled RECOVER-NEURO, will soon test three approaches aimed at helping with issues like brain fog and memory problems. Those include a device designed to deliver low-level electrical currents into the brain, as well as two web-based "training program" options. Around 5% of Americans say they are continuing to face limits to their activity as a result of long COVID, according to survey results from the Centers for Disease Control and Prevention.
Some of the most commonly reported symptoms of long COVID include extreme fatigue; post-exertional malaise (debilitating fatigue that gets worse after physical or mental activity); brain fog; dizziness; gastrointestinal symptoms; heart palpitations; chronic cough; chest pain; abnormal movements; and loss of smell or taste, among other things, which can severely disrupt patients' lives for months or years.
China’s Tech Distress Grows as U.S. Chip Sanctions Bite
China’s tech sector is showing the strain from last year’s sweeping U.S. export restrictions, which seek to stall Beijing’s ambitions in cutting-edge industries such as artificial intelligence and supercomputing. Semiconductor imports to China are falling. Chinese companies say they are struggling to get key components and machinery. And chipsets that have been remodeled to make them less powerful so they fall within U.S. rules are now threatened by the possibility of additional restrictions.
The distress signals show Washington’s nine-month-old policy of denying Beijing access to the most advanced semiconductors and the tools to make them is starting to bite, despite loopholes and workarounds keeping some key components flowing. Customs data released by Beijing this month highlighted the reality for Chinese buyers of high-end chips: Imports of semiconductors fell by 22% in value terms during the first six months of 2023 from a year earlier. Imports of chip-manufacturing equipment dropped by 23%, extending last year’s decline.
Small-Business Lending Is About to Change, With Simpler Requirements
The Small Business Administration is simplifying loan requirements, automating more of the process and expanding the pool of nonbank lenders licensed to issue SBA loans. The moves, many of which take effect Aug. 1, will make it easier for financial-technology firms to participate. SBA officials say they want to boost credit to small businesses that have struggled to get financing as banks favored bigger commercial borrowers. But the changes—and the decision to couple relaxed requirements with new lenders—have drawn criticism from the industry and members of Congress, who say the revisions could jeopardize the program by increasing loan defaults.
SBA loans are a crucial source of financing for many entrepreneurs, who generally can borrow as much as $5 million to start, buy, expand or run a small business. Banks and other approved financial institutions make the loans. Typically, the SBA promises to cover as much as 85% of losses. The SBA is authorized by Congress to guarantee as much as $34 billion in loans annually through its main lending program. Lenders issued $26 billion of these loans in the most recent fiscal year, the SBA said.
Banks Report Toughest Loan Standards in Years
The share of America's banks that said they're making it harder for consumers and companies to get a loan is still growing, according to a survey conducted by the Federal Reserve. It all adds up to possible headwinds for the U.S. economy. Banks are being choosier about extending credit, making it more expensive for households and businesses to get a loan. At the same time, demand for such loans has plummeted.
A net 51% of banks said they had tightened lending standards for larger and medium-sized businesses over the last three months, per the latest Senior Loan Officer Opinion Survey, out Monday. that's up from roughly 46% of banks who said the same in the first quarter of this year. Excluding the pandemic onset, the latest survey shows the largest net share of banks reporting tighter standards since the 2008 financial crisis. For loans to small firms, a net 50% of banks said they tightened standards — about 2.5 percentage points above the first quarter.
Yellow Corp’s Maybrook Depot Closed
Dozens of workers including drivers and mechanics at the Maybrook Yellow Corp. depot will be looking for new jobs as the company announced it has stopped operating on Sunday.Rows of tractor-trailers are lined up in the Yellow parking lots along Route 208 in Maybrook. All of the entrances to the Maybrook facility were blocked off, the mechanics’ repair bays were silent, yet a “help wanted” sign remained affixed to a fence on the front side of the property.
Village Mayor Dennis Leahy termed the company’s demise “unfortunate,” but said the property is a prime site especially with a rail line right behind it. “Everybody thinks the sky is falling and everything else, and here you have an existing trucking site and there are other people looking for trucking sites and that rail service is valuable, so that would be an asset to anybody that decided to come in there,” he said. Orange County Partnership President Maureen Halahan was disappointed with the decision to close. She anticipates finding a new opportunity for future use of the property.
Toyota Nearly Doubles Q1 Profit
Toyota nearly doubled its operating profit in the first quarter, the Japanese automaker said on Tuesday, helped by increased sales and productivity as well as the tailwind from the weaker yen. "Sales volumes across all regions increased compared to the same period a year earlier due to productivity improvement efforts made together with suppliers," the company said in its earnings announcement.
The world's top-selling automaker said operating profit for the three months through June totalled 1.12 trillion yen ($7.85 billion), an increase of 94% from a year earlier. Last year's operating profit was 578.66 billion yen in the first quarter. Toyota maintained its forecast for a 3.0 trillion yen profit for the current year, as the conditions it faced had not changed greatly from three months earlier.
U.S. Quest for Minerals Leads to a Remote Nation Surrounded by Adversaries
A global charm offensive to secure the key minerals needed to replace fossil fuels has drawn U.S. diplomats to a country surrounded by America’s leading adversaries.Mongolia — nicknamed “Minegolia” by some academics due to its abundant reserves of copper, gold and coal — hosted a handful of American officials on a mission in June to ease the United States’ dependence on China for the natural resources at the heart of several clean energy technologies.
But the United States is in an uphill battle. It has to convince countries that American companies won’t squeeze their lands and people for resources, and then leave them with an environmental mess. And it wants to encourage them to support regulations that attract private investment, officials say. Tensions around logistics and geopolitics are also at play. In Mongolia, there are no overland routes out of the country that don’t touch China or Russia. Yet if the United States fails to find new mineral sources, its climate goals are at risk.
Tips for Taking Advantage of Sales Tax Exemptions for Manufacturers
To avoid serious consequences, manufacturers must follow all applicable tax laws. Though most of the attention is usually focused on federal income and payroll taxes, state sales tax is another aspect to consider. Fortunately, there are sales tax exemptions that manufacturers can take advantage of. But determining if your manufacturing company qualifies for such exemptions can be challenging.
Some items used by manufacturers, or parts of items, may not qualify for an exemption if they fail to meet state law requirements. Generally, the determination boils down to either one of two applications: Machinery and equipment that’s “necessary and integral” to the manufacturing process, or Machinery and equipment that’s used directly in making a change to the physical product. The outcome isn’t always apparent at the outset. Here are a few areas that often come under scrutiny.
Technology Has Changed the Risks Manufacturers Face
While the benefits of this new digital era are plentiful, the risk landscape has significantly changed compared to, say, a decade ago. As risk exposure evolves, companies may have an easier time managing certain risks, such as workplace safety issues, while others related to data, security, third-party relationships, supply chain, company finances and workforce may be tougher to manage. This shifting environment requires manufacturers to rethink and renew risk management practices to reap the potential rewards of the digital revolution.
As factories have become more connected and data-driven, they have also become more intertwined with third parties. Manufacturers, and any third parties they engage with, need to raise the bar in terms of how they protect themselves in an environment where workers, machines, supply chains and organizations are becoming digitally connected more than ever. To best mitigate risks posed by third-party relationships, companies need to understand wireless network access points, protect those access points and monitor and audit third parties.
Pratt & Whitney’s F135 Engine Modernization Secures Senate Committee’s Full Funding Support
The Senate Appropriations Committee has cleared a bipartisan bill that seeks to provide $497 million in funding to modernize the F135 engine of RTX‘s (NYSE: RTX) Pratt & Whitney business. Aside from the allocation for the F135 engine core upgrade development, the bill also includes $264 million for engine spares and repair parts and $280 million for future engine technology innovation, the defense contractor said Friday.
The F135 ECU Program was launched as a block upgrade for the said engine. It seeks to ensure the F135 is prepared for both hardware and software insertion and spiral development to keep pace with changing operational environments and evolving threats.
Thinking About the Why of the What of Problem-Solving
The way we think about problems matters. If we fear them, we tend to hide them. If we approach them all the same way, we may overanalyze simple problems (no analysis paralysis, please – just do it!) or jump to conclusions when faced with wicked problems that call for stopping, taking a deep breath, and figuring out what is going on before leaping to action. Art Smalley’s new book Four Types of Problems can help us better understand the need for different approaches for different problem situations. Born of problem solving classification used by many problem solvers at Toyota in Japan, a casual summary of Four Types could be:
- Troubleshooting: reacting rapidly (and sometimes temporarily) to fix problems by quickly returning conditions to immediately known standards or normal conditions.
- Gap-from-standard problem solving: solving problems at root cause relative to existing standards or conditions.
- Target-state problem solving: removing obstacles toward achieving a well-defined vision or new standards or conditions (aka kaizen or continuous improvement).
- Open-ended problem solving: pursuit of a vision or ideal condition (think new products, processes, services, or systems).
The first two are both “caused” problems (s*** happens) and the second two are “created” (don’t wait for it to break – break it!).