Member Briefing August 21, 2023
Worldwide Manufacturing Activity Contracted In July
The J.P. Morgan Global Manufacturing PMI remained at 48.7 in July, contracting for the eleventh consecutive month. New orders (down from 48.0 to 47.7), exports (down from 47.1 to 46.4) and output (down from 49.3 to 49.0) declined at faster rates in July, but employment (up from 50.0 to 50.2) expanded for the first time since April. Despite the current challenging environment, respondents were more upbeat about future output (up from 59.6 to 60.8). Delivery times (down from 52.3 to 51.9) narrowed for the sixth straight month in June despite some slowing, another sign that supply chain bottlenecks have improved. In addition, input prices (up from 48.3 to 49.3) declined for the third consecutive month.
Mexico was the only economy among the top 10 markets for U.S.-manufactured goods that experienced expanding growth in the sector in July. China slipped back into negative territory in the latest month, with the post-COVID rebound stalling somewhat since the first quarter. The European data showed significant deterioration in activity in July. Of the top 10 markets for the US, five had lower PMI readings in July than in June, with the other five seeing some improvement.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine Will Get F-16s From the Dutch and Danes After the US Agrees to Allow Transfers - AP
- Ukrainian Military Confident About Offensive Despite Problems - NYT
- Ukraine Offensive Will Fail to Reach Melitopol, U.S. Intelligence Says - The Washington Post
- Ukraine Claims Gains on Southeastern Front, Fighting Rages in East - Reuters
- Chernihiv: Russian Missile Strike Kills Seven and Injures 144, Ukraine Says - BBC
- Video: Missile Strike Hits as Woman Smiles for Camera - CNN
- Russia’s War-Torn Economy Hits Its Speed Limit - WSJ
- Why Russia’s Economy Is Performing Better Than the West Had Hoped – Foreign Policy
- 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
Hudson Valley Private Sector Employment Reaches Highest Point Since 2019
Private sector jobs in the Hudson Valley rose by 7,300 or 0.9 percent, to 816,100 over the year in July 2023. Employment gains were largest in private education and health services (+9,200), leisure and hospitality (+4,700) and other services (+2,500). Job losses were mostly centered in professional and business services (-5,900), financial activities (-1,400), information (-600), and trade, transportation and utilities (-400). Manufacturing lost 600 jobs during the 12 months ending in July 2023.
In July 2023, the region’s private sector employment count reached 816,100 – its highest July employment count since 2019. Three sectors posted year-over-year gains of at least 4.5 percent. The private education and health services sector grew by 4.5 percent to reach 214,500 – its highest July employment count on record. Within the region, Sullivan County’s private employment sector grew the fastest year-over-year, up 3.6 percent. The Dutchess-Putnam Metropolitan Division declined by 2.7 percent over the period.
Mortgage Rates Hit 7.09%, Highest in More Than 20 Years
The average mortgage rate rose to 7.09%, its highest level in more than 20 years, according to data released Thursday by mortgage giant Freddie Mac. The increase extends a lengthy stretch of high borrowing costs that has slowed the housing market to a crawl. This marked the first time since last fall that the rate on a 30-year, fixed-rate mortgage rose above 7%. A year ago, rates were around 5%. The resulting slowdown in refinancing and purchase activity has battered some mortgage lenders, leading to tens of thousands of layoffs in the industry and weighing on economic growth.
While lots of would-be buyers are struggling to find anything they can afford, plenty of would-be sellers feel stuck in place. Many homeowners are unwilling to put their homes on the market, fearful of giving up low-rate mortgages and being forced to take out loans that are much more expensive. High-rate homeowners who bought recently and were hoping they could soon refinance are coming to grips with the fact that they’ll have to wait a while.
COVID Update - CDC and WHO are Monitoring Highly Mutated COVID Variant BA.2.86
The WHO last week announced that it had declared BA.2.86 a “variant under monitoring,” the lowest of three levels of alert. Later in the day, the CDC announced that it, too, was tracking the variant, and that it had been detected in the U.S.—in Michigan, in addition to Israel and Denmark, where it had first been reported earlier in the week. Unlike most circulating variants, which have evolved from Omicron spawn XBB, BA.2.86 is thought to have evolved from a much earlier strain of Omicron—BA.2, which circulated in early 2022, or perhaps from the original Omicron, B.1.1.529, which spiked cases to record highs in late 2021 and early 2022.
And it appears to be vastly different from its predecessors. So far, most widely circulating Omicron variants feature a small handful of mutations that make them slightly different from the last—usually a bit more transmissible. BA.2.86, on the other hand, features 30 or more mutations that separate it from other Omicron—mutations with the potential to make it considerably more immune-evasive, and able to more easily infect cells, according to Jesse Bloom, a computational biologist at Fred Hutch Cancer Center in Seattle, Wash., and top variant tracker.
NYS COVID Update
The Governor updated COVID data for the week ending July 28.
- Weekly: 24
- Total Reported to CDC: 79,985
- Average Daily Patients in Hospital statewide: 926
- Average Daily Patients in ICU Statewide: 91
7 Day Average Cases per 100K population
- 5.3 positive cases per 100,00 population, Statewide
- 6.6 positive cases per 100,00 population, Mid-Hudson
NY’s Widening Budget Gap
The fiscal 2025 budget, for which the governor will present her proposal in January, was already shaping up to be a difficult one before the ink dried on the previous spending plan. The budget approved in May essentially used $2 billion of cash to cover some of the significant growth in state spending during the current fiscal year, and pushed off the question of how to pay for it going forward. To make matters worse, officials based their spending plan on state tax receipts—which hit new records in 2022—remaining unusually high.
Those inflated assumptions about taxes were burst in June when budget officials updated their revenue forecast, which showed revenues would fall $9 billion short of expenses in fiscal 2025, which begins April 1, and $13 billion in fiscal 2026. State tax receipts have since come in close (or even slightly above) this revised forecast, but trouble is brewing on the other side of the ledger in the form of higher-than-planned spending. It suggests the budget gap state officials face next year could be creeping past $10 billion—and go higher still.
Grant Thornton Survey: CFOs ‘Doggedly’ Investing More in Growth
In their latest quarterly report senior leaders at Grant Thornton write that CFOs are “doggedly pursuing growth,” focusing foremost on technology and workforce initiatives. When surveyed in late May—a window worth noting since much of the economic data released since, including inflation and consumer spending, has been in a positive trend—CFOs’ overall optimism was in line with that of early this year, while 68% of them said they expect revenue growth at their organizations in the coming 12 months.
CFOs are more confident now about investing in growth, even though cost containment remains a high priority. Asked in late spring about the areas where they expect to steer more spending in the next 12 months, the CFOs put sales and marketing behind only cybersecurity and IT/digital transformation. Right behind putting more money into sales and marketing on the CFOs’ lists were investing in their companies’ workforce and, relatedly, their training and development programs. That reflects both an acknowledgement that labor remains scarce and hiring tough as well as executive teams’ reluctance to cut costs by trimming their workforces.
Shipping Costs Are Rising Rapidly This Summer
Costs to ship goods from Asia to the U.S. are turning sharply upward, but American importers appear to be absorbing the higher prices after watching freight rates plummet this year from record highs. The average spot rate to ship a 40-foot container from China to the U.S. West Coast rose 61% during the six weeks through Aug. 15 to $2,075, according to transportation data and procurement firm Xeneta.
The increase came as big shipping lines raised their listed prices after rates on the sector’s spot market plunged from nearly $10,000 a box in February 2022 to below $1,300 in late June, as overstocked retailers pulled back orders and weakening demand cut into earnings at big shipping lines.
EV Battery Imports Face Scrutiny Under US Law on Chinese Forced Labor
Electric-vehicle batteries and other car parts are the latest products under scrutiny as part of Washington's effort to stamp out U.S. links to forced labor in Chinese supply chains, according to a document seen by Reuters, agency statistics and sources. Until now, enforcement of a year-old U.S. law that bans the import of goods made in Xinjiang, China, has focused mainly on solar panels, tomatoes and cotton apparel. But now, components that may include lithium-ion batteries, tires and major automobile raw materials aluminum and steel are increasingly subject to detentions at the border.
Both solar energy and battery-powered electric vehicles are critical industries in the Biden administration’s push to wean the U.S. from dependence on fossil fuels and to combat climate change.
Bidding Battle Over Yellow Assets
Apollo Global Management is backing away from the Yellow bankruptcy. A group of lenders led by the asset manager is selling a loan to the trucker totaling more than $500 million and is dropping plans to provide financing for Yellow’s unwinding in bankruptcy court. Apollo’s withdrawal from the jockeying over debtor-in-possession financing leaves two big trucking-connected businesses bidding to provide the loan to help Yellow clear out its assets.
Estes Express Lines, a major rival to Yellow in the less-than-truckload market, is offering a bigger loan than Apollo put on the table and spreading it over a longer period. MFN Partners, which owns a significant stake in trucker XPO, is also bidding to provide the loan. The Estes loan terms stretch for 180 days, suggesting it may take months to wind down Yellow’s business and sell assets valued at more than $2 billion.
Governor Signs ‘Save the Hudson’ Bill – Court Battle Looms
Governor Kathy Hochul, Friday, signed legislation that will restrict discharges of any radioactive substance into the Hudson River in connection with the decommissioning of the Indian Point nuclear power plant in Buchanan. The law aims to safeguard communities in the Hudson Valley. The Hochul administration said it will continue to work closely with federal regulators, Holtec, local officials and the State’s Decommissioning Oversight Board to identify feasible and acceptable alternatives of wastewater disposal so that decommissioning Indian Point can continue, in a safe, thorough, and prompt manner.
Holtec and the federal Nuclear Regulatory Commission have said that the amount of radioactive material in the discharges would have been far below the allowable limits and no different from the dozens of routine, regulated discharges that took place over the decades the plant was in operation. In a statement, Holtec said “We firmly believe that this legislation is preempted by federal law and that the discharge of monitored, processed, and treated water would not impact the environment or the health and safety of the public,” it said. “In the interim, we will evaluate the impact to our decommissioning milestones and the overall project schedule.”
US Jobless Claims Decline in Sign of Resilient Labor Market
Applications for unemployment benefits dropped by 11,000 to 239,000 for the week ending August 12, down from 250,000 the previous week, the Labor Department reported Thursday. The four-week moving average of claims, which softens some of the week-to-week volatility, rose by 2,750 to 234,250. Jobless claim applications are seen as a proxy for the number of layoffs in a given week.
"The advance number for seasonally adjusted insured unemployment during the week ending August 5 was 1,716,000, an increase of 32,000 from the previous week's unrevised level of 1,684,000," the DOL further noted in its publication.
Midyear Cutting Tool Orders Raise Optimism
Machine shops and other manufacturers increased their spending on cutting tools by 3.2% from May to June 2023, up to $217.3 million for the month, according to the latest Cutting Tool Market Report issued by the U.S. Cutting Tool Institute and AMT - The Assn. for Manufacturing Technology. The result is an encouraging 23.5% rise over the $175.9 million reported for June 2022.
“The cutting-tool industry continues to record strong sales growth compared to 2022,” according to Everede Tool president Bret Tayne. “Much of this may be attributable to certain durable goods sectors, such as transportation and defense, that are core drivers of cutting tool consumption. If some of the critical customer categories are outperforming the overall economy, the cutting tool industry may enjoy better-than-anticipated growth.”
Cathay Pacific Plans to Acquire 32 More A321neo and A320neo Aircraft by 2029
Cathay Pacific Airways reported it plans to expand its aircraft fleet with 32 narrow-body jets from Airbus – a combination of A321neo and A320neo jets. At list prices the acquisition could be worth about $3.8 billion, depending on the buyer’s selection of the two models and not accounting for typical discounting in such purchases. Hong Kong-based Cathay Pacific, including subsidiary budget airline HK Express and cargo carrier Air Hong Kong, provides passenger and cargo services to 81 destinations worldwide.
The group said it will take deliveries of the new aircraft by 2029, and they will be added to the current inventory of both Cathay Pacific and its affiliate HK Express, serving regional and Chinese domestic routes.