Member Briefing August 24, 2023

Posted By: Harold King Daily Briefing,

Manufacturing PMI Contracts for 4th Straight month

For months, a strong labor market and resilient consumer spending has increasingly assuaged fears of recession, and led to upward revisions of GDP growth forecasts. But Wednesday's data painted a more tepid picture about the economy. Service sector business activity growth was the slowest since February at 51.0 in August, and the Manufacturing PMI fell deeper into contraction territory at 47.0 down from 49.0 in July, the fourth straight month of contraction.

Wednesday's data was worse than expected, with economists polled by Reuters predicting that the services index would be 52.2 and the manufacturing index would be 49.3. "A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter. The survey shows that the service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Read more at Reuters

War in Ukraine Headlines

Powell’s Speech Friday to Headline Fed’s Summer Gathering at Jackson Hole

This week, the world’s leading macroeconomists will gather at a playground of billionaires to discuss the post-pandemic problems of ordinary Americans while balancing the twin goals of seeking full employment and also constraining the forces of inflation. The gathering at the Federal Reserve’s summer symposium in Jackson Hole, Wyoming, comes at an auspicious time for the central bank. After largely being seen as having missed the raging inflation that followed the global response to COVID-19, the Fed is now pondering whether to put a halt on its campaign of interest rate hikes even though inflation is still roughly 50% higher than its 2% annual target.

And for Fed Chairman Jerome Powell, it will be an opportunity to stake out his legacy in a volatile economic environment that is coinciding with a pivotal presidential election campaign marred by divisive partisan rhetoric. While the Fed likes to think of itself as apolitical, its actions have often been used by politicians for partisan advantage. As a Fed member who was nominated by Barack Obama, elevated to chairman by Republican Donald Trump and renominated by Joe Biden, the balancing act has not always been easy.

Read more at US News

‘India Is on the Moon’: Chandrayaan-3 Spacecraft Lands on Lunar South Pole

An Indian spacecraft landed on the rugged, unexplored south pole of the moon on Wednesday in a mission seen as crucial to lunar exploration and India's standing as a space power, just days after a similar Russian lander crashed. Scientists and officials clapped, cheered and hugged each other as the spacecraft landed and people across India broke out in celebration, setting off firecrackers and dancing in the streets.

"India is on the moon," said S. Somanath, chief of the Indian Space Research Organisation (ISRO) as the Chandrayaan-3 spacecraft landed, making India the fourth nation to successfully land a spacecraft on the moon after the United States, China and Russia. The Chandrayaan-3 is expected to remain functional for two weeks, running a series of experiments including a spectrometer analysis of the mineral composition of the lunar surface. Rough terrain makes a south pole landing difficult, and a first landing is historic. The region's ice could supply fuel, oxygen and drinking water for future missions.

Read more at Reuters

COVID Update - Many Long-Covid Symptoms Linger Even After Two Years, New Study Shows

People who endured even mild cases of covid-19 are at heightened risk two years later for lung problems, fatigue, diabetes and certain other health problems typical of long covid, according to a new study that casts fresh light on the virus’s true toll. The analysis, published Monday in the journal Nature Medicine, is believed to be the first to document the extent to which an array of aftereffects that patients can develop — as part of the sometimes debilitating syndrome known as long covid — linger beyond the initial months or year after they survived a coronavirus infection.

According to the findings, patients who suffered bouts of covid severe enough to put them in the hospital are especially vulnerable to persistent health problems and death two years after they were first infected. But people with mild or moderate cases are not spared from the consequences when compared with those who never had covid, showing an elevated risk of two dozen medical conditions included in the analysis.

Read more at The Washington Post

U.S. Commerce Secretary Gina Raimondo Will Visit China Next Week Seeking Cooperation Amid Strains

U.S. Secretary of Commerce Gina Raimondo will travel to Beijing and Shanghai on August 27-30 for meetings with senior Chinese officials and U.S. business leaders. While in China, “Secretary Raimondo looks forward to constructive discussions on issues relating to the U.S.-China commercial relationship, challenges faced by U.S. businesses, and areas for potential cooperation,” the Commerce Department said on Tuesday.

Security concerns have more recently fused with trade following U.S. restrictions on the exports of sensitive chip-making equipment to China, a move that has since led to tit-for-tat regulatory steps by Beijing that could limit its exports of minerals used by the semiconductor industry. Raimondo’s visit would follow a trip to China last month by U.S. Treasury Secretary Janet Yellen. She arrived in Beijing days after China on July 1 implemented revisions to a security law that have unnerved U.S. businesses. China has this year raided American research or due diligence companies in the mainland such as Bain and Mintz on security grounds.

Read more at Forbes

Dick’s Sporting Goods Blames Earnings Slump On Theft—Joining Other Major Retailers

Dick’s Sporting Goods reported net income of $244 million last quarter, down from the $318.5 million in the same three-month period last year, and $2.82 in earnings per share—significantly missing analysts’ expectations of $3.81. The company said quarterly net sales increased to $3.2 billion, up from $3.1 billion last year. CEO Lauren Hobart said "shrink"—an industry term used to describe loss of inventory for reasons ranging from shoplifting to employee theft and return fraud—was a "large part" of the reason earnings fell short.

The “shrink” problem has also been cited by companies like Target, beauty retailer Ulta and TJX: Retailers discussed shrink more last quarter than any other quarter on record, data compiled by Bloomberg showed. Home Depot in May blamed a 33.7% decrease in gross profit margin partly on inventory shrink, Target's CEO said he expects shrink will reduce profitability this year by more than $500 million and Walmart CEO Doug McMillon last year warned that shoplifting could lead to higher prices for shoppers or store closures. The National Retail Federation, a retail trade association, said last fall shrink accounted for $94.5 billion in losses in 2021—up from $90.8 billion in 2020.

Read more at Forbes

Bankrupt Trucker Yellow’s Real Estate Is in High Demand

Old Dominion Freight Line last week agreed to buy Yellow’s network of about 170 truck terminals for $1.5 billion, surpassing an earlier offer of $1.3 billion from rival trucker Estes Express Lines. Both bids exceeded the value Yellow placed on its real estate in its bankruptcy filing, signaling the high value trucking companies place on the sites.  Old Dominion Freight Line is the front-runner but by no means the certain winner in a contest expected to draw bids from across the trucking industry and the industrial real-estate sector.

Regional and national freight operators will have a rare opportunity to take on a series of built-out, ready-to-operate facilities in a sector in which experts say real estate is one of the biggest obstacles to expansion. LTL operators like Yellow use hub-and-spoke networks of terminals, hauling in pallets of freight and trading them off onto trailers heading to final destinations. The terminals are often close to cities to help speed up delivery to businesses in a region. They are typically long and narrow, similar to passenger gates at airport terminals, with 20 to 100 doors on each side of the building.

Read more at The WSJ

Munitions Campus Poised to Propel the US Defense Industrial Base Forward

Many facilities are over a half century old, filled with outdated equipment, unable to meet production requirements, and often dependent on minerals and chemicals produced mainly by our adversaries. The issue is particularly acute for missiles and munitions, both the weapons needed for today’s fight in Ukraine and future capabilities such as hypersonic weapons. However, there is one promising development that has largely gone under the radar: The Defense Department’s recent suggestions that it is poised to create a “munitions campus,” as well as other campuses for other sectors, such as microelectronics, may be a step toward solving a host of DIB problems.

The Pentagon’s Defense Manufacturing Capability Expansion and Investment Prioritization (MCEIP) proposes creating a network of “campuses” consisting of testing and manufacturing facilities. The campus design is a public-private partnership centered around a hub and spoke model. At the center of the hub would be capital-intensive, government-supported facilities needed to test weapons and components. The spokes around this hub would be a variety of private companies that could use these expensive and specialized tools and facilities to develop materials needed by our armed forces, such as key chemical formulations called energetics.

Read more at Breaking Defense

Atlantic Airways Launches Service to Faroe Islands From Stewart

The first-ever non-stop flight from the Faroe Islands to the United States arrived Tuesday evening at New York Stewart International Airport. It was Atlantic Airways’ inaugural flight between the remote islands in the north Atlantic and New York. Airline CEO Johanna Bergi said they had planned on providing the service years ago, before the pandemic. “We were planning to do it before COVID then COVID came,” she said. Now, it took time to get all of the licenses in place. “We will use it as an experience.”

Weekly service will be conducted from Tuesday to September 20, Bergi said, expecting they will resume flights next spring.  From the Faroe Islands north of Scotland travelers can connect via Atlantic Airways to Edinburgh, Oslo, Paris, Berlin, Barcelona, Reykjavik, and Copenhagen as well as other European destinations.

Eurozone Business Activity Contracts Further in August, PMIs Suggest

Euro zone business activity declined far more than thought in August with the slide in Germany particularly fast, while some inflationary pressures returned, surveys showed. HCOB's flash Composite Purchasing Managers' Index (PMI) for the bloc, compiled by S&P Global and seen as a good barometer of overall economic health, dropped to 47.0 in August from July's 48.6, its lowest since November 2020. Inflation was 5.3% in July, official data showed, more than double the ECB's 2% target but well below readings seen late last year.

Business activity in Germany, Europe's largest economy, contracted at the fastest pace for more than three years as a deepening downturn in manufacturing output was accompanied by a renewed contraction in services. In France, the dominant services sector contracted further as falls in demand and new orders hinted there would be a contraction in the euro zone's second-biggest economy this quarter. Manufacturing activity has been in decline since mid-2022, but the latest PMI survey offered some hope the nadir may have been passed. The headline index rose to 43.7 from 42.7, its first uptick in seven months. Optimism among factory purchasing managers improved, also suggesting the worst may be over for manufacturers.

Read more at Reuters

Theft at Supplier in Mexico Delays Nissan Kicks Next-Gen Production

A theft of tooling from a supplier in Mexico has forced Nissan Motor Co. to delay the U.S. launch of the next-generation Kicks, people briefed on the matter told Automotive News. Production of the subcompact crossover in Aguascalientes, Mexico, now will start next June, with U.S. deliveries following shortly, one of the people said.

This is the second delay of the redesigned Kicks, originally scheduled to begin production in December. The vehicle's failure to pass crash safety tests set the schedule back a month and a half, a source said. The latest delay — which tacks on about five additional months — is related to tooling that was stolen from a supplier factory in Mexico, the sources said. They did not reveal the supplier's identity or say which Kicks part is affected. Nissan confirmed the launch delay this week but did not say why.

Read more at Automotive News

Southwest Airlines Takes Delivery Of Its 200th Boeing 737 MAX

Another new week, another new aircraft, this time the Boeing 737 MAX 8, brings the type’s total to a whopping 200 for Southwest Airlines. The brand-new aircraft was delivered to the airline on August 18th to its Phoenix Base. The airline exclusively operates the Boeing 737 fleet, with over 800 aircraft across all variants. Southwest Airlines received its 175th Boeing 737 MAX 8 on May 11. Since then, in just over three months, the airline has reached yet another milestone with its 200th aircraft.

The airline received 25 new aircraft in the last 14 weeks. That’s just under two aircraft each week. The continuous supply of the new generation of aircraft speaks volumes about the airline’s massive operations and its aim to keep upgrading the fleet. Southwest Airlines has a healthy order book of MAX aircraft, with a total order of 462. That includes 270 of the MAX 8s, and the remainder 192 are the shorter (but with greater range) MAX 7s. While no MAX 7 has been delivered yet, the airline is still awaiting the remaining 70 of the MAX 8s.

Read more at Simple Flying

China’s Beaten Economic Path

Since the turn of the century, the story of the Chinese economy has been one of seemingly unending growth. While many developed countries struggled to achieve even 3 percent real GDP growth year-over-year, China was routinely putting up double-digit figures: 10.1 percent, 12.7 percent, 14.2 percent. In fact, the People’s Republic of China (PRC)—now 1.4 billion strong—grew at an average rate of 9.5 percent between 1979 and 2018, according to World Bank data.

But that narrative always had holes in it. Despite its decades of growth, the Chinese economy—bolstered by unprecedented levels of state spending and investment—was never immune to the economic principles that govern all major economies, and cracks have been apparent for years if you knew where to look. Now, however, the country’s economic shortfalls are out in the open for all to see: deflation and weakening demand, troubling demographic trends, and decades of overaggressive state spending finally catching up with policymakers.

Read more at the Dispatch


Project NextGen Awards Over $1.4 Billion to Develop the Future of COVID-19 Vaccines and Therapeutics Including $326 million to Regeneron

Yesterday, the U.S. Department of Health and Human Services (HHS), through the Administration for Strategic Preparedness and Response (ASPR), awarded more than $1.4 billion for Project NextGen to support the development of a new generation of tools and technologies to protect against COVID-19 for years to come. The awards announced include the following actions:

  • $1 billion to four BARDA Clinical Trial partners to support vaccine Phase IIb clinical trial studies: ICON Government and Public Health Solutions, Inc of Hinckley, Ohio; Pharm-Olam, LLC, of Houston, Texas; Technical Resources Intl (TRI), Inc, of Bethesda, Maryland; and Rho Federal Systems, Inc., Durham, North Carolina.
  • $326 million to Regeneron to support the development of a next-generation monoclonal antibody for COVID-19 prevention.
  • $100 million to Global Health Investment Corp. (GHIC), the non-profit organization managing the BARDA Ventures investment portfolio to expand investments in new technologies that will accelerate responses in the future.
  • $10 million to Johnson & Johnson Innovation (JLABS) for a competition through Blue Knight, a BARDA-JLABS partnership.

Read more at HHS