Member Briefing August 31, 2023
U.S. Second-Quarter GDP Growth Revised Lower
Gross domestic product increased at a 2.1% annualized rate last quarter, the government said on Wednesday in its second estimate of GDP for the April-June period. That was revised down from the 2.4% pace reported last month. Economists polled by Reuters had expected GDP for the second quarter would be unrevised. The revision reflected downgrades to inventory investment as well as business spending on equipment and intellectual property products.
The economy grew at a 2.0% pace in the first quarter It is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8%. The economy’s resilience raises the risk of borrowing costs remaining higher for a while, but slowing inflation is fueling optimism that the U.S. central bank is probably done hiking rates and could engineer a “soft landing.” Most economists have walked back their forecasts for a recession this year. Economists have boosted their third-quarter growth estimates to as high as a 5.9% rate, though this likely overstates the health of the economy.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia Kills Two People in Massive Air Attack on Kyiv – Politico
- Ukrainian Drones Strike Six Russian Regions, Destroy Planes at Airfield – Reuters
- Ukraine’s Elite Snipers Fight Russians, Bullet by Bullet - WSJ
- Russia Earns Less From Oil and Spends More on War. So Far, Sanctions are Working Like a Slow Poison - AP
- Hungary’s Orban Urges ‘Deal’ With Putin, Rejects Ukraine Joining NATO - Bloomberg
- Kremlin Says Prigozhin Plane May Have Been Downed on Purpose – Reuters
- The Object of Ukraine's Desire: F-16s From the West. But It's Tricky - NYT
- Ukraine Blasts Pope Francis’ Address to Russian Youth as ‘Imperialist Propaganda’ - CNN
- 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
Middle-Market Manufacturers Confront Inflation, Supply Chain and Talent Risk
Although increased production in the U.S. by major semiconductor and automobile manufacturers make headlines, overall manufacturing capacity and demand hit recent highs, according to Deloitte’s 2023 manufacturing outlook. The firm projected a 2.5% GDP growth in U.S. manufacturing in 2023. The optimism is affirmed in the Chubb and the National Center for the Middle Market (NCMM) report, a survey in which more than three-quarters (76%) of middle-market manufacturers project overall performance improvements this year.
The good news is tempered by a range of obstinate risks. Finding the right skill set is considered a challenge by nearly half (49%) of the respondents to the Chubb/NCMM survey. Other risks as U.S. manufacturers onshore facilities include the impact of unpredictable natural disaster exposures and inflation on the costs of rebuilding damaged or destroyed buildings and other assets. Seventy percent of manufacturers in the Chubb/NCMM survey said the replacement costs of covered assets has changed due to inflation. Ongoing supply chain issues are another concern, with 41% of respondents reporting a supply chain disruption in the second half of 2022.
Biden Labor Department Moves to Expand Overtime Pay
The Biden administration on Wednesday proposed giving raises to more than 3 million workers by making them eligible for overtime pay. The move by the Department of Labor comes more than eight years after the Obama administration embarked upon a similar effort to boost wages by rewriting overtime eligibility rules under the Fair Labor Standards Act. The Obama-era plan initially proposed setting a $50,440 floor before settling on $47,476 annually — though a federal judge in Texas blocked the rule from taking effect.
Workers making less than about $55,000 annually would be automatically entitled to time-and-a-half pay under DOL’s proposal, up from $35,568 set in 2019 under former President Donald Trump. DOL estimates that the change would result in higher wages for 3.6 million workers. DOL’s proposal also includes a mechanism to update the salary threshold every three years by linking it to the 35th percentile of income
COVID Update - For Schools in NYS Last Year’s COVID Symptom Rules Still Apply
There are indications that COVID-19 is spreading in communities again — and right before children are going back to school. But if parents are looking for updated information from their school district about what to do if a student presents with COVID symptoms, they’re likely not to find it. Local school districts are generally not sending out information about what to do if a child has symptoms. Partly, that’s because the same rules from 2022-2023 apply to the school year that is starting within the next week — which is if a student tests positive, stay home for five days.
But in reality, much has changed concerning testing. The federal government is no longer giving out free tests, testing clinics have closed and many tests that were previously provided free through insurance have largely expired. Therefore, many children with mild symptoms are likely not going to be tested for COVID. However, some districts say they still have enough tests for those who report that they have COVID-related symptoms.
NYS COVID Update
The Governor updated COVID data for the week ending August 25th.
Senate Plots Moves Amid Spending Clash With House
Chuck Schumer is tentatively planning to bring up several spending bills for floor votes in mid-September, as the Senate majority leader works with Appropriations Chair Patty Murray (D-Wash.) and ranking member Susan Collins (R-Maine) to prepare the bills for prime time. Democrats hope it will set up a stark bipartisan contrast with the House, which has already struggled to pass GOP-backed funding bills ahead of the Sept. 30 shutdown deadline. They are leaning toward floor action on bills funding military construction, transportation and housing, as well as agriculture spending legislation, according to three people familiar with the matter.
No final decision has been made, and it’s not clear whether the bills would be rolled together or considered separately; Senate rules mean individual bills take roughly a week to process. Schumer’s plans mark the latest move in a larger conflict with House Republicans, who are seeking to slow Ukraine funding and restrict government spending at large. Without regular funding bills, the federal government risks 1 percent spending cuts if Congress continues operating on a stopgap spending bill into January.
NY Employers Face Expanded Liability for Negligent Supervision
Can a New York employer be held liable for economic losses suffered by a party that has no business relationship with the employer based on an employee’s unauthorized fraudulent scheming? This issue was recently presented to the New York Court of Appeals. The Court recognized such liability on a claim of negligent supervision and retention notwithstanding a vigorous dissent.
In Moore Charitable Foundation v. PJT Partners, Inc., the plaintiff alleged that it had been swindled out of $25 million through a fraud perpetrated by an employee of the defendant, an investment bank. the defendant argued it owed no duty of care to the plaintiff, and therefore could not be sued on a negligence theory, because it had no relationship with the plaintiff that was not a customer or a prospective customer. The Court, however, rejected this defense. The Court concluded that a customer relationship or other privity was not a prerequisite to a negligent supervision or retention claim.
The Peak Shipping Season in the U.S. is Arriving With a Whimper.
Goods imports heading into the country remain lackluster and the impact is reaching deeper into inland logistics networks as freight operators brace for a second straight fall with only tepid gains during the typically busy time of the year. Industry experts point to ongoing concerns over consumer demand as a crucial damper on shipping volumes. Retailers have cut the excess inventories they built up last year, but inventory levels remain elevated in critical areas such as apparel and electronics that usually pump up seasonal trade.
Recent ocean and rail figures suggest shipping volumes are barely ticking up from month to month. Retailers remain cautious, but a surge this fall in consumer spending could provide a boost to truckers, parcel carriers and air-cargo operators later in the year.
German Wages Rise at Record Pace in Second Quarter
German wages rose at a record annual pace of 6.6 per cent in the second quarter, boosting consumer spending power but fueling concerns about inflation being pushed up by rising labour costs. The increase, which compared with wage growth of 5.6 per cent in the previous quarter, was the highest since collection of the data began in 2008. It took German annual wage growth above the country’s consumer price inflation rate — 6.5 per cent in the period — for the first time since 2021.
Second-quarter pay for German workers was boosted by increases in the minimum wage and one-off bonuses awarded by many companies to cushion the impact of higher inflation, according to the federal statistical office. The lowest paid fifth of the workforce enjoyed the highest wage rises, as their pay rose 11.8 per cent following last October’s increase in the minimum wage to €12 an hour. The maximum monthly earnings for tax-free, part-time “mini” jobs also rose from €450 to €520.The figures raise hopes that a rebound in German consumer spending could support the country’s economy, which has shrunk or stagnated for the past three quarters, as household incomes start to catch up with the cost of living.
FedEx to Implement Higher Surcharges for 2023 Peak Season
FedEx Corp. said Tuesday that it will raise its tariff, or noncontractual, rates on most of its U.S. services by 5.9% in 2024, a decline from the 6.9% increase in 2023 and a potential attempt to take market share from rival UPS Inc., which is facing significantly higher labor costs during the first year of its five-year contract with the Teamsters union. The specific increases will apply to FedEx Ground and FedEx Express service. The latter increase will impact domestic and international air services to and from the U.S. FedEx announced rate increases of 5.9% to 6.9% on its FedEx Freight less-than-truckload service within the U.S. and between the U.S. and Canada. Specific rate increases will depend on a customer’s rate scale, FedEx said.
Rates for FedEx Economy, the company’s low-priced deferred delivery service, will also increase, FedEx said. It did not provide a specific percentage, however. The increases, which take effect Jan. 1, were announced earlier than usual. Known as general rate increases (GRI), they serve as the jumping-off point for contract rate negotiations, which are predominant in the parcel-delivery industry. GRIs typically understate what many shippers end up paying after rate adjustments and fuel and other delivery surcharges are factored in.
Co-Everything: Pentagon Teases Series of Weapon Production Partnerships with Friendly Nations
The Us is planning to announce a slew of new weapon co-production deals with governments around the globe, according to the Pentagon’s top acquisition official. “We’ve got multiple initiatives that are going to be coming out, [that] you’re going to be hearing about in the next few months, probably, including in European countries [and] including things that are going to be produced in this country that were a product from overseas,” Undersecretary of Defense for Acquisition and Sustainment Bill LaPlante, told reporters on Monday during a National Defense Industrial Association conference. “Where we’re headed is co-development, co-production, and co-sustainment with our partners,” he added.
But as LaPlante noted, it isn’t a one-sided arrangement, and the US may soon be assembling new foreign weapons on its soil. Some such deals, though, are already in place, like a teaming agreement between Raytheon and Israel’s Rafael Advanced Defense Systems to produce an Americanized version of Iron Dome’s Tamir interceptors here. In late July, the Marines said they had visited a potential production facility for that munition in Arkansas.
U.S. to Send $250 Million in Weapons to Ukraine
The Biden administration announced Tuesday it will send an additional $250 million in weapons and ammunition to Ukraine as part of its ongoing support of Kyiv’s counteroffensive. The weapons will be drawn from existing U.S. stockpiles and will include mine-clearing equipment, artillery and rocket rounds, ambulances and medical gear, among other items and spare parts, according to the State Department.
The State Department said the package contained AIM-9M missiles for air defense, High Mobility Artillery Rocket System munitions, 155mm and 105mm artillery ammunition and more than 3 million rounds of small arms ammunition. The U.S. would have already run out of funding for the year to provide additional stockpile equipment to Ukraine but earlier this year realized the Pentagon had overvalued the equipment it had already sent, which freed up an additional $6.2 billion in funding.
3M Settlements – Judge Approves PFAS, Earplug Deal Reached
3M) on Tuesday secured preliminary approval for a $10.3 billion deal resolving claims by U.S. public water providers that the company polluted drinking water with toxic chemicals, less than a day after a group of 22 U.S. states and territories dropped their objections to the deal. U.S. District Judge Richard Gergel in Charleston, South Carolina, said in a court filing that the settlement of hundreds of lawsuits against the Minnesota-based company over pollution by perfluoroalkyl and polyfluoroalkyl substances, or PFAS, is "sufficiently fair, reasonable and adequate" to justify moving forward.
In a separate Action 3M has agreed to pay $6 billion to resolve roughly 300,000 lawsuits alleging that the manufacturing company supplied faulty combat earplugs to the military that resulted in significant injuries, such as hearing loss. In a release, 3M said the agreement is “not an admission of liability” and that the payout will come over several years and encompass $5 billion in cash and $1 billion in stock.
DOL Updates Employee Representation During Inspection
On August 29 the Department of Labor announced a notice of proposed rulemaking to revise regulations regarding who can be authorized by employees to act as their representative to accompany OSHA compliance officers during physical workplace inspections. The proposed rule clarifies that employees may authorize an employee, or they may authorize a non-employee third party if the compliance officer determines the third party is reasonably necessary to conduct an effective and thorough inspection.
The proposed changes also clarify that third-party representatives are not limited to industrial hygienists or safety engineers, two examples included in the existing regulation. Third-party representatives may be reasonably necessary because they have skills, knowledge or experience that may help inform the compliance officer’s inspection. This information may include experience with particular hazards, workplace conditions or language skills that can improve communications between OSHA representatives and workers.