Member Briefing August 8, 2023
Manufacturing Labor Productivity Rises in Q2 as Output Increased and Hours Worked Fell
Manufacturing sector labor productivity increased 4.0 percent in the second quarter of 2023, as output increased 1.9 percent and hours worked decreased 2.0 percent. In the durable manufacturing sector, productivity increased 5.2 percent, with a 4.1-percent increase in output and a 1.1-percent decrease in hours worked. Nondurable manufacturing sector productivity increased 3.4 percent, as output decreased 0.1 percent and hours worked decreased 3.4 percent.
Total manufacturing sector productivity decreased 1.0 percent from the same quarter a year ago. Unit labor costs in the total manufacturing sector increased 3.6 percent in the second quarter of 2023, reflecting a 7.8-percent increase in hourly compensation and a 4.0-percent increase in productivity. Manufacturing unit labor costs increased 4.9 percent from the same quarter a year ago.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine’s Ammunition Chief Battles to Boost Production - WSJ
- Section Of Russia-Europe Oil Pipeline Halted After Leak – Oil Price
- Olaf Scholz Under Pressure to Send Cruise Missiles to Ukraine – Financial Times
- Under Pressure in Ukraine, Putin Lashes Out at US in Syria – The Hill
- Ukraine Says U.S and German Air Defence Systems 'Highly Effective' - Reuters
- Why U.S. War Tactics Are Failing in Ukraine – Newsweek
- Ukraine Struggles to Retake Bakhmut From Dogged Russian Fighters - WSJ
- Sea Drones: What Are They and How Much do They Cost? - BBC
- Russia to Launch First Moon Lander Since 1976 in Race With Indian Spacecraft – Reuters
- 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
High Level Investments Needed to Save U.S. Workplace, Littler Report Says
Workforce reports from any number of government and private policy employment nerve centers present an increasingly fractured picture of the engine driving the U.S. economy. Littler, a major employment and labor law practice representing management, has produced its own construct of where the workforce is today and where it may well be headed. Its analysis and forecast look further into the future than most.
The conclusion: Unless the nation begins to invest heavily now in programs that will properly prepare tomorrow’s workers for the emerging Uber technology driven workplace, employers will continue to struggle to find the skilled workers they need. And workers will lag behind job requirements because, through no fault of their own, existing education and training resources will fail to prepare them properly. Among the recommendations – modernize the Workforce Innovation and Opportunity Act (WIOA) and Diversify and expand the National Apprenticeship system.
Will AI be an Economic Blessing or Curse? If History is a Guide the Answer is “Yes”
If medieval advances in the plough didn't lift Europe's peasants out of poverty, it was largely because their rulers took the wealth generated by the new gains in output and used it to build cathedrals instead. Economists say something similar could happen with artificial intelligence (AI) if it enters our lives in such a way that the touted benefits are enjoyed by the few rather than the many. "AI has got a lot of potential - but potential to go either way," argues Simon Johnson, professor of global economics and management at MIT Sloan School of Management. "We are at a fork in the road."
A book published this year by Johnson and fellow MIT economist Daron Acemoglu surveyed a thousand years of technology - from the plough through to automated self-checkout kiosks - in terms of their success in creating jobs and spreading wealth.. "Conclusion: We should be cautious when estimating the effects of artificial intelligence on labour productivity," Natixis warned.
COVID Update - Coronavirus Variant EG.5 Takes Top Spot from ‘Arcturus’
A new coronavirus strain has taken over as the top variant circulating in the U.S. EG.5 was responsible for more than 17% of new coronavirus cases over the past two weeks, according to data from the Centers for Disease Control and Prevention. That’s the highest prevalence of any strain circulating, rising above the so-called “arcturus” variant, which caused nearly 16% of infections. EG.5 is also increasing globally. The World Health Organization last month upgraded EG.5 to a “variant under monitoring,” which is a step below a “variant of concern” – its classification for Arcturus.
There is no evidence the strain is linked to rising cases or deaths or to a change in disease severity. There is not yet hard data, though experts anticipate new boosters slated to be ready in September would offer better protection against any XBB sublineages than the current bivalent shots.
Hochul to Convene AI Experts Aiming at More Efficient Government and Citizen Protection in New York
New York Governor Kathy Hochul says she's planning to convene a gathering of AI experts to help take the steps in utilizing and controlling artificial intelligence in New York State. The Governor says AI companies based in New York City have been a valuable resource in understanding the next steps for the technology. Assemblyman Clyde Vanel, who recently drafted legislation using Artificial Intelligence, has a bill heading to the Governor's desk which would create an AI task force.
Vanel, along with other experts, are hoping AI can be used in other ways to make the State more efficient, which is something Governor Hochul is hoping for too. "How can we use [AI] at the state level to provide better services, more efficient services to the public?" she says. "This is the area I'm most excited about, but there's also a downside that's also apparent. I want to make sure we're protecting our citizens from any unwanted impacts from AI, so we're just getting started."
US Consumer Credit Rises, Driven by Surge in Non-Revolving Debt
Consumer credit expanded by $17.85B in June vs. $13.0B expected and $9.46B in May (revised from $7.24B), the Federal Reserve said Monday is a statistical release. Total outstanding consumer credit of $5.0T climbed from $4.98T in the prior month. On a seasonally adjusted basis, consumer borrowing advanced at a 4% annual rate.
Revolving credit, which includes credit card debt, rose at a seasonally adjusted annual rate of 7.1% to $1.26T. Nonrevolving credit, which includes auto and student loans, increased at an annual rate of 3% to $3.73T, the central bank said.
Comity Crumbles on Congress’ Covid Committee
The decadelong friendship between Reps. Raul Ruiz (D-Calif.) and Brad Wenstrup (R-Ohio) survived elections, impeachments and the Jan. 6 insurrection. But the battle over where to place blame for the last pandemic, and how to confront the next one, is testing its limits. Republicans on the committee grumble that Democrats remain fixated on former President Donald Trump, with no interest in holding other officials accountable, while Democrats charge the GOP with pushing conspiracy theories and elevating untrustworthy witnesses with axes to grind.
“Three million-plus individuals died, and we’re spending our time trying to push a partisan narrative that Dr. Fauci is guilty of wrongdoing,” an exasperated Ruiz told POLITICO. “How in the world will that help us prevent the next pandemic?” Wenstrup said he’s as frustrated as Ruiz with the growing partisan divide, pointing to the separate reports the majority and minority recently released on the origins of Covid to argue it’s the minority’s fault things have gotten “too political. We don’t mention ‘Republican’ or ‘Democrat’ at all — not one time in our report,” he said. “But their report mentions Republicans 34 times. Now, you can draw your own conclusions from that.”
Trucker Yellow Files for Bankruptcy, Will Liquidate
Yellow, the 99-year-old trucking company, filed for bankruptcy and is closing the business, falling victim to mounting debt including a government loan and a standoff with the Teamsters union. The bankruptcy follows years of struggles for the Nashville, Tenn.-based trucker as it tried to address the debt it accumulated through a series of mergers and a $700 million federal Covid-19 relief loan during the pandemic. On July 30, the company shut down its operations and laid off a large number of workers.
The closure means the loss of 30,000 jobs, including 22,000 positions held by the members of the International Brotherhood of Teamsters. Yellow owns some 12,000 trucks and dozens of freight terminals across the country including one in Maybrook, Orange County NY. Yellow listed 30 unsecured creditors in its bankruptcy filing, including BNSF Railway, Amazon.com and Home Depot. Yellow’s demise also removes a major contributor to the Central States Pension Fund, a multiemployer pension fund that received a federal bailout last December under a program aimed at shoring up near-insolvent retirement plans.
GM Criticizes Autoworkers Union's Contract Demands
General Motors on Thursday said it expected to offer unionized workers higher wages, but granting the United Auto Workers' (UAW) ambitious contract demands including large pay rises would hurt its ability to make sound business decisions. Company and union sources told Reuters the UAW was seeking at least a 40% pay hike over the life of the four-year contract, including an initial 20% hike upon ratification.
GM, the largest U.S. automaker, said the proposals "would threaten our ability to do what's right for the long-term benefit of the team." GM said a fair agreement would reward employees but also allow the company to retain its momentum now and into the future. "We think it's important to protect U.S. manufacturing and jobs in an industry that is dominated by non-unionized competition," GM said. The UAW did not immediately comment on GM's statement.
Inflation and Resentment Stoke Heightened Labor Activism Among America’s Truckers, Cargo Pilots and Package Carriers
Surging demands on transportation workers are fueling labor standoffs at companies critical to U.S. supply chains. The Teamsters, which represents drivers at trucking company Yellow, threatened a strike shortly before the company shut down July 30. FedEx pilots recently rejected a new labor contract promising a roughly 30% raise. Port workers in Canada staged walkouts earlier this year and dockworkers at West Coast ports slowed work at container terminals.
The renewed activism comes on the heels of the Covid-19 pandemic, when demands on train operators, package carriers, and truckers surged to handle a deluge of business. Transportation workers said they are entitled to a larger share of the corporate profit generated during the pandemic and better pay and recognition for showing up through the health crisis when other staff were able to work remotely.
Construction Spending In Manfuacturing Edges Higher
Private manufacturing construction edged up 0.3% from $194.87 billion in May to a record $195.45 billion in June. Private construction in the sector has trended significantly higher since bottoming out at $72.46 billion in February 2021. Over the past 12 months, activity has risen a whopping 80.7%. The data speak to the very sizable investments being made in the manufacturing sector, with firms strongly expanding their capacity in the United States. This should bode well for future growth in manufacturing in the U.S. moving forward.
At the same time, total private nonresidential construction spending was flat in June, but with activity rising 20.9% over the past 12 months. In June, total private construction spending rose 0.5%, with private residential construction up 0.9% for the month. Private single-family and multifamily construction increased 2.1% and 1.5% in June, respectively. On a year-over-year basis, total private construction has risen 1.0% since June 2022, but with private residential activity down 10.4%. Private single-family residential construction has declined 21.5% over the past 12 months. Public construction spending increased 0.3% in June, with activity up 13.6% year-over-year.
Economists are Warning of an Inflation 'Smile'
US gas prices are on the rise again, threatening to worsen an inflation problem the Federal Reserve has worked hard to fight over the past year. The average gallon of gas traded at $3.89, its highest level since October 2022, per AAA. The surge in gas prices comes amid rising oil prices, largely spurred by supply cuts by key producers including Saudi Arabia and Russia. Both benchmark Brent crude and West Texas Intermediate are currently trading upwards of $80 a barrel.
Top economist and Allianz adviser Mohamed El-Erian said, in a post on X that people were worrying about an inflation "smile" in the US, "that is, the current fall in headline inflation giving way to a stabilization and then a move back up in the fourth quarter of the year…. Other factors fueling this worry include the still-high core inflation rate and, related to that, the possibility that the process of goods dis-inflation may end before service sector inflation is well under control."
Cargo Volume In August to Hit Highest Level Since Last Fall
As retailers stock up for the winter holidays, Import cargo volume at the nation’s major container ports is expected to hit its highest level in nearly a year this month, according to the Global Port Tracker report released on August 7 by the National Retail Federation and Hackett Associates. “Port and package-delivery labor negotiations that threatened the supply chain at the beginning of the summer have been resolved and retailers are now focused on preparing for the all-important holiday season,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement.
Double-digit year-over-year decreases in cargo volume this year have come even though consumer spending and U.S. employment have increased. U.S. ports covered by Global Port Tracker handled 1.83 million TEU in June, the latest month for which final numbers are available. That was down 5.2% from May and down 18.7% year over year. That brought the first half of 2023 to 10.5 million TEU, down 22% from the first half of 2022.
Bullish Momentum Is Building For Crude Oil
Oil prices have been on a tear lately, with Brent crude crossing the $86.50 per barrel mark last week. This impressive surge is due to a number of factors, including supply disruptions from Saudi Arabia and Russia, a rebalancing of net oil imports, and a significant increase in US oil exports. As a result of that demand increase, however, the amount of commercial crude oil in the United States decreased by nearly 17 million barrels by the end of July 2023.
At present, current commercial inventories are about 1% below the five-year average for this time of year. This 2% drop from the previous level is a sign of things to come and a testament to the volatility of the oil market. Based on this, it looks like Brent crude prices will hover between $82 and $90 per barrel for the rest of 2023. The global oil market is constantly changing and keeping stakeholders on their toes as the complex dance between supply, demand, and global dynamics continues.
ON Semiconductor Earnings
Last week ON Semiconductor Corporation published its half-year results. In a sector hit by a very sharp economic downturn, the US group continues to show excellent health and promising development prospects. Demand remains buoyant in its main market - the automotive industry. Equipment designed by ON - sensors, transistors, advanced materials such as silicon carbide, among others - is increasingly ubiquitous, particularly in the production of electric vehicles. Consolidated profit for the first half of the year reached $1.03 billion.
ON expects to see demand for its components increase by almost thirty times per vehicle. In a sector where scale is essential, ON now expects to reap the rewards of these strategic investments. Management is targeting a gross margin of 45% - exceeded in the first half of 2023 despite widespread price cuts - and the ability to generate $2 billion in profits per year.