Member Briefing Aurust 9, 2023

Posted By: Harold King Daily Briefing,

U.S. Trade Gap Narrows In June On Imports Pullback

The US trade deficit narrowed in June on a bigger pullback in imports than exports, according to government data released on Tuesday. The overall trade gap came in at $65.5 billion in June, down from a revised $68.3 billion figure in May, Commerce Department data showed. This came as exports fell by $0.3 billion to $247.5 billion, while imports dropped $3.1 billion to $313.0 billion. While stronger than expected consumer spending has helped to boost US trade, analysts have noted that this could weaken going forward.

In June, imports of goods ranging from computers to industrial supplies declined, Commerce Department data showed. The goods trade deficit with China declined to $22.8 billion, on a bigger drop in imports than exports. "Net trade was a huge swing factor in GDP growth last year, but we see few signs of another blowout in the trade deficit this year," said economists Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics in a recent report.

Read more at Barron’s

War in Ukraine Headlines

China Reports Double-Digit plunge in July Exports and Imports

China said Tuesday that exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% in U.S. dollar terms. A Reuters poll predicted a 12.5% decline in exports in July from a year ago, in U.S. dollar terms. Imports were expected to have dropped by 5% during that time, according to the poll. China’s exports to the U.S. plunged by 23.1% year-on-year in July, while those to the European Union fell by 20.6%. Exports to the Association of Southeast Asian Nations fell by 21.4%, according to the data.

Chinese imports of crude oil dropped by 20.8% in July from a year ago, while imports of integrated circuits fell by nearly 17%. July’s decline in trade adds to recent weakness in China’s exports and imports. On a year-to-date basis, China’s exports for the first seven months of the year fell by 5% from a year ago, while imports dropped by 7.6% during that time. A slowdown in U.S. and other major economies’ growth has dragged down Chinese exports this year. Meanwhile, China’s domestic demand has remained lackluster.

Read more at CNBC

Chinese Economists Told Not to be Negative as Rebound Falters

Chinese authorities are putting pressure on prominent local economists to avoid discussing negative trends such as deflation, as concerns mount about Beijing’s ability to boost a flagging recovery in the world’s second-biggest economy. Multiple local brokerage analysts and researchers at leading universities as well as state-run think-tanks said they had been instructed by regulators, their employers and even domestic media outlets to avoid speaking negatively about topics ranging from fears of capital flight to softening prices.

The clampdown on economic commentary follows a drumbeat of disappointing data that has undermined investor confidence and hindered Beijing’s efforts to spur a robust post-Covid rebound. Gross domestic product expanded just 0.8 per cent in the second quarter against the previous three months. Last month, the Communist party’s politburo admitted the recovery was making “tortuous progress”.

Read more at The Financial Times

COVID Update - ‘Eris’ Is New Covid-19 Variant Spreading, Monitored By WHO

The EG.5 variant now makes up the largest proportion of new COVID-19 infections nationwide, the Centers for Disease Control and Prevention estimated. Overall, as of Friday, 17.3% of COVID-19 cases nationwide were projected to be caused by EG.5, more than any other group, up from 7.5% through the first week of July. EG.5 includes a strain with a subgroup of variants designated as EG.5.1, which a biology professor, T. Ryan Gregory, nicknamed "Eris" — an unofficial name that began trending on social media. Eris is the Greek Goddess if strife and discord.

Experts say EG.5 is one of the fastest growing lineages worldwide, thanks to what might be a "slightly beneficial mutation" that is helping it outcompete some of its siblings. It is one of several closely-related Omicron subvariants that have been competing for dominance in recent months. All of these variants are descendants of the XBB strain, which this fall's COVID-19 vaccines will be redesigned to guard against.

Read more at US News

CEO Optimism Rebounds In August Poll

After retracting 6 percent in July, Chief Executive’s CEO Confidence Index reading for August shows a 3 percent improvement in CEOs’ one-year forecasts for business, compared to July.  At 6.4 (measured on a 10-point scale where 10 is Excellent and 1 is Poor), our leading indicator is at its second highest level of the year. CEOs say that despite the latest quarter-point rate hike and the idea that the Fed may not be done tightening just yet, they see continuous improvement in the overall economy and in their ability to drive growth.

The sentiment that growth will slow was widely shared by the CEOs we surveyed this month. Overall, the proportion of those who expect things to continue improving over the coming year dropped to 39 percent in August, from 44 percent in July. Meanwhile, the proportion expecting things to deteriorate increased to 32 percent from 27 percent. And despite having avoided a recession—for most sectors—growing inventories, the increasing difficulty to raise prices, the high cost of borrowing and the upcoming election year are all listed as concerns for the months ahead.

Read More at Chief Executive

Major US Banks Downgraded by Moody's on Worsening Outlook

Moody's cut credit ratings of several small to mid-sized U.S. banks on Monday and said it may downgrade some of the nation's biggest lenders, warning that the sector's credit strength will likely be tested by funding risks and weaker profitability. Moody's cut the ratings of 10 banks by one notch and placed six banking giants, including Bank of New York Mellon (BK), US Bancorp, State Street (STT) and Truist Financial (TFC) on review for potential downgrades.

"Many banks' second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital," Moody's said in a note. "This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios." Moody's said elevated CRE exposures are a key risk due to high interest rates, declines in office demand as a result of remote work, and a reduction in the availability of CRE credit.

Read More at Yahoo Finance

Timmons on CNBC: “We Are Very Concerned About the Onslaught of Regulations in the U.S.”

“There are a few good things coming from [the Biden] administration”—including the CHIPS and Science Act and historic infrastructure investment—but there are also several trends that spell trouble for manufacturing in the U.S., NAM President and CEO Jay Timmons said on CNBC’s “Squawk Box” on Monday. “On the one hand we have a manufacturing strategy that Congress and the administration have been putting forward, which is … to prioritize growing manufacturing here in the United States,” Timmons told CNBC’s Andrew Ross Sorkin.

“But … you're compounding that with three things. One is the [number] of regulations coming down. … [Two is] slow permitting, which is making it difficult for manufacturers to build those facilities they're willing to invest in. Thirdly, [in] some of the provisions that have been enacted, there's been confusing guidance or no guidance when it comes to accessing the funds and credits that are available for manufacturing. All three of those things together are making it very difficult for manufacturers to compete and succeed in our global economy.”

Low Water Levels Threaten Mississippi River Barge Traffic

Low water levels on the Mississippi River are threatening to disrupt commerce for a second consecutive year as parched soils and meager rainfall deplete a river that runs through 10 states and provides a vital corridor for agricultural and industrial goods. Water levels in St. Louis and Memphis are 10 to 20 feet lower at this point in the year than in 2020 and 2019 due to lack of rain.

The Army Corps of Engineers is monitoring water levels and has dredges operating on the Mississippi to keep the water channel and harbors deep enough for transit. Low water levels on the Mississippi River last fall contributed to some $20 billion in economic losses. For many waterways shippers, shifting to land transport would simply be too expensive compared to the cost-efficient barges.

Read more at The WSJ

Factories Across Asia are Struggling to Attract Young Workers

Asia, the world’s factory floor and the source of much of the stuff Americans buy, is running into a big problem: Its young people, by and large, don’t want to work in factories. That’s why the garment factory is trying to make its manufacturing floor more enticing, and why alarm bells are ringing at Western companies that rely on the region’s inexpensive labor to churn out affordable consumer goods.

The twilight of ultracheap Asian factory labor is emerging as the latest test of the globalized manufacturing model, which over the past three decades has delivered a vast array of inexpensively produced goods to consumers around the world. Americans accustomed to bargain-rate fashion and flat-screen TVs might soon be reckoning with higher prices. Workers in their 20s routinely drop out of training program. Those who stay often work for just a couple of years. In response to the crisis, Asian factories have had to increase wages and adopt sometimes costly strategies to retain workers, from improving cafeteria fare to building kindergartens for workers’ children.

Read more at The WSJ

How Yellow’s Downfall Is Rippling Through the Economy

The rapid wind-down of Yellow’s business last month, capped by the shutdown of all operations and a bankruptcy filing in recent days, is leaving behind a trail of winners and losers as the 99-year-old trucker disappears from the highways. Here is a look at the impact of Yellow’s downfall. The most immediate winners are Yellow’s competitors in the less-than-truckload sector, known as LTL. Operators ranging from big carriers such as ABF Freight, Old Dominion Freight Line and TForce Freight to smaller, regional operators have seen a surge in business since mid-July when Yellow’s tailspin accelerated and customers began abandoning the company.

The clearest losers in Yellow’s demise are the company’s workers, who were laid off, dismissed and locked out of closed terminals and offices last month as the trucker wound down its business. The loss of some 30,000 jobs is the largest at a single company since Boeing at the end of 2020 announced it would cut its workforce by around 30,000 jobs, according to Challenger, Gray & Christmas, an outplacement services firm.  Yellow’s shutdown puts a range of workers, from accounting and technology staffers to truck drivers, dispatchers and cargo handlers, looking for work in a softening labor market that has been particularly hard on transportation and warehouse workers.

Read more at The WSJ

Some Metal Prices are Finally Down, a Potential Deterrent for Catalytic Converter Thefts

Between 2018 and 2022, thefts of catalytic converters surged. Converters have been targeted because of the high value of precious metals inside — rhodium, platinum … palladium. But the metals market is changing. When people think about the market for precious metals, gold and silver probably come first to mind. But there are reasons to watch the performance of metals like platinum and palladium, which are closely tied to the automotive industry. Particularly palladium.

“80% of palladium is used for catalytic converters,” explained Joshua Hall, owner of True Vine Investments. That’s the part of a car that helps scrub carbon monoxide as it burns fuel. “In recent years, the price of palladium has skyrocketed,” Hall said, “just due to supply and demand issues.” But that trend may be turning around. The price of palladium has been falling in recent months, from that peak of over about three grand per ounce down to about $1,300 per ounce. Platinum prices are down too. “Global demand growth for metals has receded a little bit,” said Jim Wyckoff, a senior market analyst for the online metals trading site Kitco.

Read more at Marketplace

The Pentagon’s Embrace of Startups Could Fuel Hypersonic Tech

What they may lack in experience with major defense programs, startups make up for with specialized expertise, private capital, and novel approaches to developing and producing hardware and software. Some, like Ursa Major, offer flexible, dual-use subsystems and components that could be integrated into the Defense Department’s hypersonic efforts, which are largely focused on developing and testing high-speed weapons and defending against similar systems that adversaries, including China and Russia, are building.

As the Pentagon looks to begin fielding hypersonic weapons in the next few years and eyes a future that could include aircraft traveling and maneuvering at Mach 5 or higher speeds, investing in these companies could help ensure the department has a strong, diverse industrial base on which it can rely. Venture capitalists invested at least $356 million last year in U.S.-based startups developing hypersonic systems and technology, according to analytics firm PitchBook. However, that figure — up from $78 million in 2020 and $111 million in 2021 — is likely even higher due to unannounced funding.

Read more at Defense News

Boeing Stretches The 777-8 And Increases Passenger Capacity

Boeing has revealed a modification to the design of its 777-8, increasing the length of the aircraft's fuselage by 3.5 feet. This has, in turn, boosted the 777-8s passenger capacity from 384 to 395 (assuming a two-class configuration), and increased its range to 8,745 nautical miles (up from 8,730 nautical miles). Together with the 777-9, the aircraft forms part of Boeing's 777X program, which the manufacturer hopes will help it to better compete with the likes of the Airbus A350-1000.

Of the two 777X passenger variants, the 777-9 is expected to enter into service in 2025, with the first delivery of the 777-8 not happening until 2027. Boeing had originally hoped the aircraft would be selected by Qantas for its Project Sunrise flights from Australia to London and New York. However, the carrier opted instead for the Airbus A350-1000.

Read more at Simple Flying

New York’s Health Insurance Affordability Gap Grows Wider

The average annual tab for employer-sponsored single coverage in New York was $8,936, which was the costliest of any state. The gap between New York and the national norm for single coverage grew to more than $1,300 or 18 percent, its highest level in the 27-year history of the survey by the Agency for Healthcare Research and Quality. The prices for employee-plus-one and family coverage were also relatively high in New York, at 12 percent and 11 percent above the national averages, respectively.

New York's premiums are partly driven by the state's generally high cost of living, but government policy also plays a role. Albany lawmakers have worsened the affordability gap by levying some of the nation's heaviest taxes on health insurance and continually imposing coverage mandates without rigorously analyzing the costs and benefits for consumers.

Read more at The Empire Center