Member Briefing December 19, 2023
S&P Global Flash US Manufacturing PMI Falls in November
After stabilizing in October, manufacturing activity pulled back for the second consecutive month, with the S&P Global Flash U.S. Manufacturing PMI declining from 50.0 in October to 49.4 in November to 48.2 in December. New orders (down from 50.0 to 47.1) and output (down from 50.4 to 49.0) contracted once again in December, and export growth (down from 51.0 to 50.6) softened.
Despite falling for the third straight month, employment (up from 49.0 to 49.5) declined at a slower pace in December. Input prices (up from 52.5 to 54.8) accelerated somewhat. Manufacturers remained upbeat in their expectations for future output (up from 65.6 to 66.7) despite weaknesses in December. At the same time, the S&P Global Flash U.S. Services Business Activity Index improved in December, up from 50.8 to 51.3, a five-month high. Meanwhile EuroZone PMI also declined (see article below).
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Massive Hamas Tunnel Large Enough To Drive Through Discovered By Key Israeli Border Crossing (Photos) - Forbes
- BP Joins Maersk, Hapag-Lloyd in Pausing Shipments Through Red Sea - WSJ
- U.S. Weighs Strike Options to Deter Houthis From More Red Sea Attacks – Politico
- In Israel, US Defence Chief Looks to Next Phase of Gaza War - Reuters
- US Affirms Support For Israel As Calls Mount For Gaza Ceasefire – Barron’s
- Aid Enters Gaza Through Israel's Kerem Shalom Crossing for First Time in War – Reuters
- U.S. Officials Urge Abbas to Bring in 'New Blood' to Palestinian Leadership - Reuters
- Israeli Military Opens Probe After Videos Show Israeli Forces Killing 2 Palestinians at Close Range - AP
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- A Gloomy Mood Hangs Over Ukraine’s Soldiers as War with Russia Grinds On - AP
- Kyiv Forced to Cut Military Operations as Foreign Aid Dries Up - BBC
- Russia Shot Down Yet Another One of its Prized Fighter Jets by Mistake, Ukraine Says – Insider
- Russia’s economy is overheating - Semafor
- How Putin Turned a Western Boycott Into a Bonanza - NYT
- Putin Warns of Problems With Neighboring Finland After West ‘Dragged it Into NATO’ - CNN
- Ukraine’s Military Chief Says One of His Offices Was Bugged and Other Devices Were Detected - AP
- EU hits Russia's Diamond Industry With New Round of Sanctions Over Ukraine War – ABC News
- Documents Reveal Hidden Problems at Russia's Nuclear Powerhouse - Bloomberg
- 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
Red Sea Attacks Force Rerouting of Vessels, Disrupting Supply Chains
Mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea are disrupting maritime trade as leading global freight firms reroute around the Cape of Good Hope to avoid the Suez Canal. Several major freight companies -- including MSC -- have begun to sail around Africa instead, adding costs and delays which are expected to be compounded over the coming weeks, according to industry analysts. About 15% of world shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia. Draught conditions in Central America are also causing substantial delays at the Panama Canal.
Combined, the companies that have diverted vessels "control around half of the global container shipping market," ABN Amro analyst Albert Jan Swart told Reuters. "Avoiding the Red Sea will lead to higher cost due to longer travel time," Swart said. The effects include significantly slower shipments and potentially higher prices for consumers, analysts said.
Wholesale Prices Held Flat in November, Providing Another Encouraging Inflation Signal
The producer price index, which measures a broad range of prices on final demand items, was unchanged for the month, following a 0.4% decrease in October but less than the Dow Jones estimate for a 0.1% gain. On a year-over-year basis, headline PPI accelerated just 0.9%, after peaking above 11.5% in March 2022. Excluding food and energy, the index also was unchanged against an estimate for a 0.2% increase. Excluding food, energy and trade services, PPI increased 0.1%, posting a sixth straight increase and good for a 12-month gain of 2.5%.
At the wholesale level, indexes for both goods and services were unchanged, though there were some big swings within components. Gasoline, for instance, fell 4.1% while chicken eggs soared 58.8%. The index for final demand energy fell 1.2%, offsetting increases of 0.6% for foods and 0.2% for goods less food and energy.
COVID 19 News – COVID-19 and Flu Levels Continue to Increase But CDC Director Believes US Has Hit Peak of RSV
Weekly COVID-19 hospitalizations rose to 23,432 for the week ending Dec. 9, up from 22,730 the previous week, according to data updated Friday from the Centers for Disease Control and Prevention (CDC). This is the fifth consecutive week of increasing COVID-19 hospitalizations, reaching levels not seen since the end of February. However, they remain lower than rates seen at the same time last year.
Flu hospitalizations are continuing to rise with the number of new admissions reaching 7,090 for the week ending Dec. 9, up from 5,816 admitted the week ending Dec. 2, data shows. In the past month, for all age groups, hospitalizations have increased 200% for COVID-19 and 51% for flu. Meanwhile, RSV weekly hospitalization rates have slightly declined from 3.2 per 100,000 for the week ending Dec. 2 to 2.3 per 100,000 the week ending Dec. 9. RSV hospitalizations remain elevated among young children under age 4.
Here are the Issues Most Likely to Dominate the 2024 Legislative Session in Albany
Gov. Kathy Hochul is scheduled to give her State of the State address on Jan. 9 and lay out her agenda for the coming year. The state is also running a budget deficit, which will factor into decisions that the governor makes across most issues. Plus, housing is set to be a major talking point after a mixture of stonewalling and lobbying led to a deal not getting done last year. To make matters even more interesting, it’s a critical election year in New York, with presidential, congressional and state legislative seats at stake.
A growing progressive coalition that showed its might in both chambers last year will be back in full force. Meanwhile, the Democratic supermajority may be hoping for simpler negotiations after the housing and bail reform caused a state budget deal to be reached a month late. There are so many policy items to be aware of heading into next year. Here are some of the biggest issues on the docket for the 2024 state legislative session according to City & State
Senator Schumer Says Supplemental Talks "Will Take Some More Time"
Senate border negotiations are almost certainly going to continue into January, based on comments from several senators involved in those talks. The lead negotiators — Sens. Kyrsten Sinema (I-Ariz.), James Lankford (R-Okla.) and Chris Murphy (D-Conn.) — consistently asserted that they'd made steady progress in those talks (we followed those all weekend). But they also routinely tossed around words like complex, arcane and byzantine. Reading between the lines, it's obvious all sides think they still have a ways to go in drafting border security language.
Majority Leader Chuck Schumer has promised a vote on a supplemental package — containing aid to Ukraine, Israel and Taiwan, as well as border security measures — before the end of the year. But we'll see if he scrapped that commitment in remarks this afternoon. The Biden administration has made clear it's out of money it can send to Ukraine as it seeks to defeat Russia. Israel continues to battle Hamas after the Oct. 7 terrorist attack. And an average of more than 10,000 people are crossing the southern border daily.
New York Fed: New York Service Sector Continued Modest Decline
Business activity continued to decline, according to the December survey. The headline business activity index fell three points to -14.6. Twenty-two percent of respondents reported that conditions improved over the month and 37 percent said that conditions worsened. The business climate index held steady at -38.4, suggesting that the business climate remains considerably worse than normal. The index for the future business climate came in at -7.4, suggesting the business climate is expected to remain worse than normal.
The employment index fell five points to -1.2, indicating that employment levels were little changed after climbing over the prior several months. The wages index moved down six points to 25.9, its third consecutive monthly decline, a sign that wage increases continued to slow. The prices paid index fell eight points to 46.9, its lowest level in nearly three years, a sign that input price increases slowed. The prices received index edged up to 23.1, pointing to a small pickup in selling price increases. At 1.3, the capital spending index signaled continued softening of capital expenditures. The index for future business activity climbed to 12.2, indicating that firms do not expect activity to increase much over the next six months.
The Road to China-Free Supply Chains Is Long
Building China-free supply chains is tough. Sometimes it means dealing with lizards that don’t have legs and sands that are radioactive. That is the case with making rare-earth magnets—a powerful piece of tech that is as crucial to jet fighters and wind turbines as it is to smartphones and electric cars. For decades, China has dominated every step in the process of making rare-earth magnets. It is the only nation capable of producing the magnets from start to finish at scale.
Now, with demand growing for China-free magnets in the U.S. and Europe, a diverse group of companies are stitching together globe-spanning supply chains and encountering all kinds of obstacles as they attempt to break China’s grip on the market. The new ventures can’t deliver prices as low as China’s. But the companies say some Western automakers and defense manufacturers are willing to pay more for magnets largely untouched by China.
Bankruptcies Soar as High Rates and End of COVID Aid Hit Businesses Hard
Corporate bankruptcies are increasing at double-digit rates in most advanced economies as borrowing costs rise and governments unwind pandemic-era worth trillions of dollars support for struggling businesses. Following a decade of decline the number of US corporate bankruptcies rose 30 per cent in the 12 months to September compared with the year-ago period, according to courts data. Germany, the EU’s largest economy, said bankruptcies rose 25 per cent from January to September compared with the year-ago period.
the jump in business failures, especially for big firms, is clear, said Ed Flynn, a consultant with ABI who studies bankruptcy statistics. “I think a lot of it is interest rates,” said Flynn. “There have been an unusually large number of large cases.”
Eurozone Activity Falls at Increased Rate in December Lead Down by Manfuacturing
Business activity in the euro area fell at a steeper rate in December, according to provisional PMI® survey data, closing off a fourth quarter which has seen output fall at its fastest rate for 11 years barring only the early-2020 pandemic months. Downturns were again recorded across both manufacturing and services, with both sectors reporting further steep falls in inflows of new business, which led to a further depletion of backlogs of work. Jobs were cut for a second month running as firms scaled back operating capacity in line with the worsening order book situation and persistent gloomy prospects for the year.
Manufacturing continued to lead the downturn, accompanied by a steepening drop in service sector output. Manufacturing output fell for a ninth month running, the rate of decline re-accelerating after the moderation seen in November, albeit remaining less severe than seen in the four months to October. Looking ahead, firms grew more optimistic regarding the year-ahead outlook for output in December, with sentiment at its brightest since August. The improvement was limited to manufacturing,
Wars Raise Profit Outlook for US Defense Industry in 2024
When the Pentagon pulled the world's biggest defense contractors into a meeting to tell them to ramp up production shortly after Russia invaded Ukraine, one CEO hesitated, saying they did not want to be stuck with a warehouse full of rockets when the fighting stopped, according to three people familiar with the discussion. Nearly two years later, big defense firms are singing a different tune, with several expecting strong demand in 2024 as the U.S. and its allies load up on expensive weaponry and munitions with an eye on what they perceive as more aggressive actions from Russia and China.
The math is simple. For example, to meet demand for missile defenses, production of Patriot interceptors for the U.S. Army will rise from 550 to 650 rockets per year. At around $4 million each, that's a potential $400 million annual sales boost on one weapons system alone. Since increasing production volumes of older systems is always more profitable than the high investment costs associated with ramping up production of new systems, stronger demand will flow quickly to the corporate bottom line.
Oil Prices Climb as Red Sea Attacks Disrupt Shipments by BP and Others
Oil gained as BP said it is halting all voyages through the Red Sea, the clearest sign yet that attacks on shipping in the region may disrupt flows. Global benchmark Brent was trading higher above $77 a barrel, after earlier bouncing between small gains and losses. BP said it is keeping the halt under ongoing review but that the welfare of crew is the company’s priority. Despite the geopolitical risks, crude has dropped more than 20% from its late-September high and is down 10% for the year amid surging US shale supply and skepticism over promised OPEC+ output cuts.
“It has been escalating beyond what we have seen at any point in time really,” Lars Barstad, chief executive officer of the management arm of Frontline Plc, one of the world’s largest tanker owners, said in a Bloomberg TV interview. “We are afraid that it is only a question of time until we see a ship that is completely unrelated to Israel or any part of the conflict that will be attacked.”
Nippon Steel to Acquire U.S. Steel for $14.1 Billion
U.S. Steel agreed to be acquired by Nippon Steel in a $14.1 billion deal that would combine two steel giants in America and Japan. The deal values the Pittsburgh-based U.S. Steel at $55 a share, a 40% premium to the company’s share price when the market closed on Friday. The agreement ends a monthslong sales process for the 122-year-old company that was created by J.P. Morgan, Andrew Carnegie and others, and played an integral role in the country’s industrialization in the 20th century. Following the close of the transaction, U.S. Steel will retain its name, brand and headquarters in Pittsburgh.
The move would make Nippon Steel one of the world’s largest steel producers. Nippon Steel manufacturers around 66 million tons of steel a year. Combined with U.S. Steel’s 20 million tons, that would make the group the world’s second-biggest steel producer behind China Baowu Steel Group Corp. Ltd., according to figures from the World Steel Association. The deal has been unanimously approved by the boards of both companies and is expected to close by October, pending approval from U.S. Steel’s shareholders and regulators.
Read more at American Machinist
Why are Younger Workers Such a Retention Risk?
It’s hard to attract top talent, and for some employers, it’s even harder to keep it. That may be especially true for younger workers, as new research shows that one in four Gen Zers might hit the road sooner rather than later. According to a 2023 study from workforce resilience platform meQuilibrium, 23% of younger workers are contemplating a job switch in the next six months. (That number drops to 13.8% when taking in the full range of nearly 5,500 respondents.)
Dr. Brad Smith, the organization’s chief science officer, says professional excellence isn’t just about knocking out tasks when times are good. Teams also need individuals who can rebound and return to high performance after facing inevitable setbacks. The resilience factor is emerging as a critical differentiator in identifying employees who can thrive in the fast-paced and unpredictable nature of the modern landscape. Smith suggests that organizations need to enhance employee resilience and foster their commitment to self-care. These aspects contribute positively to a workforce that excels in tasks and exhibits the adaptability to prevail over challenges.
Southwest Fined Record $140M Over 2022 Holiday Meltdown
Southwest Airlines settled a federal lawsuit over its holiday meltdown last December that caused thousands of flight cancellations and delays for millions of travelers for $140 million, the airline announced Monday. The agreement with the Department of Transportation (DOT) marks the largest penalty levied against an airline for violation of consumer protection laws, the government said.
Southwest agreed to pay $35 million in cash to the DOT over three years, while the majority of the settlement — about $90 million — will go toward compensation of future passengers to avoid similar issues. The lawsuit comes after a nearly yearlong probe into the meltdown, which saw the cancellation or delays of more than 16,900 flights impacting more than 2 million passengers, the DOT said. Southwest has already paid more than $600 million in ticket refunds, expense reimbursements and “goodwill gestures,” including additional Rapid Rewards points for traveler’s accounts, the airline said.
Push Mounts for 2 Environmental Bills as Hochul Weighs Veto
Lawmakers and advocates rushed to defend, or push back, against proposals this week to reduce New York's impact on global deforestation and ban seeds pretreated with a pesticide that kills bees and other pollinators. The bills arrived on Hochul's desk Tuesday with a host of other bills, giving the governor until Saturday to make a decision. The legislation will die if no action is taken by then. But lawmakers who sponsored both measures say if their proposals get the veto pen, the fight won't be over.
Hochul has taken her time to evaluate the measure to prohibit the state from contracting with companies that use tropical hardwoods that contribute to deforestation, and not allow products like soy, beef, palm oil, coffee, cocoa, paper and others to be sourced from an at-risk area or forest. Meanwhile, leaders in the New York Farm Bureau have fought to schedule a phone call with Hochul this week to push her to veto the Birds and Bees Protection Act to ban the sale of seeds like corn, wheat, and soy pretreated with neonicotinoid pesticides.
Read more at NY State of Politics
Officials Believe China’s Economic Conditions Will Improve in 2024
China's economy is expected to see more favourable conditions and more opportunities than challenges in 2024, state media said citing officials of the Chinese Communist Party's finance and economy office. Macroeconomic policies will continue to provide support for economic recovery, the official Xinhua said in a detailed readout of the annual Central Economic Work Conference held from Dec. 11-12, during which top leaders set economic targets for the following year.
Next year, the party officials said China will look to shift from a post-pandemic recovery to sustained consumption growth. The International Monetary Fund last month revised upward its growth forecast for China to 5.4% this year, attributing the revision to a "strong" post-COVID recovery. The government has set a target of around 5%. The world's second-largest economy will also cultivate new consumption growth areas such as smart homes, recreation and tourism and sports events.