Member Briefing December 21, 2023
Global Banks See No Recession, US Companies are More Circumspect
Heading into 2024, analysts say the U.S. recession they'd been forecasting for two years isn't coming anymore. Everyone else, from companies to investors, is still bracing for a slowdown caused by tepid consumer demand. Dissonance between the habitually bullish investment bank analysts and the more circumspect money managers is not new. What's different this time is the level of prudence and caution from some top companies as they outline their plans for next year.
Consensus forecasts from major banks, including Goldman Sachs, Morgan Stanley, UBS and Barclays, are for global growth to be constrained in 2024 by elevated interest rates, pricier oil and a weakened China, but with low odds for a recession. A year ago, many banks were forecasting a U.S. recession. Reuters polls conducted through 2022 and until mid-2023 consistently showed economists' median probability for a U.S. recession within a year were above 60%. That probability is now closer to 45.
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Hamas Starts Planning for End of Gaza War - WSJ
- Humanitarian Groups Urge Austin to Halt Israel Aid Over Gaza Operations - Politico
- Humanitarian Crisis Worsens in Gaza - CNN
- UN Vote on Gaza Ceasefire Delayed After US Stalls – Sky News
- Talks on New Pause in Gaza War Gain Urgency as Hamas Chief Visits Cairo - BBC
- Why a Potential Israel-Hamas Cease-Fire Has So Many Names – Politico
- Hamas Leader Is in Egypt for Gaza Talks - NYT
- Investors, Business Execs on “Tech Mission” Solidarity Trip to Israel – The Intercept
- Yemen's Houthis Vow More Attacks on Ships in Red Sea Despite US Naval Force - Bloomberg
- Netanyahu Vows Israel Will Fight ‘Until Hamas is Destroyed – The Guardian
- 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
- Ukraine’s Front-Line Troops Are Getting Older: ‘Physically, I Can’t Handle This’ - WSJ
- The US Has a Game Plan for the Ukraine War Which Rests on Kyiv Holding Out Until 2025 - Insider
- Zelenskiy Tries to Reassure Ukraine With Western Aid in Question - Bloomberg
- G7 Tightens Enforcement of Oil Price Cap Amid Widespread Russian Evasion - NYT
- Russia to Seize Energy Assets from ‘Unfriendly’ European Countries - Politico
- FIFA, UEFA Unlikely to Block Russia's First Euro Friendly - ESPN
- Kremlin Calls Ukraine Peace Plan ‘Absurd,’ - CNBC
- Russian Billionaire Roman Abramovich Fails To Upend EU’s War Sanctions - Forbes
- 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
US Consumer Confidence Surges by Most Since Early 2021
Consumer confidence rose to 110.7 in December (chart). There are plenty of ingredients that go into the recipe for rising confidence, but three of the big ones are the unemployment rate, the price for a gallon of gasoline and the stock market. All three moved in the right direction of late. While consumer fears of an impending recession abated slightly—to the lowest levels seen this year—around two-thirds of consumers surveyed in November still perceive a recession to be “somewhat” or “very likely” to occur over the next 12 months. This is consistent with the short and shallow recession we anticipate in the first half of 2024.
The Present Situation Index—based on consumers' assessment of current business and labor market conditions—rose to 148.5 (1985=100) from 136.5 last month. The Expectations Index—based on consumers' short-term outlook for income, business, and labor market conditions—leapt to 85.6 (1985=100) in December, up from its downwardly revised reading of 77.4 in November. This sharp increase brings expectations back to the levels of optimism last seen in July of this year.
US Existing Home Sales November 2023: Sales Up From 13-Year Low
Total existing-homes sales inched up 0.8% in November on a seasonally adjusted basis when compared to the previous month, the National Association of Realtors (NAR) reported on Wednesday, ending a 5-month streak of monthly declines. Although November’s sales fell 7.3% year-over-year, the annual rate of 3.82 million exceeded Bloomberg’s forecast of 3.78 million and beat out October’s 3.79 million.
The median sales price for existing homes rose 4% year over year to $387,600, marking the fifth consecutive month of increases. The inventory of unsold existing-homes dropped 1.7% from last month to 1.13 million units at the end of November, or the equivalent of 3.5 months’ supply. Housing experts recommend six months of housing supply for a balanced market. November’s continuing low transaction activity demonstrated that homebuyers remain on the sidelines of the housing market as affordability challenges persist. But many experts expect the market to turn as buyers welcome moderating mortgage rates.
COVID 19 News –WHO Charts JN.1 Variant’s Rapid Global Spread
The World Health Organization (WHO) is currently tracking a number of variants of interest linked to Omicron - including JN.1 - although none of them are deemed to be concerning. JN.1 is currently the fastest-growing variant in the United States, according to the US Centres for Disease Control and Prevention, accounting for 15 to 29% of infections. JN.1 is spreading fast in all regions, probably because it has an additional mutation in the spike protein compared to the BA.2.86 variant from which it's descended.
"It is anticipated that this variant may cause an increase in Sars-Cov-2 [coronavirus] cases amid a surge of infections of other viral and bacterial infections, especially in countries entering the winter season," the WHO's risk assessment says. There is still limited evidence on how capable JN.1 is of getting round the immunity offered by vaccines, the WHO says. There are no reports of people becoming more ill with this variant than previous ones.
Schumer, McConnell Say They’re ‘Committed’ to Ukraine-Border Deal as Senate Heads Home
Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell said they are “committed” to passing legislation sending billions to Ukraine, Israel, Taiwan and the southern border, issuing a rare joint statement as the Senate prepares to leave town for the year. The two leaders spent Tuesday praising the momentum of negotiations led by Sens. Kyrsten Sinema (I-Ariz.), Chris Murphy (D-Conn.) and James Lankford (R-Okla.) as well as Biden officials and Homeland Security Secretary Alejandro Mayorkas. T
In their statement the two leaders said they hoped to take “swift action” in January after those talks produce legislation. It’s a pledge both to senators and U.S. allies watching if Congress can deliver aid to Ukraine after stumbling over the issue for the last three months. “The Senate will not let these national security challenges go unanswered,” they said. The negotiators cited progress over the past week but big issues remain in areas like parole and expulsion authorities.
NAM Fights for Manufacturers’ Tax Priorities: Restoring Immediate R&D Expensing, Pro-Growth Interest Deductibility and Full Expensing.
All three of these tax provisions are crucial to manufacturers’ ability to innovate, invest in their employees and make the American economy more competitive. Congress must act by early 2024 to allow manufacturers to benefit from these provisions for the 2022 and 2023 tax years. Here’s what the NAM is doing to reach the finish line and why it matters so much to the industry and to the economy as a whole. The Executive Committee of the NAM sat down with House Speaker Mike Johnson (R-LA) to emphasize the importance and urgency of these measures. It has also raised the issue directly with the White House, and the NAM’s members—90% of which are small and medium-sized firms—have been contacting legislators to urge immediate action since early this year.
NAM President and CEO Jay Timmons has met personally with House and Senate tax negotiators to make manufacturers’ case for these reforms and NAM experts have also hosted multiple briefings for key legislators and congressional staffers, featuring manufacturers who explained how the withdrawal of these policies has harmed their businesses. It also launched an action center to help manufacturers contact their legislators and spotlight the numerous companies that will be hard hit if pro-growth policies are not reinstated.
New Injuries and Fatalities Data from ISN
In a new report from ISN, Serious Injuries and Fatalities (SIFs), an analysis of more than 127,000 recordable incidents from 2017-2022 showed nearly 24,000 SIFs cases. This included more than 20,000 hospitalizations, 3,154 amputations and 871 fatalities. 2022 saw the lowest number of amputation cases in the last six years. Unfortunately, however, the number of fatalities drastically increased.
Sprains, Strains and Tears return as No. 1 incident category amid an aging workforce. Contact with Object or Equipment was the most common cause of fatalities in 2022. Mid-size corporations experience the highest rates of fatalities. Even with the wide variety of hazards and risks in the Manufacturing industry, ISN’s analysis shows that overall SIF rates have been below average compared to other industries. Also in contrast to other industries, the most affected body part in the Manufacturing industry was Lower Extremities.
U.S. Closes Several Southwest Border Bridges to Contain Migrant Surge Interrupting Commerce
On Monday, Customs and Border Protection closed a pair of railway bridges in Texas, including one in Eagle Pass, closed another bridge to inbound traffic there and reduced a third bridge used by private vehicles to just one lane. The closures disrupted cross-border activities and business with the Mexican border city of Piedras Negras during a busy shopping period ahead of the Christmas holidays.
The closures have also affected international commerce. The National Grain and Feed Association called for the crossings to be reopened as the closures are affecting the flow of grains and oilseeds to “one of the United States’ most important export markets and trading partners.” Union Pacific joined calls for the crossings to reopen, saying that there isn’t enough capacity at its other four gateways to reroute goods. “While the company understands this is a complex humanitarian crisis, most migrants are not crossing the border on trains,” Union Pacific said in a statement.
Nearly Half of Buick Dealers Take Buyout Rather Than Sell EVs
General Motors has cut the size of its Buick dealership network roughly in half in the U.S. through an ongoing voluntary buyout program, an executive told CNBC. The 1,000-store reduction aims to increase the amount of sales per location, or throughput, and profits at the remaining dealers, according to Duncan Aldred, global head of GM’s Buick and GMC brands. The buyouts also allow dealers who don’t want to invest in electric vehicles to get out of the business.
A majority of the dealers who took buyouts were smaller stores, which represented only about 20% of Buick’s annual sales. As part of the buyouts, the company offers payments for the dealers to cease operating their businesses. The voluntary buyout program with Buick’s roughly 2,000 U.S. franchise dealers started last year, as the brand began investments in its transition to exclusively offering all-electric vehicles domestically by 2030. Dealers need to invest in training, tools, and special equipment for the EV transition. Buick declined to disclose how much investment is needed, saying specific costs may vary depending on the size and scope of the dealership.
Cutting Tool Orders Remain Stable in Q4
Domestic manufacturers purchased $213 million worth of cutting tools during October, 5.8% more than the amount purchased during September, and 6.1% more than the October 2022 total. Cutting tool consumption is indicative of overall manufacturing activity, as those purchases reflect activity across a range of manufacturing market segments served by machining operations. According to the monthly Cutting Tool Market Report U.S. machine shops and other operations have consumed $2.06 million worth of cutting tools during the first 10 months of 2023, 7.9% more than during January-October 2022.
Although current manufacturing support fairly strong demand for cutting tools, the USCTI/AMT release quoted economic forecaster Eli Lustgarten to advise caution: “With the unknown impact of current global turmoil and manufacturing inventories at normal levels or higher, customer orders are being delayed, and companies are focusing on right-sizing inventories. Sustaining current production levels, near-term, will be difficult.
Read more at American Machinist
Southwest And Pilots’ Union Reach Labor Agreement In Principle After Years Of Negotiations
Southwest Airlines and its pilots’ union have reached an agreement in principle on a new contract, the union announced Tuesday, meaning, if the agreement is ratified by the union, Southwest pilots will join those at Delta, United and American Airlines who have recently secured contracts. The agreement comes after three-and-a-half years of negotiating between the airline and its pilots.
The Southwest Airlines Pilots Association president said in a statement they are “finally at a place where we think the value of our pilots and their productivity is being realized,” adding the contract gives Southwest pilots and customers “security and confidence in our future.” Southwest told Forbes it was “pleased” to reach this agreement, calling it “a key milestone in the process.”
Lockheed Draws Near-Term F-35 Support Funds
Lockheed Martin was awarded $663.13 million by the U.S. Dept. of Defense for the F-35 Lightning II Joint Strike Fighter program, to provide additional logistics support, reliability and maintainability services, supply chain management, pilot training, maintainer training, and training system sustainment. The work will be performed for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy over the first quarter of 2024, and is expected to be completed in March 2024. F-35 aircraft supplied through DoD’s Foreign Military Sales and non-participants also will be covered by the services to be provided.
The F-35 is a series of single-engine, Stealth-enabled aircraft deployed for ground attack and combat, and available in three variants. It is by far the largest and most expensive U.S. defense program, with Lockheed subject to steady scrutiny for cost overruns and the readiness of aircraft for service. The funding extension follows a recent report by Defense News that the F-35 program faces “significant challenges” in the course of two ongoing upgrades to future weapons and performance upgrades, as revealed by the Pentagon’s F-35 program executive officer.
Read more at American Machinist
The 32-Hour, 4-day Workweek: A Win-Win or a Risky Move?
What once seemed like a passing pie-in-the-sky idea is now starting to gain traction. The idea is that people will get an extra day off every week without losing money. This is not a compressed work week, where people work longer days to get more days off. The 4-day work week, as proposed, is one where you work only 32 hours a week but get paid for 40 hours. Additionally, you would then get overtime pay for all hours worked in excess of 32 in a week. For an employer, the questions are “Is a shorter work week worth the cost? Is it going to attract the people we want in a way that makes a meaningful difference to our operation?”
For employers, the benefits of offering a shorter workweek are believed to be increased productivity and enhanced employee satisfaction. For an employer, disadvantages may show up in different forms. It may not translate into higher productivity. Changing to a shorter week may result in a 25% increase in staffing - a 24/7 operation can’t shut down. So in certain cases, labor costs will go up by as much as 25%.
Lufthansa Group Orders 40 Boeing 737 MAX & 40 Airbus A220 Aircraft
Lufthansa has ordered a total of 200 aircraft, split between 80 firm orders and 120 options for three different aircraft families, including the Airbus A220, Airbus A320neo, and Boeing 737 MAX. The order is valued at $9 billion at list prices, which does not represent the factual capital expenditure the airline group will have to spend to acquire all of the aircraft. The group has purchased 40 Airbus A220-300 (20 options), 40 Boeing 737 MAX 8 aircraft (60 options), and committed to 40 Airbus A320neo options (no new firm orders). According to the German carrier, the aircraft will be delivered between 2026 and 2032.
Lufthansa’s newest subsidiary, City Airlines, will take delivery of the A220-300s, with the aircraft being utilized on short-haul routes from Frankfurt Airport (FRA) and Munich Airport (MUC). Airbus will deliver the first A220 in 2026.
Unmanned Blue Origin Tourism Rocket Successfully Launched From West Texas
An unmanned tourist rocket owned by Jeff Bezos’ Blue Origin launched from west Texas on Tuesday morning in its first successful launch since a failed mission 15 months ago stalled the New Shepard program and drew the ire of the Federal Aviation Administration. The New Shepard launched at 10:43 a.m. EST carrying 33 science and research payloads—technology that collects data and conducts experiments in space—as well as 38,000 postcards from the nonprofit Club for the Future.
The successful mission is a major step forward for Blue Origin’s plan to send paying tourists to the edge of space, as it already has with more than two dozen people, including Bezos, “Good Morning America” co-anchor Michael Strahan and “Star Trek” actor William Shatner. The launch is the first for New Shepard since a failed September 2022 mission that saw a malfunction with the engine nozzle cause the emission of a massive burst of flames about one minute into the flight.
AI Cannot be Patent 'Inventor', UK Supreme Court Rules in Landmark Case
A U.S. computer scientist on Wednesday lost his bid to register patents over inventions created by his artificial intelligence system in a landmark case in Britain about whether AI can own patent rights. Stephen Thaler wanted to be granted two patents in the UK for inventions he says were devised by his "creativity machine" called DABUS. His attempt to register the patents was refused by Britain's Intellectual Property Office on the grounds that the inventor must be a human or a company, rather than a machine.
Thaler appealed to the UK's Supreme Court, which on Wednesday unanimously rejected his appeal as under UK patent law "an inventor must be a natural person". "This appeal is not concerned with the broader question whether technical advances generated by machines acting autonomously and powered by AI should be patentable," Judge David Kitchin said in the court's written ruling. "Nor is it concerned with the question whether the meaning of the term 'inventor' ought to be expanded ... to include machines powered by AI which generate new and non-obvious products and processes which may be thought to offer benefits over products and processes which are already known."