Member Briefing December 5, 2023
Commerce Department: U.S. Factory Orders Drop 3.6% in October
Orders for manufactured goods fell 3.6 % in October, pulled down by the transportation sector, the Commerce Department said Monday. Economists surveyed by the Wall Street Journal were expecting a 3.5% decline. It is only the second decline in the past eight months. Orders for non-defense aircraft, mainly Boeing BA, +0.43% passenger planes, dropped sharply. Excluding transportation, orders were down 1.2% in October.
Durable-goods orders fell 5.4% in October unrevised from the initial estimate released late last month. Durables are down in three of the past four months. Non-durable goods orders fell 1.9%. A key sector watched by economists, orders for nondefense capital goods, excluding aircraft, fell a revised 0.3% in October, down slightly from the initial estimate of a 0.1% decrease. Shipments of these goods, which feeds into the gross domestic product report, were flat in October after a 0.1% drop in the prior month.
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Israel, Hamas Engage in Some of Fiercest Fighting of War - WSJ
- Israel Needs to Protect Civilians or Risk ‘Strategic Failure’ in Gaza – Politico
- Graham Has ‘Lost All Confidence’ in Defense Secretary Lloyd Austin After “Naïve” Comments - CNN
- U.S. Destroyer, Commercial Vessels Attacked in Red Sea – Reuters
- How Israel Uses AI to Select Bombing Targets in Gaza – The Guardian
- Israel Bombs Targets in Northern, Southern Gaza, Continues Attempts to Reach Khan Yunis - BBC
- IDF Expands Ground Offensive Into Southern Gaza - NBC
- What We Know About Sexual Violence During the Oct. 7 Attacks on Israel - NYT
- U.S. Agencies and the Israeli government Issue Joint Cybersecurity Advisory - CISA
- 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
- Evan Gershkovich Detention Reaches 250 Days - WSJ
- Russia Launches 23 Drones, Cruise Missiles Overnight on Ukraine - Ukraine's Air Force - Reuters
- Arm Suppliers Fail To Scale Up Production Despite Rising Demand: Report - NDTV
- Deputy Russian Army Corps Commander is Killed in Ukraine - Reuters
- More EU Countries Threaten to Close Russian Borders Amid Migrant Surge - Politico
- White House Warns Money for Ukraine Will Run Out by Year’s End - WSJ
- Ukraine Has Formed A New Tank Brigade - Forbes
- NATO Chief on Ukraine War: ‘Be Prepared for Bad News’ – The Hill
- Ukraine Blows Up 2 Railway Connections Between Russia and China – Politico
- 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
Deflation? Prices of Durable Goods Have Been Falling for Five Straight Months
After a historic run-up in inflation, Americans are now starting to see something they haven’t in three years: deflation. To be sure, deflation—that is, falling prices—is largely confined to appliances, furniture, used cars and other goods. Economywide deflation, when prices of most goods and services continuously fall, isn’t in the cards. But economists say goods prices likely have further to fall, which will ease inflation’s return to the Federal Reserve’s 2% target, perhaps as early as the second half of next year.
Prices for long-lasting items, known as durable goods, have fallen on a year-over-year basis for five straight months. In October, they were down 2.6% from their peak in September 2022. However, the prices of services such as home rental and car insurance continue to climb, albeit at a slowing pace. They were up 4.4% in October from a year earlier, slower than 4.7% in September but well above their pace before the pandemic.
Pentagon: US Arms Industry Struggling to Keep Up With China
America’s defense industry is struggling to achieve the kind of speed and responsiveness to stay ahead in a high-tech arms race with competitors such as China, an unreleased draft of a new Pentagon report on the defense industry warns. The document, dated Nov. 27, adds that “just as significantly, the traditional defense contractors in the [defense industrial base] would be challenged to respond to modern conflict at the velocity, scale, and flexibility necessary to meet the dynamic requirements of a major modern conflict.”
It notes that America builds the best weapons in the world, but it can’t produce them quickly enough. “This mismatch presents a growing strategic risk as the United States confronts the imperatives of supporting active combat operations … while deterring the larger and more technically advanced pacing threat looming in the Indo-Pacific,” the study says. One defense industry adviser called the draft report “underwhelming,” saying it doesn’t focus on long-term solutions to supply chain issues that have plagued the defense industry.
COVID 19 News – Flu, COVID Cases Climb as RSV Infections Start to Level Off
COVID-19 continues to fuel the most hospitalizations and deaths among all respiratory illnesses — about 15,000 hospitalizations and about 1,000 deaths every week, Dr. Mandy Cohen, head of the U.S. Centers for Disease Control and Prevention, told the House Energy and Commerce Subcommittee on Oversight and Investigations late last week. When it came to flu cases, seven states were reporting high levels of flu-like illnesses in early November. But a new CDC report released Friday said that tally was now up to 11 states — predominantly in the South and Southwest.
Meanwhile, RSV infections have risen sharply in some parts of the country, straining hospital emergency departments in Georgia, for example. However, “we think we’re near the peak of RSV season or will be in the next week or so,” Cohen testified, the Associated Press reported. RSV is a common cause of mild cold-like symptoms, but it can be dangerous for infants and older people.
American Opportunity Index: Ranking the Best Companies for Career Growth
The Burning Glass Institute, Harvard Business School's Managing the Future of Work Project, and the Schultz Family Foundation today launched the 2023 American Opportunity Index, a groundbreaking ranking that measures how effective companies are at developing talent to drive business performance and advance individual employees’ careers. The Index is based on an independent, big-data analysis of the career trajectories of nearly five million workers from 2018 to 2022. The results are drawn from how employees reported changes in their work history on social media and online resume platforms, as well as comprehensive salary and job-posting data.
Topping this year’s ranking are Coca-Cola Co., J.M. Smucker Co., W.W. Grainger Inc., PNC Financial Services Group, ServiceNow Inc., Meta Platforms Inc., Capital One Financial Corp., Bank of America Corp., Costco Wholesale Corp. and Intuit Inc. An analysis of Index results also finds large companies that significantly outperform their peers in retaining employees are saving as much as $400 million a year on turnover costs. Many of those firms succeed in keeping their people by offering ample opportunities for promotions in addition to competitive wages.
Western Start-Ups Seek to Break China's Grip on Rare Earths Refining
Start-up tech firms are racing to transform the way rare earths are refined for the clean energy transition, a push aimed at turbocharging the West's expansion into the niche sector that underpins billions of electronic devices. The existing standard to refine these strategic minerals, known as solvent extraction, is an expensive and dirty process that China has spent the past 30 years mastering. China began to rapidly expand in the industry starting during the 1980s and now controls 87% of global rare earths refining capacity, according to the International Energy Agency.
Emerging Western rivals now offer the tantalizing prospect of processing the minerals in faster, cleaner and cheaper ways, if they can successfully launch. While none have launched commercially - and some industry consultants and analysts question whether they will be able to do so soon - a cadre of firms are pushing forward with aggressive development plans. Despite the hunger for new refining techniques, industry consultants warned that manufacturers may be expecting too much and too soon from this so-far unproven group of nascent technologies, especially given the world's aggressive electrification targets.
Dallas and Richmond Fed Report Manufacturing Contracted in November
Manufacturing activity fell for the 19th straight month, with the composite index of general business conditions declining from -19.2 in October to -19.9 in November. New orders, shipments and the number of hours worked deteriorated further, while production slipped back into negative territory for the month. Hiring and raw material costs softened, but wages and benefits continued to expand solidly, albeit at a slower pace. Capital spending accelerated a bit. Looking ahead, manufacturers in the Texas district continued to have positive expectations for most of the key variables. Respondents felt cautiously hopeful for better performance moving forward despite uncertainties in the market.
Manufacturing activity declined once again in the Richmond Federal Reserve Bank’s district, with the composite index of general business activity falling from 3 in October to -5 in November. Shipments contracted and hiring stalled. New orders and capacity utilization remained negative. With that said, capital spending increased in November, and wage growth remained solid. Moving forward, manufacturers in the district felt mixed in their outlook, with slower demand and employment growth seen over the next six months but stronger expectations for capital spending and wage growth. Respondents anticipated shipments to decline marginally over the next six months.
Read more at the Dallas and Richmond Fed
Private Construction Spending on Manfuacturing Hits Record High
Private manufacturing construction rose 0.9% from $204.47 billion at the annual rate in September to a record $206.34 billion in October. Manufacturing construction has soared dramatically, up 71.6% year-over-year, as the sector continues to make significant increases in the capacity in the United States, spurred by industrial policy and a desire to produce more goods here. Meanwhile, public construction spending increased 0.2% in October, with activity up 16.4% year-over-year.
Total private nonresidential construction spending edged up 0.1% in October, with activity rising 22.4% over the past 12 months. In October, total private construction spending rose 0.7%, with private residential construction up 1.2% for the month. Private single-family housing construction rose 1.1% in October, but multifamily construction inched down 0.2%. On a year-over-year basis, total private construction has risen 9.2% since October 2022, with private residential activity increasing just 0.7%. Private single-family residential construction has declined 1.4% over the past 12 months.
Joint Chiefs Chairman Urges Congress to Avoid a Full-Year Continuing Resolution
The Chairman of the Joint Chiefs of Staff has warned Congress of the damage a full-year continuing resolution would have on the U.S. military. The military has been operating at FY23 funding levels since the 2024 fiscal year began on October 1st. The current stopgap spending bill runs through February 2. In a letter to Senate Appropriations Committee Chair Patty Murray, Gen. Charles Q. Brown said a full-year CR would be “historically costly to the Joint Force.”
The administration’s latest national defense strategy labels China as the “pacing challenge,” but “we cannot outpace our pacing challenge under a CR,” Brown cautioned. “A year-long CR would prevent the DoD from executing numerous multi-year procurement contracts that are critical to meeting our requirements in the lndo-Pacific; delay or deny investments in important modernization projects; and create a significant shortfall in personnel funding, ”he said.
Read more at the Defense and Security Monitor
US Payrolls Are Seen Picking Up After End of UAW Strike
The return of striking United Auto Workers to vehicle assembly lines is seen driving a pickup in November payrolls, representing a pause in the recent trend of moderating US employment growth. Government data on Friday are projected to show payrolls in the world’s largest economy increased by 180,000 after a 150,000 October advance. Such a print would still leave average job growth over the past three months down about 100,000 from the pace seen earlier in the year.
The unemployment rate is forecast to hold at 3.9%, the highest since the start of 2022. That’s also consistent with softer labor-market conditions and more restrained wage growth, helping soothe concerns about inflation and supporting assessments that the Federal Reserve is done raising interest rates. The jobs report is forecast to show November average hourly earnings increased 4% from a year ago, the smallest annual advance since mid-2021.
F-35 Program Will Give Pratt Sole-Source Engine Upgrade Work
The F-35 Joint Program Office has officially announced plans to issue multiple sole-source contracts to Pratt & Whitney to upgrade the fighter’s F135 engine—a widely expected move after Pentagon officials indicated they would do so earlier this year instead of developing an entirely new engine. The JPO, in a Nov. 28 business announcement, said it plans to issue “multiple follow-on contract actions on a sole-source basis” to Raytheon Technologies Corp., parent company of Pratt & Whitney, for the F135 Engine Core Upgrade (ECU) program system’s engineering and manufacturing development (EMD).
GE Aerospace has been pushing for a competition with Pratt to upgrade the F-35 with one of the engines developed in the Adaptive Engine Transition Program (AETP). Pentagon leaders, however—in concert with the JPO—determined that while AETP engines were best suited to the F-35A, they would not fit the F-35B and would only fit the F-35C with difficulty. The ECU, they decided, was the lowest-cost option applicable to the greatest number of users.
Read more at Air and Space Forces
After Slow 2023 Warehouse Automation to Grow in 2024
According to research from Interact Analysis, warehouse automation order intake will being to grow again in 2024, after a tough 2023. From 2025 revenues are expected to return to double digit growth. “Although we expect interest rates to remain high next year, warehouse construction will increase and result in an uptick in warehouse automation order intake in the latter half of 2024 and in to 2025.” said Rueben Scrivern, research manager at Interact Analysis.
As a result of the pandemic and record low level interest rates in 2019/2020, there was a significant increase in e-commerce orders which led to an uptick in warehouse construction and therefore, an increase in warehouse automation sales. However, now that e-commerce sales have slowed down and interest rates have gone up, the market has seen a decline in warehouse construction which has led to a corresponding slowdown in warehouse automation investments.
Read more at Material Handling & Logistics
Oxford University Press 2023 Word of the Year: ‘Rizz’
Rizz might not mean anything to you if you're not Generation Z. But it's used massively online, with billions of views of the hashtag "rizz" on TikTok. According to Oxford University Press [OUP], which publishes the Oxford English Dictionary [OED], it is defined as style, charm, or attractiveness, and the ability to attract a romantic or sexual partner. The term is thought to be a shortened form of the word "charisma". It can also be used as a verb, in sayings such as "to rizz up", which means to attract, seduce, or chat someone up.
It was one of eight words on a shortlist, all chosen to reflect the mood, ethos or preoccupations of 2023. The list was narrowed down in a public vote, before Oxford lexicographers made the final decision. Other contenders ranged from ‘Swiftie’ to ‘beige flag’ to ‘situationship.’
Read more and see the contenders at BBC
What is Income? Supreme Court to Consider Question’ in Major Tax Case
The Supreme Court will hear oral arguments in early December on a case that has the potential to broadly reshape the U.S. tax code and cost the government hundreds of billions of dollars in revenue. At issue in Moore v. United States is the question of whether the federal government can tax certain types of “unrealized” gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth. The decision could have implications for everything from potential wealth taxes, like the one the Biden administration proposed for billionaires in 2022, to large swaths of the international tax regime.
The Moores, who are minority holders in a controlled foreign corporation, have challenged the section 965 transition tax imposed on a taxpayer's accumulated foreign earnings, arguing that it is not a tax on income and therefore is unconstitutional because it is not apportioned among the states. The 16th Amendment allows for unapportioned taxes on income. The Moores argue that the transition tax is a tax on unrealized gains, and income taxes have a realization requirement. Even if the court limits the scope of its decision to the specific tax referenced in the case a ruling in favor of the plaintiffs could cost $340 billion over the next decade, according to the Justice Department.
As Bayer Confronts Mounting Roundup Losses, All Eyes on Philadelphia Trial
With Bayer (BAYGn.DE) facing investor pressure to resolve thousands of lawsuits over its Roundup weedkiller after being hit with $2 billion in verdicts in recent weeks, all eyes are on a trial wrapping up in Philadelphia. Plaintiffs have won the last four trials over their claims that the product causes cancer, each time securing a larger verdict. Those losses ended a nine-trial winning streak for Bayer, shattering investor and company hopes that the worst of the Roundup litigation was over.
In the ongoing case, which kicked off Nov. 6 in the Philadelphia Court of Common Pleas, Pennsylvania resident Kelly Martel claims she developed non-Hodgkin lymphoma from using Roundup. Her case will help test whether plaintiffs' recent victories were an aberration, or the payoff from favorable court rulings and a shift in plaintiffs' strategy. Bayer maintains that Roundup is safe and said in a statement that it would "continue to try Roundup cases as the science is strongly on our side."