Member Briefing December 7, 2023
Trade Balance Widens in October but Normalization Likely
The U.S. trade deficit rose 5% in October to a three-month high of $64.3 billion largely because of a decline in exports of American-made cars and COVID-related drugs. Higher deficits subtract from gross domestic product, the official scorecard for the U.S. economy. Imports inched up 0.2% in October to $323 billion, mostly because of higher demand for computers and equipment to drill for oil. Imports are well off their 2022 peak, however, due to a shift in spending by U.S. consumers from goods to services such as leisure and recreation. U.S. exports, meanwhile, fell 1% in October to a $258.8 billion, though they remained close to a record high.
The U.S. is still on track to report the smallest annual increase in its trade deficit in three years. Imports had surged to a record high in 2022 owing to strong consumer spending. Now a weakening economy brought about by higher U.S. interest rates has sapped demand and helped to reduce the trade deficit. That’s likely to continue to be the case in the months ahead as the Federal Reserve keeps interest rates high to make sure high inflation is under control.
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Fierce Battles Inside Khan Younis in Southern Gaza - NBC
- Israel Says It Has Killed Half of Hamas’s Battalion Commanders - WSJ
- U.S. Pledges More Aid for Palestinians, Including a Field Hospital Inside Gaza - CBS
- U.S. Implementing Visa Bans Connected To Violence In West Bank - Forbes
- U.S. Officials Frustrated by Biden Administration’s Response to Attacks in Red Sea - Politico
- Israeli Settler Violence Brings Destruction and Fear to West Bank as War Rages - BBC
- FBI Chief Warns Hamas-Inspired Terror Threats Have Reached Unprecedented Level - CNN
- A Fixation on Death Tolls Can be a Fatal Distraction - Politico
- 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 Funding at Impasse over Immigration The Dispatch
- Dutch Government Pledges Nearly $2.7 Billion for Ukraine in 2024 – Pinal Central
- U.S. Charges 4 Russian Soldiers With War Crimes Against an American - AP
- EU in Disarray Over plan to Fund Ukraine From Frozen Russian Assets – Politico
- Outnumbered and Outgunned by Russians in Brutal Riverside Battle - BBC
- Putin is Visiting the UAE and Saudi Arabia, Seeking to Bolster Moscow’s Mideast Clout - AP
- EU Considers Ban on Russian Gas That Could Send Tankers on Longer Voyages - Shipping Watch
- Zelensky Cancels U.S. Senate Address Amid Ukraine Aid Dispute - 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
Date Set for Special Election to Replace Santos
New York Governor Kathy Hochul on Tuesday scheduled the special election in New York to replace former Rep. George Santos for Tuesday, Feb. 13. Party leaders in Nassau County and Queens will pick the nominees without a primary. The race will be treated as a major bellwether in a traditional battleground corner of New York that Santos won with 54 percent of the vote in 2022.
Democrats are expected to pick former Rep. Tom Suozzi, who held the seat before retiring to run for governor in 2022. Several other contenders such as former state Sen. Anna Kaplan have spent recent days making the case that he’s not strong enough on issues like abortion. Hochul agreed to not work against former opponent Suozzi’s bid after a secret meeting in Albany on Monday in which he apologized for his campaign attacks last year. Republicans have been in the process of screening dozens of potential contenders and expect to announce their nominee soon.
Bonds Rally, Mortgage Rates Tumble as Bond Markets See Lower Fed Rates by Early Spring
U.S. mortgage rates extended their recent declines last week, falling to the lowest levels since August, as a big rally in U.S. Treasury bond yields looks set to provide a much-needed boost to home affordability. The Mortgage Bankers Association said average 30-year fixed rates for conforming loan balances of less than $726,200 fell by 20 basis points (0.2 percentage point) to 7.17% for the week ended Dec. 1.
The pullback in mortgage rates comes amid one of the biggest rallies in benchmark U.S. Treasury bonds, which form the basis for most home lending, since the global financial crisis. (Bond yields fall as prices rise.) Traders have been betting heavily on the likelihood that the Federal Reserve, which sets the benchmark lending rate for the U.S. economy, will be lowering borrowing costs in the spring. CME Group's FedWatch, a tool market watchers use to gauge the likelihood of changes to the Fed's key rates, suggests a 54.5% chance of a 0.25-percentage-point rate cut in March, with the odds of a move in May – including larger increases of as much as half a point – pegged at 100%.
COVID 19 News – Covid-19 Cases Are Rising Again, Just in Time for the Holidays
Covid-19 test positivity rates increased over the summer and then stabilized earlier this fall. They have recently ticked back up, rising 1.2% for the latest week, according to the CDC’s most recent data. Emergency department visits and hospitalizations are up about 10% over the same period. Scientists and public-health officials say that data understates the current virus spread and point to elevated levels of the virus detected in wastewater. Wastewater levels are an early warning for infections, with levels up nationally since mid-October.
While hospitals might not grow overwhelmed with Covid patients, the sustained cases could result in worker and student attendance, a demand in doctor’s visits, and other burdens as people prepare to see family around the holidays, says Gregory. The CDC’s November forecast for Covid-19 predicts levels similar to last winter. That forecast was developed before the rise of JN.1, recently dubbed a variant of concern by the World Health Organization.
The U.S. Can Afford a Bigger Military. We Just Can’t Build It.
U.S. military spending was 3.1% of gross domestic product in the last fiscal year, near the lowest since World War II. Add the $106 billion President Biden has requested in aid primarily for Ukraine, Israel and Taiwan, and the total would still be less than the 4.6% spent at the peak of Iraq and Afghanistan operations in 2010, never mind the 8.9% in 1968, during the Vietnam War. Healthcare, pensions and interest on the debt really do menace the nation’s finances; military outlays don’t.
The problem is that even when money’s available, the munitions and weapons are difficult to deliver. In May of 2022, Biden and Lockheed Martin promised to double production of Javelin antitank missiles by 2024. That has been pushed back to 2026. The U.S. announced the sale of Harpoon antiship missiles to Taiwan in 2020. They might not be delivered until 2026. Because the U.S. builds just over one nuclear submarine a year, some legislators worry it will take too long to replace those the U.S. will sell to Australia under Aukus, a technology-sharing pact that includes the U.K. It isn’t just defense; the entire U.S. manufacturing base shrank as labor-intensive production migrated to East Asia. There are fewer suppliers, factories, shipyards and, most important, workers available to meet the rising demand.
New York Could Be the Latest State to Ban Noncompete Agreements
New York Gov. Kathy Hochul is considering whether to sign or veto a bill that would prohibit noncompete agreements, which typically prevent workers from taking a new job or starting a business for a period after leaving an employer. The Democratic governor said last week that she would like to see a compensation cap for such a ban, floating $250,000 as a level above which noncompetes would be allowed. The bill as written would apply to virtually all workers regardless of compensation. Hochul has said she plans to act on most legislation by year’s end, but it is possible that a decision on the bill could stretch until early February, officials said.
If she signs the measure without a compensation limit, as the state legislature passed in June, New York will join four states, including California, with the most far-reaching bans in the country. The Business Council of New York State, a lobbying group, has pushed forward amendments to the bill that would allow employers to keep noncompete clauses for employees who are compensated $200,000 or more.
Expected Holiday Spending Up Sharply From Last Year: Gallup
A Gallup survey, released Wednesday, found that Americans are predicting they will spend an average of $975 on gifts this season, making it the highest holiday shopping estimate recorded by the organization since it started tracking it in 1999. It also marks a significant jump from last year’s estimate, where Americans said they would spend an average of $867 — which was the previous record. The lowest expected holiday spending recorded was $616 during the 2008 financial crisis, the polling center noted.
This holiday spending estimate is also higher than what Americans said they would spend during the month of October, which was an average of $923. The polling center said this marks only the fifth time since 2006 that Americans’ spending expectations increased between the two months. The jump was most prominent among middle-income and younger consumers. Those with household incomes between $40,000 and $99,999 plan to spend an average of $947 in gift-giving, which is up $200 from last year’s predictions.
Maybrook Not Among the Yellow Terminals Sold for $1.9 Billion
Speculation about a new entrant in the US less-than-truckload (LTL) market on the back of a massive facility investment proved unfounded – the sale of most of bankrupt Yellow’s terminals saw rival LTL players snap up most of the facilities. Twenty-nine bidders, including real estate firms, committed almost $1.9bn for the 128 Yellow properties in the managed sale, which left another 46 locations for subsequent purchases.
XPO made the biggest move, forking out $870m for 28 properties, including two leased facilities; Estes is spending $248.7m for 24 terminals, Saia is acquiring 17 for $235.7m and US $51.3m on 13 facilities. 46 remaining facilities did not attract bids that met the threshold set by the bankruptcy court, which supervised the auction. Satish Jindel, president of SJ Consulting suggested some of the unsold sites may struggle to find takers, as they may not be attractive to LTL operators. He pointed to Yellow’s large facilities in Chicago and Maybrook, New York. The latter has 304 doors, which may appeal to real estate firms for turning into industrial parks.
Class 8 Truck Orders Accelerate in November
November preliminary North American Class 8 net orders were 41,700 units, rising by 9,000 units from both October and year-ago November, according to ACT Research. Complete industry data for November, including final order numbers, will be published by ACT Research in mid-December. A Class 8 truck is a vehicle with a gross vehicle weight rating (GVWR) exceeding 33000 lb (14969 kg). These include tractor trailer tractors, single-unit dump trucks of a GVWR over 33,000 lb, as well as non-commercial chassis fire trucks; such trucks typically have 3 or more axles.
“November Class 8 net orders were the highest monthly intake since October 2022,” said Kenny Vieth, ACT’s president and senior analyst. “A modest seasonal factor presses down gently this month, with seasonal adjustment dropping November’s SA intake to 40,100 units, making November the best ‘real’ order month since September 2022. Since the filling of 2024’s order boards began in earnest in September, Class 8 orders have been booked at a 413k SAAR.”
Autonomous Trucking Company TuSimple to Cease US Operations, Focus on Asia-Pacific Business
Autonomous trucking company TuSimple Holdings is set to wind down its operations in the United States amid plans to cut 75 per cent of its remaining workforce in the country, according to the Nasdaq-listed firm’s latest filing. TuSimple’s board of directors approved a new round lay-offs that will affect around 150 employees, or 19 per cent of its global workforce, as part of its restructuring initiative. The remaining US employees will focus on “winding down the company’s US operations, including through sales of US assets, and assisting with the company’s strategic shift to the Asia-Pacific region”.
The company, once considered a star in the global autonomous driving sector and a leader in US self-driving truck development, has focused on level 4 autonomy – in which the vehicle can handle most driving situations independently, but a human can still request control of the cockpit.
Read more at the Freight Waves
The Crisis at the Panama Canal is Starting to Reach Global Energy Markets
The price of liquefied petroleum gas, a significant U.S. export, has rocketed higher recently in Asia, a remarkable development given that crude oil prices have been falling. The main culprit is the worsening impact of drought at the Panama Canal, a key artery for U.S. LPG to reach Asian markets. Transits have been slashed sharply this fall, and restrictions are poised to get tougher: Administrators will cut daily transits to 20 in January and 18 in February. Asia is by far the largest importer of LPG and the U.S. is the largest exporter.
To make matters worse, canal authorities have designated LPG carriers as the lowest priority: below passenger ships, container vessels and LNG carriers. That is forcing some ships to take a longer route via the Suez Canal and or around the Cape of Good Hope to reach buyers in Asia, forcing transit costs much higher—and landed prices in key markets like Japan and China skyward too.
China's Rising Debt Spurs Moody's to Lower Credit Outlook
Ratings agency Moody’s downgraded its outlook on China’s government credit ratings to negative from stable, expecting Beijing’s support and possible bailouts for distressed local governments and state-owned enterprises to diminish China’s fiscal, economic and institutional strength. Moody’s though retained China’s “A1” long-term rating on the country’s sovereign bonds, while expecting China annual GDP growth to slow to 4% in 2024 and 2025 and average 3.8% from 2026 to 2030.
The move underscores concerns over rising debt levels and the impact on broader growth in the world’s second-largest economy as Beijing resorts to fiscal stimulus to support local governments and contain the spiraling debt crisis among the country’s property developers. China’s Finance Ministry expressed its disappointment with Moody’s downgrade decision. The central government said Oct. 24 that it had formalized a process allowing local governments to borrow funds for the year ahead — starting in the preceding fourth quarter.
PDD Overtakes Alibaba as China's Most Valuable e-Commerce Firm
There’s a new online-shopping champion in China: PDD, the company behind discount-retailing app Temu, is now the country’s most valuable e-commerce company. After a 78% rise this year, PDD’s market value has hit $193 billion, snatching the crown from Alibaba. Though PDD’s revenue last quarter was still less than a third of Alibaba’s, it’s growing much faster. Revenue for the three months ended in September surged 94% from a year earlier—Alibaba’s only grew 9%.
At home, PDD’s Pinduoduo app has outshone more established rivals like Alibaba and JD.com. At a time when Chinese consumers are more price-sensitive, Pinduoduo’s reputation as the platform selling goods at affordable prices—after years of offering discounts and rebates—gives it an edge. The company has also cultivated a network of low-cost manufacturers targeting budget buyers, particularly in clothing, allowing it to maintain low prices on its platform. That’s a key difference with Alibaba’s Taobao, which has long operated primarily as a pure market—and focused less on directly building up suppliers itself.
FDA-Approved Zepbound Weight Loss Drug Available In U.S. Pharmacies
Zepbound, drugmaker Eli Lilly’s rebranded diabetes drug intended for weight loss, is now available in U.S. pharmacies less than a month after receiving approval from the Food and Drug Administration — joining the ranks of other popular weight loss drugs such as Ozempic and Wegovy, which are facing shortages. Zepbound, generically called tirzepatide, is a weekly injection intended for adults who have obesity or are overweight with at least one weight-related medical issue such as type 2 diabetes or cardiovascular disease.
People with obesity can get a prescription to Zepbound in six different doses from 2.5 milligrams to 15 milligrams that can be filled at retail and mail-order pharmacies, according to Eli Lilly. In clinical trials, a weekly 15 milligram dose of Zepbound was shown to reduce weight by 22.5%— an average of 52 pounds for a person with a median weight of 231 pounds — in 72 weeks
JetBlue - Spirit Airlines Merger Now Awaiting Judge’s Decision
The trial on JetBlue's merger with Spirit Airlines has reached its conclusion, with a decision on the merger now in the hands of a judge. Reports suggest the judge may be willing to allow the deal to go through if JetBlue divests more assets. Lawyers for JetBlue and the US Department of Justice (DOJ) presented their closing arguments to US District Judge William Young at the antitrust trial on Tuesday, ending several weeks of proceedings since the trial began on October 31. Currently, the big four US airlines - American, Delta, Southwest and United - control around 80% of the domestic market, while JetBlue and Spirit Airlines together have around an 8% share.
During the closing arguments, JetBlue lawyer Ryan Shores argued that the airline needs its acquisition of Spirit to go through to remain competitive in the domestic market against the big four US airlines. The DOJ argued that if the merger goes through, passengers will face steeper airfares and fewer options for low-cost travel. Lawyer Edward Duffy - representing the DOJ - said that ticket prices would go up by 30% and the ultra-low-cost market would be slashed in half, with six million fewer budget flights per year.
No Fracking Way! - Southern Tier’s Natural Gas Eyed for Extraction
Nearly nine years after the state officially put the kibosh on controversial fracking plans for the Southern Tier, a business with ties to the fossil fuel industry is offering a new – potentially environmentally friendly – process of getting New York’s methane and turning it into power. Southern Tier Solutions is hoping to secure at least 100,000 acres of land in Broome, Chemung, and Tioga counties, with the long-term goal of landing 1 million acres, which they would develop for “closed-loop drilling” that would pump carbon dioxide into the ground and remove methane, the primary component of natural gas. Instead of piping the gas around the state, the company wants to build 10 power plants in the region, which would pump any byproducts back into the ground.
Phillips stresses that this process is completely different from the high-volume, hydraulic fracturing that was banned in 2014 by the Cuomo administration. The company hopes to develop a handful of “proof-of-concept” wells this spring, if it can amass enough property leases and secure the necessary regulatory approval. The company has already reached out to about 6,000 property owners and has begun holding informational sessions in the Southern Tier.