Member Briefing February 1 2023
IMF Upgrades Outlook for Global Economy as Inflation Eases and China Reopens
In its latest World Economic Outlook, released Monday Washington time, the IMF sees the global economy growing 2.9% this year, up from its October projection of 2.7%. The IMF expects growth to accelerate to 3.1.% in 2024, still less than last year’s 3.4%. The IMF’s view, while still cautious, marks a notable shift in tone from October when its economists warned global recession was a significant risk.
Several developments in the past few months contributed to the shift in the IMF’s views, its economists explained. Economic growth proved surprisingly resilient in the third quarter of last year, helped by tight labor markets, stronger-than-expected spending by households and businesses, and Europe’s swift adaptation to the energy crisis caused by the war in Ukraine.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- More Americans Believe US Provides Too Much Support to Ukraine – The Hill
- In Besieged Bakhmut, Everyday Life Is a Struggle to Survive - WSJ
- Russia Claims Village on Outskirts of Bakhmut in Big Push in East – Reuters
- Poland Boosts Defence Spending Over War in Ukraine - BBC
- France to Send More Mobile Artillery to Ukraine - Yahoo
- Major New Russian Assault in Ukraine Unlikely to Achieve Breakthough, UK Says - Reuters
- How Russia Dodges Oil Sanctions on an Industrial Scale – The Economist
- Biden Says US ‘Will Not Provide F-16 Fighter Jets to Ukraine’ – NBC News
- Biden Says He Will Talk With Zelenskyy After Rejecting Kyiv Request for Jets - Politico
- U.S. Says Russia Has Violated Nuclear-Arms Treaty by Blocking Inspections - WSJ
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
US Wage Growth Slowed in the Final Quarter of 2022
Worker pay and benefit gains remained elevated at the end of last year but showed modest signs of cooling. Employers spent 5.1% more on wages and benefits in the fourth quarter of 2022 compared with the previous year, up slightly from a 5.0% annual gain in the third quarter, the Labor Department said Tuesday. Growth eased somewhat from the prior quarter, advancing 1%, versus a 1.2% increase in the third quarter.
The Fed has aggressively raised rates in the past year with the aim of cooling the economy to combat inflation. Central bank officials are starting a two-day meeting Tuesday and have said that they were closely watching Tuesday’s data. Average hourly earnings for private-sector employers rose 4.6% in December from a year earlier, according to the Labor Department’s latest jobs report. That was down from a recent high annual gain of 5.6% in March 2022. Consumer prices advanced 6.5% in December from a year earlier.
Eurozone’s Economy Outpaced China and U.S. in 2022
The eurozone economy grew faster than China and the U.S. last year, underlining how the fading Covid-19 pandemic continues to scramble traditional patterns of global growth. Figures released by the European Union’s statistics agency Tuesday showed the currency- area’s economy grew at an annualized rate of 0.5% as higher energy costs weighed on household spending. This translated into 3.5% growth in gross domestic product for 2022 as a whole, a faster rate than seen in either China or the U.S.
This is unusual. For decades, the big three engines of the global economy have had a pretty stable ranking: China grew fastest, followed by the U.S. and then the eurozone. This all changed last year because of the staggered manner in which major economies reopened in the wake of the pandemic. Figures released Thursday showed the U.S. economy grew by 2.1% in 2022, a sharp slowdown from the 5.9% rate of expansion recorded in 2021. Earlier this month, China’s statistics agency released figures that showed the world’s second-largest economy grew by 3%, down from 8% the previous year.
U.S. COVID – U.S. to End COVID-19 Emergency Declarations on May 11
President Joe Biden's administration on Monday said it will end COVID-19 emergency declarations on May 11, nearly three years after the United States imposed sweeping pandemic measures to curb the spread of the illness. The COVID-19 national emergency and public health emergency (PHE) were put in place in 2020 by then-President Donald Trump. Biden has repeatedly extended the measures, which allow millions of Americans to receive free tests, vaccines and treatments.
The White House's Office of Management and Budget (OMB) said in a statement the declarations, which were set to expire in the coming months, would be extended again until May 11 and then terminated. The government has been paying for COVID-19 vaccines, some tests and certain treatments under the PHE declaration. When it expires, those costs will be transferred to private insurance and government health plans.
WHO Maintains Highest Alert Over COVID, But Sees Hope Ahead
The World Health Organization (WHO) said on Monday that COVID-19 continues to constitute a public health emergency of international concern, its highest form of alert. The pandemic was likely in a "transition point" that continues to need careful management to "mitigate the potential negative consequences", the agency added in a statement.
It is three years since the WHO first declared that COVID represented a global health emergency. More than 6.8 million people have died during the outbreak and ravaged communities and economies. the advent of vaccines and treatments has changed the pandemic situation considerably since 2020, and WHO Director-General Tedros Adhanom Ghebreyesus has said he hopes to see an end to the emergency this year, particularly if access to the counter-measures can be improved globally.
Pfizer Accepts it ‘Engineered’ New Covid Mutations
Pfizer has admitted that it “engineered” treatment-resistant Covid-19 variant to test its antiviral medicine. This statement partially backs up revelation made by the US-based multinational pharmaceutical company’s director who told his date that Pfizer was deliberately “mutating” the virus to “preemptively develop new vaccines.” Pfizer in a statement said that in the ongoing development of the Pfizer-BioNTech COVID-19 vaccine, it “has not conducted gain of function or directed evolution research,” referring to the practice to enhance the ability of a virus to infect humans and the method of selecting “desirable” traits of a virus to reproduce, respectively.
Pfizer said that it has conducted research where the original strain of SARS-CoV-2 virus has been used to express the spike protein from new variants of concern to test its vaccines and that it created mutations of the virus to test its anti-viral drug – Paxlovid.
Fed Meeting Preview: Quarter Point Increase Likely to Be Announced
If markets are right, tomorrow's Fed meeting policy statement will announce the next-to-last rate hike of the cycle, with a quarter-point move that's expected to be matched on March 22. However, Federal Reserve Chair Jerome Powell probably has other ideas. That's why the S&P 500 backed off from a six-week high on Monday, but markets firmed up early Tuesday after the Employment Cost Index showed softer wage growth in Q4.
Odds for a quarter-point hike in March fell from 98% on Monday to 82.5% Tuesday, according to CME Group's FedWatch page. While markets could turn out to be right, this week's Fed meeting is all about the Fed keeping options open. Powell has zero interest in providing fodder for the S&P 500 to move higher and Treasury yields to move lower. The big tell will be how Powell characterizes the balance of risks.
Chinese Factory Activity Rebounds, Adding to Recovery Signs
A monthly purchasing managers’ index issued by the Chinese statistics agency and an industry group rose to 50.1 on a 100-point scale on which numbers above 50 show activity growing. That was an unusually large gain of 3.1 points from December’s 47. China’s economic growth sank to 2.9% over a year earlier in the final three months of 2022, but economists point to increased investment and improved consumer spending as signs activity is recovering.
New orders, new export orders, factory activity and employment improved in January, the National Bureau of Statistics and the China Federation of Logistics and Purchasing reported. That shows “economic recovery momentum is relatively strong,” economist Zhang Liqun said in a statement issued by the two groups.
The 3 Jobs Manufacturers Are Struggling to Fill in 2023
Nearly 780,000 jobs were unfilled in the industry as of November 2022, according to the Bureau of Labor Statistics. But amid those thousands of open roles, some are proving particularly hard to fill. As technical skill requirements and academic interests continue to change, companies are struggling to find production workers, engineers and middle skill workers, a problem that experts say is unlikely to subside in the year ahead.
As the rising e-commerce industry sends demand for talent surging, manufacturing has fallen further behind when it comes to base compensation ranges, Olson added. Manufacturing’s digital transformation is also creating a mismatch between available workers and the skills needed to fill open jobs. NAM Chief Economist Chad Moutray said that companies are constantly looking for workers that can leverage new technologies, which “takes a lot of folks off the table.”
Copper Falls as Traders Gauge Hopes of China Demand Improvement
Copper prices fell on Monday, as weak physical consumption prompted reassessment of how quickly and strongly demand would rebound in top consumer China following its COVID-19 restrictions removal last month. Copper prices since mid-July 2022 have risen 28% in London and 33% in Shanghai, underpinned by hopes of demand recovery in China post dismantling of the "zero-COVID" policy.
The price of copper is regarded as an indicator of the health of the global economy. When demand for this raw material is high pushing up its price, this suggests that the economy is healing and could be on its way back to vim and vigour.
The Outlook for Diesel: Supply Woes Aren’t Going Away Soon
The roller-coaster ride for diesel markets is unlikely to end anytime soon. Prices for the fuel that is a bedrock of the logistics sector have settled somewhat after reaching record highs last summer. Denton Cinquegrana, chief oil analyst of the Oil Price Information Service writes that the decline in the pump prices in recent months won't likely be duplicated in 2023, however, because many of the same elements that drove the surge in prices remain in place.
Diesel supplies remain tight by historical standards, and there are still strong constraints in replenishing stocks. One factor is that refineries that have deferred maintenance since the pandemic began will have to resume the critical work, likely putting a cap on output. Europe’s looming restrictions on Russian refined products also looms over world markets and diesel supplies.
US Chip Manufacturers Are Facing Endless Hurdles
Up to $260 billion worth of US semiconductor fabrication plants are either underway, in the pipeline or being considered as manufacturers rush to meet the surging interest in domestically produced chips. The current economic outlook is prompting several semiconductor companies to slow their capital deployment, however.
Building fabs in the United States may also present different challenges than those encountered in other countries. Some projects have already experienced delays, including those related to labor and material shortages. What’s more, volatile prices for raw-material commodities are injecting another element of uncertainty into the construction process. The potential solution for companies that want to continue building US fabs amid all this uncertainty? A mix of creative financing, more thoughtful design, greater prefabrication, and better strategies for negotiations, scheduling, and cost control.
Industry Earnings: Pfizer
Pfizer on Tuesday issued sales guidance of $67 billion to $71 billion for 2023, a decline from its record-breaking 2022 results. The pharmaceutical company booked $100.3 billion for full-year 2022, an all-time high driven by more than $50 billion in Covid vaccine and antiviral sales. Pfizer expects revenue for 2023 to decline up to 33% compared with 2022 as the pandemic eases and demand for its Covid portfolio slides. The company expects $13.5 billion in Covid vaccine sales in 2023 and $8 billion in revenue for Paxlovid.
Pfizer is forecasting 2023 earnings of $3.25 to $3.45 per share, as much as a 50% drop from its record $6.58 in 2022. The company booked net income $31.4 billion in 2022, a 43% increase over 2021.
Industry Earnings: GM
General Motors handily beat Wall Street’s top- and bottom-line expectations for the fourth quarter, while forecasting another solid year of results in 2023. Adjusted earnings per share at GM were $2.12 vs. $1.69 expected; Revenue was $43.11 billion vs. $40.65 billion expected. GM’s full-year 2022 revenue came in at $156.7 billion, with net income attributable to stockholders of $9.9 billion and adjusted earnings before interest and tax at a record $14.5 billion. Those results marked the high-end of the company’s previously revised guidance.
Still, the automaker is showing signs of a margin squeeze. GM’s net income slipped last year, down by less than 1% from full-year 2021 to $9.9 billion, with a profit margin that was off 1.6 percentage points to 6.3%. Its adjusted profit margin was 9.2%, down 2.1 percentage points compared with the previous year.
OSHA Sharpens Enforcement Tools With New Initiatives
The federal safety agency intends to adopt a regulation in June 2023 addressing the use of subpoenas during OSHA investigations. Currently no draft of the proposed regulation is available to the public. Because OSHA has proposed the new regulation as an interim final rule (IFR), it will take effect without prior public input. IFRs are generally only used when an agency has good reason for not following the usual rulemaking process, e.g., in a time-sensitive situation. OSHA has not publicized its reasons for attempting to avail itself of the IFR procedures. Once the IFR is published, the agency will likely then solicit public comment, albeit while the regulation is already in effect.
In support of the regulation, OSHA points to “recurrent issues” that “lead to time-consuming disputes between the agency and employers.” The new regulation purportedly seeks to “provide helpful clarity to the agency and the regulated public . . . while promoting . . . uniform subpoena practice across the agency.” However, it is unclear what “recurrent issues” led to the creation of a new regulation, and the OSHA Field Operations Manual (FOM) already provides precise guidelines related to subpoenas served by OSHA.