Member Briefing February 1, 2024

Date postedFebruary 1, 2024
Posted By: Harold King Daily Briefing,

Top Story

Fed Holds Rates Steady, Signals Rate Cuts Not Imminent

As universally expected, the voting members of the Federal Open Market Committee (FOMC) decided unanimously at their meeting today to make no changes to the Fed's policy stance. After hiking rates by 525 bps between March 2022 and July 2023, the Committee has subsequently maintained its target range for the federal funds rate at 5.25%–5.50%.

In an important development, the Committee removed its implicit "bias" to tighten policy further in its post-meeting statement. Today's statement noted that "the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks" when "considering any adjustment to the target range for the federal funds rate." Until today, the FOMC statement was signaling that it was more likely that rates would need to rise further in the near term than to decline. The language in today's statement signals a more balanced approach towards the next move for the fed funds rate. In the post-meeting press conference, however, Powell stated that "we believe that our policy rate is likely at its peak for this tightening cycle."

Read more at Bloomberg

US Employment Cost Index Cools in Sign of Easing Inflation Pressures

The Fed's preferred measure of labor costs shows inflationary pressure from the jobs market rapidly easing. The Employment Cost Index (ECI) rose 0.9% in the fourth quarter.  The smallest quarterly gain in two years pushed the year-over-year change down to 4.2% from over 5% this time last year. However, the recent quarterly pace points to inflationary pressures from the labor market subsiding to a more benign pace as the jobs market has become more balanced in recent months. On an annualized basis, employment costs rose at a 3.5% clip in Q4.

The moderation in Q4 employment costs was fairly widespread. Wage & salaries posted a 0.9% increase after rising 1.2% in Q3, with costs for both private industry and government workers easing over the quarter. Similarly, benefit cost growth cooled (up 0.7% in Q4 after a 0.9% gain in Q3 among all workers), with smaller quarterly increases for both private and public sector workers. Overall, employment costs rose a bit more quickly for public sector workers in Q4 and over the past year.

Read more at Wells Fargo

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Policy and Politics

Tax Deal Passes House

The House passed a bipartisan tax-cut bill that would deliver billions of dollars to companies and low-income families, overcoming election-year inertia and a series of objections from lawmakers in both parties. The 357-70 vote late Wednesday pleased many business groups, antiabortion conservatives and progressive antipoverty advocates. Republicans voted 169-47 for the bill, while Democrats backed it by a 188-23 margin.

The $78 billion Smith-Wyden agreement would revive several tax provisions that had been curtailed by Republicans’ 2017 tax law. It would let businesses deduct domestic research costs immediately instead of over five years, reversing a change that has been hitting the cash flow of companies such as Lockheed Martin and causing pain at smaller businesses. The bill would also expand deductions for equipment purchases and interest costs. It would expand the child tax credit, giving more money to low-income families that don’t pay income taxes, particularly those with multiple children.

Read more at The WSJ

As Congress Wrangles Over a Spending Plan Here are Some Context and Fun Facts About America’s $34 Trillion Debt

The U.S. national debt totals about $34 trillion. “That is a really hard number to really understand, right?” said Rachel Snyderman, the director of economic policy at the Bipartisan  Policy Center in Washington, D.C. Does it help if we tell you that if you had 34 trillion footlong Subway sandwiches and stacked them end to end, you could get to Neptune and back? Maybe we’re just hungry. Maybe it’s more useful to put that number into an economic context: $34 trillion is bigger than China's economy. Add to that the economies of Japan, Germany, India and the United Kingdom, and combined they generate about $34 trillion a year.

The $34 trillion is also bigger than our own economy. The United States' gross domestic product, or GDP, which is the sum total of all the goods and services we produce in a year, is about is about $27 trillion. Our debt is around 120% of what our economy generates in a year; that's our debt-to-GDP ratio. If you were spending 120% of what you earned, we would probably recommend going on a strict spending regimen. But countries are different; they can print their own money. So if you’re a country, is a lot of debt really bad? Not so bad? The truth is, we just don’t know. Of course, some consequences we do know, like the amount of interest we pay on that debt: about $2 billion a day, and by 2050, the  Congressional Budget Office projects the interest payments on our debt will be the country's single biggest expense.

Read more at Marketplace

Gov. Hochul Approves Temporary Government Jobs for Migrants

Gov. Kathy Hochul’s administration recently agreed to a proposal that could make it easier for migrants to get temporary jobs in state government. The Civil Service Commission voted to approve the measure on Jan. 18 and is working with agencies to implement the changes, which include dropping typical application requirements like proof of a high school diploma or proficiency in English.

“I have 10,000 openings in the New York State workforce. From our operations to SUNY, I have 10,000 openings. So this is to give options to people but to say we are working intensely to get work authorization — these are all legal people,” said Hochul. The goal is to make it faster for migrants to get jobs once they get work authorization. Hochul is eyeing 4,000 entry-level posts that are currently unfilled within state agencies, including:-clerical or administrative roles-technical support-equipment service and repair-food services.

Read more at NY State of Politics

Health and Wellness

Respiratory Virus Surge: Diagnosing COVID-19 vs RSV, Flu

Amid the current wave of winter respiratory virus cases, influenza (types A and B) leads the way with the highest number of emergency room visits, followed closely by COVID-19, thanks to the JN.1 variant, and respiratory syncytial virus (RSV). With various similarities and differences in disease presentations, how challenging is it for physician's to distinguish between, diagnose, and treat COVID-19 vs RSV and influenza?  

While these three respiratory viruses often have similar presentations, you may often find that patients with COVID-19 experience more fever, dry cough, and labored breathing, according to Cyrus Munguti, MD, assistant professor of medicine at KU Medical Center and hospitalist at Wesley Medical Center, Wichita, Kansas.  Patients with RSV and influenza tend to have more upper respiratory symptoms, like runny nose, sternutation — which later can progress to a cough in the upper airways, Munguti said. Changes in COVID-19 variants over the years have made it increasingly difficult to differentiate COVID-19 symptoms from those of RSV and influenza, according to Panagis Galiatsatos, MD, pulmonologist and associate professor at Johns Hopkins Medicine. "The Alpha through Delta variants really were a lot more lung tissue invading," Galiatsatos said. "With the COVID-19 Omicron family — its capabilities are similar to what flu and RSV have done over the years. It's more airway-invading."

Read more at Medscape

Election 2024

 

Industry News

Apple, Microsoft, and Amazon Rank as Top 3 Most Admired Companies in the World

Reputation matters in business. Just think of what has happened to Boeing, which five years ago ranked in the top 20 of Fortune’s World’s Most Admired all-stars. These days it’s the butt of screw-loose jokes. Meanwhile Nvidia has soared up the list over the last four years, landing at No. 10 in our latest ranking, out this morning.

When it comes to reputation, tech rules. Apple is No. 1, Microsoft No. 2, and Amazon No. 3. Walmart, has its reputation rise, hitting the No. 9 spot this year, up from 13 last year.  Eli Lilly jumped onto the all-star list at No. 34 ending Johnson & Johnson’s 10-year reign as the most admired pharmaceutical company. Disney fell to No. 12 from No. 6, and ceded its spot as the most admired entertainment company to Netflix. Moderna (No. 37), Mastercard (No. 40), L’Oreal (No. 43), and Adobe (No. 46), which made the top 50 after not being ranked last year. And bye-bye to last year’s winners McDonald’s, Nestle, Unilever, Lockheed Martin, and Charles Schwab, which dropped off the list.

Read more at Fortune (Subscription)

Inside the JOLTS Report - Manufacturing Records More Job Openings, Fewer Separations

Job openings in manufacturing hit a three-month high last month, according to the Bureau of Labor Statistics, while both hiring and separations fell. The latest figures show that the manufacturing workplace market has cooled as it stabilizes and fills workplace roles. The figures for December 2023 show that job openings in manufacturing rose by 48,000 to 601,000 in total—historically high, but notably about halfway between where they were last year and where they were before the Covid pandemic. NAM Chief Economist Chad Moutray, in a post on LinkedIn, noted that manufacturing job openings averaged 853,000 in 2022 and 432,000 in the years leading up to 2020.

Manufacturing companies hired an estimated 327,000 workers in December, only slightly above the record low of 310,000 manufacturing hires in March 2020. Despite the weaker trend, last month was a net positive for manufacturing hiring: With 318,000 total separations, the sector as a whole added an estimated 9,000 jobs in December. Additionally, the number of workers who quit manufacturing jobs declined from 215,000 workers to 203,000.

Read more at IndustryWeek

Home Prices Fell in November

Housing prices in the US came in cooler than expected in November, breaking a streak of monthly gains that began in January 2023. The latest S&P Case-Shiller national home price index data published Tuesday — which offers the three-month average for September, October, and November closing prices — showed a moderate slowdown in price gains. Compared to the same time last year, however, the gauge still climbed 5.1%.

The 20-City Composite showed a 0.2% month-over-month decrease in November. The 10-City Composite showed dipped 0.1% month-over-month. However, each saw annual gains of 5.4% and 6.2%, respectively.  The biggest annual price gains came in Detroit and San Diego, at 8.2% and 8%, respectively. "The house price decline came at a time where mortgage rates peaked, with the average Freddie Mac 30-year fixed rate mortgage nearing 8%, according to Federal Reserve data," said Brian D. Luke, head of commodities, real & digital assets at S&P DJI. "The rate has since fallen over 1%, which could support further annual gains in home prices."

Read more at Business Insider

Europe’s Stagnating Economy Falls Further Behind the U.S.

Europe’s economy stagnated in the final three months of last year, expanding a divide between a booming U.S. economy and a European continent that is increasingly left behind. The fresh economic data showed higher borrowing costs had compounded the earlier impact of higher energy prices in the wake of Russia’s invasion of Ukraine. The European Union’s statistics agency Tuesday said gross domestic product in the eurozone was unchanged in the final three months of last year. That followed a decline in the three months through September. During 2023 as a whole, Eurostat recorded growth of just 0.5%.

One factor that is threatening to weigh further on the European economy is its proximity to geopolitical flashpoints. Russia’s war on Ukraine sent energy prices rocketing in 2022, hitting European manufacturers. Now the crisis in the Middle East, which has gummed up cargo traffic through the Red Sea, is adding costs to European importers and disrupting European supply chains.

Read more at The WSJ

Boeing Says It Can’t Set 2024 Financial Goals Now

Boeing is bracing for a financial blow from the Alaska Airlines door-plug blowout. The jet maker just doesn’t know how big it will be. The American manufacturing giant didn’t provide financial targets for 2024 as it reported quarterly results on Wednesday that were slightly better than expectations. It generated $3 billion of cash flow on $22 billion of fourth-quarter revenue. U.S. air-safety regulators last week put limits on Boeing’s production of 737 MAX jets, weeks after a door plug ripped away from a MAX 9 shortly after it took off, leaving a hole the size of an emergency exit in its side.

Boeing booked a net loss of $30 million in the quarter ended Dec. 31, less than the $663 million loss a year ago. Analysts polled by FactSet expected a $140 million loss. The company reported $3 billion of free cash flow from its operations for the quarter. Boeing generated $4.4 billion of free cash flow for the year, hitting its targeted range of $3 billion to $5 billion.

Read more at Yahoo

Other Earnings of Note: Google, Microsoft, Intel, Samsung, Novo Nordisk

Alphabet reported its fastest quarter for revenue growth since early 2022, with sales climbing 13% from $76.05 billion a year earlier, the company said in a statement. However, ad revenue of $65.52 billion trailed analysts’ estimates of $65.94 billion, according to StreetAccount. However, the company also reported ad revenue that missed analysts’ estimates.

Earnings per share were $1.64 vs. $1.59 expected by LSEG, formerly known as Refinitiv. Revenue was $86.31 billion vs. $85.33 billion expected by LSEG. Google Cloud: $9.19 billion vs. $8.94 billion expected, according to StreetAccount. YouTube ads: $9.2 billion vs. $9.21 billion expected, according to StreetAccount. Read more at CNBC

 

Microsoft posted December quarter results that edged Wall Street estimates. The results suggest continued progress in the company's big AI push. For the fiscal third quarter ended Dec. 31 the company reported revenue of $62 billion, about $1 billion ahead of Street estimates. Profits in the quarter were $2.93 a share, ahead of the analyst consensus forecast of $2.76 a share.

Microsoft reported better-than-expected revenue in all three of its business segments. Azure and other cloud revenue was up 30%, or 28% adjusted for currency. The company said AI related services contributed six percentage points of growth to Azure growth in the quarter, a clear demonstration that the company's AI business is gaining traction. Read more at Barron’s

Intel issued an outlook for the first quarter of 2024 that lagged analyst forecasts even as results for the latest quarter beat Wall Street estimates. Here’s how Intel did versus LSEG (formerly Refinitiv) consensus expectations for the quarter ended in December:

Earnings per share were 54 cents adjusted, vs. 45 cents expected. Revenue was $15.4 billion vs. $15.15 billion expected. For the first quarter of fiscal 2024, Intel expects adjusted earnings per share of 13 cents on between $12.2 billion and $13.2 billion in sales, versus LSEG expectations of 33 cents per share on $14.15 billion of revenue. The company projects a fiscal first-quarter net loss of 25 cents per share on a GAAP basis. Read more at CNBC

Samsung Electronics on Wednesday posted a 34.57% drop in operating profit in the fourth quarter from a year ago, in line with its guidance issued earlier this month. Samsung is the world’s largest maker of dynamic random-access memory chips which are found in consumer devices such as smartphones and computers. Here are Samsung’s fourth-quarter results versus estimates:

Revenue was 67.78 trillion Korean won (about $51 billion), vs. 69.27 trillion Korean won expected by LSEG analysts Operating profit was 2.82 trillion Korean won, vs. 3.43 trillion Korean won expected by LSEG analysts. Samsung’s revenue for the quarter ending December fell 3.8% from a year ago, while operating profit dropped 34.57% in the same period. For the full year of 2023, its semiconductor business fell into a record loss of 14.88 trillion Korean won, from a 23.82 trillion Korean won profit a year earlier on the back of weak global demand, according to LSEG data.

Novo Nordisk on Wednesday reported better-than-expected earnings for 2023, propelled by a tsunami of demand for its blockbuster weight loss and diabetes drugs as new treatments emerge and compete for a slice of the growing market. The Company reported $33.7 billion of sales for 2023, an increase of 36% at constant exchange rates and beating analysts’ expectations. Full-year operating profit also exceeded analysts’ expectations, climbing 44% at constant exchange rates to $15 billion.

Diluted earnings per share rose 52% to 18.61 Danish kroner ($2.7). Around 90% of the drugmaker's overall sales—$31.2 billion—came from its obesity and diabetes care division, which includes Ozempic and Wegovy, respectively authorized to treat diabetes and obesity. Sales of GLP-1 diabetes medications—a class that includes Ozempic—and in obesity care were largely responsible for this uptick, Novo Nordisk said, rising 52% and 154% at constant exchange rates, respectively. Read more at Forbes

AIA Questions White House Plan on Emissions Regulation

The Aerospace Industries Association is pushing back against a Biden administration proposal to give "quasi-regulatory" authority to the Carbon Disclosure Project and Science Based Targets initiative, including access to federal contractor emissions reporting. "Delegating oversight functions to an entity supported by foreign governments, including China, raises serious concerns about the impact the Rule would have on procurement for national security," said Eric Fanning, AIA president and CEO, in testimony before a congressional panel.

According to a report released this week by the House Science, Space, and Technology Committee, “The rulemaking process was clearly subverted in order to favor certain environmentalist groups.  The committee raised concerns about “the legality of the delegation of quasi-regulatory authorities to private entities” in its interim report and vowed to continue its investigation. The committee also warned the foreign ownership and activities of these groups, including operations in China, indicate that the White House may have overlooked significant national security considerations of delegating any of its authority to these groups.

Read more at the Tennessee Star

Judge Strikes Down Elon Musk's $55 Billion Tesla Pay Package

A Delaware judge on Tuesday ruled that Elon Musk's record-breaking $56 billion Tesla (TSLA.O), opens new tab pay package could be tossed, calling the compensation granted by the EV maker's board "an unfathomable sum" that was unfair to shareholders. shares of Tesla dropped about 3% in extended trade. The judge found it was negotiated by directors who appeared beholden to their headline-making CEO, one the world's richest people, and the promise of allowing him to share in the company's enormous growth.

Tesla directors argued during a week-long trial that the company was paying to ensure one of the world's most dynamic entrepreneurs continued to dedicate his attention to the electric-vehicle maker. Antonio Gracias, a Tesla director from 2007 to 2021, called the package "a great deal for shareholders" because he said it led to the company's extraordinary success. Tesla shareholder Richard Tornetta brought the lawsuit in 2018. His lawyers argued the Tesla board never told shareholders that the goals were easier to achieve than the company was acknowledging and that internal projections showed Musk was quickly going to qualify for large portions of the pay package.

Read more at Reuters

 

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