Member Briefing February 22, 2023
U.S. Business Activity Rebounds to Eight-Month High in February- S&P Global Survey
S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 50.2 this month from a final reading of 46.8 in January.That ended seven straight months of the index being below the 50 mark, which indicates contraction in the private sector. The services sector accounted for the rise in business activity, while manufacturing remained weak. Economists polled by Reuters had forecast the flash Composite PMI Output Index at 47.5.
S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 50.2 this month from a final reading of 46.8 in January. That ended seven straight months of the index being below the 50 mark, which indicates contraction in the private sector. The services sector accounted for the rise in business activity, while manufacturing remained weak. Economists polled by Reuters had forecast the flash Composite PMI Output Index at 47.5.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Putin Suspends Key US Nuclear Arms Treaty in Bitter Speech Against West - BBC
- Putin Delivers Nuclear Warning to the West over Ukraine – Reuters
- In Poland Biden Asserts U.S. Support for Ukraine ‘Will Not Waver’ - Politico
- China’s Xi Jinping Plans Russia Visit as Putin Wages War in Ukraine - WSJ
- 8,000 Civilians Killed Since Russia’s Invasion of Ukraine: UN – The Hill
- Until the U.S. and Allies Decide What Victory Looks Like for Kyiv, Europe Isn’t Likely to Have Peace - Politico
- U.S., Allies to Boost Efforts to Stop Russia Skirting Sanctions - WSJ
- Biden Administration Announces Additional Security Assistance for Ukraine – Defense Department
- Russia’s War Machine Tested by Rift Between Military, Wagner Group - WSJ
- NATO ‘Increasingly Concerned’ China May Arm Russia Against Ukraine – The Hill
- China Says Certain Countries Must Stop 'Fueling the Fire' in Ukraine – Reuters
- 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
Business Surveys in the Eurozone and U.K. Point to a Jump in Activity
S&P Global said its composite output index for the eurozone, a closely watched survey of business activity, was 52.3 in February, signaling a faster pace of expansion than January’s 50.3. Rising energy prices in the wake of Russia’s invasion of Ukraine last February slowed Europe’s economies in 2022. But a mild winter has helped households and businesses cut their energy consumption. The European Union Tuesday said consumption of natural gas between August 2022 and January 2023 was down 19.3% on the average for that period between 2017 and 2022.
In the U.K., the composite PMI jumped to 53.0 from 48.5 to reach an eight-month high. The pickup in eurozone growth was driven by the dominant services sector, and particularly tourism and recreational activities that suffered most from restrictions designed to limit the spread of the Covid-19 virus. In the U.K., business-services companies reported strong activity on an improved outlook for the global economy.
CFOs Are Bracing for a Dismal Financial Outlook—What They Expect to Happen
Less than a third of top CFOs recently surveyed by Deloitte in November consider it a good time for greater risk-taking, and 41% are pessimistic about their companies’ financial prospects. Soon, the modern CFO may no longer be a creative co-pilot to the CEO, but a penny-pinching jobsworth. Much of a CFO’s role in the impending downturn is colored by their company’s performance during the pandemic. While tech CFOs are cutting the overgrowth that sprouted during the pandemic, others are clinging to the economic rebound that followed the pandemic.
over half of the chief bean counters surveyed by Deloitte plan to spend the year squelching anxiously around all corners of their operations, dropping in unannounced on factories and meetings to work out how to tighten the belt by yet another notch.
US COVID Update - Why the Covid-19 Death Toll in the U.S. Is Still High
The U.S., which recently topped 1.1 million Covid-19 deaths since the pandemic began, continues to record several hundred more each day, death-certificate data show. The people who are dying remain old, often with underlying health issues such as heart and lung ailments, the data indicate. These deaths are the consequence of a virus that continues to transmit easily, allowing it to reach vulnerable people, even though built-up immune protection from vaccines and prior infections have lowered the risks for most others, according to doctors and public-health experts. A lagging booster rate is also leaving vulnerable people exposed, they said.
The U.S. averaged about 400 deaths a day in a three-month span covering November through January, based on weekly CDC data. The country averaged roughly 1,700 deaths a day in the same period a year before. The same wintertime period two years ago was even worse: about 2,800 daily deaths. The current pace, however, is still enough to keep Covid-19 among the major causes of death in the U.S. The disease ranked at No. 3 in 2020 and 2021, behind heart disease and cancer, and might rank there again in 2022.
CDC County Tracker Recommends Indoor Masking in Only 2 Hudson Valley Counties
The CDC recommends indoor masking in only Orange and Sullivan Counties in the Hudson Valley as the spread of COVID-19 has slowed significantly in the region. As early as last week six of the seven counties were on the CDC list (Rockland was the exception) In January all 7 Counties were on the list.
The CDC tracker measures the spread of the disease based on reported cases, as either low (green), moderate (yellow), or high (red). Dutchess, Putnam, Rockland, Ulster and Westchester are all low risk. Orange and Sullivan of moderate.
Wells Fargo Index Shows Muted Optimism for Construction in 2023
There is cautious optimism in the construction industry given the strong backlog of jobs and orders, and despite a shortage of skilled labor and increased labor costs, according to the Wells Fargo Construction Index for 2023, based on input from industry executives. Industry sentiment has declined amid economic and supply chain concerns, according to the report, including within distributors and contractors, and across both the residential and non-residential sectors.
More than half believe the industry will expand in two years, and among those who believe construction activity will remain the same, most believe it will increase in 2024 or beyond, according to the report. Derailing some hopes is the ability to hire skilled employees, said four out of five in the executive survey. Companies said their best hope to overcome that challenge is through wage increases and training.
U.S. Existing Home Sales Drop to 12-Year Low
U.S. existing home sales dropped to the lowest level in more than 12 years in January, but the pace of decline slowed, raising cautious optimism that the housing market slump could be close to reaching a bottom. The report from the National Association of Realtors on Tuesday also showed the smallest increase in annual house prices since 2012, which should help to improve affordability. It will, however, be a while before the housing market turns the corner.
Mortgage rates have resumed their upward trend as the prospect of the Federal Reserve maintaining its interest rate hiking campaign through summer gained traction. Existing home sales fell 0.7% to a seasonally adjusted annual rate of 4.00 million units last month, the lowest level since October 2010, when the nation was grappling with the foreclosure crisis. That marked the 12th straight monthly decline in sales, the longest such stretch since 1999. Sales fell in the Northeast and Midwest but rose in the South and West.
Residential Construction Activity Declined in January
New residential construction activity declined 4.5% to 1,309,000 units at the annual rate in January, the slowest pace since June 2020. Single-family housing starts dropped 4.3% to 841,000 units. Issues of affordability and an uncertain economic outlook have impacted the housing market negatively, and on a year-over-year basis, new housing starts have dropped 21.4%. Single-family construction activity has plummeted 27.3% over the past 12 months.
Completed new construction housing was up in January, according to the Census Bureau, with housing completions at a seasonally adjusted annual rate of 1.406 million, up 1% from last month and up 12.8% from a year ago. Single‐family housing completions in January were up 4.4% from December at a rate of 1.04 million.
Construction Workforce Shortage Tops Half a Million in 2023
A recent model developed by Associated Builders and Contractors found that the industry will need to attract an estimated 546,000 additional workers on top of the normal pace of hiring in 2023 to meet the demand for labor. ABC’s model uses the historical relationship between inflation-adjusted construction spending growth, sourced from the U.S. Census Bureau’s Construction Put in Place survey, as well as payroll construction employment, sourced from the U.S. Bureau of Labor Statistics, to convert anticipated increases in construction outlays into demand for construction labor at a rate of approximately 3,620 new jobs per billion dollars of additional construction spending.
This increased demand is added to the current level of above-average job openings. Projected industry retirements, shifts to other industries and other forms of anticipated separation are also embodied within computations.
Industry Earnings: Home Depot Misses Revenue Expectations for the First Time Since 2019
Home Depot’s revenue fell short of Wall Street’s estimates in its fiscal fourth-quarter earnings report Tuesday. The company also provided a muted outlook for the next year amid a tough consumer backdrop. It’s the first time Home Depot missed Wall Street’s revenue expectations since November 2019, before the Covid pandemic. n the quarter ended Jan. 29, Home Depot reported $35.83 billion in sales, up 0.3% from the year ago period, which saw $35.72 billion in revenue. The retailer’s reported net income of $3.36 billion, or $3.30 per share, was also 0.3% higher than the year ago period, which was $3.35 billion, or $3.21 per share.
- Earnings per share: $3.30 vs. $3.28 expected
- Revenue: $35.83 billion vs. $35.97 billion expected
China’s Shipping Containers Pile Up at Overcrowded Port as Overseas Orders Dwindle
With China still trying to rev up its economic engine after three arduous years under the zero-Covid policy, the export sector – which was the main economic driver during the pandemic – is looking like it will continue to sputter amid dwindling external demand and rising geopolitical tensions, according to analysts and industry insiders. For many truck drivers, the sluggish scene at Yantian is in stark contrast to the situation two years ago. In 2021, an empty shipping container was very hard to get, as there was so much cargo to send. But now, containers are gathering dust as they occupy every available space around the port.
Container trends are a crucial barometer of economic progress and global trade, and the current market outlook appears bleak, according to Christian Roeloffs, CEO and co-founder of Container xChange, a leading online platform for container logistics. In November, an official statement from the port’s authorities said that the volume of empty containers stored there had reached the highest level since March 2020, and that it would soon reach the highest level since the port opened 29 years ago.
AI in Manufacturing: Take the IndustryWeek Survey that Asks What the State of the Industry Is Today
In the manufacturing world, AI is more of the present than the future with many companies using predictive maintenance systems on machine tools, machine learning algorithms to check quality and demand forecasting systems to set work orders. So, what do you think about AI in manufacturing? Are you using it? Do you think it's valuable?
Take the IndustryWeek survey and check back for results. They'll publish insights and statistics as we gather data.
Office Landlord Defaults Are Escalating as Lenders Brace for More Distress
The number of big office landlords defaulting on their loans is on the rise, fresh evidence that more developers believe that remote and hybrid work habits have permanently impaired the office market. The delinquency rate for office loans that back commercial-mortgage-backed securities remains low, but it is heading higher. The rate last month rose by a quarter of a percentage point to 1.83%, its largest increase since December 2021. Loans backed by office buildings in Philadelphia, Denver and Charlotte, N.C., have also either been transferred to special servicers in recent weeks or have been parts of bond issues that have been downgraded by credit-rating firms.
Concerns over the health of the office building industry have mounted throughout the pandemic. The weak return-to-office rate has led to soaring vacancy levels in many cities. Last year’s spike in interest rates increased the cost of buying and refinancing properties and squeezed property values.
Oil Swings Lower With Economic Data Hinting at Weaker US Demand
Oil fell, reversing earlier gains, as economic data highlighted the toll that interest rate hikes are taking on the US economy. Crude has traded in a tight band for much of 2023, with conflicting data points preventing the market from breaking through current resistance levels. The upside in crude prices has been limited by the threat of a recession in the US, while the downside has been protected by the recovery of the Chinese economy.
Empire Center Report: Five Years After Janus, Union Membership Sinks in NY State Agencies
About 15 percent of unionized New York state government workers chose not to pay union dues last year, up from 10 percent in 2020, according to a new research report from the Empire Center.
In The Janus Effect, Empire Center fellow Ken Girardin used public payroll records to measure union membership rates after the U.S. Supreme Court’s 2018 decision in Janus v. AFSCME, which ended the unions’ ability to force nonmembers to pay. The data show union membership rose as unions succeeded in persuading some employees to join, but is down from 2020 levels both in New York state government and in the City of New York. In state agencies, for which the most current data are available, union membership has sunk below 2017 levels — when unions could force people to pay.