Member Briefing February 22, 2024

Posted By: Harold King Daily Briefing,

Top Story

NY Fed Survey: Trends in Costs, Prices, Wages and Inflation Slow 

Supplemental questions in the February 2024 Empire State Manufacturing Survey and Business Leaders Survey focused on recent and expected changes in firms’ costs, selling prices, and wages. In terms of costs manufacturers reported an average increase of 4.7 percent for the period. These figures were well below the 13% reported in December 2022. Firms expect significantly lower cost increases in the year ahead, with an average of 3.6 percent expected for manufacturers. As for selling prices, over the past twelve months, manufacturers reported an average increase of 3.2 percent, again well below December 2022’s parallel figure 9.5 percent. As with costs, significantly lower price increases are expected in the year ahead, to the tune of 2.8 percent for manufacturers, on average.

Firms were also asked about past and expected future wage increases, excluding benefits. Manufacturers reported an average increase of 5.3 percent, below the 6.4 percent reported a year ago. Over the next twelve months, wages are expected to continue to moderate, with increases expected to average 3.8 percent. Finally, regional business executives were asked what they expect the inflation rate will be over the next twelve months, as measured by the consumer price index, as well as their expectation three and five years ahead. Among manufacturers, the inflation rate is expected to edge down to 3.4 percent in three years and then move up to 3.8 percent in five years.

Read more at the NY Fed

Fed Minutes Show Unease Over Premature Cuts

More Federal Reserve officials signaled concern at their meeting last month with cutting interest rates too soon and allowing price pressures to grow entrenched as opposed to the risks of holding rates too high for too long. At a news conference after last month’s meeting, Fed Chair Jerome Powell volunteered that officials weren’t likely to consider cutting rates at their next meeting, March 19-20.

“Most participants noted the risks of moving too quickly to ease the stance of policy,” said the minutes of the Jan. 30-31 meeting, released Wednesday with a customary three-week delay. Only two officials pointed to the risks “associated with maintaining an overly restrictive stance for too long.” One month ago, investors thought the Fed was likely to cut rates at its March meeting, but they increasingly see the central bank waiting until June.

Read more at The WSJ

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Policy and Politics

2017 Trump Tax Cuts on the Line in 2024 Election

The 2017 Trump tax cuts are on the line in the election this year, with Republicans hoping a sweep of Congress and the White House will allow them to extend the former president’s signature law. Democrats opposed the law when Trump was in power but have supported extending certain cuts, such as the decreased tax rates for people making less than $400,000 a year. Democrats do not want a blanket extension, which they say would cost the government nearly $4 trillion over the next decade.

President Biden has supported raising the corporate tax rate up to 28 percent from the current level of 21 percent. A sweep of the White House and Congress would put either party in a better position to accomplish its aims through tackling the cuts with a budget reconciliation measure, a way of getting around the Senate’s 60-vote filibuster. Republicans, who hold the House and face a favorable Senate map, likely have the best odds at such an outcome, particularly with polls showing Trump with an edge on Biden. A divided government will likely still deal with the expiring tax cuts, as opposed to having the tax code revert back to its 2017 levels, though what would happen in a situation of political gridlock is a bigger question mark.

Read more at The Hill

Biden Administration Cancels Another $1.2 Billion In Student Debt

Another 153,000 student loan borrowers will have their debts forgiven, totaling $1.2 billion in relief, the Biden administration announced Wednesday, the first round of student loan forgiveness under a new program designed to help borrowers facing financial hardship. Borrowers enrolled in the Saving on a Valuable Education (SAVE) plan will be notified this week whether they are among those affected by the debt cancellation, which will impact borrowers who have been making payments for at least 10 years after taking out $12,000 or less in student loans, the White House said.

Borrowers enrolled in the Saving on a Valuable Education (SAVE) plan will be notified this week whether they are among those affected by the debt cancellation, which will impact borrowers who have been making payments for at least 10 years after taking out $12,000 or less in student loans, the White House said.

Read more at the Siena College Research Institute

U.S. to Invest Billions to Replace China-Made Cranes at Nation’s Ports

The Biden administration plans to invest billions in the domestic manufacturing of cargo cranes, seeking to counter fears that the use of China-built cranes with advanced software at many U.S. ports poses a potential national security risk. The move is part of a set of actions being taken by the administration on Wednesday that is intended to improve maritime cybersecurity. They include a U.S. Coast Guard directive to mandate certain digital security requirements for deployed foreign-built cranes at strategic seaports, as well as an executive order by President Biden setting baseline cybersecurity standards for computer networks that operate U.S. ports.

Administration officials said more than $20 billion would be invested in port security, including domestic cargo crane production, over the next five years. The money, tapped from the $1 trillion bipartisan infrastructure bill passed in 2021, would support a U.S. subsidiary of Mitsui, a Japanese company, to produce the cranes, which officials said would be the first time in 30 years they would be built domestically.

Read more at the WSJ

Health and Wellness

How and Why to Prioritize Mental Health in the Workplace – Five Charts

The workplace isn’t typically thought about as a place to talk about mental health. In fact, the data also shows that workers are far more willing to talk about mental health with friends and family over managers and executives. But if you’re looking to create a workforce that’s less burnt out, more productive, and less willing to consider quitting, combatting the stigma behind talking about mental health in the workforce goes a long way.  According to a new NAMI/Ipsos poll, workers are open to it – and doing so may help create a workforce that’s less burnt out and more productive.

Below are five charts on why talking about mental health is so hard, why it’s worth paying attention to worker mental health, and what companies can do to make workers feel heard.

Read more at Ipsos

Election 2024


Industry News

Nvidia Delivers Another ‘Beat-And-Raise’ Quarter Fueled By AI Chips

Artificial-intelligence chip leader Nvidia late Wednesday beat Wall Street's targets for its fiscal fourth quarter and guided higher than views for the current period. The Santa Clara, Calif.-based company earned an adjusted $5.16 a share on sales of $22.1 billion in the quarter ended Jan. 28. Analysts polled by FactSet had expected earnings of $4.59 a share on sales of $20.4 billion. On a year-over-year basis, Nvidia earnings rocketed 486% while sales surged 265%. The company's data center sales jumped 409% to $18.4 billion as enterprises snapped up graphics processors to run AI applications.

For the current quarter, Nvidia expects to generate sales of $24 billion, vs. analysts consensus expectation for $22.2 billion. In the year-earlier quarter, Nvidia posted sales of $7.19 billion. Nvidia is seeing demand not just from large cloud-service providers, but enterprise software and consumer internet companies, Chief Executive Jensen Huang said in a news release. "Vertical industries — led by auto, financial services and healthcare — are now at a multibillion-dollar level," Huang said

Read more at Investor’s Business Daily

U.S. and U.K. Disrupt LockBit Ransomware Variant

The Department of Justice joined the United Kingdom and international law enforcement partners in London today to announce the disruption of the LockBit ransomware group, one of the most active ransomware groups in the world that has targeted over 2,000 victims, received more than $120 million in ransom payments, and made ransom demands totaling hundreds of millions of dollars.The U.K. National Crime Agency’s (NCA) Cyber Division, working in cooperation with the Justice Department, Federal Bureau of Investigation (FBI), and other international law enforcement partners disrupted LockBit’s operations by seizing numerous public-facing websites used by LockBit to connect to the organization’s infrastructure and seizing control of servers used by LockBit administrators.

The Justice Department also unsealed an indictment obtained in the District of New Jersey charging Russian nationals Artur Sungatov and Ivan Kondratyev, also known as Bassterlord, with deploying LockBit against numerous victims throughout the United States, including businesses nationwide in the manufacturing and other industries,as well as victims around the world in the semiconductor and other industries.

Read more at the Justice Department

Did the US Really Import More Goods from Mexico than China? Doubtful.

In 2023, Mexico overtook China as the No. 1 source of goods imported to the United States for the first time in over two decades, according to data from the U.S. Commerce Department. The value of imports from Mexico rose almost 5%, to more than $475 billion, from 2022 to 2023. At the same time, the value of Chinese imports plummeted 20%, to $427 billion. This significant shift in trade flows is a good trend for the U.S., but are we seeing the whole picture?

Are Mexican exports to the U.S. actually greater than Chinese exports? Probably not, when measured in units or tons. Mexican exports are 11% higher measured in dollars. That percentage needs to be adjusted for relative pricing to compare exports in real terms. In 2022, Mexico had a trade deficit of $108 billion with China, inevitably driven by Chinese prices mostly being lower than Mexican prices. Mexico’s trade deficit with China was 6% of Mexico’s GDP.

Read more at IndustryWeek

Mortgage Rates Climb Above 7% As Inflation Remains Stubbornly High

Mortgage rates are back above 7% for the first time this year, according to a survey released Wednesday, unwelcome news for homebuyers as more stubborn than hoped-for inflation keeps borrowing costs at historically high levels. The average 30-year fixed mortgage rate was 7.06% last week, according to the Mortgage Bankers Association, up 19 basis points from the week prior and hitting the highest level since early December.

The group’s chief economist Mike Fratantoni said in a statement the upward trend came as government data revealed higher-than-expected inflation resulted in “dimming hopes” for a near-term cut to the federal funds rate by the Federal Reserve, which would correspondingly push mortgage rates lower. As mortgage rates ticked higher, demand among homebuyers moved lower, as the Mortgage Bankers Association reported a seasonally adjusted week-over-week decline of 10.6% in total mortgage application volume. Prospective homebuyers are “quite sensitive” to the ever-volatile interest rates, added Fratantoni, as higher interest payments alongside still-high home prices result in “strained” affordability.

Read more at Forbes

Cutting Tool Consumption Rose in 2023

Machine shops and other U.S. manufacturers purchased $187.9 million worth of cutting tools during December, -7.3% less than in November and virtually unchanged from the December 2022 total. However, the new total pushed cutting-tool purchases to $2.45 billion for the full 12 months of 2023, which was 6.9% more than the full-year total for 2022. Cutting-tool consumption is an indicator of overall manufacturing activity because those purchases reflect production across a range of manufacturing market segments served by machining operations.

“With 2024 comes change and challenge,” observed Steve Boyer, president of USCTI. “The U.S. cutting-tool industry will continue to see growth opportunities in aerospace, automotive, medical, and computer- related segments but slowing and declines in other markets. “While forecasts initially anticipated interest rate declines as we moved into 2024, recent inflation indicators appear to temper those expectations,” Boyer continued. “We enter the new year with a guarded view anticipating continued challenges and uneven growth.”

Read more at American Machinist

Stellantis CEO Wants to Beat the Chinese Automakers at Their Own Game

The Chinese automakers are coming and the best way to handle that is not trade barriers, but the ability to compete with quality electric vehicles that are cost competitive, says Stellantis CEO Carlos Tavares. China's BYD and other regional automakers are producing EVs for 30 percent less than Western automakers, Tavares said in a media roundtable. "The Chinese are the major threat right now." They are already shaking up the European market and as a global company, Stellantis knows it must face them in markets around the world.

That includes North America, where Chinese companies are setting up shop in Mexico with the local content necessary to import vehicles to the U.S. under the USMCA (U.S.-Mexico-Canada) trade agreement. Mexico welcomes the investment and the jobs and is not about to turn away foreign companies. Tavares, who is headed to Washington, is not asking for trade barriers, nor does he think they are the answer. He wants to compete the good old-fashioned way: with good products that are affordable because of prudence in spending.

Read more at Motortrend

Why Walmart is Buying Vizio

Walmart announced Tuesday that it’s buying TV maker Vizio for $2.3 billion to shore up its advertising business and create a more potent rival to Amazon’s booming ad business. Walmart currently sells ads at physical stores and its website. By acquiring Vizio, Walmart can now sell ads through streaming services on television. The acquisition could make Walmart a bigger presence in the TV streaming wars, especially if Walmart acquires a streaming service, Lipsman said.

Roku, a streaming competitor, last week noted that television advertisers are increasing the amount they spend on streaming ads as customers continue to cut the cable cord. Roku and Amazon sell advertising space on their various streaming channels and home screens, and they sell licensing arrangements for companies to put their brand on certain shows. They also sell space to apps and media channels to advertise their movies and shows on customers’ screens. Walmart believes it can add revenue by offering brands the opportunity to advertise on Vizio televisions.

Read more at CNN

Teamsters Union Strikes Molson Coors as it Prepares to Walk Out at Anheuser-Busch Next Week

More than 400 Teamsters are on strike at the Molson Coors brewery in Fort Worth, Texas, impacting production for North America’s second largest brewer. The work stoppage, which began Saturday, comes ahead of a March 1 strike deadline that the Teamsters have set for 5,000 members at Anheuser-Busch, the nation’s largest brewer. In its most recent statement on the state of those talks the union said a strike at Anheuser-Busch “appears unavoidable.”

The union claims the company’s offer was “insulting” considering how well it is doing financially, offering less than a $1 per hour wage increase for the majority of Teamsters members. “As long as the profits keep flowing to the top, Molson Coors doesn’t give a damn if the workers inside its breweries can afford to take care of their families,” said Teamsters President Sean O’Brien. Molson Coors said about 30% of its North American work force is unionized, but much of that is the workers at three Canadian breweries. In addition to those three facilities, it operates six US breweries, including Fort Worth. The company said it has excess capacity at its other five US breweries, and that it built up inventory of its product ahead of the possible strike.

Read more at CNN

Subaru Plants in Japan Still idle a Week After Worker's Death

Subaru has reportedly halted production at all three of its Japanese factories, after a long-time employee was crushed to death at its Yajima factory. Automotive News reports the 60-year-old man – who had worked for Subaru for 35 years – was operating a crane via remote control to move 25-tonne molds in the factory on February 13. One of the molds reportedly collapsed, trapping the worker and causing death via asphyxiation.

Following the incident, Subaru paused production at the Yajima factory where the death occurred, temporarily halting production of Australian-bound models such as the Forester, Crosstrek, Outback, and Impreza. While the incident was isolated to one factory, Subaru also reportedly paused production at its main plant in Gunma – which builds the BRZ, WRX (sedan and Sportswagon), Crosstrek, and Impreza – as well as an engine and transmission facility in Oizumi. It’s not yet known whether the production pause has since been lifted or if it’s ongoing.

Read more at Car Expert

Michigan Repeals Right-to-Work Law After 2023 Vote

Michigan became the first state in 58 years to repeal its 2012 “Right-to-Work” law last Tuesday, February 12. The policy allowed union-represented employees to opt out of paying union dues. Governor Whitmer, a Democrat, signed the bill repealing right-to-work on a party-line vote against staunch Republican opposition. Michigan’s right-to-work law was originally passed on opposite party lines in 2012.

Proponents of the original right-to-work policy say it decreased costs of operations for Michigan manufacturers and made Michigan competitive with neighboring states with similar laws; opponents of the policy say it intentionally depressed manufacturing wages and discouraged union membership. In a statement Friday, February 16, Whitmer said the move would “restore workers’ rights, protect Michiganders on the job, and grow Michigan’s middle class.” The Detroit Regional Chamber, which names area UAW-represented automakers Ford, General Motors, and Stellantis among its “elite” members, said repealing right-to-work would make Michigan a less attractive target for international investment.

Read more at IndustryWeek

Don’t Build That E-Commerce Warehouse in My Backyard, More Communities Say

Warehouse developers are increasingly contending with a headache that is all too familiar to residential builders: not-in-my-backyard community opposition to their projects. More local governments are restricting or even banning new logistics hubs that have mushroomed throughout the country to meet the needs of online retailers. After years of national employment growth, many elected officials aren’t as enthusiastic as they used to be for the jobs these facilities created. Instead, they are much more attuned to resident complaints over increased traffic, noise, pollution and demands on local infrastructure from the large trucks rumbling through their towns to get to and from these warehouses.

Local resistance is also quashing hopes that industrial conversion projects will help find uses for aging corporate campuses and empty suburban office parks. The U.S. suburban office vacancy rate has jumped to 11.1% from 8.7% in the first quarter of 2020, while available sublease space more than doubled to 74.4 million square feet from 33.9 million, according to CoStar Group.

Read more at The WSJ