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Member Briefing February 8, 2024

February 8, 2024

Posted By: Harold King in Daily Briefing,

Top Story

Trade Deficit Widens in December but Narrows for the Year

The U.S. trade balance declined to -$62.2 billion in December. That was roughly in line with expectations, but it suggests a modest widening in the deficit to end last year rather than the anticipated narrowing which would have taken place if it were not for upward revisions to November data. Exports rose by nearly $4 billion during December, which was a touch slower than the $4.2 billion gain in imports. Trade in industrial supplies was a large source of flows in December, accounting for most of the export growth and a decent chunk of imports. Consumer goods imports were also solid amid an array of products, consistent with the strong end to last year for domestic demand.

The improved trade balance was due to both a shrinking goods deficit and a growing services surplus. Goods trade was lower for the year, but imports pulled back about 4 times more than exports did, causing the goods deficit to shrink a whopping $121.3 billion. In terms of services, faster exports allowed the surplus to expand by $56.4 billion in 2023. The services surplus rose to $26.9 billion in December, reaching an all-time high.

Read more at Wells Fargo

Global Headlines

Middle East

Ukraine

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Policy and Politics

Senate to Vote on Plan B: Ukraine Funding Without Border Security

Senate Majority Leader Chuck Schumer (D-N.Y.) plans to strip the bipartisan border security deal from the emergency defense spending bill and bring a package funding the war in Ukraine, Israel, the Indo-Pacific region and humanitarian assistance to Ukraine and Gaza to the Senate floor Wednesday. Senators expect the legislation to pass without the border security reforms that were unveiled Sunday and resoundingly rejected by most Senate Republicans.

“Schumer has told Senate Dems he is planning to put the negotiated supplemental on the floor without the border security piece after the expected failed cloture vote Wednesday,” a Senate Democratic aide said. The motion to reconsider would allow Schumer to immediately require senators to vote a second time on a legislative vehicle to move funding for Ukraine, Israel and the Indo-Pacific. The first time senators will vote on ending debate to move to the legislative vehicle, it will be with the understanding that the Ukraine funding package would include border security reforms.

Read more at The Hill

NAM: March-In Proposal Undermines IP Rights, Hurts Manufacturers

A proposal put forth in December by the Biden administration would allow the government to seize private-sector patents for products it considers too costly. “Undermining manufacturers’ [intellectual property] rights would have sweeping ramifications for innovation in the United States and America’s world-leading innovation economy,” the NAM told the Biden administration. “In particular, start-ups and small businesses would bear the brunt of the drastic changes. Government march-in would disincentivize early-stage entrepreneurship and dissuade much-needed capital formation from outside investors.”

The Bayh-Dole Act, passed in 1980, allows recipients of federal research dollars to license groundbreaking technologies to private-sector companies to commercialize them. Bayh-Dole includes a narrow “march-in” provision that allows the government to step in to ensure consumer access to certain products during times of crisis—but march-in “has never previously been used during the 44 years since the law’s enactment,” the NAM said. Allowing march-in based on the price of a product or technology “would hinder industry collaborations with research universities and laboratories across the country, stymieing manufacturers’ efforts to develop the products and technologies of the future and bring them to the public.”

Read more and NAM

Tariffs Haven’t Reduced U.S. Trade Links With China Much. Would a 60% Rate Do It?

The U.S. trade deficit with China is on track to fall to its lowest in a decade. Fundamentally, the shrinking trade deficit overstates how much the U.S. has reduced its consumption of Chinese-made products. As the trade war heated up, many manufacturers began moving production to other countries to avoid U.S. tariffs. So the U.S. trade deficit with Mexico leapt to $151 billion in the 12 months through November, more than double the 2017 figure. The deficit with Vietnam ran at $104 billion, almost triple the level of 2017.

“2024 will be the year of overcapacity, and pressure on exporters in China will be sky-high,” said Joerg Wuttke, president emeritus of the European Union Chamber of Commerce in China. “In wind turbines, solar panels, everyone is losing money. In cars, one company makes money, the other 100 lose money.” So, if tariffs of 25% barely reduced the U.S.’s dependence on China, would 60% do more? Probably. Khandelwal ran the numbers for a 35% tariff. He estimates a much larger effect on imports and resulting cost, equal to 0.8% of GDP.

Read more at WSJ

Health and Wellness

Rampant COVID Poses New Challenges in the Fifth Year of the Pandemic

Worldwide, there were more than 11,000 reported deaths from COVID between mid-December 2023 and mid-January 2024, and more than half of those deaths occurred in the U.S. In that same time frame, nearly one million cases were reported to the World Health Organization globally (although reduced testing and reporting means this is likely a vast undercount). In particular, epidemiologists are monitoring the newest variant of SARS-CoV-2, JN.1, and looking for any signs that it may be more severe than previous strains.

Although the WHO declared an end to the COVID public health emergency in May 2023, the organization has emphasized that the pandemic isn’t over—it’s just entered an endemic phase, which means that the virus will continue to circulate indefinitely. Throughout the past four years, Maria Van Kerkhove, now interim director of the WHO’s Department of Epidemic and Pandemic Preparedness and Prevention, has helped lead the agency’s response to COVID. Scientific American spoke with Van Kerkhove about entering the fifth year of a pandemic that many want to ignore despite its permanent impact on lives around the world.

Read more at Scientific American

Election 2024

Industry News

UKG: An Estimated 16.1 Million U.S. Employees to Miss Work Super Bowl Monday, Millions More Plan to Show Up Late

An estimated 16.1 million U.S. employees plan to miss work the Monday after Super Bowl LVIII, including over 6 million U.S. employees who will risk a workplace penalty for faking sick or “ghosting” work altogether and not showing up. That’s according to new research conducted online by The Harris Poll on behalf of the UKG Workforce Institute, which has tracked absenteeism surrounding the big game for nearly two decades. Cases of the so-called “Super Bowl Flu” emerge annually across America, with an estimated 14.5 million employed adults in the U.S. admitting they’ve called in sick to work when they weren’t actually sick on the Monday after the Super Bowl — including over 1 in 10 people managers (11%).

The good news? The number of anticipated Super Bowl Monday absences for 2024 is down slightly from last year, when 18.8 million employees said they planned to miss work. Another positive development for 2024 is about 10 million3 U.S. employees have already requested the day off, which helps their managers and companies better prepare for the game-related absences. UKG experts caution against any excessive celebrations, though. Despite the lower absentee numbers, about 6.4 million4 U.S. employees also plan to go into work late, another 11.2 million5 employees say they’re “not sure” whether they’ll miss work, and an additional 6.4 million6 employees will decide at the last minute what to do.

Read more at Businesswire

UAW Says Majority of VW Chattanooga Employees Have Signed Union Cards

The United Auto Workers said on Tuesday that a majority of workers at Volkswagen’s Chattanooga Tennessee, assembly plant have signed cards to join the union. In November, the UAW said it was launching a first-of-its-kind push to publicly organize the entire nonunion auto sector in the U.S. after winning record new contracts with the Detroit Three automakers. VW, which says about 4,100 workers at the plant that produces the Atlas and ID.4 are eligible to join a union, said the company respects "our workers' right to decide the question of union representation. And we remain committed to providing accurate information that helps inform them of their rights and choices."

With a majority of workers signing cards the UAW can ask the company to recognize the union. The Company can instead request a full vote of eligible workers. Two attempts to organize VW's plant in Chattanooga narrowly failed. In 2019, VW workers at the plant rejected union representation in an 833-776 vote.

Read more at The Chattanooga Times

Ford Tops Fourth-Quarter Estimates, Guides Toward Strong 2024

Ford Motor beat Wall Street’s top- and bottom-line expectations for the fourth quarter while forecasting better-than-expected results for 2024. The company’s full-year forecast calls for adjusted earnings before interest and taxes, or EBIT, of between $10 billion and $12 billion, adjusted free cash flow of $6 billion to $7 billion and capital spending of $8 billion to $9.5 billion. The automaker also announced a special dividend of 18 cents per share in addition to a first-quarter regular dividend of 15 cents per share.

Earnings were 29 cents per share adjusted vs. 14 cents per share adjusted, expected. Automotive revenue was $43.2 billion vs. $40.12 billion expected. For the fourth quarter, Ford reported a net loss of $526 million, or 13 cents per share, compared to a profit of $1.29 billion, or 32 cents per share, during the same period a year earlier. Adjusting for one-time items, the company reported earnings per share of 29 cents. Overall revenue during the period increased about 4% to $46 billion, up from about $44 billion a year earlier. Adjusted EBIT declined 59% to $1.05 billion from the year-ago period.

Read more at CNBC

Ford Profit Sharing: Here's How Much UAW Members Will Get For 2023

Ford Motor Co. said Tuesday it will pay profit-sharing bonuses on average of $10,400 to hourly autoworkers in the United States for 2023. The payout is a reflection of a new profit-sharing formula negotiated last year during contract talks with the United Auto Workers. Since the Dearborn automaker no longer reports financial results for North America, a new formula calculates the payout based on the company's global earnings figures, including Ford Credit. Ford recorded an adjusted operating income of $10.4 billion in 2023, which was flat year-over-year.

For 2022, Ford workers could receive up to $9,176 in profit sharing. Under the formula used for that, workers received $1,000 for every $1 billion that Ford made in adjusted operating earnings in North America. Last week, crosstown rival General Motors Co. said it would pay its 45,000 eligible hourly workers $12,250 in profit sharing, down from last year's record $12,750.

Read more at The Detroit News

Warehouse Robot Market to Increase 25% by 2030

Both the increased accessibility and maturing warehouse automation market is allowing companies, regardless of size, to adopt a variety of technologies. According to ABI Research, the global installed base of autonomous mobile robots (AMRs) in warehouses will surpass 500,000 by 2030. The report notes that after their year in the spotlight with high-profile deployments at large organizations, AMRs from companies like Locus Robotics and InVia Robotics will seep further into the industry and be adopted by more small-medium enterprises.

Autonomous forklifts from companies like Balyo, OTTO Motors and Seegrid are expected to see growing investment with more vendors entering the market. “While automation is of key interest, companies should continue to invest heavily in augmenting their manual workers with digital devices and wearables to boost worker experience while introducing automation for basic movement tasks. The most efficient warehouses are those that focus on both areas,” concludes Ryan Wiggin, supply chain management and logistics industry analyst at ABI Research.

Read more at Material Handling & Logistics

Higher for Longer Rates Threaten Commercial Real Estate

The warnings have been coming since the Fed started its aggressive rate-hiking cycle two years ago, but worries are piling up about the health of commercial real estate properties and the bank loans that support them. According to the St. Louis Fed, two-thirds of CRE loans are held by community or regional banks, meaning if things go sour, the sector can fall under immense pressure. As a result, financial regulators are keeping a close eye on the industry, but as in the case of Silicon Valley Bank it may be hard to take "sufficient steps" in time despite many supervisory warnings.

There are those that are concerned about broader stability or systematic risks, especially if disruptions spread to financial markets and the real economy. Interest rates are also likely to remain high with the Fed taking a March cut off the table, while the long inversion of the yield curve isn't helpful for banks that borrow short to lend long. A full contagion and CRE crisis could see thousands of banks fail under a worst-case scenario, according to SA Investing Group Leader Avi Gilburt, who explores non–owner–occupied property loans, office building vacancies and default rates.

Read more at Seeking Alpha

Pentagon Developing New Sustainment Strategies for Great Power Competition

With the Defense Department pivoting from decades of counterinsurgency operations in permissive environments to a new era of great power competition, the department not only needs to develop new weapons and technologies, it needs to change rigid sustainment strategies, a senior official said. “Most of the strategies we have today are designed and were developed and were contracted for … an era without the thought of theater contested environments,” Christopher Lowman, assistant secretary of defense for sustainment, said at the National Defense Industrial Association’s National Logistics Forum Feb. 6.

Lowman said he is looking at the entire acquisition sustainment cycle, “so we're tackling this from the very beginning. From the concept of exploration through development, production and, of course, ultimately fielding to understand what changes in product support thinking do we have to employ now early on in our current and future acquisition programs to forestall the kind of challenges we have today with some of our legacy enduring platforms.” Intellectual property and proprietary data rights are cases where the pendulum has swung “a little bit too far left,” Lowman said. “And we have a challenge now with the flexibility needed to change our sustainment strategies to meet current national security environment challenges.”

Read more at National Defense

Engineers Behind Key Wind Turbine Tech Win 2024 Queen Elizabeth Prize for Engineering

Henrik Stiesdal from Denmark and Andrew Garrad from the UK were announced winners of the prestigious award yesterday evening (6 February) at the Science Museum in London. “Over the past four decades, Stiesdal and Garrad have made seminal engineering inputs that – from demonstration to full-scale implementation – have resulted in a phenomenal increase in the size of individual wind turbines and the scale of the wind farms in which they are sited, as well as in their engineering and economic performance,” the announcement for the annual prize said.

Stiesdal is credited with designing the three-blade turbine in 1978, sometimes described as the ‘Danish concept’. “Leading notable developments in proprietary blade manufacturing technology throughout the ‘90s, Stiesdal’s elegant innovation that operates upwind of the tower and allows twisting of the blades about their own axis (pitch control) has significantly enhanced scale and efficiency of modern turbines,” the announcement added. The Bladed computational design tool, pioneered by Andrew Garrad, allows engineers to model a complicated turbine system in its entirety and to predict its behaviour with the confidence needed to permit manufacture of the huge machines. The tool been used all over the world.

Read more at The Institution of Mechanical Engineering

FAA says 94% of Boeing 737 MAX 9 Planes Inspected, Back in Service

The U.S. Federal Aviation Administration (FAA) on Monday said two U.S. airlines have inspected and returned to service nearly 94% of Boeing, opens new tab 737 MAX 9 planes following a mid-air emergency last month. The FAA lifted its grounding of MAX 9 airplanes on Jan. 24 after it halted flights following the cabin panel blowout on an Alaska Airlines, opens new tab jet on Jan. 5. The FAA said 78 of 79 United Airlines, opens new tab MAX 9 planes have been inspected and returned to service and 57 of 65 Alaska MAX 9 planes.

The FAA required inspections include close review of specific bolts, guide tracks and fittings and detailed visual inspections of door plugs and dozens of associated components. The National Transportation Safety Board is investigating whether the bolts were missing on the plane that suffered the cabin panel blowout. Deputy FAA Associate Administrator for Aviation Safety Jodi Baker told reporters Monday the FAA was reimagining its oversight of Boeing. At Boeing's Renton 737 factory the FAA is "doing a nose to tail, wingtip to wingtip inspection. And as we get findings out of that inspection, we anticipate that will drive our reimagined oversight," she added.

Read more at Reuters

Large Number of Employees Exposed to Workplace Violence

Workplace violence continues to be a concern, as demonstrated by the conclusion of a new study from Traliant, "Fear Factors: A 2024 Employee Survey Report on Workplace Violence, Harassment and Mental Health". The survey found almost 1 in 4 respondents have witnessed workplace violence happening to another employee in the last five years and 12% have been the target of workplace violence themselves. The report examines key areas employers can better protect their business and how they need to address the realities of employee safety and well-being. Key findings include:

Knowledge and preparedness are the best assets to overcome safety concerns. While the majority (70%) of respondents have received training on workplace violence, this leaves nearly a third of employees who have not received training.

Employees need safe channels for reporting their concerns. Only 44% of workers strongly agree that their employers promote a speak-up culture, where employees can report misconduct without fear of retaliation.

Employees need to trust their employers have their back when it comes to mental health. A strong majority (86%) of those surveyed either strongly or somewhat agree employers need to do more to address the mental health needs of employees in the workplace.

Read more at Material Handling & Logistics

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