Member Briefing January 15, 2024
Top Story
DoD’s First Industrial Strategy Seeks to Bolster Weapons Production ‘Speed and Scale’
With a central focus on the growing threat from China’s emergence as a “global industrial powerhouse,” the Defense Department’s “first of its kind” National Defense Industrial Strategy (NDIS) is focused on increasing the ability of domestic companies to more rapidly produce weapon systems in greater quantities to ensure the US military’s edge in any future conflict. The 55-page document makes clear that efforts to bolster the US defense industrial base are needed immediately.
The overarching goal, the document says, is to “make the industrial ecosystem dynamic, responsive, state-of-the-art, resilient, and a deterrent to our adversaries.” To that end, the NDIS lays out four priorities “to serve as guiding beacons for industrial action and resource prioritization in support of the development of a modern industrial ecosystem that supports the nation’s defense.” These are: Resilient Supply Chains, Workforce Readiness, Flexible Acquisition, Economic Deterrence.
Consumer Inflation Edges Up…
The consumer price index increased 0.3% for the month, higher than the 0.2% estimate at a time when most economists and policymakers see inflationary pressures easing. On a 12-month basis, the CPI closed 2023 up 3.4%. Economists surveyed by Dow Jones had been looking for a year-over-year reading of 3.2%. Excluding volatile food and energy prices, the so-called core CPI also rose 0.3% for the month and 3.9% from a year ago, compared with respective estimates of 0.3% and 3.8%. The year-over-year core reading was the lowest since May 2021.
Much of the increase came due to rising shelter costs. The category rose 0.5% for the month and accounted for more than half the core CPI increase. On annual basis, shelter costs increased 6.2%, or about two-thirds of the rise in inflation. Read more at CNBC
…But Wholesale Prices Slip Lower
The producer price index fell 0.1% for the month and ended 2023 up 1% from a year ago, the Labor Department reported Friday. The index had surged 6.4% in 2022. Excluding food and energy, core PPI was flat against the estimate for a 0.2% increase. Excluding food, energy and trade services, PPI also was up 0.2%, in line with the estimate. For the full year, the final demand measure less food, energy and trade services rose 2.5% for all of 2023 after being up 4.7% in 2022.
The PPI release comes a day after less encouraging news from the Labor Department, which reported Thursday that the prices consumers pay for goods and services rose 0.3% in December and were up 3.4% on the year. That was higher than Wall Street expectations and still a good deal away from the Fed’s 2% inflation target. However, PPI is generally considered a better leading index as it measures pipeline prices that companies get for intermediate goods and services. Read more at CNBC
Global Headlines
Gaza
- Israel and Hamas: The Latest News – The Guardian
- Fierce Fighting in Gaza as War Hits 100 Days - Reuters
- After 100 Days, Israel-Hamas War Threatens to Spill Beyond Gaza, Disrupt Global Trade - WSJ
- On Hamas, What Did Qatar Know and When did it Know it? - Politico
- South Africa Accuses Israel of Genocide at Top UN Court - CNN
- Israel Defends Itself at the UN’s Top Court Against Allegations of Genocide in Gaza - AP
- Thousands Protest in Israel Calling for Netanyahu to Resign - Yahoo
- Protesters Shut Down Port of Oakland, Call for Cease-Fire in Gaza – SF Chronicle
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
Ukraine
- Ukraine and Russia: The Latest News – The Guardian
- Top Diplomats Meet in Davos on Ukraine ‘Peace Formula’ - CNBC
- Danish Giant Hofnia Helps Russia Avoid Sanctions – Shipping Watch
- Russia Regains Upper Hand in Ukraine's East as Kyiv's Troops Struggle - NYT
- Gucci is Cheap and Eggs are Pricey in Russia’s Surreal Economy – 1843 Magazine
- French Foreign Minister Visits Kyiv and Pledges Solidarity as Russia Launches Attacks - AP
- 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
Other Headlines
- Defying China, Taiwan Elects William Lai Ching-te as President - NPR
- ‘Taiwan is China’s Taiwan’: Beijing Says Taiwan’s Ruling Party is Not Representative of Popular Opinion - CNBC
- Big Protests Break Out in Yemen After U.S.-British Attacks - Reuters
- Global Crude Oil Prices Jump After U.S. Launches Strikes Against Houthi – Forbes
- Trump’s Return ‘Clearly a Threat’ to Europe, Christine Lagarde Warns - Politico
- UK Economy at Risk of Recession Despite November Growth - Reuters
- China’s Xi Vows to Build ‘Bridges’ with Europe Despite Political Strains – Politico
- Xi Jinping Risks Setting Off Another Trade War – The Economist
Policy and Politics
Congressional Leaders Reach Deal to Avert Government Shutdown, Hurdles Remain
Congressional leaders have reached a deal to avert a government shutdown next week, landing on a two-step stopgap bill that will keep the lights on in Washington into March, according to three sources familiar with the proposal. Under the deal, the new government funding deadlines will be March 1 and March 7. The agreement comes ahead of Friday’s shutdown deadline, and a second deadline on Feb. 2.
The proposal — which the House and Senate must approve by Friday night to avoid a partial shutdown — will give the House and Senate more time to complete work on the 12 appropriations bills. Congressional leaders announced a deal on top-line spending numbers last weekend, but appropriators need more time to hash out particulars in each funding bill. The deal will likely require significant Democratic support to get over the finish line in the House.
OSHA Adjusts Civil Penalty Amounts for 2024
In 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act to advance the effectiveness of civil monetary penalties and to maintain their deterrent effect. Under the Act, agencies are required to publish “catch-up” rules that adjust the level of civil monetary penalties and make subsequent annual adjustments for inflation no later than January 15 of each year. This year, January 15 falls on a federal holiday. Therefore, new OSHA penalty amounts will become effective Jan. 16, 2024.
OSHA’s maximum penalties for serious and other-than-serious violations will increase from $15,625 per violation to $16,131 per violation. The maximum penalty for willful or repeated violations will increase from $156,259 per violation to $161,323 per violation. Visit the OSHA Penalties page and read the final rule for more information.
Visit the OSHA Penalties page
Health and Wellness
Highly Mutated COVID Variant ‘Pirola’ JN.1 is Spawning. Its Descendants are Climbing the Charts, as the Global Death Toll Mounts
Nearly 10,000 COVID deaths occurred globally in December, the World Health Organization said this week—this as highly mutated variant “Pirola” JN.1 offspring spawn and begin their upward ascents in the U.S. and elsewhere. The global wave occurs after holiday gatherings, as expected, and comes as JN.1 dominates worldwide, the organization’s director general, Tedros Adhanom Ghebreyesus, said at a Wednesday news conference in Geneva. Reported COVID hospitalizations increased by 42%, Ghebreyesus said, and ICU admissions by 62% in December, when compared to November.
The global trends mirror those in the U.S., where COVID deaths were up 12.5% week-over-week and hospitalizations were up more than 20% as of Dec. 30, according to the U.S. Centers for Disease Control and Prevention. In the U.S., too, JN.1 dominates, comprising an estimated 62% of cases as of Jan. 6, according to the latest CDC projections.
NYS COVID Update
The Governor updated COVID data for the week ending January 12th.
Deaths:
- Weekly: 145
- Total Reported to CDC: 81,850
Hospitalizations:
- Average Daily Patients in Hospital statewide: 3,058
- Percent Available ICU Beds: 17%
7 Day Average Cases per 100K population
- 29.0 positive cases per 100,00 population, Statewide
- 32.0 positive cases per 100,00 population, Mid-Hudson
Useful Websites:
Election 2024
Nikki Haley Gets Boost From Chris Christie Exit, but Odds Against Trump Still Steep - WSJ
Biden’s Approval Rating Drops to New Low: Poll – The Hill
Josh Riley Reports Hefty Fundraising Haul Against Marc Molinaro – City & State
What to Expect in the Iowa Caucuses - AP
Real Clear Politics Latest GOP Primary Polls – Real Clear Politics
Real Clear Politics Latest General Election Polls – Real Clear Politics
Latest Polls - FiveThirtyEight
Industry News
Machine Tool Demand Dips Again
U.S. manufacturers’ new orders for machine tools continued to fade further during November, down -2.0% from October to $399.8 million, a total that is -10.3% lower than the year-ago result. Despite some positive indicators within the overall result, as noted by AMT – the Assn. for Manufacturing Technology in its latest U.S. Manufacturing Technology Orders report, the eleven-month total for new orders comes in at $4.45 billion, which is -13.3% lower than the January-November total for 2022.
The largest segment of the market for machine tools is contract machine shops, and in November 2023 those customers’ new orders fell by almost -16% from October, according to AMT. The decline was nearly balanced by increases from other manufacturing sectors, AMT noted: investments by aerospace manufacturers rose 60% above the 2023 monthly average, it reported. Although the Southeast region showed a solid +37.7% year-over-year improvement in new orders, each of the six regions is trailing its 2022 year-to-date order volume through 11 months of activity.
Read more at American Machinist
DoD’s First Industrial Strategy Seeks to Bolster Weapons Production ‘Speed and Scale’
With a central focus on the growing threat from China’s emergence as a “global industrial powerhouse,” the Defense Department’s “first of its kind” National Defense Industrial Strategy (NDIS) is focused on increasing the ability of domestic companies to more rapidly produce weapon systems in greater quantities to ensure the US military’s edge in any future conflict. The 55-page document makes clear that efforts to bolster the US defense industrial base are needed immediately.
The overarching goal, the document says, is to “make the industrial ecosystem dynamic, responsive, state-of-the-art, resilient, and a deterrent to our adversaries.” To that end, the NDIS lays out four priorities “to serve as guiding beacons for industrial action and resource prioritization in support of the development of a modern industrial ecosystem that supports the nation’s defense.” These are: Resilient Supply Chains, Workforce Readiness, Flexible Acquisition, Economic Deterrence.
Oil Prices Are Up. Coal Won’t Be So Lucky.
Even China’s voracious appetite for thermal coal hasn’t been able to arrest sliding prices of the dirtiest fossil fuel. Blame an influx of supply from Indonesia and Australia, and an uptick in coal mining globally. Despite widespread perceptions that the coal industry is under threat, output is actually hitting new records—at least outside the U.S. and EU. Prices of Newcastle thermal coal, the main Asian benchmark, have fallen about 13% over the past month. Overall, Newcastle coal prices are down 66% over the past year.
One main reason: Global coal production rose an estimated 1.8% in 2023 to reach a record high of 8.7 billion metric tons, according to the International Energy Agency. A stronger focus on energy security due to recent geopolitical tensions may be one reason. Over the 12 months ending in November, China’s thermal-coal imports increased substantially to 360.6 million metric tons. That was an impressive 58% increase from the corresponding period a year earlier, according to data from Veson Nautical, a shipping-data consulting firm. Domestic output rose 1.3% last year, according to IEA estimates.
Chesapeake, Southwestern to Merge as New Natural Gas Behemoth
Chesapeake Energy and Southwestern Energy agreed to merge in an all-stock transaction valued at $7.4 billion that would create one of the largest natural-gas producers in the U.S. The companies on Thursday said the value is based on Chesapeake’s closing price as of Wednesday. With a market capitalization of more than $17 billion, the combined company will aim to take advantage of a resurgent boom in natural gas. The U.S. is now the world’s largest exporter of liquefied natural gas.
The deal strengthens Chesapeake’s position in Louisiana and the Gulf Coast, where most refrigeration plants that then ship LNG around the world are based. It is also the latest major tie-up in the energy industry, as investors urge producers to scale up. In October, Exxon Mobil struck a $60 billion deal for Pioneer Natural Resources, followed by Chevron’s $53 billion deal for Hess. Occidental Petroleum in December said it would buy Permian producer CrownRock for nearly $11 billion. “This powerful combination redefines the natural gas producer, forming the first U.S. based independent that can truly compete on an international scale,” Chesapeake Chief Executive Nick Dell’Osso said.
EPA Finalizes Inactive PFAS Rule
The Environmental Protection Agency finalized a rule preventing companies from restarting the use of 329 per- and poly-fluoroalkyl substances (PFAS) without a complete EPA review. The final rule applies to all PFAS that are designated as “inactive” on the TSCA Inventory and which are not already subject to a SNUR. EPA has aligned the rule with reporting requirements for the Active-Inactive rule, which designated these “inactive” chemicals.
If a company wants to use any of these 329 chemicals, they are required to notify EPA first. The agency would then be required to conduct a robust review of health and safety information under the modernized 2016 law to determine if the new use may present unreasonable risk to human health or the environment and put any necessary restrictions in place before the use could restart. Any new uses of PFAS would be considered under EPA’s framework for evaluating new PFAS and new uses of PFAS, announced in June 2023.
Read more at Chemical Processing
Hertz to Sell 20,000 EVs in Shift Back to Gasoline-Powered Cars
Hertz Global Holdings Inc. plans to sell a third of its U.S. electric vehicle fleet and reinvest in gas-powered cars due to weak demand for the battery-powered options. The sales of 20,000 EVs began last month and will continue over the course of 2024, the rental giant said Thursday in a regulatory filing. Hertz expects to record a non-cash charge in its fourth-quarter results of $245 million related to incremental net depreciation expense. “The company expects to reinvest a portion of the proceeds from the sale of EVs into the purchase of internal combustion engine vehicles to meet customer demand,” Hertz said. “The company expects this action to better balance supply against expected demand of EVs.”
In October, Hertz Chief Executive Stephen Scherr said the company would scale back on EVs, which had made up 11 percent of its total fleet. Teslas represented 80% of that. He said EVs come with higher repair costs compared to the rest of its cars, which has hurt its bottom line. “EV’s will be slower than our prior expectations,” he said during the company’s third-quarter earnings call.
Airbus Reports Strong 2023 Aircraft Orders, Deliveries
Airbus drew 2,319 orders for new commercial aircraft during 2023, more than twice as many as it booked during 2022 and 14% more than the during its previous peak year of 2014. With demand for new aircraft rising due to high passenger volumes and fleet-modernization programs, following the market’s near collapse in orders due to the global Covid-19 pandemic, Airbus now has an order backlog totaling 8,598 aircraft across all four of its jet series.
More important to the OEM’s current finances were the 735 aircraft it delivered to 87 customers during the past year, +11.0% or 74 jets more than it delivered in 2022. “We originally anticipated aviation to recover sometime in the 2023-2025 timeframe, but what we saw in 2023 was, alongside the single-aisle market, widebody return much sooner than expected, and with vigor,“ commented CEO Christian Scherer.” Earlier last week, rival Boeing reported its Q4 deliveries totaled 157 jets, bringing its total 2023 deliveries to 428 commercial aircraft of all types.
Read more at American Machinist
Boeing Under Investigation For 737 Max 9
The Federal Aviation Administration announced Thursday it’s investigating whether Boeing failed to ensure its planes were safe for flying after a a “plug” door fell off a 737 Max 9 plane flying from Portland, Oregon. The FAA said it notified Boeing of the investigation, saying it was prompted by the Alaska Airlines 1282 flight, where a “plug” type passenger door blew off the Boeing Model 737 Max 9 plane mid-air, prompting an emergency landing.
In a statement Thursday, Boeing said it would cooperate “fully and transparently” in both the FAA investigation and an ongoing National Transportation Safety Board investigation. The National Transportation Safety Board is also conducting an investigation into the Alaska Airlines incident, and has since found the plane door, which landed in an Oregon school teacher’s backyard.
JetBlue Will Be The First Major U.S. Airline With A Female CEO
JetBlue announced Monday that Joanna Geraghty, the company’s president and COO, will succeed Robin Hayes as CEO. With her appointment, she breaks ground as the first female CEO of a leading U.S. airline. Although women’s rise to leadership has been slow within U.S. airlines, internationally, several carriers have women at the helm, including KLM, Air France, Aer Lingus, El Al, TAP Air Portugal, VietJet, Virgin Australia, and Austrian Airlines. Within the U.S., the smaller airline, Cape Air, is also headed by a woman.
Geraghty's tenure with the airline spans nearly two decades. In 2018, she was named president and COO, overseeing the airline’s operations and commercial performance. She holds a law degree and was a partner at Holland & Knight before her JetBlue career. Geraghty assumes leadership at a pivotal moment for JetBlue, as the airline anticipates a federal judge’s ruling on its proposed $3.8 billion acquisition of Spirit Airlines a move that would allow the airline to compete with the biggest U.S. airlines.