Member Briefing January 18, 2024
Industrial Production Edged Higher In December, but Down for Q4
A modest uptick in industrial production for December finishes the year on a somewhat brighter note, but after factoring in a miserable report in October, output contracted at an annualized rate of 3.1% for the fourth quarter as a whole. Factory output was up 0.1% in December, but the gain comes at the cost of a downward revision to November which puts the index level not meaningfully changed from where it had been last month (chart). This is more or less exactly what could be expected with the ISM manufacturing index down for 14 straight months and the production component of that index barely in expansion at 50.3 in December.
Manufacturing tied in any way to the soaring pace of construction associated with the CHIPS Act has generally been on the upswing. The opposite was evident in today's report with production of consumer goods up 0.2%, largely from increased production of durable consumer goods. Note that motor vehicle production was up 1.6% after the post-strike surge of 7.4% in November. The indexes for business equipment, construction supplies, and business supplies all registered slight declines in December.
NY Fed: Service Sector Activity Contracted Slightly in January
Business activity continued to decline, according to the January survey. The headline business activity index climbed five points, but held below zero at -9.7. Twenty-two percent of respondents reported that conditions improved over the month and 32 percent said that conditions worsened.
- The business climate index rose eight points to -30.3, suggesting that the business climate remains considerably worse than normal.
- The employment index fell five points to -6.5, its lowest reading in nearly three years, suggesting that employment levels shrank modestly.
- The wages index moved up sixteen points to 41.9, pointing to a pickup in wage increases.
- The prices paid and prices received indexes both held steady at 45.2 and 24.7, respectively, suggesting that the pace of price increases was little changed. The capital spending index remained weak at 4.5.
Looking ahead the index for future business activity climbed twelve points to 24.5, and the index for the future business climate climbed to a level just above zero, suggesting that firms were more optimistic about future conditions than last month, though optimism remained subdued. Employment is expected to grow in the months ahead.
Global Headlines
Gaza
- Israel and Hamas: The Latest News – The Guardian
- Israeli Hostages Will Get Medicine In Exchange For More Gaza Aid In New Israel-Hamas Deal - Forbes
- Israel’s War in Gaza Enters Its Most Perilous Phase Yet - WSJ
- Israel Accused of Targeting Civilians in Deadly West Bank Attack - BBC
- UN Chief Says Parties to Gaza War 'Trampling' on International Law - Reuters
- Blinken Says Pathway to Palestinian State Necessary for Israel’s Security
- Blinken Says US in Demand as he Mourns 'Gut-wrenching' Scenes in Gaza – Reuters
- 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
- Ukraine Says Downs Russian Drones Targeting Odesa Port – Reuters
- Top NATO Military Officer Urges Allies and Leaders to Plan for the Unexpected in Ukraine - AP
- Russia Hits Ukrainian Apartment Buildings in Latest Missile Strikes – The Hill
- Zelensky Calls for Seized Russian Billions to Rebuild Ukraine - BBC
- Russia Calls Ukraine Peace Meetings 'Pointless', Says Plan Can't Succeed – Reuters
- An Urgent New Push for Ukraine Aid - The Hill
- 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
- China’s Population Falls by 2.08 Million to 1.4097 Billion in 2023 as Births Tumble
- Chinese Lab Mapped Deadly Coronavirus Two Weeks Before Beijing Told the World, Documents Show - WSJ
- China Saw Nearly 700,000 More Deaths In 2023 After Zero-Covid Ended - Forbes
- Houthis to be Re-Designated as Terror Group by US- BBC
- Iran Admits Carrying Out Deadly Strike on Pakistan Territory - BBC
- Aramco CEO Predicts Tighter Oil Markets, Sees Red Sea Risks – Reuters
- New Global Cooperation Barometer: Cooperation Possible Is Even in Midst of Competition -World Economic Forum
- Gas Giant Shell Pulls Tankers from Red Sea Passage amid Houthi Rocket Attacks – National Review
- U.S. Searches for Missing Navy SEALs, Launches Fresh Strikes on Houthis - WSJ
Policy and Politics
Bill to Prevent Shutdown this Week Passes First Hurdle in Senate
The Senate on Tuesday took the first step toward passing a bill to keep the government funded into March, as leadership pushes for final passage in the days ahead to prevent a shutdown this weekend. The upper chamber voted 68-13 to invoke cloture on a motion to proceed to a vehicle for a two-step stopgap, also known as a continuing resolution (CR). The vote clears the first procedural hurdle for the stopgap measure, just days after both sides announced a deal to prevent shutdown over the weekend.
Under the deal, which was unveiled on Sunday, both sides agreed to extend funding for four of the 12 annual funding bills through March 1, while negotiators try to hash out new spending levels for fiscal 2024. That includes dollars for agencies like the Departments of Agriculture, the Food and Drug Administration, Energy, Transportation and Housing and Urban Development. Lawmakers would extend funding for the remaining eight bills through March 8 under the deal, however. Agencies funded by those bills include the Departments of Defense, Homeland Security, Labor, Health and Human Services, and Education.
Why Hochul’s Budget Won’t Be an Easy One
The $233 billion budget proposed by Gov. Kathy Hochul on Tuesday seeks to shore up the political fissures confronting her administration. It also rewards areas of New York that were vital for her when she won a full term in 2022 and boosts the needs of New York City Mayor Eric Adams — who she has worked well with publicly — for migrant-related support and his desire to retain control of the city’s public school system. But the budget negotiations will include plenty of friction for the governor and her fellow Democrats over the next three months
Ahead of the April 1 deadline for an on-time deal, she faces calls from progressive lawmakers and advocates to raise taxes on rich New Yorkers — which she said she won’t do. Suburbanites are fretting over her plan to reconfigure how school districts receive more than $35 billion in aid, a move that could create winners and losers. Often a governor’s budget proposal is a baseline, with lawmakers successfully winning some concessions for more aid to schools or spending for hospitals. The budget talks are also playing out against the backdrop of an election year: All 213 seats in the Legislature are up for election this year; Hochul is not seeking another term until 2026. That could give the governor more leverage.
Read more at Politico New York
‘Fisherman’s Blues’ Could Lead Supreme Court to Overturn Chevron Deference
On January 17, the Supreme Court heard oral argument in the combined cases Relentless v. Dept. of Commerce and Loper Bright Enterprises v. Raimondo. These cases could significantly weaken, or even potentially overturn Chevron deference, a legal doctrine that has been a cornerstone of US administrative law for four decades. Introduced in 1984, the doctrine directs courts to defer to reasonable interpretations, made by federal agencies, of statutes that are ambiguous or silent with respect to a specific issue.
Chevron‘s defenders argue that Congress lacks the time and expertise to craft meticulous legislation, and instead frequently passes laws giving agencies some leeway to adapt to unforeseen situations. But opponents of the 40-year-old doctrine say it defies the separation of powers in the Constitution, effectively neutering federal judges and allowing agencies to aggrandize themselves by becoming the judges of their own actions. The Biden administration has vigorously defended the doctrine, insisting that it actually respects the separation of powers.
Health and Wellness
Study Finds Vaccination Against COVID-19 Consistently Reduced the Risk of Long COVID Symptoms
In a recent study published in The Lancet Respiratory Medicine, researchers examine whether coronavirus disease 2019 (COVID-19) vaccines could prevent long COVID symptoms and compare the effectiveness of the Oxford AstraZeneca ChAdOx1 and Pfizer BioNTech BNT162b2 vaccines, which are the two most used COVID-19 vaccines in Europe. The current study included over 20 million vaccinated and unvaccinated individuals across three European countries and showed that vaccination against SARS-CoV-2 had a 29-52% effectiveness in reducing the risk of long COVID risk.
These findings were consistent across numerous sensitivity analyses and varying definitions of long COVID based on clinical diagnoses and differing symptom durations. The comparative analyses between the effectiveness of BNT162b2 and ChAdOx1 indicated that BNT162b2 was associated with slightly greater long COVID preventative effects than the adenoviral vector vaccine ChAdOx1. Other studies have reported similar results while comparing the efficacies of BNT162b2 and ChAdOx1 in preventing SARS-CoV-2 infection
Read more at News Medical Life Sciences
FDA Approves New CRISPR Gene-Editing Treatment
The Food and Drug Administration approved the use of Casgevy, a therapy from Vertex Pharmaceuticals and CRISPR Therapeutics that uses CRISPR gene-editing to treat the serious blood disorder transfusion-dependent beta thalassemia—marking the second major U.S. regulatory approval for the emerging gene-editing technology.
The FDA’s approval comes just one month after the regulator approved the use of Casgevy in treating sickle cell disease—the first time the CRISPR-based treatment received a regulatory green light in the U.S. Transfusion-dependent beta thalassemia is a serious genetic disorder that hinders the production of hemoglobin in the blood and requires regular blood transfusions for treatment. Casgevy uses the novel CRISPR gene-editing technology to modify patients’ blood cells and transplant the modified cells back into the bone marrow, triggering an increase in the production of hemoglobin, according to the FDA.
Election 2024
Trump Iowa Win Reinforces Grip on GOP - AP
In New Hampshire, Haley Finds Her Anti-Trump Audience- The Dispatch
Who’s Running in NY-17 in 2024? – City & State
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
Retail Sales Rose 0.6% in December, Topping Expectations
Retail sales increased 0.6% for the month, buoyed by a pickup in clothing and accessory stores as well as online nonstore businesses. The results were better than the 0.4% Dow Jones estimate. Excluding autos, sales rose 0.4%, which also topped the 0.2% estimate. The report comes amid speculation about how much strength the U.S. economy possessed heading into the new year, when growth is expected to slow. However, a resilient consumer could signal more momentum and possibly give the Federal Reserve some caution about how to proceed on interest rates. respectively.
On a year-over-year basis, retail sales ended 2023 up 5.6%. The numbers are not adjusted for inflation, so sales show that consumers are more than keeping up with an annual inflation rate of 3.4% as measured by the consumer price index. Another measure of retail sales strength that excludes sales from auto dealers, building materials stores, gas stations, office suppliers, mobile homes and tobacco stores rose 0.8% for the month. The Commerce Department uses this so-called control group when computing gross domestic product.
Companies are Returning to the Office — and Downsizing Too
Office vacancy rates reached an all-time high last year, according to a new report from Moody’s Analytics, and the firm projects the bleeding could continue through 2024. Because even as workers are finally returning to the office after all those starts and stops, there just aren't as many of them in one place at one time at many workplaces, making it hard for companies to justify the real estate expense.
While a trend toward smaller office footprints has been underway since the pandemic began, the commercial real estate market can be a slow ship to turn due to how long commercial leases typically run. A recent Robin survey of 500 businesses found three-quarters of them plan to shrink their offices this year after the return-to-office trend plateaued, according to a Stanford analysis of census data measuring days worked from home.
China’s Growth Slows to Three-Decade Low Excluding Pandemic
China’s economic growth rate finished at one of the lowest levels in decades last year, underscoring the heavy toll that a property-sector collapse and weak consumer confidence have taken on the world’s second-largest economy despite the lifting of all Covid-19 restrictions. Gross domestic product in China expanded 5.2% in the fourth quarter and for the full year in 2023, according to data released by the National Bureau of Statistics on Wednesday. The reading confirmed a number uttered by Premier Li Qiang a day earlier at the World Economic Forum in Davos, Switzerland—an unusual disclosure of a high-profile data point by a senior leader before its formal.
Maintaining growth at a similar pace this year may prove harder, given policymakers’ hesitance so far to launch any big-ticket stimulus packages. Forecasts for China’s growth rate this year among several global investment banks range from 4% to 4.9%. China is expected to announce any formal growth target at an annual legislative session set to take place in March.
Report Highlights Automakers' Economic Challenges
A report from Automotive World contends that automakers engaged in the switch to electrification are facing a growing number of challenges, including rising material costs and interest rates. The report calls on governments and stakeholders to collaborate on a clear e-mobility agenda that would stimulate innovation and sales while also helping to secure supply chains.
Instigated by the COVID-19 pandemic and the Russia-Ukraine war, the 2021/22 global inflation surge has presented the automaker industry with big challenges during its pivot to electrification. High material costs and interest rates mean that vehicles are more expensive to manufacture and purchase, placing a strain on customers during a cost-of-living crisis. To resolve the turbulence, governments and automotive stakeholders must set a clear e-mobility agenda to foster innovation, secure supply chains, and maintain sales growth.
Delta Orders $7B worth of Airbus Widebody Jets
Delta Air Lines has ordered 20 Airbus A350-1000 aircraft, the largest variant of the jetbuilder’s widebody series and capable of seating a maximum of 480 passengers, though fewer than that in a standard three-class arrangement. The aircraft is also amenable to offering multiple “premium cabins” in its business class, adding to the revenue potential for carriers like Delta.
The A350-1000 is a twin-engine aircraft with a range of 8,700 nautical miles (16,100 km / 10,000 miles), and a promise of lower fuel consumption and lower operating and maintenance costs than earlier-generation widebody jets. Like nearly all airlines Delta is implementing an extensive fleet modernization program, and a top official also noted the A350-1000 will help it pursue more international service. Delta will be the first U.S. airline to operate the A350-1000, although it has over 450 aircraft of Airbus’ other jet series, and operates more Airbus aircraft than any of the other U.S. carriers. (United Airlines has ordered 45 A350-900s, though those aircraft have not been delivered.)
Read more at American Machinist
Oil Prices Rise Amid Violent Attacks In Red Sea: Will Gas Prices Increase As A Result?
Oil prices have shot up in the first two weeks of 2024 as a series of missile and drone strikes in the Red Sea throw a curveball in the international oil market, though analysts are skeptical the rise in oil prices will translate into an increase drivers see at the pump. The West Texas Intermediate, a national benchmark for oil, has increased by more than 2.5% on the year to over $72 per barrel, while the international benchmark Brent Crude Futures has jumped nearly 1.5% on the year to roughly $77—though that price has dropped substantially from its peak just above $94 in September.
Domestic crude oil production over the same time remained at 13.25 million barrels per day, more than 1 million barrels per day higher than this point one year ago. Gasoline prices in the U.S., meanwhile, have also remained relatively low, while U.S. crude oil supplies have inched up—helping to offset rising oil prices on the international market—with crude oil inventories increasing by 1.3 million barrels to 432.4 million barrels in the week ending Jan. 5, according to data from the Energy Information Administration.
“March-In” Rights Would Harm Manufacturing, Economy
Last month, the Biden administration issued a proposal that would allow the government to take over privately held patents if those patents had been developed in part with federal research dollars. Undermining companies’ IP rights would roll back the progress made under the Bayh-Dole Act, which allowed for commercialization of federally funded research and “unlocked all the inventions and discoveries that had been made in laboratories throughout the United States with the help of taxpayers’ money,” according to a recent op-ed in The Hill.
“This radical new proposal is a major threat to manufacturers in America and counter to the president’s goals of growing the sector,” NAM President and CEO Jay Timmons said. “Empowering the government to march in and seize the rights to private-sector patents and technologies threatens American innovation and R&D, putting millions of well-paying manufacturing jobs at risk. Policymakers must protect manufacturers’ intellectual property rights and stop this government overreach.”
The 2024 Tax Bracket Changes and What They Mean
The 2024 tax season is upon us, with the national filing date set to start on January 29th. While tax rates remained unchanged, the IRS announced this year’s inflation-adjusted tax brackets in November. But what are these adjustments and what do they mean for our money?
The tax brackets are adjusted for inflation. And since we’ve seen inflation, they’re wider this year. And that means you can actually have more income before you reach a higher bracket and higher associated rate. So it just gives a little bit more room as people’s incomes hopefully go up with inflation, that they’re staying at that same tax rate, and they’re not getting bumped up into the next bracket.