Member Briefing January 26, 2023
Manufacturing Activity Continued to Slow in January
Manufacturing activity contracted for the third month in a row in January, though with a slightly higher index reading than last month, according to the S&P Global F lash U.S. Manufacturing PMI. The headline index improved from 46.2 in December to 46.8 in January, but “the rate of decline was the second-fastest since May 2020 as manufacturing demand conditions remained subdued,” according to S&P Global.
- New orders continued their downward slide, though with slower declines reported for output and exports.
- The index for future output strengthened, showing cautious optimism about production in the next six months.
- January data indicated a faster increase in cost burdens at private sector firms.
- Hikes in vendor prices, alongside higher wage bills, reportedly spurred the sharper rise in S&P Global Flash US PMI Composite Output Index costs.
- January data signaled a solid uptick in selling prices, but one that was the joint-slowest since October 2020.
- Efforts to remain competitive and offer concessions to customers dampened output price hikes.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine Forces Pull Back From Donbas Town After Onslaught - AP
- First U.N. Aid Convoy Reaches Sites Near Ukraine's Frontline - Reuters
- Satellite Images Hint at Scale of Russian Mercenary Group's Losses in Ukraine - NBC
- Will Ukraine Wind Up Making Territorial Concessions to Russia? – Foreign Affairs
- US Joins Germany in Sending Battle Tanks to Ukraine - BBC
- How Western Tanks Could Bolster Ukraine’s Fight Against Russia – The Hill
- Case Against Russia Over Downing of Malaysia Airlines Flight MH17 Can Go Ahead, Court Rules - Euronews
- Correcting the Record on Investment in and Assistance to Ukraine – National Review
- High-Ranking Russian Officials are Defecting. This Man is Aiding Them - CNN
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Euro Area Manufacturing PMI Falls at a Slower Pace
The S&P Global Eurozone Manufacturing PMI increased to 48.8 in January of 2023 from 47.8 in the previous month and above market expectations of 48.5, preliminary estimates showed. The latest reading pointed to the softest contraction in factory activity since August 2022.
- New orders decreased at the slowest rate since last May, albeit still declining sharply; and employment accelerated.
- Factories reported unchanged supplier delivery times for a second successive month, contrasting with the deteriorating supply picture seen over the prior three years.
- On the price front, input cost inflation fell to below its pre-pandemic average, down to its lowest since October 2020 while average prices charged edged higher.
- Finally, there was an improvement in optimism about the year ahead
In the Euro Area, the S&P Global Manufacturing Purchasing Managers' Index measures the performance of the manufacturing sector and is derived from a survey of 3,000 manufacturing firms.
Earnings from Companies in Europe Offer Market Optimists More Hope
Earnings from major European companies on Wednesday offered some reasons for optimism about the region's corporate health, even as investors worry about the slowing global economy. Fourth-quarter earnings from ASML Holding NV exceeded expectations and the Dutch technology company, Europe's largest, forecast a rise of more than 25% in 2023 sales despite possible new curbs on exports to China.
Expectations that the economy will make a soft landing in 2023 have grown as a result of China's reopening from three years of zero-COVID policies and the fact that Europe has managed to keep the lights on through the winter, helped by warmer weather and ramped-up energy capacity. IMF Managing Director Kristalina Georgieva said last week that the Fund's new 2023 global growth forecast, due soon, could be revised upwards slightly from a current 2.7% - a turnaround from the gloomy tone she had struck at the start of the year.
U.S. COVID – COVID Vaccines are Holding up Against Highly Contagious XBB Variant, CDC Finds
COVID-19 vaccines and boosters continue to hold up well against the latest viral variant, the Centers for Disease Control and Prevention said Wednesday. First seen in August, the omicron variant known as XBB and its subvariant XBB.1.5 have taken over in the U.S. this last month as the cause of more than half of COVID-19 infections. The booster is targeted at both the initial SARS-CoV-2 virus and the BA.4/BA.5 variants, but BA.5 and its subvariants account for just about 2% of cases right now and BA.4 and the original virus are essentially gone.
Officials had argued that a "bivalent" booster — addressing two forms of the virus instead of one — would be more protective than the original "monovalent" vaccine as the virus continues to evolve. The new study found that, despite the mismatch in variants, the booster remains protective against XBB.
Senior FDA Official Resigns Following Baby Formula Crisis, Turmoil in Agency
Frank Yiannas has resigned from his post as the Food and Drug Administration’s deputy commissioner for food policy and response, following the baby formula crisis and a series of internal breakdowns at the main agency tasked with overseeing food safety in the U.S. Yiannas confirmed the move to POLITICO on Wednesday, which was first reported by Food Fix. He’s held the position since December 2018.
Yiannas was among the senior FDA officials involved in the Biden administration’s hobbled response to the infant formula crisis. FDA officials were warned months before about food safety concerns at a key plant in Sturgis, Mich. operated by Abbott Nutrition. The plant issued a recall of some formula products, after reports that babies died after drinking formula from the facility and FDA inspectors finding strains of a bacteria that can be deadly to infants. Abbott has maintained that there is no link between the deaths and the formula at the plant.
McConnell Says McCarthy Should Take the Lead on Negotiating the Debt Ceiling Standoff
Senate Minority Leader Mitch McConnell, R-Ky., said crafting a solution to avoid a catastrophic debt default this summer should originate in the Republican-controlled House, with Speaker Kevin McCarthy taking point on negotiations with the White House. "I can't imagine any debt ceiling provision passed out of the Senate with 60 votes could actually pass this particular House," McConnell told reporters Tuesday. "I think the final solution to this particular episode lies between Speaker McCarthy and the president."
The U.S. hit the debt limit — currently $31.4 trillion — last week, catapulting Washington into a familiar, high-stakes political fight with potentially devastating economic consequences. The Treasury Department has employed "extraordinary measures" to cover the debt for several months, a band-aid that will be torn off by June. Speaking with reporters Tuesday night, McCarthy said he wants to find common ground with Joe Biden to establish a "responsible debt ceiling." The speaker said he wants to eliminate wasteful government spending, however, Biden has maintained that raising the debt ceiling to avoid defaulting is not up for debate.
Manufacturers Can Learn from Tech-Industry Overreach
Many Software as a Service companies and their founders made fun of the industrial dinosaurs and called them obsolete. Over the past five years though, many of these small, medium and large manufacturing companies have invested steadily in digital transformations and have launched their own SaaS ecosystems. They have transformed slowly but surely their companies to be able to bring innovative and valuable digital solutions to their clients and installed base.
The SaaS downsizing debacle is not pleasant for thousands of workers and investors. We do not wish that on anyone. We can learn from this situation, and we can do better. As industrial companies continue their forays into the SaaS world, they have all the tools and knowledge at their disposal. And now, they have access to some talented people who lost their jobs.
Airfreight Operators Skip the Line at America’s Crowded Airports
The shifting direction in U.S. manufacturing supply chains is triggering changes in airfreight flows. International freight forwarders are increasingly hiring their own aircraft and seeking alternatives to America’s congested air hubs, the WSJ Logistics Report’s Paul Berger writes, in a strategy that is starting to reset the country’s air cargo map. Regional airports like South Carolina’s Greenville-Spartanburg International Airport and Chicago Rockford International Airport are benefitting as manufacturers and logistics middlemen look for faster paths to factories.
The forwarders are driven partly by congestion at the big hubs, but they are also following the growth in manufacturing across South and Southwest America. Car makers and other industrial suppliers are boosting production in South Carolina, near Greenville-Spartanburg. And DSV is adding chartered service at Phoenix-Mesa Gateway Airport, a secondary site in Phoenix, as contract chip maker Taiwan Semiconductor Manufacturing is investing heavily in Arizona.
US Secret Service Report: Half of U.S. Mass Attacks Sparked by Personal, Workplace Disputes
Half of the mass attacks in the United States from 2016-2020 were sparked by personal, domestic or workplace disputes, according to a new U.S. Secret Service report that aims to prevent violence by identifying warning signs. The attackers were overwhelmingly men, often with histories of mental health symptoms, financial insecurity or engaging in domestic violence. Guns were typically the weapon of choice. The 70-page report, issued on Wednesday by the Secret Service's National Threat Assessment Center, examined 173 incidents where three or more people were harmed. The attacks targeted workplaces, schools, religious institutions and public transportation, among other locations, killing 513 people and injuring 1,234.
Lina Alathari, the center's chief, told reporters that it is common to see behaviors among perpetrators that might have helped others identify a problem beforehand. "Interest in violence, interest in previous mass attackers, posting about them, talking to people about them, bringing a weapon to [their] workplace, bringing a weapon to school, coworkers fearing them, grievances," she said. "These are themes that we do see over and over again."
Report: New York’s Older Adult Population is On the Rise – Bringing Big Implication for Employers
From the shores of Lake Erie to the tip of Long Island—and nearly everywhere in between—New York State’s older adult population is booming. New York is home to more residents ages 65 and above—nearly 3.5 million—than the entire population of 21 states. Older adults are also driving most of the state’s population growth. Over the past decade, from 2011 to 2021, the number of New Yorkers ages 65 and over grew by an incredible 31 percent—an increase of 815,166 older adults. During the same period, the state’s under-65 population declined by 2.6 percent, or 444,450 people. Today, nearly 1 in 5 New Yorkers is 65 and above (18 percent), a larger share of the state’s population than ever before.
The boom in the over-65 population is accelerating in cities and counties all over the state, with the fastest increases over the past decade occurring in Rochester (+64 percent), Saratoga County (+50 percent), Syracuse (+43 percent), Queens County (+39 percent), Dutchess County (+37 percent), New York City (+36 percent), and Orange County (+36 percent). In fact, the growth of New York’s older adult population is outpacing overall population growth in every one of the state’s 19 largest counties and most of its largest cities, including Rochester, Syracuse, Yonkers, Albany, and New York City.
McMahon: At End of 2022, NY Still Near Bottom in Pandemic Recovery
The more time passes since the spring 2020 Covid-19 outbreak, the more New York stands out among all states for the weakness of its post-pandemic employment recovery. As of December, seasonally adjusted private employment in New York was still nearly 237,000 jobs below the February 2020 level, according to preliminary federal and state estimates. Only 18 other states were below their pre-pandemic job counts by that measure—and New York’s shortfall of 236,600 jobs was by far the largest. In percentage terms, only Hawaii, Vermont and North Dakota had bigger job deficits.
By contrast, at the other extreme, private employment in Texas and Florida was up 6.7 percent (740,000 jobs) and 6.6 percent (527,000 jobs), respectively. Even in California, whose pandemic lockdown restrictions rivaled New York’s for duration and severity, private employment was up 0.9 percent (143,000 jobs) from the pre-pandemic level. The 50-state pattern is illustrated below
Industry Earnings: Boeing
Boeing posted a $663 million loss for the fourth quarter as supply chain issues weighed on results despite a rebound in aircraft sales and deliveries that drove up revenue. For the full year, Boeing had a loss of $5 billion despite a 7% increase in revenue to $66.6 billion. Adjusted loss per share was $1.75 vs. expected earnings per share of 26 cents. Revenue was $19.98 billion vs. $20.38 billion expected.
The company is producing 31 of its 737 jets a month and plans to increase that to about 50 per month in 2025 or 2026. It said it would raise what has been low production rate of the 787 Dreamliners to five each month toward the end of the year and to 10 per month in 2025 or 2026. Airlines and aircraft manufacturers have benefited from a sharp recovery in air travel, one of the most affected industries from the Covid pandemic. But Boeing’s leaders have been hesitant to ramp up aircraft production until the supply chain has stabilized.
Industry Earnings: IBM Trims Workforce
IBM Corp on Wednesday announced 3,900 layoffs as part of some asset divestments and missed its annual cash target, dampening cheer around beating revenue expectations in the fourth quarter. The layoffs - related to the spinoff of its Kyndryl business and a part of AI unit Watson Health - will cause a $300 million charge in the January-March period, IBM said.
IBM's software and consulting business growth slowed down sequentially in the fourth quarter, but cloud spending was a bright spot, with deal signings doubling in 2022 for setting up services with partners such as Amazon.com's AWS and Microsoft's Azure. Its hybrid cloud revenue rose 2% in the quarter ended Dec. 31. Total revenue was flat at $16.69 billion in the period, compared with analysts' estimates of $16.40 billion, according to Refinitiv. For 2022, IBM recorded revenue growth of 5.5%, its highest in a decade.
Industry Earnings: Tesla
Electric vehicle maker Tesla reported earnings after the bell, beating on both earnings and revenue. Shares rose more than 5% after hours after CEO Elon Musk said the company might be able to produce 2 million cars this year. Earnings (adjusted) were $1.19 vs $1.13 per share expected. Revenue was $24.32 billion vs $24.16 billion. In the year-ago quarter, Tesla reported revenue of $17.72 billion and adjusted earnings of $2.52 per share
Revenue from energy generation and storage was up sequentially and year-over-year, reaching $1.31 billion. The cost of revenue for its energy division was high, though, at $1.15 billion in the fourth quarter. Tesla said that it had installed the capacity — across all of its factories — to make 100,000 Model S and X vehicles annually, and 1.8 million Model Y and Model 3 vehicles.
Tesla Invests $3.6 Billion in New Nevada Battery, Truck Operations
Tesla Inc. said it plans to invest $3.6 billion in two new factories to build electric vehicle batteries and its all-electric Semi heavy-duty truck near an existing production site in Reno, Nevada. The new battery operation will make Tesla’s latest so-called 4680 cells with capacity for use in as many as 2 million vehicles a year, Tesla said in a statement Tuesday on its website. It will also build a “high-volume” facility for its Semi which debuted late last year, but the company did not provide estimated production numbers.
Tesla’s sprawling factory in the region already makes electric motors and battery packs, as well as energy storage products like the home battery known as the “Powerwall.” It broke ground on the so-called gigafactory in June 2014. Elon Musk’s company handed over the first Semi trucks to PepsiCo last month. Tesla has said it aims to produce 50,000 Semis for North America in 2024.
The Art Behind Supply Chains Is Front and Center at a Museum of Modern Art Exhibit
Supply chains may operate in many different ways, but an exhibit in New York City suggests they also work as art. An installation at the Museum of Modern Art makes the case with a series of works anchored by a large, intricate presentation of the life cycle of an Amazon Echo speaker, from initial materials sourcing to how it operates to what happens when it is thrown out.
The WSJ Logistics Report’s Liz Young writes that the piece called “Anatomy of an AI System” is the central piece in an exhibit titled Systems that competes for attention with Picasso, Warhol and other works at MoMA. Curators say it is an attempt to lay out the inner workings of systems and supply chains behind the familiar consumer goods, appliances and other features of modern life. One recent visitor says the exhibit “gives you a greater appreciation for everything that we use.”