Member Briefing January 31, 2023
Survey: CFOs Are Optimistic Despite Labor Concerns
A recent survey, 2022 Q3 CFO Survey, from Grant Thornton, LLP found that, 58% of the 246 CFOs surveyed expect continued challenges in attracting and retaining the right talent. On the other hand, the top area cited for potential cost cuts was human capital expenses related to employee headcount and compensation. In fact, 43% of CFOs said their organization is looking at this area for cost cuts. Meanwhile, nearly one-third (32%) of CFOs said they could potentially introduce layoffs or workforce reductions in the next six months.
That said, the firm’s 2022 Q3 CFO survey included some cause for cautious optimism. Forty-five percent of CFOs said they are optimistic about the outlook for the U.S. economy over the next six months, while 31% are pessimistic. Nearly two-thirds (64%) of CFOs interviewed for the new survey predicted net profit growth at their organizations over the next 12 months, while 42% predicted growth of 6% or higher. Further, 71% of CFOs said the economic impact of the COVID-19 pandemic is waning.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Video: Tanks in Ukraine: How Abrams and Leopard Tanks Compare to Russia's T-72s- WSJ
- Ukraine Wants to Join EU Within Two Years, PM Says - Politico
- Boris Johnson Says Putin Threatened Him With Missile Strike - BBC
- Kremlin Denies Claim Putin Threatened Britain – USA Today
- Abramovich Loses Influence as Mediator Between Ukraine and Russia - Yahoo
- Germany Warns Against Arms Race as Ukraine Pushes for Missiles, Jets – The Hill
- Pro-Kremlin Activists in Germany Gave Money for Russian Army Gear - Reuters
- France Will Consider Training Ukrainian Fighter Jet Pilots – Politico
- Russia Warns United States: The End of Nuclear Arms Control May Be Nigh - Reuters
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
How High Will Interest Rates Go? This Coming Week’s Fed Meeting Is Key.
Will “ongoing” be outgoing at the Federal Reserve? Or will that key word remain in the central bank’s policy directive? On such a seemingly trivial question may hang the course of interest rates when the Federal Open Market Committee announces the results of its two-day meeting this coming Wednesday afternoon.
The Fed’s policy-setting panel is all but certain to raise its federal-funds target range to 4.50%-4.75%. That would represent a downshift to a 25-basis-point increase, the FOMC’s usual rate move until last year, when it was playing catch-up in normalizing its monetary policy, which previously was uber-easy. The committee imposed four supersize 75-basis-point hikes in 2022 and then added a 50-basis-point increase in December. (A basis point is 1/100th of a percentage point.)
Key Fed Inflation Measure Eased in December While Consumer Spending Also Declined
Consumers spent less in December even as an inflation measure considered key by the Federal Reserve showed the pace of price increases easing, the Commerce Department reported Friday. Personal consumption expenditures excluding food and energy increased 4.4% from a year ago, down from the 4.7% reading in November and in line with the Dow Jones estimate. That was the slowest annual rate of increase since October 2021. On a monthly basis, so-called core PCE increased 0.3%, also meeting estimates.
At the same time, consumer spending was even less than already modest estimates, indicating that the economy slowed at the end of 2022 and contributing to expectations for a 2023 recession. Spending adjusted for inflation declined 0.2% on the month, worse than the 0.1% drop that Wall Street had been anticipating.
U.S. COVID – U.S. Covid-19 Pandemic Enters Fourth Year With Hospitalizations on the Decline
Epidemiologists and public-health officials said built-up immune protection from vaccines and prior infections is muting the impact of the virus for many people, marking how a pandemic entering its fourth year has changed over time. A recent climb in hospitalizations and Covid-19 wastewater readings—two key metrics for spotting trends—appears to have stalled following the quick rise of the Omicron XBB.1.5 subvariant. The U.S. was gripped in significantly more deadly waves at this point in the last two winters, though currently there are still hundreds of deaths reported each day.
The pandemic’s destabilizing effects have also reached far beyond Covid-19 infections, having reshaped the workplace, public transportation and other elements of American society.
Ruling Strikes Down Health Care Employee Vaccination Mandate, but Industry Experts Say it Won’t Help With Hiring
Jan. 13, Onondaga County Supreme Court Judge Gerard Neri sided with a group of medical professionals who sued the state, arguing that the mandate was “arbitrary and capricious” and did not prevent the spread of the virus. Neri ruled that the state Department of Health acted outside of its authority. According to published reports, the state is exploring its options and intends to file an appeal to have Neri’s decision overturned.
But Stephen Hanse, president and CEO of the New York State Health Facilities Association / NYS Center for Assisted Living, told McKnight’s Senior Living the ruling won’t really address the long-term care workforce crisis facing the state. Hanse said that those who did not want to be vaccinated already have left the sector, and those who received the vaccine either are still working in healthcare or have moved on to other jobs.
McCarthy Says Cuts to Medicare and Social Security Will Be 'Off the Table' in the Upcoming Debt Limit Talks
House Speaker Kevin McCarthy on Sunday said that cuts to Medicare and Social Security were "off the table" ahead of upcoming talks with President Joe Biden over the debt ceiling. During an appearance on the CBS program "Face the Nation," the California Republican said that while the GOP wanted spending cuts as part of a deal to raise the debt limit, they did not want to target those two specific programs.
"Let's take those off the table" he said. "If you read our Commitment to America, all we talk about is strengthening Medicare and Social Security. So — and I know the president says he doesn't want to look at it, but we've got to make sure we strengthen those." When host Margaret Brennan asked McCarthy if "strengthen" meant that he wanted to raise the retirement age — which is generally between 66 and 67 — he disputed that notion.
German Economy Unexpectedly Shrinks in Q4, Reviving Specter of Recession
The German economy unexpectedly shrank in the fourth quarter, data showed on Monday, a sign that Europe's largest economy may be entering a much-predicted recession, though likely a shallower one than originally feared. Gross domestic product decreased 0.2% quarter on quarter in adjusted terms, the federal statistics office said. A Reuters poll of analysts had forecast the economy would stagnate.
German Economy Minister Robert Habeck said last week in the government's annual economic report that the economic crisis triggered by the Russian invasion of Ukraine was now manageable, though high energy prices and interest rate rises mean the government remains cautious. The government has said the economic situation should improve from spring onwards, and last week revised up its GDP forecast for 2023 -- predicting growth of 0.2%, up from an autumn forecast of a 0.4% decline.
Spanish Inflation Unexpectedly Jumps After Months of Easing
Spanish inflation unexpectedly quickened in January after a five-month run of slowing price growth, prompting traders to boost their bets on how high the European Central Bank will raise interest rates. Consumer prices advanced by 5.8% from a year ago, up from the previous month’s 5.5% increase, the statistics institute in Madrid said Monday.
“The higher core inflation is a concern,” said Antoine Bouvet, a rates strategist at ING Bank NV. “That selloff shows that markets are biased toward lower inflation and that release is catching them offside.” Higher rates bets boosted the euro, which rose 0.4% to $1.0914. That’s just short of the nine-month high the single currency reached last week
OSHA Announces New Enforcement Guidance
On January 26, OSHA announced new enforcement guidance changes which can "save lives and hold employers to greater account for safety and health failures." The announcement said these changes will "target employers who put profit over safety." It will do this by making the penalties " more effective in stopping employers from repeatedly exposing workers to life-threatening hazards or failing to comply with certain workplace safety and health requirements."
OSHA Regional Administrators and Area Office Directors now have the authority to cite certain types of violations as “instance-by-instance citations” for cases where the agency identifies “high-gravity” serious violations of OSHA standards specific to certain conditions where the language of the rule supports a citation for each instance of non-compliance. The guidance mentions conditions that include lockout/tagout, machine guarding, permit-required confined space, respiratory protection, falls, trenching and for cases with other-than-serious violations specific to recordkeeping.
Historic Crash for Memory Chips Threatens to Wipe Out Earnings
The memory-chip sector, famous for its boom-and-bust cycles, was supposed to have changed its ways. A combination of more disciplined management and new markets for its products — including 5G technology and cloud services — would ensure that companies delivered more predictable earnings. And yet, less than a year after memory companies made such pronouncements, the $160 billion industry is suffering one of its worst routs ever. There’s a glut of the chips sitting in warehouses, customers are cutting orders, and product prices have plunged.
“The chip industry thought that suppliers were going to have better control,” said Avril Wu, senior research vice president at TrendForce. “This downturn has proved everybody was wrong.” The unprecedented crisis isn’t just wiping out cash at industry leaders like SK Hynix Inc. and Micron Technology Inc., but also destabilizing their suppliers, denting Asian economies that rely on tech exports, and forcing the few remaining memory players to form alliances or even consider mergers.
Industry Earnings: Intel
Intel's fourth-quarter sales plunged 32% from the prior year. Sales in the key client computing and data center segments dropped 36% and 33%, respectively. The company posted Revenue of $14 billion vs. $14.4 billion estimate; Adjusted EPS of $0.10 vs. $0.19; Client Computing saw revenue of $6.6 billion vs. $7.4 billion and Datacenter and AI was $4.3 billion vs. $4 billion expected. Intel stock was off more than 6% during Friday's session as its guidance for the first quarter wasn't much better than its finish to 2022.
The company said it expects revenue of between $10.5 billion and $11.5 billion, though the Street was looking for $14 billion. Intel also expects gross margins to come in at 39%, whereas analysts anticipated margins to top 45.5%. Intel declined to provide full-year guidance, citing volatile global economic conditions.
Industry Study Tracks China Tariffs’ Added Costs to Importers and Consumers
Tariffs hikes in 2018 on imports from China of apparel, footwear, furniture and travel goods have raised indirect and direct costs for companies and prices for consumers, according to a new study released last week by five major industry groups representing brands and retailers. according to the study, which was released by the American Apparel & Footwear Association (AAFA), the Footwear Retailers & Distributors of America (FDRA), the National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), and the United States Fashion Industry Association (USFIA). China’s share of 301 tariff-specific apparel imports fell from 92% to 88%.
Direct costs from the tariff amounted to more than $1 billion annually each for apparel and furniture imports, as well as nearly $800 million in 2022 for travel goods and over $450 million in 2022 for footwear. According to the study, price hikes fell disproportionately on lower-income and minority households. However, it also notes the difficulty in estimating the impact of tariffs on price inflation compared to the demand surge and supply chain backups that led to record inflation in the pandemic era.
Ford Cuts Prices on Electric Mustang Mach-E, Following Tesla’s Lead
Ford Motor is increasing production and cutting prices of its electric Mustang Mach-E crossover, weeks after industry leader Tesla announced similar plans for its EVs. The Detroit automaker said Monday it will lower pricing of the Mach-E, which is comparable to Tesla’s Model Y, by an average of about $4,500, depending on the model. The reductions range from $600 to $5,900, compared with Tesla’s price cuts of up to $13,000 on its Model Y earlier in January.
Wall Street analysts and investors largely applauded Tesla’s price reductions as a way to drum up demand and increase sales, despite concerns the move would erode some profits. Analysts expected Tesla’s cuts to put pressure on other automakers to cut their own prices. In Ford’s case, the price cuts will mean not all Mach-E models, based on the trim, will be profitable on a per-unit basis, according to Marin Gjaja, chief customer officer of Ford’s electric vehicle business. He said Mach-E production is expected to increase from 78,000 vehicles to 130,000 units annually.
Toyota Top-Selling Automaker for Third Year Running
Despite the chip shortage and Covid-related supply chain disruption, Toyota and its subsidiaries sold nearly 10.5 million vehicles last year, around the same as in 2021. In comparison, Volkswagen Group -- which held the top spot until 2020 when it was overtaken by Toyota -- sold 8.3 million units last year, an annual drop of 7%.
In 2022, Toyota sold 2.7 million electrified vehicles, around 5% more than the previous year. The vast majority of those -- 2.6 million -- were hybrid models. Toyota pioneered hybrid cars, but some critics say the company has been slow to make the shift to battery-powered engines even as demand soars for low-emission automobiles. Electric-only carmakers like China's BYD will one day pose "a genuine threat" to Toyota, he said, because they have strong battery technology and "more experience and better branding" with EVs. But electric-only automakers are still too small to have a realistic chance of competing with legacy carmakers for several years at least, Kato said.
Aircraft Builders Set 2023 Hiring Targets
Both of the world’s major commercial-aircraft builders are planning to add thousands of new workers in 2023, according to statements by their top executives, as they eye higher rates of jet deliveries in the months ahead. For Boeing Corp., the forecast figure is 10,000 new workers worldwide in 2023, in engineering and manufacturing roles, while for its European rival Airbus SE the projected hiring total is 13,000.
Both manufacturers missed their 2022 targets for aircraft deliveries, due to various issues though supply-chain disruptions were a common problem for both of them. Each of them also reported strong new orders for commercial aircraft in the past year, however. Both are working with hundreds of orders for new aircraft from carriers updating and/or expanding their fleets, especially for the narrow-body Boeing 737 MAX and Airbus A320neo series jets.