Member Briefing July 12, 2023
U.S. Trade Deficit Eased From Record High in May on Fall in Imports
The U.S. trade deficit shrank in May on a sharp decline in imports, according to government data released last week, after rising to a record high a month earlier. "A weaker trend could persist owing to the effects of monetary policy tightening globally, which is likely to slow demand and economic activity domestically and abroad," High Frequency Economics' chief U.S. economist Rubeela Farooqi wrote in a note to clients.
In May, the overall trade deficit fell to $69 billion, down from a revised $74.4 billion a month earlier, according to the Commerce Department. The deficit came in slightly higher than the median forecast of economists surveyed by MarketWatch. Exports fell slightly to $247.1 billion, while imports shrank by $7.5 billion to $316.1 billion. Much of the decline in imports came from a fall in consumer goods, which fell by $4.8 billion. The U.S. trade deficit in goods with China increased in May to $24.9 billion, on a seasonally-adjusted basis, according to the Commerce Department. This was up from $24.2 billion in April.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Wagner Boss Yevgeny Prigozhin Met Russia's Vladimir Putin After Mutiny - BBC
- NATO Agrees to Pull Ukraine Closer to Alliance, but Offers No Timeline for Membership - WSJ
- Turkey Gives Green Light to Swedish NATO Membership Bid - Reuters
- Biden Plans to Meet With Turkey’s Erdoğan and Ukraine’s Zelenskyy at NATO Summit - Politico
- France to Become Second Nation to Send Ukraine Cruise Missiles - WSJ
- Sunak Tells Biden UK Will Stand by Cluster Bomb Ban Amid Ukraine Tensions - Politico
- NATO Chief Says Turkey Has Agreed to Let Sweden Join Alliance – WSJ
- India’s Gatik Ship Management Steps Into the Shadows Amid Russia Scrutiny – Trade Winds
- Belarusian Tennis Star Calls Booing After Loss To Ukrainian Player ‘Not Fair’ - Forbes
- How Many Russian Soldiers Have Been Killed in Ukraine? – The Economist
- 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
Manufacturing Sees Slight Job Growth in June
The manufacturing industry gained 7,000 jobs in June, according to a report last week by the United States Bureau of Labor Statistics (BLS). The gain is only the second month of growth in 2023. The increase comes from durable goods, which added 15,000 jobs; nondurable goods lost 8,000 jobs. Transportation manufacturing had the bulk of the gains, responsible for 7,200 of the new durable goods jobs (4,300 of which came from motor vehicles and parts manufacturing). Overall, nonfarm jobs grew by 209,000 and the unemployment rate dropped slightly to 3.6% from 3.7% in May, according to the report.
Other job gainers reported by the Bureau included navigational, measuring, electromedical and control instruments manufacturing (up 3,300) and machinery manufacturing (up 3,100). Food manufacturing, the largest nondurable goods sector by employment, had the heaviest losses at 3,300. Total manufacturing jobs now totals 12.989 million, seasonally adjusted by BLS, up from 12.982 million in May 2023 and 12.819 million in June 2022.
Cushman Wakefield Report: Industrial Vacancy Rate Inches Up
Industrial vacancy rates for warehouses and other buildings rose slightly in the second quarter, revealing the first softening in years of vice-like demand for inventory storage space in a tight market, according to a report from the commercial real estate services firm Cushman & Wakefield. The news is in line with various measures showing a gradual slowing of the economy—such as the Logistics Managers Index (LMI)—as the Federal Reserve continues to keep interest rates high to fight overheated inflation.
The overall industrial vacancy rate increased by 60 basis points to 4.1% throughout the second quarter, marking the first time since mid-year 2021 in which the rate exceeded 4.0%, the Chicago-based firm said. Cushman & Wakefield defines the industrial real estate segment as including warehousing, distribution centers, manufacturing, industrial office services, and flex/high tech. Fueling the rise in vacancy has been the strong completion totals of speculative developments across the marketplace coupled with the consolidation and right-sizing of occupiers due to tempered consumer demand and elevated inventory levels.
COVID Update - The Fast-Spreading New COVID-19 Subvariant XBB Is Part of a “New Class” of Omicron
For the past several months, Omicron subvariants BA.4 and BA.5 have dominated COVID-19 cases in the U.S. But now, there’s a class of new COVID subvariants on the rise and one in particular is getting plenty of attention. It’s called XBB—or Gryphon—and there’s a chance it could overtake everything else out there. XBB is getting a lot of buzz because it spreads fast—and seems to be able to evade immunity that people have built up from having a previous COVID-19 infection or getting the vaccine.
XBB is thought to have the best ability to evade antibody protections of these newly emerged COVID variants, according to a pre-print study from researchers in China. That study said that the new strains of Omicron, and XBB in particular, “are the most antibody-evasive strain tested, far exceeding BA.5 and approaching SARS-CoV-1 level.” (SARS-CoV-1, in case you’re not familiar with it, is the strain of coronavirus that causes SARS, a respiratory virus that can cause severe illness.)
Yellen's China Trip Offers Economic Guardrails in Tense Rivalry
Treasury Secretary Janet Yellen’s two-day engagement with top officials in Beijing offered a way for the US and China to contain damage in their economies from the two nations’ intensifying rivalry. In 10 hours of meetings Friday and Saturday, Yellen said she sought to convince China’s newly installed economic team that the US isn’t bent on seeking “economic advantage” against the country.
Though the Biden administration has ramped up controls on key exports and is considering curbs on American companies’ outbound investments, Yellen emphasized that the measures Washington takes are “targeted” and designed only to safeguard national security. While on the military side, there’s been no resumption of bilateral communication — amid risky encounters between the two sides’ air and maritime forces — Yellen’s high-profile visit suggested hope for guardrails in economic competition.
Where Is Inflation Persistence Coming From? NY Fed Looks at the Numbers
Elevated inflation continues to be a top-of-mind preoccupation for households, businesses, and policymakers. Why has the post-pandemic inflation proved so persistent? The New York Federal Reserve’s Multivariate Core Trend (MCT) is designed to dissect the buildup of the inflationary pressures that emerged in mid-2021 and to understand where the sources of its persistence are. This measure, that we labeled inflation analyzes whether inflation is short-lived or persistent, and whether it is concentrated in particular economic sectors or broad-based.
The Multivariate Core Trend model estimate stands at 3.5 percent in May, as in April, after experiencing a substantial moderation in the first part of the year. For reference, the twelve-month core PCE inflation rate is at 4.6 percent. The MCT model gives more weight to sectors that have relatively few transitory shocks (for example, housing and food services and accommodation) and less weight to sectors that have large amounts of noise (for example, motor vehicles and transportation). Recently, low inflation readings occurred in sectors with high signal value, leading to downward revisions of their trends, while increases occurred in sectors with low signal value, leaving their trends basically untouched.
Biden’s Newest Student Debt Relief Plan Will Likely Face Legal Challenges Too
Hours after the US Supreme Court axed Biden’s debt forgiveness on June 30, the president announced a new Saving on a Valuable Education (SAVE) plan that he said is “legally sound” and is the best option remaining to deliver sweeping relief to millions of borrowers as quickly as possible. But the new plan could still be vulnerable to legal attacks targeting executive powers, as it relies on the authority of the Higher Education Act, which governs financial assistance in post-secondary schooling.
The high court ruled that the administration overstepped its authority by authorizing such a broad, costly program under a 2003 law that gives the Education Secretary special powers over loans when responding to national emergencies. The court held that the law — called the Heroes Act — does not allow for such drastic action, despite the unprecedented nature of the pandemic. Although the court’s ruling was based on the Heroes Act, the opinion signaled implicitly that the language in the Higher Education Act would not be considered as a valid basis for the scope of student-debt relief Biden initially sought.
No Handshakes as UAW Opens Contract Talks with Detroit Three Automakers on Thursday
he United Auto Workers union said on Monday it will open contract talks with Detroit's Big Three automakers starting on Thursday, ahead of the mid-September expiration of the current four-year labor deal. The union said talks will open on Thursday with Chrysler-parent Stellantis, on Friday with Ford Motor and on July 18 with General Motors on agreements covering about 150,000 U.S. workers.
UAW President Shawn Fain has said repeatedly that the UAW wants to eliminate the two-tier wage system under which new hires earn as much as 25% less than veterans. He has also said the union will push to restore pay improvements tied to the cost of living and to retiree benefits cut during the 2008-2009 Great Recession. In a break with tradition, the UAW will forgo the traditional media event of shaking hands with company executives to mark the formal opening of talks. Instead, UAW leaders will meet with auto workers on Wednesday at three Detroit-area plants to mark the beginning of talks.
Five Things to Know About UPS - Teamsters Contract Negotiations and Strike Talk
Talks between shipping giant United Parcel Service (UPS) and the International Brotherhood of Teamsters fell apart last week, upping the possibility that the union could strike in a massive walkout when their current contract expires at the end of this month. The union, which represents roughly 340,000 members working for UPS, voted last month to authorize a strike if a deal isn’t reached before July 31. The strike would be one of the largest in U.S. history.
Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, said a strike would likely prompt a supply chain disruption like that which occurred during the pandemic, stalling deliveries. FedEx, another shipping giant, said in a statement that “shippers who are considering shifting volume to FedEx” should start working with the company now. The United States Postal Service (USPS) Monday launched a new “coast-to-coast 2-5-day shipping offering” and said it’s “ready to compete for an increased share of the growing package business.”
Dow Chemical Teams With X-energy's SMR on Modular Nuclear Reactor Demonstration Projects
US multinational chemical giant Dow is working with X-Energy to demonstrate not one, but four Xe-100 high-temperature gas-cooled small modular reactors (SMRs) by the end of this decade at Dow’s UCC Seadrift operation in Texas. And while X-energy prepares to submit its license application to US Nuclear Regulatory Commission later this year, Dow is betting big on X-energy's SMR to meet Dow's decarbonization goals, and its ultimate nuclear fleet might be much larger than the UCC Seadrift demonstration plant.
Renewables are a big part of Dow’s decarbonization effort, with some 900 megawatts of renewables capacity under contract globally, according to Dow North American Business Director Kreshka Young. “We absolutely love the idea of low-carbon electricity, but we can also use the grid as a backup. We can use renewable purchases to supplement our electricity demands and all of those kinds of things.” But that doesn’t necessarily meet Dow’s constant demand “for high-temperature, high-quality steam on our sites,” she said. "We need 99.9995% reliability on our steam."
Beyond Force: A Realist Pathway Through the Green Transition
Climate change is not a national issue; global warming is global, and as such requires global solutions—specifically, solutions that work in all nations, especially low-income countries where emissions continue to grow rapidly with an expanding population, economic growth, urbanization, and electrification. So effective solutions can only be those that all consumers, corporations, and nations can adopt with little or no extra cost or reduced performance.
The current strategy of forcing more expensive and often less functional clean energy solutions onto users cannot, therefore, scale globally and is not even likely to scale in wealthy countries that are most fervently committed to addressing climate change. This is not pessimism; this is realism. It is time then for a fundamentally new strategy: We must use government policy not to force change but to enable change through the widespread development of technologies that meet the price and the performance levels of dirty energy That central strategy should be reflected in all climate policies.
Energy Prices Climb on Weather and Supply Issues from Energo
Oil - Markets are trading higher as the international Energy Agency expects the market will be tight through end of the year with the recently announced supply cuts. Saudi Arabia and Russian exporters both announced supply cuts for August in an attempt increase oil prices.
Natural Gas - Above average temperatures and robust cooling demand supported NYMEX natural gas futures. The August 2023 contract closed at $2.669, Monday. The 12 month strip, August 2023 – July 2024, gained 5.2 cents and settled at $3.223. Market analysts are expecting an injection of approximately 50 Bcf in US natural gas storage inventories for the week ended 7/7/23. A build at this level would be a little smaller than historical injections for the corresponding week.
Electricity - For July 11 delivery, locational marginal prices in the New York Independent System Operator footprint were on the rise, with Zone G Hudson Valley climbing $1.24 to reach $42.50/MWh, Zone J New York City going up $1.62 to about $43.75/MWh. Forward power markets contract prices were higher on ICE, following the direction of natural gas futures
Foxconn Drops out of $20bn India Chip Factory Plan
Apple supplier Foxconn has pulled out of a $19.5bn (£15.2bn) deal with Indian mining giant Vedanta to build a chip making plant in the country. The move comes less than a year after the companies announced plans to set up the facility in Prime Minister Narendra Modi's home state of Gujarat. "There was recognition from both sides that the project was not moving fast enough," Taiwan-headquartered Foxconn said in a statement.
Earlier on Tuesday, Foxconn told the BBC that the decision was made in "mutual agreement" with Vedanta, which has assumed full ownership of the venture. "The apparent cause of the pull-out is the lack of a clear technology partner and path for the joint venture," he added. "Neither party had significant experience with developing and managing a large-scale semiconductor manufacturing operation."
Supply Chain Index Hits New Low
Supply chain activity hit a new low in June, according to data collected in the Logistics Managers’ Index (LMI). A Wednesday report showed the LMI stood at 45.6 in the month, 1.7 percentage points lower than in May and a fourth straight record low for the data set. A reading below 50 indicates contraction while one above 50 signals expansion. The LMI is a survey of supply chain professionals.
- Transportation prices (32.8) fell at a slower pace during the month but remained well into contraction territory.
- Capacity (71.2) has been in growth mode since April of last year.
- Transportation utilization (46.8) was up slightly from May but remained in contraction for a second straight month.
- The index’s one-year outlook for transportation prices was 59.1, the highest of 2023 and 11.6 points higher than the May expectation.
- The responses from survey participants indicates the group expects “a rebalancing of the freight market over the next 12 months.”
The World’s Best Bourbon—According To The 2023 International Whisky Competition
Out of hundreds of entries from distilleries across the country, Buffalo Trace took home the top three awards in the bourbon category. George T. Stagg bested the field, amassing an impressive 94.4 points out of 100 for its 2022 release—a high-octane molasses bomb, which spent upwards of 15 years resting patiently in charred American oak. A close second was its younger sibling, Stagg Kentucky Straight Bourbon (formerly known as Stagg Jr.). This 131-proof powerhouse surprises in the sip with overtures of dark fruit that hold firm from mid-palate to finish. Its 93.4 point rating narrowly edged out the latest offering of William Larue Weller, which had to settle for third place with a 93.28 score.
The International Whisky Competition just entered its 14th year. It only awards three medals per category, compelling its founders to self-style as the “Olympics of whisky competitions.” For the 2023 go-round, the expert panel of tasters convened in Bardstown, Kentucky over four days in late May.