Member Briefing July 13, 2023
CPI = 3% - Inflation Eased in June to Lowest Level Since Early 2021
U.S. inflation eased last month to its slowest pace in more than two years as underlying price pressures cooled more than expected. The consumer-price index climbed 3% in June from a year earlier, the Labor Department said Wednesday, sharply lower than the recent peak of 9.1% in June 2022 and down from 4% in May. Inflation was last close to 3% in March 2021. Overall consumer prices increased a seasonally adjusted 0.2% in June from the prior month, compared with May’s 0.1% gain.
Core consumer prices, which exclude volatile food and energy categories, rose 4.8% in June from a year earlier, the slowest pace since October 2021 and down from 5.3% in May. Core consumer prices climbed 0.2%, the smallest one-month increase since August 2021, suggesting underlying price pressures are gradually easing. Prices for used cars and airline fares fell sharply, while prices for car insurance and recreation rose. Rent increased in June, though at the slowest one-month pace since early 2022.
War in Ukraine Headlines
Why Do Cybercriminals Love Manufacturers So Much?
Verizon’s 2023 Data Breach Investigations Report (DBIR) contains a wealth of well-presented information including explainers for anyone interested in cybersecurity. Ransomware was present in 15.5% of all cybercrime incidents included in the study, and where an incident resulted in a successful breach, 24% of those breaches involved a ransomware attempt. Manufacturing, according to the DBIR, saw the fourth-largest number of incidents. And these cybercriminals don’t have political or social motives, they just want cash.
A big reason why manufacturing is such a target: Manufacturers often pay when attacked because even small incursions can have huge repercussions. The larger the constituency affected by a ransomware attack, the more likely a victim pays ransoms. In manufacturing, a successful attack may cause tremendous and cascading amounts of damage if it targets critical plant equipment. Supply chain fragility creates long-reaching ripple effects when cyberattacks succeed on these targets. Taking a few production lines down for even a few days could have serious effects on meeting production and distribution targets.
Slower-Selling EVs are Automakers' New Headache
The U.S. EV market is growing, but not fast enough during the latest quarter to prevent unsold EVs from stacking up at some automakers' dealerships or to allow Tesla to avoid new price cuts, according to analysts and industry data. Rising inventories and price-cutting could represent only a short-term pause in EV market growth. But they could be signals that boosting U.S. EV sales above the current 7 percent market share level will be more costly and difficult than expected, even with federal and state subsidies.
Dealers for established automakers such as General Motors, Ford, Hyundai and Toyota have more than 90 days' worth of unsold EVs at their stores at current sales rates, according to a report from Cox Automotive. Industry officials and analysts cautioned that the U.S. EV market is still in a formative phase, with many consumers still evaluating whether EVs fit their needs and major automakers still ramping up production.
COVID Update – Gene Linked to Long COVID Found in Analysis of Thousands of Patients
The first genome-wide hunt to find genetic risk factors for long COVID has yielded a hit: a DNA sequence near a gene called FOXP4, which is active in the lungs and in some immune cells. For more than three years, the global COVID-19 Host Genetics Initiative has been searching for DNA sequences that are associated with a risk of developing severe COVID-19. That hunt, which is ongoing, has implicated genes involved in the immune system and in allowing the SARS-CoV-2 virus to enter cells2.
In one analysis that combined data from 11 studies, researchers found a particular region of the genome that was associated with about 1.6-fold higher odds of developing long COVID. That segment of DNA is near a gene called FOXP4, which is active in the lungs and other organs. The variant linked to long COVID is also associated with higher expression of FOXP4 in lung cells.
27% Of Jobs In Wealthy Countries At High Risk From AI, Report from OEDC Says
The Organization for Economic Cooperation and Development (OECD), a 38-member bloc, including the U.S. and Canada, found that 27% of the region’s labor force works in occupations at a high risk of being replaced by AI, even though adoption of the technology remains fairly low as the technology is, for the moment, in its infancy. Those jobs run the gamut from construction to farming, fishing and forestry, as well as other jobs including manufacturing and transportation to a “lesser extent,” according to the report.
OECD Secretary-General Mathias Cormann called the progression of AI a “technological watershed,” urging lawmakers to establish long-term policies on the use of AI in workplaces while “appropriately managing the downside risks.” Participants in OECD’s survey were not completely skeptical of AI in the workplace. Some indicated AI can be used to “reduce tedious and dangerous tasks,” improving workplace safety.
NAM Urges Lawmakers to Rethink Federal ESG Regulations
The National Association of Manufacturers, in a letter to House lawmakers, slammed recent regulatory moves by the SEC related to ESG investing guidelines. The group, which represents 14,000 companies, asked lawmakers to rein in proxy voting and limit the shareholder proposals companies need to disclose. House Republicans scheduled several hearings this month to probe ESG investing, which has become a big target on the right.
The industry lobbying group said recent changes from the SEC are harmful to manufacturers and are “putting their ability to finance their growth in jeopardy,” according to the letter, which CNBC obtained. NAM plans to send the letter to the committee Monday. The letter is addressed to committee Chairman Rep. Patrick McHenry, R-N.C., and ranking member Rep. Maxine Waters, D-Calif.
U.S. Wholesale Inventories Revised Up
U.S. wholesale inventories were unchanged in May after declining for two straight months, suggesting inventory investment could support economic growth in the second quarter. The Commerce Department said on Monday that wholesale inventories were unchanged instead of dipping 0.1% as previously reported last month. Stocks at wholesalers fell 0.3% in April. Private inventory investment rose at its slowest pace in 1-1/2 years in the first quarter, helping to restrict GDP growth to a 2.0% annualized pace in that three-month period.
Wholesale motor vehicle inventories increased 1.1% in May after rising 0.3% in April. But inventories of furniture continued to decline as did stocks of lumber, paper, apparel, farm products and petroleum. Excluding autos, wholesale inventories slipped 0.1% in May. This component goes into the calculation of GDP.
Navigating the Federal Contractor TikTok Ban
A new Federal Acquisition Regulation (FAR 52.204-27) enacted in June 2023 requires companies with covered contracts to ban the use of TikTok and other apps developed by ByteDance Limited on employee devices, including personal cell phones, which are used in the performance of government contracts. The ban does not apply to devices “incidental to a Federal contract” however, the term “incidental” is not defined. The ban was designed to ensure data security but could create headaches for federal contractors as it may implicate wage and hour, free speech and other legal issues.
The ban applies to federal contracts that include the FAR clause (FAR 52.204-27), which Federal agencies were directed to include in all new solicitations beginning June 2, 2023. Existing contracts and indefinite-delivery contracts may also be amended to include the new clause. The ban is far-reaching and applies to contracts below the micro-purchase threshold, contracts for commercial products and services, and Commercially Available Off the Shelf (COTS) items.
German Inflation Bucks Downward Trend in June
German consumer prices, harmonised to compare with other European Union countries, increased by 6.8% on the year in June, the federal statistics office said on Tuesday, confirming preliminary data. The year-on-year rebound in German inflation midway through the second quarter is almost exclusively due to base effects from last year's fuel discount and a temporarily reduced rail fare.
In June 2022, in a bid to counter rising energy prices, the German government cut taxes on fuel and introduced a public transport ticket allowing travel across the country for 9 euros a month, causing inflation to dip. Germany's core inflation rate, which excludes volatile items such as food and energy, stood at 5.8% in June, up from 5.4% in May.
EPA Sets Stricter Limits on Hydrofluorocarbons Used in Refrigerators, Air Conditioners
The Environmental Protection Agency is enforcing stricter limits on hydrofluorocarbons, highly potent greenhouse gases used in refrigerators and air conditioners that contribute to global warming. A rule announced Tuesday will impose a 40% overall reduction in HFCs starting next year, part of a global phaseout designed to slow climate change. The rule aligns with a 2020 law that calls for an 85% reduction in production and use of the climate-damaging chemicals by 2036.
Officials said refrigeration and air conditioning systems sold in the United States will emit far fewer HFCs as a result of the rule, the second step in a 15-year phasedown of the chemicals that once dominated refrigeration and cooing equipment. Companies that produce, import, export, destroy, use, process or recycle HFCs are subject to the rule. The rule includes a range of administrative penalties, including license revocation and retirement of allowances for companies that don't comply. Fines and criminal penalties also can be imposed.
Photos: Metro-North Hudson Line Back in Service
MTA Metro-North Railroad announced that on Wednesday, the Hudson Line will operate nearly full service. The restoration of service comes just three peak periods after service had to be suspended on Sunday afternoon due to storm damage. “Metro-North crews have put forth another Herculean effort following an extreme weather event, clearing the tracks of fallen trees, high water, mud and debris. It is because of their hard work that we are able to restore service on the full Hudson and Harlem lines,” said Metro-North Railroad President and LIRR Interim President Catherine Rinaldi. “Hudson Line customers should check Train Time before traveling, as we will run a modified schedule to allow for further storm clean up.”
Metro-North crews worked since Sunday night to perform rehabilitation work on both lines. Crews cleared fallen trees, mud and boulders from sections of track where the rushing water had risen well above the rails. Crews will continue clean up along the Hudson Line as the railroad works to restore full regularly scheduled service on the line.
Dollar Drops to Two-Month Low After U.S. Inflation Slows
The dollar sank to a new two-month low on Wednesday after data showed the rise in U.S. consumer prices eased in June, suggesting that the Federal Reserve may have to raise interest rates just one more time this year. The dollar index dropped as low as 101.04, the lowest in two months, after the data, and was last down 0.4% at 101.27 .
The greenback also hit its lowest against the Swiss franc since early 2015 after the inflation report. It was last down 0.6% at 0.8750 francs, having fallen to a session low of 0.8735 earlier, its weakest since the Swiss National Bank removed the peg from the Swiss currency in January 2015.
What to Know About the Controversy Over the Defense Authorization Bill
The $886 billion National Defense Authorization Act, which has been passed by Congress every year for the last six decades, authorizes pay for troops in harm’s way and outlines the policy agenda for the Department of Defense. But lawmakers on McCarthy’s far-right flank are pushing to use floor amendments to rein in Pentagon policies on diversity, abortion, and climate change, which they say distracts the military from its main mission.
The House Rules Committee is scheduled to mark up the defense authorization bill on Tuesday, with a floor vote expected later this week. A record 1,502 amendments were filed, highlighting the intensity of the demands from members of the hardline House Freedom Caucus even after House GOP leadership staffers huddled with lawmakers over the last few days in an attempt to cut back the number of amendments.
How the Supply Chain Crisis Abated
Excess capacity in ocean freight shipping, trucking, and other critical components of the supply chain is putting downward pressure on prices, reversing backlogs across the supply chain and contributing to the decline in inflation. Retailers, manufacturers, and policymakers welcome the “ungluing” of the various components. The New York Fed's Global Supply Chain Pressure Index (GSCPI), designed to monitor global supply chain stress, might be the best aggregate measure of the current state of the logistics industry, and it highlights a dramatic change over the last year.
The index has plummeted over the last 18 months, falling to pre-pandemic stress levels. The GSCPI integrates several commonly used metrics to assess stress in the supply chain. Evidence suggests the crisis is over. Every component in the global supply chain has seen improvement - ocean freight shipping, the price of shipping containers, barge transportation, air cargo, trucking, and warehouse capacity - all provide evidence of improvement
It’s Hot Out There - Employer Checklist for Heat-Related Injury and Illness Prevention
OSHA has developed this checklist to help employers identify potential sources of heat hazards in their workplaces and develop a plan to address and respond to these hazards. An effective safety and health program must include Management Leadership, which is demonstrated when business owners, managers, and supervisors commit to controlling hazards, protecting workers, and continuously improving workplace safety and health.
Employers should conduct routine workplace self-inspections to identify heat-related hazards, control identified heat-related hazards, and monitor and evaluate hazard controls to verify that they continue to be effective. This checklist helps employers identify their job-related risk factors for heat exposure, assess their preparedness, determine where challenges exist, and develop effective ways to control their heat-related risk and make their workplaces safer.
Microsoft-Activision Ruling Highlights Lina Khan’s Struggles to Fight Tech
When a federal judge on Tuesday decided to reject the Federal Trade Commission’s request for a preliminary injunction to prevent Microsoft from completing its acquisition of Activision Blizzard, she also rejected FTC Chair Lina Khan’s vision of antitrust enforcement. While the judge’s ruling doesn’t mean the deal is totally in the clear, since the FTC can appeal and the U.K.’s competition enforcer has also opposed the deal, it’s indicative of the existential challenge Khan’s enforcement strategy faces in the courts.
Judge Jacqueline Scott Corley wrote that the FTC had not shown it was likely to prevail in its administrative challenge of the merger in its internal proceeding, based on the agency’s view that the deal is likely to substantially lessen competition. It’s not the first time a judge has looked dubiously on the FTC’s antitrust enforcement theories under Khan. A federal judge also ruled against the FTC’s attempt to block Meta’s acquisition of virtual reality fitness app maker Within Unlimited, which the agency argued may lessen competition in a nascent market. Khan has continued to bring cases against tech companies that will face similar hurdles in the courts. The most notable might be the agency’s expected challenge of Amazon’s antitrust practices.