Member Briefing July 17, 2023
PPI = O.1% - U.S. Wholesale Inflation Slows to a Crawl
U.S. wholesale prices rose a meek 0.1% in June and no longer appear to be going up, suggesting that inflation is likely to continue to decelerate. Economists polled by the Wall Street Journal had forecast a 0.2% increase in the producer price index. A separate measure of wholesale prices that strips out volatile food and energy costs and trade margins also increased 0.1% last month, the government said. Wholesale costs often foretell future inflation trends. The increase in wholesale prices over the past 12 months slowed to 0.1% from 1.1% in the prior month. That’s the lowest reading since September 2020.
- The cost of goods were unchanged in June, aided by lower food prices.
- Food prices have fallen in six of the past seven months and they are down 12% in the past year.
- The wholesale cost of services, meanwhile, rose slightly last month and remains the chief source of U.S. inflation. Service-price increases have slowed to an annual rate of just 2.3%, however.
- The wholesale cost of partly finished goods declined for the fifth month in a row and are down 9% compared to a year earlier.
- And the cost of raw materials dropped again and are one-third cheaper vs. the same month one year ago.
War in Ukraine Headlines
NAM Economist Moutray Says Manufacturing Skies are Clearing
As chief economist for the National Association of Manufacturers, it’s Chad Moutray’s job to collect and read real-time indicators and fuzzy tea leaves for America’s factory sector, and he shared some crucial — and actionable — insights with the recent Chief Executive Smart Manufacturing Summit in Louisville. “I think a soft landing is still possible” for the economy, Moutray told attendees in his most reassuring remark.
The hard data is weaker than we’d like to see in manufacturing production, but [activity] has increased in the last couple of months. And what’s more important is manufacturing production and capacity utilization.” In fact, in spring of 2022, U.S. manufacturing production “was the best we’d seen since 2018 [and] capacity utilization was the best we’d seen since 2000,” Moutray said. “Certainly we’ve pulled back from there, but we are down [only] 0.7% from that point 15 months ago” in manufacturing production. “And we aren’t that far from 80% capacity utilization, which is a great number.”
Five Reasons The Road To Revitalizing American Manufacturing Runs Through The Pentagon
Military leaders have come to recognize that without a robust economy, it would be difficult to win a major war. However, the “arsenal of democracy”—US industry—is not what it was when President Franklin Roosevelt first used that phrase in a 1940 radio broadcast. Two generations of removing barriers to free trade have resulted in many manufacturers moving offshore, or simply shutting down.
The Department of Defense will spend over $300 billion in 2024 on development and production of warfighting systems—an amount that dwarfs annual outlays for projects such as infrastructure renewal and the civil space program. The Pentagon is a dominant source of demand in industrial sectors such as shipbuilding and aerospace. Many of the areas where the military invests most heavily involve “dual use” technologies, meaning technologies with both defense and civilian applications. The skills required for industrial manufacturing are typically fungible across diverse markets. This is true even when a military program seems to be of little relevance to the commercial world. Lockheed Martin’s work on hypersonic weapons for example requires breakthroughs in lightweight composites, advanced electronics and the like—technologies with potential civilian applications.
COVID Update – Deer Spread COVID to Humans Multiple Times, New Research Suggests
Americans have transmitted COVID-19 to wild deer hundreds of times, an analysis of thousands of samples collected from the animals suggests, and people have also caught and spread mutated variants from deer at least three times. The analysis published Monday stems from the first year of a multiyear federal effort to study the virus as it has spread into American wildlife, spearheaded by the U.S. Department of Agriculture's Animal and Plant Health Inspection Service, or APHIS.
Scientists analyzed 8,830 samples collected from wild white-tailed deer across 26 states and Washington, D.C., from November 2021 to April 2022, to study the COVID variants that had infected 282 of them. By comparing sequences from the viruses in deer against other publicly reported samples from databases of human infections around the world, they were able to trace the likely spread of these variants between humans and animals. A total of 109 "independent spillover events" were identified, matching viruses spotted in deer to predecessors it likely descended from in previously infected humans.
NYS COVID Update
The Governor updated COVID data for the week ending July 14.
- Weekly: 46
- Total Reported to CDC: 79,859
- Average Daily Patients in Hospital statewide: 387
- Average Daily Patients in ICU Statewide: 44
7 Day Average Cases per 100K population
- 2.1 positive cases per 100,00 population, Statewide
- 2.5 positive cases per 100,00 population, Mid-Hudson
House Passes Controversial Defense Bill After Clashes Over Abortion, Climate Change and Ukraine Policies
House Republicans passed the National Defense Authorization Act after GOP leadership made several concessions to the right flank of the party in a big gamble. The legislation passed 219-210. Members of the House Freedom Caucus pressured Speaker McCarthy to hold last-minute floor votes on several contentious amendments, ranging from targeting the Pentagon’s abortion policy to reeling back climate change initiatives. Despite the infighting, House Republicans managed to push through the NDAA without much Democratic support.
The amendments endangered final passage of the legislation, a must-pass defense bill that sets the Pentagon’s policy agenda and authorizes how the Defense Department uses federal funding. The NDAA has traditionally passed with bipartisan support, but some conservative amendments have alienated Democratic lawmakers from supporting the final version this year. The senate is expected to pass its own version next week. A conference committee of the two houses would then be formed to reconcile the two versions of the legislation.
Chinese Exports Drop
Chinese exports fell at their steepest annual pace in June since the early days of the pandemic in February 2020. China isn’t the only Asian export powerhouse reporting sinking overseas sales. Exports from Taiwan fell 23% in June compared with a year earlier, while Vietnamese exports were down 11%. Exports from South Korea were down 6%, according to official figures compiled by data provider CEIC.
Global trade has been softening for months as Western consumers quit spending so much on electronics, home improvements and other consumer goods after splurging during the pandemic. Instead, they have chosen to spend more of their income on eating out, traveling and other services. Now, trade is facing new pressure from cooling growth in the U.S. and Europe as surging borrowing costs squeeze consumer and business spending. Many economists expect the U.S. to tip into recession this year.
China Invites Global Investors for Rare Meeting as Economy Sputters
China's financial regulators have invited some of the world's biggest investors to a rare symposium this week, three sources said, seeking to encourage foreigners to keep investing in the world's second-largest economy despite its recent weakness and rising geopolitical tensions. The meeting in Beijing next Friday will focus on the current conditions of U.S. dollar-denominated investment firms in China and the main challenges facing them, according to the sources who have direct knowledge of the matter and invitation documents reviewed by Reuters.
Large foreign and domestic fund managers such as private equity (PE) firms, known as general partners (GPs), and their investors or limited partners (LPs) including sovereign wealth funds and pension funds are expected to join the meeting, said the sources. They also will be encouraged to provide suggestions to help address challenges facing their businesses in China and share their outlook on the economy, according to the sources and documents.
UPS Strike Could be Costliest in US in a Century, Study Says
A threatened U.S. strike at United Parcel Service could be "one of the costliest in at least a century," topping $7 billion for a 10-day work stoppage, a think tank specializing in the economic impact of labor actions said on Thursday. That estimate from Michigan-based Anderson Economic Group includes UPS customer losses of $4 billion and lost direct wages of more than $1 billion. A 15-day UPS strike in 1997 disrupted the supply of goods, cost the world's biggest parcel delivery firm $850 million and sent some customers to rivals like FedEx.
Roughly 340,000 union-represented UPS workers handle about a quarter of U.S. parcel deliveries and serve virtually every city and town in the nation. A strike could delay millions of daily deliveries, including Amazon.com (AMZN.O) orders, electronic components and lifesaving prescription drugs, shipping experts warned. They added this also could reignite supply-chain snarls that stoke inflation.
The Economist: The World is in the Grip of a Manufacturing Delusion
For more than 250 years governments across the globe share the view of factories as a cure for the ills of the age—including climate change, the loss of middle-class jobs, geopolitical strife and weak economic growth—with an enthusiasm and munificence surpassing anything seen in decades. In the West the aim is to reverse industrial decline, which is keenly felt by voters. As a share of global economic output, manufacturing has dropped from 19% in 1997 to 16% today, with the fall steepest in rich countries. In China and India industry’s share of economic output appears to be roughly where it was three decades ago, but even in these countries it has slipped in recent years
Politicians also hope that spending will create new firms and even industries. Tesla and BYD, the American and Chinese upstarts of the EV age, are the sort of thing they have in mind. Energy-intensive factories in places with abundant, and cheap, renewable energy would also be nice. But from a global perspective, a subsidies race is ultimately zero-sum.
Revolutionizing the European Manufacturing Industry: The Rise of Articulated Robots
Articulated robots are not a new concept. However, their adoption in the manufacturing industry has surged in recent years due to technological advancements and the increasing need for automation. The benefits of articulated robots are manifold. They offer unparalleled precision, which is crucial in industries such as automotive, electronics, and pharmaceuticals, where even the slightest error can have significant consequences. Moreover, these robots can work tirelessly around the clock, thereby increasing productivity and reducing downtime. They also eliminate the need for human intervention in potentially hazardous tasks, thereby enhancing worker safety.
The rise of articulated robots is also contributing to the reshaping of the European manufacturing landscape. Traditional manufacturing hubs are witnessing a shift towards high-tech, automated factories. Countries such as Germany, known for its robust manufacturing sector, are leading the way in this transition. The country has seen a significant increase in the use of articulated robots, particularly in the automotive industry.
FDA Seeks Input On AI Adoption In Drug Development And Manufacture
The U.S. FDA and other regulatory bodies have understood the incredible value that AI systems can offer in making predictions, recommendations, or decisions influencing real or virtual environments. Each AI system life cycle phase involves: i) design, data, and models, which is a context-dependent sequence encompassing planning and design, data collection, and processing, as well as model building; ii) verification and validation; iii) deployment; and iv) operation and monitoring.
The FDA, to begin an initial communication with stakeholders released two discussion papers for consideration: Using Artificial Intelligence and Machine Learning in the Development of Drug and Biological Products1 and Artificial Intelligence in Drug Manufacturing. Interested stakeholders wishing to present ideas and concerns for consideration and potential policy development on the application of the existing regulatory framework to use of AI in pharmaceutical manufacturing can submit comments to Docket No. FDA-2023-N-0487 by August 9th.
PepsiCo reported strong growth in sales and profit as consumers continued to shrug off price increases and spend on Doritos, Cheetos and other snacks, prompting the food and beverage giant to raise its revenue outlook for the year. PepsiCo said overall revenue increased 10.4% to $22.3 billion in the latest quarter. The soda and snacks giant reported second-quarter profit of $2.7 billion, or $1.99 a share, compared with $1.4 billion in the year earlier. Earnings per share adjusted to exclude items such as conflict in Ukraine came in at $2.09. PepsiCo raised its forecast for a key sales metric, projecting that organic revenue will go up 10% this year, compared with its previous forecast of 8%. - WSJ
JPMorgan’s second-quarter profits rose by 67% as the nation’s largest bank made more loans to customers, took advantage of higher interest rates, and got a boost from its recent acquisition of First Republic Bank. The bank earned $14.5 billion in the three months ended June 30, compared with $8.65 billion in the same period last year. On a per share basis, the bank earned $4.75. Revenue rose to $42.4 billion, from $31.6 billion a year ago. - AP
Fastenal Sales Growth Slides, Indicating Weakness in the Manufacturing Economy
Fastenal, which distributes fasteners, safety supplies and various tools to factory floors and construction sites, said July 13 that their teams’ daily sales grew 5.9% in the three months ended June 30 compared to the same period of 2022—which was down significantly from the 9.1% growth they posted in the first quarter (and the 10.7% growth rate of late last year) as well as a larger drop than executives had expected.
On top of that, customers’ average order size—which was $258 in 2022—shrank to $222 during the second quarter. CFO Holden Lewis said on a conference call that regional Fastenal executives see clients being tighter with their operating and capital budgets and see some slowing their orders or deferring them. The immediate outlook, Lewis added, remains for soft demand. One interesting nugget to note from Fastenal’s numbers: Daily sales to the company’s multi-site national accounts rose rose more than 10% from mid-2022 but sales to smaller clients were essentially flat.
Biden Administration Announces $39 Billion in Student Debt Relief for 804,000 Borrowers
The Biden administration has announced that it will provide $39 billion in total student debt relief for 804,000 borrowers, its latest step since President Biden’s student loan forgiveness plan was struck down by the Supreme Court. The Education Department said Friday the relief is being provided on income-driven repayment plans, in which the federal government cancels remaining balances for the borrower after they have made their payments for 20 or 25 years.
The department said the “fixes” will more accurately count monthly payments that qualify under the plans, and it will notify borrowers who are eligible for the relief in the upcoming days. The Supreme Court struck down Biden’s plan to give $10,000 of student debt relief to low- and middle-income borrowers and up to $20,000 for Pell Grant recipients in a 6-3 decision last month. The majority found Congress had not directly authorized the president to forgive debts worth hundreds of billions of dollars.
Delta Adding More Airbus Small Jets
Delta Air Lines plans to add 12 more Airbus A220-300 jets to its fleet, extending its portfolio of the narrow-body series to 131 aircraft, 45 A220-100s and 86 A220-300. At list prices, the additional aircraft could be worth almost $1.1 billion, though neither Airbus nor Delta has commented on the value of the new order. The larger A220-300 seats 120 to 160 passengers and has a range of 3,600 nmi (4,140 miles) A220 series jets are powered by Pratt & Whitney PW1500G geared turbofan engines, which promise “at least 20% lower fuel-burn per seat compared to previous generation aircraft,” according to Airbus.
It is Delta’s second A220 order announced this year and its fifth overall for twin-engine, medium-range aircraft series, developed by Bombardier Inc. and acquired by Airbus in 2020. Delta was the first A220 operator in North America and it is the largest customer and operator of those aircraft in the world. Airbus assembles the A220 aircraft at its production centers in Quebec and in Mobile, Ala.
China’s Chip Metal Export Curbs Are ‘a Wake-Up Call’ for Countries to Diversify their Supply Chains
China’s commerce ministry announced last week that it is restricting the exports of two metals — gallium and germanium — key to the manufacturing of semiconductors starting Aug. 1, in what is seen as a warning to Europe and the U.S. in a tech war over advanced chips. China produces 60% of the world’s germanium and 80% of gallium, based on data from the Critical Raw Materials Alliance, an industry body.
“This could be a wake-up call for some [countries] to gradually build up production elsewhere,” Stewart Randall of Shanghai-based consultancy Intralink told CNBC. Both the Europe Commission and U.S. expressed concern about China’s planned curbs. “China stopping the exports of the metals is actually a warning. It reminds the European countries that they need to have their own supply chains,” Brady Wang, associate director of Counterpoint Research, told CNBC.