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Member Briefing July 17, 2024

July 17, 2024

Posted By: Harold King in Daily Briefing,

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Despite Upside Surprise, Retail Sales Show Lost Momentum

Retail sales in the United States slipped less than analysts anticipated in June on a weaker performance in the auto and gas segments, government data showed Tuesday. In June, overall retail sales were $704.3 billion, virtually unchanged from May's figure, according to the Department of Commerce. Analysts had expected a 0.3 percent drop, and May's increase was revised slightly higher as well. Even as consumption appears to have slowed, "conditions are far from weakening to a point that would be considered recessionary," said economist Rubeela Farooqi of High Frequency Economics in a note.

She expects the latest data -- coupled with improved readings on inflation -- will allow the Fed to ease monetary policy, likely in September. Among sectors, sales at auto dealers dropped 2.3 percent from May, while those at gas stations dropped 3.0 percent. But excluding auto and gas, total retail sales was up 0.8 percent in June -- indicating that there is still some way to go in easing demand. Sales at restaurants and bars was up 0.3 percent from a month prior, the Commerce Department report showed.

Read more at Wells Fargo

NY Fed Survey: Service Sector Slows in Region

Activity continued to edge slightly lower in the region’s service sector, according to firms responding to the Federal Reserve Bank of New York’s July 2024 Business Leaders Survey. The survey’s headline business activity index held steady at -4.5. The business climate index was little changed at -25.4, suggesting the business climate remains worse than normal. Employment growth continued to pick up, and wages increased at a similar pace to the prior few months. Supply availability was unchanged. Input and selling price increases remained moderate, while capital spending declined for a second consecutive month. Looking ahead, optimism about the six-month outlook waned.

The index for future business activity fell eight points to 8.0, its third consecutive monthly decline. The index for the future business climate remained negative at -5.1, suggesting that firms were not very optimistic that conditions would improve over the next six months.

Read more at The NY Fed

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Policy and Politics

Pattern For Progress Study: Housing is Out of Reach in the Hudson Valley

Hudson Valley Pattern for Progress Tuesday released Out of Reach 2024, a new report that illustrates the steep rise in housing costs over the past year, as surging rents and stagnant wages worsened the strain on tenants throughout the entire region. While housing stress is most acute for those who earn the least amount of money in our economy, the latest data show that even the core of our middle class in the Hudson Valley is now struggling to find an affordable place to live.

The data show that our yearslong affordability crisis is getting worse in the Hudson Valley. A single worker making average wages cannot afford fair-market rent in any of the nine counties served by Pattern. The gap between tenant wages and fair-market rent grew substantially in every county except one, as rents increased by more than $200 per month in many places over the past year. Homeownership also remained out of reach for the majority of our neighbors. An analysis by Pattern found that median-earning households cannot attain enough mortgage to purchase the median priced home anywhere in the Hudson Valley.

Read the report at Pattern For Progress

Up to $1 Billion May Go to Waste After Hochul’s Congestion Pricing Halt

By the time Gov. Kathy Hochul made the abrupt decision to cancel congestion pricing in New York City last month, transit leaders had already allocated more than a half a billion dollars to get the long-awaited tolling program off the ground. The Metropolitan Transportation Authority entered into a $556 million contract for cameras, software and other tools that would have been used to detect vehicles entering the planned tolling zone south of 60th Street in Manhattan. The true amount spent by the M.T.A. to implement the program is almost certainly higher. The city’s Independent Budget Office said the resources devoted to the long-delayed endeavor over the course of decades were “unquantifiable.” But Rachael Fauss, the senior research analyst for Reinvent Albany, a watchdog group, said the amount is likely to be close to $1 billion, given the amount of staff time that was dedicated to planning.

Ms. Hochul, who said that the planned tolls were too high — most drivers would have been charged $15 to enter the tolling zone during peak hours — has insisted that she is only temporarily pausing the program. She has not committed to a new start date. M.T.A. officials declined to comment about the money that had already been spent on the program. Janno Lieber, the authority’s chief executive, has said that he is taking the governor at her word when she says that she will eventually let tolling move forward.

Read more at the NYT

Health and Wellness

Covid’s Summer Wave Returns But Hospitalizations Remain Low

Levels of SARS-CoV-2, the virus that causes COVID, have increased in wastewater samples across the U.S., with the biggest uptick in the West. The percentage of positive tests—though not a perfect metric because people aren't testing as much—has also increased, but hospitalizations have remained relatively low. Most viral respiratory infections, such as influenza, peak in the winter. But for the four years that SARS-CoV-2 has circled the globe, it has caused peaks not just in winter but every summer, too. The question is, why? Possible reasons for the summer COVID peak are complex, but they fall into three main categories:

Characteristics of the virus itself. SARS-CoV-2 continues to evolve new variants. One rises to the fore every six months or so, according to Peter Chin-Hong, a professor of medicine at the University of California, San Francisco, who specializes in infectious diseases.
Characteristics of its human hosts. During the summer, many people gather for events, travel for vacations or simply spend more time inside to beat the heat. The Northern Hemisphere winter has a string of holiday gatherings that are perfect for spreading disease; likewise, “in the summer, it’s Father’s Day, graduation, Fourth of July and then summer travel,” Chin-Hong says. “It’s kind of a like a one-two-three punch.”
Environmental factors. Some studies have shown that humidity and temperature can also affect SARS-CoV-2 transmission. The virus is thought to survive best when humidity and temperature are low because cool and dry air holds less moisture—so virus-trapping microscopic droplets can remain airborne longer before settling on the ground.

Read more at Scientific American

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Industry News

Homebuilder Confidence Falls For The Third Consecutive Month

Homebuilder confidence fell for the third consecutive month in July as builders navigate a high consumer mortgage rate environment while also contending with elevated rates for construction and development loans. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell one point month over month to a reading of 42 in July. That is the lowest reading for the index since December 2023.

As builders and homebuyers contend with persistently high interest rates, 31% of builders reported cutting prices in July to bolster sales, up from 29% in June. Despite this increase, the average price reduction remained at 6%, the same as it has been for the past 13 months, and the use of sales incentives held steady from June at 61%. Additionally, the NAHB reported that homebuilders’ gauge of current sales conditions fell one point to 47. The gauge measuring traffic of prospective buyers also fell one point to 27, while the component charting sales expectations over the next six months posted a one-point gain to 48. “While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” NAHB Chairman Carl Harris said in a statement.

Read more at Housing Wire

Boeing Plea Deal: Us Judge Sets Quick Schedule To Consider Family Objections

A U.S. judge on Monday set a fast schedule to consider the objections of relatives of those killed in two fatal 737 MAX crashes to the Justice Department's plea deal with Boeing. The planemaker on July 7 agreed in principle to plead guilty to a criminal fraud conspiracy charge and pay a fine of $243.6 million. U.S. District Judge Reed O'Connor in Texas said after the Justice Department files the plea agreement, relatives of those killed will have a week to file objections and then the government and Boeing will have two weeks to respond. The families will then have five days to file a response.

The deal is a "slap on the wrist," Erin Applebaum, a lawyer at Kreindler & Kreindler LLP who represents some of the victims' relatives, said last week. Boeing plans to plead guilty to conspiring to defraud the Federal Aviation Administration after the government said the planemaker knowingly made false representations about key software for the 737 MAX. The Justice Department said in May the planemaker had breached a 2021 deferred prosecution agreement. The Justice Department will file in the coming days a document detailing "the respective terms of Boeing’s compliance obligations and the independent compliance monitor."

Read more at Reuters

Cleveland-Cliffs to Buy Canada’s Stelco for $2.8 Billion

Cleveland-Cliffs Inc. agreed to buy Canadian steelmaker Stelco Holdings Inc. for about C$3.85 billion ($2.8 billion), in the company’s first major move after losing out in its bid for United States Steel Corp. last year. Shareholders in Canada’s Stelco will receive cash and shares worth about C$70, Cliffs said in a statement on Monday, representing a premium of 87% from the closing price on Friday. The deal is the latest in a series by Cliffs Chief Executive Officer Lourenco Goncalves, who built the company from an iron ore miner just a few years ago into one of the top four US Steel producers and the country’s biggest automotive steel supplier. The combative executive tried unsuccessfully last year to acquire US Steel, and has been a vocal opponent of the company’s agreement to sell itself instead to Nippon Steel Corp. of Japan.

“Stelco was completely undervalued in the marketplace,” he said. “Cleveland-Cliffs is buying a fantastic company at the bottom of the market — because we understand the cyclicality of this business.” Stelco operates two facilities in Ontario, Canada and ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service center customers. The acquisition will expand Cliffs’ steelmaking footprint and double its exposure to the flat-rolled spot market, the company said.

Read more at Yahoo Finance

GM’s 2025 EV Production Capacity Target In Doubt After Barra Comments

General Motors’ goal of being capable of producing 1 million all-electric vehicles in North America by the end of 2025 in heavily in doubt, following comments Monday by CEO Mary Barra. The production capacity target for next year was one of the last EV targets the automaker hadn’t lowered or withdrawn as demand for EVs has not materialized as quickly as many companies such as GM previously expected. “We won’t get to a million just because the market is not developing, but it will get there,” Barra said Monday at a virtual CNBC CEO Council event. “We’re going to be guided by the customer.”

For more than two years, GM has said it would have production capacity of 1 million in EVs in each China and North America by 2025. Even after it changed or withdrew several EV targets and product plans in the last year, the company continued to say it would install the North American capacity for EVs. A GM spokesman said the company would no longer reiterate the EV production capacity plans for 2025. The company has continually said its EV plans will be flexible to meet demand.

Read more at CNBC

RTX Unit Pratt & Whitney Completes Preliminary Design Review of F-35 Engine Upgrade

RTX Corp's Pratt & Whitney said on Monday it has completed the preliminary design review for an engine upgrade to increase durability and performance in all three variants of the F-35 fighter jet. The F-35 jet is manufactured by Lockheed Martin Corp (LMT.N), opens new tab, accounting for about 27% of the company's sales. RTX received full funding from the U.S. government in March for its F135 engine core upgrade (ECU), which will modernize the F-35's propulsion system. "Upgrading the F-35's propulsion system to ECU is a critical step toward ensuring the F-35 remains the world's premier air dominance fighter," Pratt & Whitney said.

The U.S. government had cleared Pratt & Whitney in February, allowing the company to resume deliveries of its F-135 engine for the F-35 fighter jet, after a halt was put in place in December following the discovery of a safety concern. In May, the Department of Defense also resumed accepting F-35 jet deliveries from Lockheed Martin, after a brief halt starting late March due to a dispute over who would cover the costs related to fixing a production error discovered in 2017 that had caused corrosion.

Read more at Reuters

Ozempic And Wegovy Rivals: Here Are The Companies Working On Competitor Weight Loss Drugs

The stellar success of blockbuster drugs like Ozempic, Wegovy, Mounjaro and Zepbound has companies eager to break into the lucrative weight loss drug market — here are the hopeful rivals preparing to challenge Eli Lilly and Novo Nordisk for dominance in the obesity drug gold rush.

Biotech Zealand Pharma is preparing to challenge Danish compatriot Novo on multiple fronts, including survodutide—an injectable it is jointly developing with Germany’s Boehringer Ingelheim that mimics the same GLP-1 gut hormone as Wegovy and Zepbound.
San Diego-based Viking Therapeutics marked itself as a serious competitor in the weight loss drug market in February after revealing promising data from a mid-stage trial of experimental drug VK2735, which suggested it rivaled—and outperformed—Novo and Lilly drugs when given as a weekly injection and in March the company unveiled plans to test an oral tablet version after a small stage trial revealed weight loss as high as 3.3%.
Terns Pharmaceuticals is developing an oral weight loss drug targeting the GLP-1 hormone and expects to release 28-day data on weight loss from an early stage trial in the second half of 2024.
San Francisco startup Structure Therapeutics is also working on an oral, once-daily GLP-1 drug called GSBR-1290.
Maryland-based Altimmune in March touted promising mid-stage trial results for its injectable weight-loss drug pemvidutide—which is in the same class as Wegovy, Ozempic, Zepbound and Mounjaro.
U.S. pharma giant Pfizer scrapped two experimental weight loss pills last year—a once-daily pill, lotiglipron, due to elevated liver enzymes and a twice-daily pill, danuglipron, due to strong side effects—but CEO Albert Bourla has said the company is determined to “play and win” in the obesity space and in July the company said it is pushing ahead with a once-daily danuglipron pill following “encouraging” data from an ongoing early-stage trial.

Read more at Forbes

Airbus Upgrades 20-Year Demand Forecast Led By Wide-Body Jets

Airbus (AIR.PA), opens new tab on Monday revised up its 20-year demand forecast for jetliners as many airlines modernise long-haul fleets and Asia's surging economies lock into air travel. The world's largest planemaker predicted in an annual report on jet industry trends that the global fleet would more than double over the next two decades to 48,230 planes. Airbus predicted industry-wide deliveries of 42,430 new airplanes over the next 20 years, including 41,490 passenger jets, with both figures up 4% since the previous survey. Airbus divides its demand forecasts into trips that are typically carried out on single-aisle planes, the industry's most-sold models, and the marathon segment for wide-body jets.

The range and performance of single-aisle planes has steadily improved, eating into markets previously served by bigger planes and helping to transform transatlantic travel. After a prolonged lull, demand for larger wide-body planes is accelerating sharply as airlines renew capacity, and the most significant changes in Airbus' forecast affect the long-haul fleet. Airbus revised up its total wide-body demand forecast by 9% to 8,920 units. Demand in the busier segment for single-aisle passenger planes like the Airbus A320 and Boeing 737 series, which have a short to medium range, was revised up by 3% to 33,510 units.

Read more at Reuters

737 MAX Program Boosted by New Order

Boeing’s 737 MAX program gained a welcome endorsement with an order for 35 new aircraft from Aviation Capital Group LLC, a U.S.-based aircraft leasing agency with a global customer base. The new order increases Aviation Capital Group’s for Boeing 737 MAX jets to a total of 82 new twin-engine aircraft. Their joint announcement did not reveal the delivery dates for the new aircraft – which is a matter of some interest in view the reduced production rate for the 737 MAX program.

The order calls for Boeing to supply 16 737 MAX-8 and 19 737 MAX-10 jets. No value has been announced for the new order, though according to the listed values of the aircraft Boeing could be expected to earn $4.5 billion from the sale of the additional jets. Aviation Capital Group’s current portfolio includes 14 737 MAX 8 and four 737 MAX 9 jets, which are in service with Aerolíneas Argentinas, Copa Airlines, Hainan Airlines, Icelandair, SCAT Airlines, Sunwing Airlines, TUI Airways, TUI fly, and WestJet.

Read more at American Machinist

GE Speeding Development of Hypersonic Engine

GE Aerospace reported it successfully demonstrated a hypersonic dual-mode ramjet it said could make possible “high-speed flight and longer range” for multi-mission aircraft. The developer also noted the new engine is part of a portfolio of hypersonic jet propulsion technologies it has in development. A ramjet is jet engine type in which the air drawn in for combustion is compressed only by the aircraft’s forward motion. It’s a simple design that is most efficient at supersonic speeds, but a dual-mode ramjet is capable of operating in subsonic and supersonic mode (the latter referred to as a “scramjet.”)

According to GE, the new dual-mode ramjet began testing just four months ago, in March 2024, and 11 months after the design effort began. "The rapid progression from design to testing underscores our commitment to driving innovation in hypersonic technologies,” stated GE Aerospace’s Amy Gowder, president and CEO of Defense & Systems. Testing of the dual-mode ramjet was conducted at GE Aerospace’s high-speed propulsion testing center near Cincinnati. The “promising results” exceeded performance expectations, it reported, and demonstrated a threefold (3X) increase in airflow compared to previously flight-tested hypersonic technology demonstrators.

Read more at American Machinist

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