Member Briefing July 18, 2023
Empire Manufacturing Survey – Activity Holds Steady, Prices Moderate
Manufacturing activity was changed little in New York State, according to the July survey. The general business conditions index fell six points to 1.1. Twenty-nine percent of respondents reported that conditions had improved over the month, while twenty-seven percent reported that conditions had worsened. Here are some more key findings
The new orders index was little changed at 3.3, indicating that orders edged higher,
The shipments index fell nine points to 13.4, pointing to an increase in shipments.
At -8.8, the unfilled orders index remained negative for a third straight month, a sign that unfilled orders continued to decline.
The inventories index remained negative at -10.8, indicating that inventories moved lower.
The delivery times index came in at -6.9, suggesting that delivery times shortened.
The index for the number of employees climbed into positive territory for the first time since January and, at 4.7.
The average workweek index rose to 0.3, indicating little change in hours worked.
Price increases continued to moderate: the prices paid index fell five points to 16.7, and the prices received index fell five points to 3.9. The prices paid index has now fallen nearly fifty Points over the past year, and the prices received index has fallen a cumulative twenty-seven points.
The index for future business conditions edged down to 14.3, indicating that while conditions are expected to improve, optimism remained subdued.
The capital spending index fell five points to 2.9, suggesting that capital spending plans remained soft.
War in Ukraine Headlines
China’s Economy Barely Grows as Recovery Fades
China’s economy grew just 0.8% in the second quarter compared with the first three months of the year, and more than a fifth of Chinese aged 16 to 24 are out of work. Growth in the second quarter was less than half the 2.2% quarterly pace recorded in the January-to-March period. The result reflected weak retail sales, subdued private-sector investment and a reversal in exports, which had propelled growth throughout the pandemic but are suffering now as major central banks ratchet up interest rates.
On an annual basis, economic growth accelerated, helped by a favorable comparison with 2022, when growth collapsed because of sporadic lockdowns under a government policy aimed at eliminating even the tiniest Covid-19 outbreaks. That weakness in 2022 means the economy is still expected to meet or even exceed officials’ goal of expanding by around 5% this year. But the loss of momentum after an initial burst of activity at the beginning of the year means China will need to do more to revive household and business confidence and get the economy back on track, economists say. China’s currency, the yuan, was down 0.2% against the U.S. dollar in offshore trading early Monday in Asia.
NFIB Survey: Inflation, Quality of Labor Top Concerns of Small Business Owners
The National Federation of Independent Business’s Small Business Optimism Index climbed 1.6 points from 89.4 to 91.0, its highest level since November of last year. Of the 10 “single most important problems” that the NFIB asks about, inflation and quality of labor tied for the top spot at 24% of firms reporting each. Interestingly enough, financial and interest rates fell to the bottom spot at only 2% of firms reporting as small businesses continue to shrug off concerns about interest rate hikes.
Small business owners expecting better business conditions over the next six months improved 10 points from May to a net negative 40%, 21 percentage points better than last June’s reading of a net negative 61%. Forty-two percent of owners reported job openings that were hard to fill, down two points from May but remaining historically very high. The net percent of owners who expect real sales to be higher improved seven points from May to a net negative 14%. 59% of owners reported hiring or trying to hire in June, down four points from May. Of those hiring or trying to hire, 92% reported few or no qualified applicants for the positions they were trying to fill.
COVID Update – Milestone – The Number of Americans Dying Each Day is no Longer Historically Abnormal
The total number of Americans dying each day — from any cause — is no longer historically abnormal. Excess deaths, as this number is known, has been an important measure of Covid’s true toll because it does not depend on the murky attribution of deaths to a specific cause. Even if Covid is being underdiagnosed, the excess-deaths statistic can capture its effects. The statistic also captures Covid’s indirect effects, like the surge of vehicle crashes, gun deaths and deaths from missed medical treatments during the pandemic.
During Covid’s worst phases, the total number of Americans dying each day was more than 30 percent higher than normal, a shocking increase. For long stretches of the past three years, the excess was above 10 percent. But during the past few months, excess deaths have fallen almost to zero, according to three different measures.
Chip Companies, top US Officials Meet on China Policy, Source Says
U.S. chip company executives are meeting with Biden administration officials on Monday to discuss China policy, a source told Reuters, as the most powerful semiconductor lobby group urged a halt to more curbs that are under consideration. Secretary of State Antony Blinken met with chip company chief executives to talk about the industry and supply chains after his recent trip to China, a department spokesperson said.
Commerce Secretary Gina Raimondo, National Economic Council director Lael Brainard and National Security Council director Jake Sullivan on Monday are among government officials who are holding the meetings with Intel (INTC.O), Qualcomm (QCOM.O) and Nvidia (NVDA.O), the source said. The chip industry is keen to protect its profits in China as the Biden administration considers another round of restrictions on chip exports to China. Last year, China accounted for $180 billion in semiconductor purchases, more than a third the worldwide total of $555.9 billion and the largest single market, according to Semiconductor Industry Association (SIA).
Copper, Base Metals Prices Sink on Weak Chinese Economic Growth Data
Copper prices fell sharply following weak economic data from top metals consumer China. According to Reuters, three-month benchmark copper (HG1:COM) on the London Metal Exchange recently traded -2.5% to $8,460/metric ton, while the most-traded August copper contract on the Shanghai Futures Exchange was -1% to 68,740 yuan/metric ton. Prices for aluminum, zinc, lead, tin and nickel all fell more than 1% on the LME.
Q2 data showed China's economy grew only 0.8% Q/Q, as demand weakened at home and abroad, adding to pressure on policymakers to deliver more stimulus, and China's non-ferrous production last month continued to rise Y/Y. Base metals fell despite a weaker U.S. dollar, which hovered near 15-month lows after posting its biggest weekly drop so far this year. Copper stocks in Shanghai Exchange warehouses reportedly rose for a third consecutive week, to 82,690 metric tons.
Consumers Feeling Better But Still Not Great
With the welcome news that The University of Michigan’s measure of consumer confidence jumped, Ryan Sweet, Chief US Economist at Oxford Economics notes that the increase was more the expected. He notes that this is due to a "rise in stock prices, moderation in realized inflation, and low unemployment." While the gain was the largest since 2006, he said his company "won’t be altering our near-term forecast for real consumer spending. The relationship between consumer sentiment and consumption is loose, at best, in the near term. Also, confidence is still noticeably lower than that seen prior to the pandemic."
While both short-and long-term inflation expectations edged higher, rising from 3.3% to 3.4%, he notes the increase "isn’t a cause for immediate concern as inflation expectations were at 4.6% as recently as April. Median 5-10 year inflation expectations rose from 3% to 3.1%. Overall, long-run inflation expectations have been fairly unchanged this year.
Teamsters President Says He’s Asked the White House Not to Intervene if UPS Workers Go on Strike
The head of the Teamsters said Sunday that he has asked the White House not to intervene if unionized UPS workers end up going on strike. Negotiations between the delivery company and the union representing 340,000 of its workers have been at a standstill for more than a week with a July 31 deadline for a new contract approaching fast. The union has threatened a strike if a deal is not reached by the time the collective bargaining agreement expires.
The Teamsters represent more than half of the Atlanta-based company’s workforce in the largest private-sector contract in North America. If a strike does happen, it would be the first since a 15-day walkout by 185,000 workers crippled the company a quarter century ago. Before contract talks broke down, both sides had reached tentative agreements on several issues, including installing air conditioning in more trucks and getting rid of a two-tier wage system for drivers who work weekends and earn less money. A sticking point in negotiations is wage increases for part-time workers, who make a minimum of $16.20 an hour, according to UPS.
Why Hydrogen Cars Refuse to Die
The old debate about whether electric cars should be powered by batteries, Tesla-style, or with hydrogen fuel cells, such as the Toyota Mirai, appears to have been won hands-down by batteries in recent years. So why are companies still investing in hydrogen cars? The facetious answer is that they may be designed to convey political messages more than actual passengers. The serious one is that there are still plenty of doubts about battery EVs as a universal solution for decarbonizing road transport.
British petrochemical giant Ineos Group is the latest company to reveal a fuel cell EV. The automotive division of Jim Ratcliffe’s privately-owned group on Thursday presented an adapted version of its Grenadier off-roader, itself a new take on the old Land Rover Defender. Even companies that have spent decades working on fuel cell cars stress the technology’s heavier-duty applications these days. At a technology briefing last month, Toyota said it had 100,000 potential fuel-cell orders from third parties, most of them for commercial vehicles. Honda and Hyundai, the other champions of hydrogen cars historically, talk of selling their systems to manufacturers of trains, ships and construction machinery, among others.
Yellen Visits India Again to Promote Closer Ties and Tackle Global Economic Problems
On the heels of a trip to Beijing, U.S. Treasury Secretary Janet Yellen is back in India for the third time in nine months, this time to meet finance ministers from the Group of 20 nations about global economic challenge. Yellen said her goals for her time in India were to press for debt restructuring in developing countries in economic distress, push to modernize global development banks to make them more climate-focused and deepen the ever-growing U.S.-India relationship.
Yellen told reporters in Gandhinagar, the capital of the western Indian state of Gujarat, on Sunday that she was trying to foster warming relations between the U.S. and India. She also plans a stop in Hanoi, Vietnam, to address supply chain reliability, clean energy transition and other matters of economic resilience.
America’s Most Crucial Waterway Is Drying Out
Water levels on the Mississippi and Ohio rivers are falling for a second straight year, raising the prospect of shipping problems along the all-important US freight routes.In Cairo, Illinois, where the Ohio joins the Mississippi, water levels have dropped more than 6 feet (1.8 meters) in the last week and are forecast to fall more than 4 feet further by the end of July, pushing the Ohio River into its so-called low stage — when barges can run aground and shipping lanes are forced to narrow. In St. Louis to the north, the Mississippi could fall another 3 feet; in Memphis, it’s forecast to decline by twice as much, putting it in its low stage, t
“It’s not uncommon this time of year that we’d be coming out of flood,” Justin Gibbs, a meteorologist with the National Weather Service, said. Instead, he’s watching river levels continue to drop. He said the lack of rain we saw in May could have a long-term impact. “If it keeps being this dry, I won’t be surprised if by this fall, we’re looking at river levels that are low enough that we have navigation issue again,” he said.
Electric Big Rigs Hit the Streets, but Chargers Are Scarce
Heavy-duty electric trucks are rolling out across the country. The electric grid upgrades and equipment needed to plug them in aren’t. In January, California utility PG&E told charging provider FreeWire Technologies that one of its large fleet customers wouldn’t be able to charge trucks for a few years during summer afternoons when California electricity use peaks. The company would be unrestricted during cooler months, according to an email reviewed by The Wall Street Journal.
As automakers deliver new electric trucks to fleet customers, parking lots that once needed enough power for a few floodlights now might need to draw as much power as a skyscraper. But the necessary grid improvements could take years. Capacity upgrades would take at least until 2026, PG&E told FreeWire, which is installing chargers paired with batteries for that customer and others to avoid the wait.
Tesla Begins Cybertruck Production After Yearslong Wait
Tesla built the first Cybertruck at its factory in Texas, rolling out the futuristic electric pickup nearly four years after the prototype was introduced. The company celebrated the production kickoff in a Saturday morning tweet that showed a photo of the vehicle surrounded by hundreds of employees in hard hats at Tesla’s plant in the Austin area, where the company is now based.
More competitors have brought their electric pickups to market since Tesla shared plans to enter the segment. Ford’s F-150 Lightning pickup began rolling off assembly lines in Michigan early last year. Startup Rivian Automotive has increased deliveries of its R1T pickup to customers in recent months. Some of these vehicles, such as the F-150 Lightning, bear a resemblance to their gas-powered counterparts, a tactic meant to woo traditionalists. Musk has slammed those designs as boring, and opted for a different look with the Cybertruck, which sports a triangular stainless-steel exterior and science-fiction appeal.
Ford slashes prices of F-150 Lightning trucks as EV wars heat up
Ford Motor deepened a price war in the electric-vehicle industry on Monday by slashing the prices of its F-150 Lightning trucks, including a 17% cut for the base model, as it aims to boost its share of an EV market dominated by Tesla. Shares of Ford were down about 5% in afternoon trade. Rival General Motors (GM.N) also fell about 3%, while EV maker Rivian was down about 4%. Tesla's shares were up 2% after the company built its first Cybertruck at its Austin plant
The Detroit automaker, which had raised Lightning prices earlier this year, said it was able to cut prices on improvements in scale and battery raw material costs. "Shortly after launching the F-150 Lightning, rapidly rising material costs, supply constraints and other factors drove up the cost of the EV truck for Ford and our customers," said Marin Gjaja, chief customer officer, Ford Model e.
U.S. Companies Score Partial Reprieve From Global Minimum Tax Deal
Under the updated agreement negotiated by the Treasury Department, companies will have an extra year—until 2026—before foreign countries can start imposing new taxes on any U.S. companies deemed to pay too little tax in the U.S. And the clean-energy tax credits at the core of last year’s Inflation Reduction Act will be counted in a more favorable way than some companies had feared, offering certainty as a tax-credit trading market gets under way.
The Organization for Economic Cooperation and Development, which is leading the talks, detailed the changes Monday in technical guidance after negotiations among countries. The U.S. and about 140 other jurisdictions agreed in late 2021 to impose a 15% minimum tax on large companies in each country where they operate. Negotiators, including Treasury Secretary Janet Yellen, hailed the deal as a landmark achievement in international cooperation and a bulwark against corporate tax dodging.
UK Government, Boeing and Partners Announce £80m Manufacturing Investment
Boeing has joined forces with UK partners and the British Government in one of the UK’s largest ever advanced manufacturing investments, to develop and test pioneering new composite manufacturing technologies. Announced by the Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, the £80 million investment by government and industry is aimed at revolutionising aerospace manufacturing and creating thousands of highly skilled UK jobs.
Boeing - as lead partner on IHSS - will provide project oversight, leadership and technical support. The University of Sheffield Advanced Manufacturing Research Centre (AMRC) will establish the Compass (Composites at Speed and Scale) facility in Sheffield to house the research. Spirit AeroSystems will advance stringer preform fabrication and inspection technologies and will be responsible for performing all of the part inspections and factory modelling from their facility in Prestwick, while Loop Technology based in Dorset will offer cutting-edge automated solutions for composite handling, assembly, and inspection.