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Member Briefing July 18, 2024

July 18, 2024

Posted By: Harold King in Daily Briefing,

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US Industrial Output Beats Expectations in June

U.S. industrial production cooled in June but still exceeded analyst expectations, with manufacturing and utilities output both rising, the Federal Reserve said Wednesday. Total industrial output rose 0.6% from the prior month, down slightly from May's 0.9% reading, the report said. Analysts expect that a slump in factory output that started in early 2022 appears to now be in the rearview mirror. Among sectors, manufacturing output rose 0.4% in June, down from a 1.0% jump in May.

This was helped in part by the auto industry even as other sectors saw declines. Mining gained 0.3%, while utilities increased 2.8%, with gains in both electric and natural gas, said the Fed. For the second quarter this year, industrial output rose at an annual rate of 4.3%. But analysts at Pantheon Macroeconomics cautioned in a recent note that it is unclear if the second quarter's growth rate can be sustained. "Monetary policy is still very tight, growth in the rest of the world is anemic and most survey indicators are struggling to recover to the levels consistent with an expansion," Pantheon said. "Accordingly, we think that the conditions for another manufacturing boom are not in place yet," its report added.

Read more at Wells Fargo

An Inventory Glut Weighs On The US Industrial Sector

The US industrial sector, including machinery manufacturing, is grappling with an inventory glut that is depressing demand and production, signaling a prolonged recovery period. This ripple effect from overstocked retailers has depressed freight volumes and stymied manufacturers' attempts to reduce excess inventory, a that is unlikely to improve until the Federal Reserve acts to lower borrowing costs.

No sector in manufacturing illustrates these dynamics better than machinery manufacturing (NAICS 333). Machinery manufacturing in the United States is a massive sector, employing over 1.1 million people, with factories shipping roughly $452 billion in products in 2023. Sharp increases in inventories to shipments ratios correspond to declines in industrial production An elevated rate of inventories to shipments, coupled with declining industrial production, suggests a prolonged period of inventory drawdowns will be needed. Corroborating weak demand conditions facing machinery manufacturers, wholesalers of machinery are currently reporting weaker sales and rising inventories to sales ratios.

Read more at Supply Chain

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Policy and Politics

Biden Seriously Considering Proposals On Supreme Court Term Limits, Ethics Code, AP Sources Say

President Joe Biden is seriously considering proposals to establish term limits for U.S. Supreme Court justices, and an ethics code that would be enforceable under law amid growing concerns that the justices are not held accountable, according to three people briefed on the plans. It would mark a major shift for Biden, the former head of the Senate Judiciary Committee, who has long resisted calls to reform the high court, though since taking office he has been increasingly vocal about his belief that the court is abandoning mainstream constitutional interpretation. The details were first reported by The Washington Post.

Any changes would require congressional approval, which would be unlikely in a divided Congress. Biden is also considering calling for a constitutional amendment that would eliminate the broad immunity for presidents granted by the court in its most recent term, after Donald Trump claimed he was immune from prosecution for his actions on Jan. 6, 2021, when a mob of his supporters violently descended on the U.S. Capitol.

Read more at the AP

Democratic Sen. Bob Menendez Found Guilty In Federal Corruption Trial; Chuck Schumer Calls On Him To Resign

Sen. Bob Menendez of New Jersey was convicted of 16 counts — including bribery, extortion, wire fraud, obstruction of justice and acting as a foreign agent — for his role in a yearslong bribery scheme. The verdict is a staggering blow for the Democratic establishment in New Jersey, where longtime state powerbroker George Norcross faces a separate racketeering indictment, and a stain on the party’s national brand. Menendez, one of the most feared and influential figures in state politics, now faces decades in prison — and further questions about how he wielded his power as the former chairman of the Foreign Relations Committee. Senate Majority Leader Chuck Schumer swiftly called on his Democratic colleague to resign.

Even before his conviction, Menendez’s case sparked a revolt among rank-and-file Democrats against the state party machine, which has for decades run roughshod over outsider candidates. The race to replace him, which began shortly after Menendez was indicted, initially featured first lady Tammy Murphy. The surge of support for her from county party bosses, over the more popular Rep. Andy Kim, now the nominee, led to a grassroots backlash.

Read more at CNN

Health and Wellness

Biking, Walking to Work a Game-Changer for Health

Bicycling to work can vastly improve your health and reduce your risk of death, a new study shows. People who bike commute have a 47% lower overall risk of an early death, researchers found. They also are less likely to develop heart disease, cancer and mental health problems, results show. Walking to work also conferred some health benefits, but bicycle commuting provided the strongest boost to a person’s well-being, researchers reported July 16 in the journal BMJ Public Health.

“This study provides timely evidence of the health benefits of active commuting for both local, national and international policymakers,” concluded the research team led by Catherine Friel, a doctoral researcher with the University of Glasgow in Scotland. For this report, researchers analyzed data from a national health study in Scotland involving 5% of the Scottish population. As part of the national study, participants were asked how they commuted to work. Their responses were linked to records of national hospital admissions, drug prescriptions and deaths between 2001 and 2018.

Read more at US News and World Report

The Latest on the Assassination Attempt of Former President Trump

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Industry News

Multifamily Segment Drives Housing Starts Up in June

U.S. single-family homebuilding fell to an eight-month low in June amid higher mortgage rates, suggesting the housing market was likely a drag on economic growth in the second quarter. The report from the Commerce Department on Wednesday also showed permits for future construction of single-family houses dropped to a one-year low last month, indicating that any anticipated rebound in activity, if the Federal Reserve cuts interest rates in September as expected, could be muted. Single-family housing starts, which account for the bulk of homebuilding, fell 2.2% to a seasonally adjusted annual rate of 980,000 units last month, the lowest level since last October, the Commerce Department's Census Bureau said. Data for May was revised higher to show starts for this housing segment dropping to rate of 1.002 million units instead of the previously reported 982,000 units.

Starts for housing projects with five units or more soared 22.0% to a rate of 360,000 units in June. Overall housing starts advanced 3.0% to a rate of 1.353 million units. Economists polled by Reuters had forecast starts would rebound to a rate of 1.300 million units. Starts were down 4.4% from a year ago. Multi-family building permits surged 19.2% to a rate of 460,000 units. That contributed to lifting building permits as a whole by 3.4% to a rate of 1.446 million units.

Read more at Reuters

The Gathering of the Flock - 2024 Farnborough International AirShow

Next week, 80,000 visitors will descend on a airfield outside of London to participate in the Farnborough International Airshow. Begun in 1948, Farnborough is held on even numbered years, alternating with the Paris Air Show on odd years. Farnborough is at once a trade show, a gigantic networking event, a signature venue for new product announcements and a discreet opportunity for deal making amidst the roar of aircraft overhead and the din of countless opulent evening receptions and dinners

Attracting the senior leadership of commercial aerospace and defense companies and their customers, the AirShow brings together U.S. and foreign military delegations, governmental representatives, state and geographical business development agencies, airlines, aircraft owners, lessors and investor groups. For five days, beginning Monday July 23, the eyes of the world turn to Farnborough to take the pulse of the industry. That pulse is strong but irregular. Commercial aircraft backlogs remain oversold into the future amidst a rebound in air travel post pandemic. The war in Ukraine and tensions across the globe have pushed defense budgets to new highs. Yet ripple effects from Boeing’s travails and stressed supply chains continue to permeate the industry tiers.

Read more at Forbes

Aerospace and Defense Firms Face Stiff Competition For Talent

Prompted by record backlogs in the commercial sector and growing national defense spending, the aerospace and defense industry has gone on a hiring spree. The number of recruits needed is exceptional, as companies continue to address skills shortages and compete for talent with other industries. Some of the fastest growth has happened in France and Germany, which boast the most highly-developed aerospace industries in Europe and are home to major airframers Airbus, Dassault Aviation, and ATR, as well as equipment manufacturers like Thales, Safran, MTU Aero Engines, and Diehl Aerospace

New research from consultants McKinsey & Company has warned that while the aerospace and defense sectors have seen a boom, “headwinds" in the form of a significant gap and a rising imbalance in the ability to match demand with talent supply persist. The analysis confirms that the talent supply and demand gap continues to cause substantial strain on employers, and the value at stake has never been higher. McKinsey's researchers estimated the "capturable opportunity" for a median aerospace and defense company able to recruit the right staff to total about $330 million. “For employers, this represents a clear call to action—evolve now and evolve faster or risk the delivery of the mission," the report warned. "With national security, risk to the mission is not an option.”

Read more at AIA

Cybercriminals Steal Data from 109 Million AT&T Customers

AT&T on July 12 disclosed that the call logs for 109 million customers, i.e. nearly every mobile customer the company services, from May 1 to October 21, 2022 and also on January 2, 2023, were stolen from a database maintained by cloud provider Snowflake. Via a Form 8-K filing with the SEC on the morning of Friday, July 12, AT&T disclosed that the data was stolen between April 14 and April 25, 2024. The DOJ granted the delays to report the breach on May 9 and June 5.

Manufacturers want to pay attention to the fact that this was a breach in third-party cybersecurity, especially in an age where many vendors touting AI software for plant productivity store operations data in the cloud. Details of the hack also demonstrate why all companies must remain vigilant against the human factor. Companies using cloud-based software-as-a-service (SaaS) have to worry about cybersecurity on their end, i.e. the people at their company accessing the cloud software, and cybersecurity at the company running the cloud servers. For large companies especially, the benefits still outweigh the risks.

Read more at IndustryWeek

Biden Reportedly Considers More Restrictions On Chip Sales To China

According to Bloomberg, the Biden administration has floated the idea of using an extremely stringent export control measure, called the Foreign Direct Product Rule (FDPR), as a means to restrict China from accessing high-end chipmaking tools. Under the FDPR rule, the U.S. can impose export controls on goods made by foreign companies if any U.S.-origin technology is in the production or operation of the item. The measure could severely limit Dutch firm ASML and other companies like Japan’s Tokyo Electron from selling their products to China.

According to the report, the U.S. has urged Dutch and Japanese government officials to step up and place curbs on the export of advanced chip-making gear to China, warning the U.S. may have to turn to the FDPR rules if they don’t act. Bloomberg says this is in response to U.S. semiconductor companies being frustrated at having to adhere to restrictions on business with China while foreign firms don’t.

Read more at Forbes

Musk Says He Will Move X and SpaceX Headquarters Out of California

The billionaire entrepreneur said Tuesday he is moving the headquarters of two of his companies, X Corp. and SpaceX, to Texas from California. The moves, announced days after he endorsed Donald Trump for president, further illustrate how Musk has increasingly aligned himself with conservative stances on social issues. His disclosures followed the move by California Gov. Gavin Newsom, a Democrat, to sign a new law Monday that aims to prevent schools from informing families if their children identify as gay or transgender.

On Tuesday, Musk said his rocket company, SpaceX, would move its headquarters from Hawthorne, Calif., to an area in Texas where SpaceX has been expanding its Starbase manufacturing and launch site, near Brownsville in the southeastern corner of the state. Musk’s social-media company, X, previously known as Twitter, has been based in the Mid-Market neighborhood of San Francisco for more than a decade—long before Musk acquired the company in 2022. X has been expanding in Texas. Earlier this year, the company said it was hiring employees for a team based in Austin to focus on content safety issues.

Read more at The WSJ

Boeing Door Blowout Crisis Hitting Suppliers, Airlines And Passengers

After a door panel on an Alaska Airlines-operated Boeing 737 MAX 9 jet blew off midair in January, Anneke Palmerton learned the carrier had canceled her flight to Orlando as well. It did not surprise her as Alaska had decided to ground its fleet of MAX 9 aircraft after the Jan. 5 accident. Little did she know the incident would snowball, impacting air service in her city of Bellingham, Washington and upending her winter plans to fly Southwest Airlines.

The door blowout happened aboard only one flight. But fallout from the ensuing safety crisis has inflated costs for those reliant on Boeing. Interviews with airline executives, union leaders, pilots, suppliers, passengers and government officials, show how the incident is rippling through the trillion-dollar global aviation industry. Boeing is the largest U.S. exporter and employs nearly 150,000 people domestically. It supports millions more through a supply chain that includes thousands of businesses big and small around the world. Economist Joseph Brusuelas estimates it cumulatively contributes $1 trillion a year to the U.S. economy and supports over 5 million jobs.

Read more at Reuters

Prologis Says Demand for Data Centers Is Boosting the Industrial Property Outlook

Prologis raised its annual earnings outlook despite a steep decline in revenue in the second quarter, saying that a dwindling pipeline of new warehouses and growing demand for artificial intelligence infrastructure should boost profitability. Warehouse developers are navigating a slowing industrial real-estate market following several years of rapid expansion fueled by surging e-commerce demand during the pandemic. Real-estate services firm Cushman & Wakefield recently reported the vacancy rate for U.S. industrial real-estate reached its highest level in nine years in the second quarter, climbing to 6.1% from 4% in the year-ago quarter.

Chief Executive Hamid Moghadam said demand for data centers and energy facilities, which has been led by the push to expand artificial intelligence infrastructure provide “tremendous confidence in future growth.” Prologis now projects earnings per share attributable to common shareholders for 2024 between $3.25 and $3.45 compared to its earlier outlook of $3.15 a share and $3.35 a share.

Read more at The WSJ

What Immigration Means For Economies As Populations Get Older

Projections by the Census Bureau predict that within 10 years, the number of people 65 and older in the U.S. will be larger than the number of people under 18. Populations getting older is a global trend for the long-industrialized countries — something with sweeping effects on economics, social safety nets and immigration. If you look at the recent data from the United Nations, the global population age 65 and over has nearly doubled since the mid-1970s to 10.3% currently. And this trend toward global aging is going to continue with women having fewer children and people living longer on average.

There is a relationship between immigration and population nations with population growth, they feed off of each other. Immigration accounts for all or much population growth in many countries over the past few decades. And there’s a recent report from Pew Research Center, and it documents that in 14 countries and territories, immigration accounted for 100% of population growth from 2000 to 2020. And these places ranged from large European countries, like Germany, to smaller island nations, such as Aruba. And in another 17 countries, Pew researchers found populations did decline, but the decreases were smaller than the otherwise would have been, thanks to immigration. Among these countries: Japan.

Read more at Marketplace

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