Member Briefing July 2, 2024
ISM Manufacturing PMI Drops To 48.5, Missing Analyst Expectations
A key barometer of U.S. factories fell in June for the third month in a row, signaling that an ongoing slump in the industrial side of the economy shows no sign of ending. The Institute for Supply Management’s manufacturing index slipped to 48.5% in June from 48.7% in the prior month. Numbers below 50% signal that the manufacturing sector is shrinking. One big takeaway is that the industrial side of the economy is in a rut and It’s probably not going to get out of one until interest rates fall and customer demand snaps back for big-ticket items such as appliances and new cars. Some details in the report include:
- A gauge of prices fell to a six-month low and pointed to slower inflation in the U.S.
- The index of new orders rose 3.9 points to 49.3% — just below breakeven — in a small sign of progress.
- The production barometer slid 1.7 points to 48.5%.
- The employment gauge fell 1.8 points to 49.3%.
- The price index, a measure of inflation, dropped 4.9 points to 52.1%, marking the lowest level since December.
It’s Home-Building Season, but No One Is Buying Lumber
Lumber prices have tumbled into building season, a sign that residential construction and home-improvement markets are buckling under high borrowing costs. The price of two-by-fours, which skyrocketed during the pandemic, is a reliable leading indicator for the housing market. Lately it is flashing caution. Lumber futures shed 3% Friday to end at $452.50 per thousand board feet, down 27% since mid-March. Wood has piled up in the market and pushed cash prices even lower.
Two-by-fours were among the first assets to fall from their pandemic highs when the Federal Reserve began raising interest rates in March 2022. The central bank set out to cool the red-hot housing market and slow the sort of spending that accompanies booming property values. A strong labor market and shortage of homes for sale kept builders busy. But toward the end of last year, the highest mortgage rates in a generation began to take a toll.
Personal Income and Spending Grew in May
Personal Income and Spending: In May, personal income grew by $114.1 billion (+0.5%). Disposable personal income also increased, rising $94 billion (+0.5%), and PCE rose $47.8 billion (+0.2%). The May increase in personal income was largely due to higher compensation, asset income and government benefits. The rise in PCE was driven by increased spending on services, particularly in healthcare, housing and transportation, as well as on goods like prescription drugs.
Estimates have been updated for January through April. Revised and previously published changes from the preceding month for current-dollar personal income, and for current-dollar and chained (2017) dollar DPI and PCE, are provided below for March and April.
Read more at The Bureau of Labor Statistics
Global Headlines
Middle East
- Israel and Hamas: The Latest News – The Guardian
- Palestinian Group Islamic Jihad Fires Rockets Into Israel, as Tanks Deepen Incursions into Gaza – France 24
- Israel Poised For Hezbollah War: 'The Situation Here Must Change' - Newsweek
- Ultra-Orthodox Protest of Israeli Military Enlistment Turns Violent in Jerusalem - VOA
- Gaza Militants Regroup and Rearm, Raising Threat of a Long War - WSJ
- Lufthansa Halts Night Flights to and from Beirut Due to Middle East Situation – Reuters
- $230 Million U.S.-Built Gaza Aid Pier May Not Return Following Latest Weather-Related Removal, Report Says - Forbes
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
Ukraine
- Ukraine and Russia: The Latest News – The Guardian
- Russia is Studying an Intact U.S. ATACMS Missile Guidance System, says RIA – Reuters
- Russia Lost Record Number of Artillery Systems in June: Kyiv - Newsweek
- Is Russia Overtaking Ukraine In Drone Production? - Forbes
- Russia Says it Shot Down 36 Ukrainian Drones - VOA
- US to Send Ukraine Air Defense Missiles in Next Aid Package-Officials - Reuters
- Putin Sets 'No Limits' in Ukraine Land Grab - Newsweek
- Ukraine’s World War I-Style Dogfighters Have Shot Down More Russian Drones - Forbes
- Interactive Map: Assessed Control of Terrain in Ukraine – Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Other Headlines
- Colombian Rebel Group Agrees to 'Unilateral Ceasefire' and Release of Captives – France 24
- China Looks to Roll Out Economic Reforms at Key Party Conclave – VOA
- France Election 2024: How Will the Second-Round Run-Off Work? – Reuters
- France's Parties Pull Candidates and Trade Votes in Bid to Stop National Rally Election Victory - BBC
- French Parties Rush to Build Anti-Far Right Front - Reuters
- Divide Over Antisemitism in France Weakens Unity Against Far Right - WSJ
- South Africa's Ramaphosa Unveils New Coalition Cabinet – France 24
- Cambodia Denies Hosting Chinese Naval Base, but Two Ships Raise Suspicions - WSJ
- Parties Hammer Home Key Messages in UK Election as July 4th Polling Day Nears
Policy and Politics
US Supreme Court in Trump Ruling Declares Ex-Presidents Have Immunity for Official Acts
The Supreme Court ruled Monday that former U.S. presidents retain significant immunity from prosecution for acts taken while in office, a decision that threatens to hamper efforts to prosecute Donald Trump for his alleged attempt to subvert the 2020 election. The president “may not be prosecuted for exercising his core constitutional powers, and he is entitled, at a minimum, to a presumptive immunity from prosecution for all his official acts,” Chief Justice John Roberts wrote for the court, joined in whole or part by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett.
Trump has been indicted in four different cases, two at the federal level by special counsel Jack Smith. The case before the high court involved perhaps the most serious charges: allegations by Smith that Trump participated in an illegal scheme whose aim was to deny Biden the victory he won on Election Day 2020. The charges against Trump, handed up by a federal grand jury in August 2023, include using dishonesty and fraud to obstruct the electoral process and conspiring to deny citizens’ rights to have their votes counted. U.S. District Judge Tanya Chutkan rejected Trump’s immunity claim in December, a decision upheld in February by the U.S. Court of Appeals for the District of Columbia Circuit. Trump’s team contended that the most serious allegations he faces, including pressuring state officials and Vice President Mike Pence to participate in the scheme to retain power, should be classified as official actions beyond the reach of the law.
Biden to Extend Overtime Protections for 1 Million Workers
President Biden is extending overtime protections to 1 million workers who make less than the median individual salary and is vowing to take more action if reelected. The executive action announced Monday will extend protections to workers making less than $43,888 per year, the White House said in a statement. The new overtime extensions, which go into effect Monday, stem from a rule finalized in April in a section of the Fair Labor Standards Act. The changes are a result of an updated Labor Department calculation.
The policy announcement follows a debate performance Thursday from the president that has rattled many Democrats and led to panic throughout party ranks, according to numerous media reports. Biden has styled himself as one of the most pro-labor presidents in U.S. history, being the first to join an active picket line with the United Auto Workers labor union in their strike last year at the formerly Big Three U.S. automakers.
Pattern for Progress Report Highlights Hudson Valley Regional Migration, Income Changes.
As the pandemic cooled and people tip-toed back toward normality, the Hudson Valley experienced some of its worst population losses due to migration in the past 25 years. The region lost a net of 12,257 people who moved to other counties and states in 2021. It was the region’s biggest loss since 2005, a year that saw thousands move from the Hudson Valley to New York City as part of a post-9/11 return to the metropolitan area.
The loss of 12,257 people might not be felt in a region of more than 2 million, but the cumulative losses are becoming more statistically significant for the Hudson Valley. From 1996-2021, the region lost a net of 146,763 people to outward migration, a number that represents about 5% of our total population. Previous studies by Pattern have found that three demographic factors – outward migration, declining birth rates, and a growing wave of retirements among the baby boomer generation – are exerting significant stress on our regional workforce.
Read more at Pattern for Progress
Health and Wellness
Scientists Wary of Bird Flu Pandemic 'Unfolding in Slow Motion'
Scientists tracking the spread of bird flu are increasingly concerned that gaps in surveillance may keep them several steps behind a new pandemic, according to Reuters interviews with more than a dozen leading disease experts. Many of them have been monitoring the new subtype of H5N1 avian flu in migratory birds since 2020. But the spread of the virus to 129 dairy herds in 12 U.S. states, opens new tab signals a change that could bring it closer to becoming transmissible between humans. Infections also have been found in other mammals, from alpacas to house cats.
"It almost seems like a pandemic unfolding in slow motion," said Scott Hensley, a professor of microbiology at the University of Pennsylvania. "Right now, the threat is pretty low ... but that could change in a heartbeat." The earlier the warning of a jump to humans, the sooner global health officials can take steps to protect people by launching vaccine development, wide-scale testing and containment measures. A USDA spokesperson said the agency is working "around the clock" with CDC and other partners in a “whole-of-government response," adding that ongoing research shows "America’s food supply remains safe, sick cows generally recover after a few weeks, and the risk to human health remains low.”
Election 2024
- Senate Democrats Circle Wagons Around Biden – The Hill
- As Trump’s VP List Narrows, Elise Stefanic Remains—but She’s a Long Shot - WSJ
- Biden's Family Urges Him to Stay in White House Race - BBC
- Behind the ‘Last Firewall’: Hill Democrats Scramble to Save Themselves - Politico
- The Biden Campaign Shifts from Post-Debate Denial to Damage Control – The Dispatch
- Progressives Unleash Fury on AIPAC After Bowman Loss – The Hill
- Real Clear Politics Latest GOP Primary Polls – Real Clear Politics
- Real Clear Politics Latest General Election Polls – Real Clear Politics
- Latest Polls - FiveThirtyEight
Industry News
Justice Department Planning Fraud Charge Against Boeing
The Justice Department is planning to charge Boeing with fraud after prosecutors said the company failed to implement an agreed upon anti-fraud compliance program following two fatal plane crashes that killed 346 people in 2018 and 2019, according to multiple reports, citing unnamed sources familiar with the matter. The Justice Department will reportedly give Boeing until the end of the week to decide if it will plead guilty or face a trial. A plea deal would reportedly involve a monitor being appointed to supervise Boeing’s compliance with fraud laws.
Boeing in 2021 paid a $243 million criminal fine but was able to avoid criminal charges tied to the pair of plane crashes when it agreed to create and implement a program that would find and prevent any violations of federal fraud law. Recent investigations into the company following a mid-flight incident on an Alaska Airlines flight revealed the company had not met the anti-fraud requirements. The Justice Department reportedly met with families of the two crash’s victims Sunday to discuss Boeing’s potential plea agreement.
Manufacturing Activity Weakens Across Several U.S. Regions
Last week several regions reported that manufacturing activity weakens across several U.S. regions: In Texas, factory activity remained stagnant in June. The production index increased marginally to 0.7 from -2.8 in May, but other manufacturing metrics were mixed. The Kansas City Fed Manufacturing Composite index dropped to -8 in June and Mid-Atlantic manufacturing activity slowed in June, with the Richmond Fed composite index falling from 0 in May to -10.
Meanwhile the Chicago Fed National Activity Inde In May increased to +0.18 from April's -0.26, with three out of four contributing categories improving, and two providing positive impacts. This is the first increase in three months and the highest since +0.29 in February. Despite the rise, the three-month moving average (CFNAI-MA3) fell slightly to -0.09 from -0.05. The CFNAI Diffusion Index also dropped to -0.16 from -0.13. Of the 85 indicators, 48 had positive contributions and 37 had negative ones, with 54 improving, 29 worsening and two unchanged. Production-related indicators contributed +0.23, up from -0.15, while employment indicators were neutral, and other categories had minor negative impacts.
US Construction Spending Unexpectedly Falls in May, Up Year on Year
U.S. construction spending unexpectedly fell in May as higher mortgage rates depressed single-family homebuilding, and recovery is likely to be muted by improving housing supply. The Commerce Department's Census Bureau said on Monday that construction spending dipped 0.1% after an upwardly revised 0.3% increase in April. Economists polled by Reuters had forecast construction spending, rebounding 0.2% after a previously reported 0.1% fall in April. Construction spending increased 6.4% year-on-year in May.
Spending on private construction projects slipped 0.3% in May after rising 0.4% in the prior month. Investment in residential construction dropped 0.2% after surging 0.9% in April. Outlays on new single-family construction projects decreased 0.7%. Spending on multi-family housing was unchanged. In May, spending on private non-residential structures like factories fell 0.3%. Investment in public construction projects increased 0.5% after being unchanged in April. State and local government spending gained 0.2% and outlays on federal government projects surged 3.1%.
CDK Global Says Car Dealer Software Should Be Fully Restored By July 3rd or 4th
CDK Global continues to struggle with the aftermath of a major cyberattack, with some of the software services the company provides to thousands of car dealerships around the U.S. still not fully functional. CDK told CBS MoneyWatch on Monday that it expects all of its dealer customers to have access to the company's management platform by no later than July 4, meaning some businesses can still expect to be down for several more days.
"We are continuing our phased approach to the restoration process and are rapidly bringing dealers live on the Dealer Management System," the company said in a statement. "We anticipate all dealers connections will be live by late Wednesday, July 3 or early morning Thursday, July 4." Fallout from the ransomware attack has dragged into a third week for the 15,000 car dealerships that rely on CDK's sales, inventory management and customer relations systems to run their businesses. CDK on Saturday said the company was making progress in restoring its systems for all of its clients.
Nike Stock Tanks To 4-Year Low: Why The Sneaker Giant’s Struggling
Shares of Nike nosedived Friday, setting multiple dubious milestones as the sneaker and athletic wear company faces investor dissatisfaction. The plummet sent Nike’s share price to its lowest price since March 2020; other than that month, when the global stock market briefly crashed due to COVID-19 lockdowns, it’s Nike’s lowest price since January 2019.
Precipitating the decline was Nike’s Thursday afternoon earnings report which disclosed a 2% decline in its quarterly sales ending May 31 and a warning that the company expects a 10% year-over-year decline, far worse than the 3% drop indicated by consensus analyst estimates. Nike has also dealt with an apparent decline in interest in its products—its global search volumes have been down year-over-year constantly dating back to last July, and were down about 10% last month, according to Goldman Sachs research. “Rising competition” in the athletic apparel and footwear space “doesn’t help” either, noted Jefferies analysts led by Randal Konik, naming newer entrants like Alo and Hoka as threats to Nike’s market dominance.
Its Official - Boeing Buying Embattled 737 Supplier Spirit AeroSystems For $4.7 Billion
Boeing has agreed to acquire key supplier Spirit AeroSystems—which makes the fuselages for many of Boeing’s planes— the plane maker said early on Monday, after months of negotiations amid major turmoil at the company over safety and regulatory issues. In a press release, Boeing said the deal is an all-stock transaction valued at $4.7 billion or $37.25 per share and the total transaction value will be approximately $8.3 billion—including Spirit’s last reported debt.
The share price of Spirit—the supplier which manufactures the fuselage of Boeing’s troubled 737 Max jets—closed at $32.87 on Friday. The acquisition also covers Spirit’s defense contracts and Boeing said it will “ensure the continuity of operations” by working with the Pentagon and supplier’s other defense customers. Boeing’s rival Airbus will acquire “certain commercial work packages” that Spirit performs for the European plane maker. Additionally, Spirit plans to sell its non-Airbus operations in Belfast, Ireland, Prestwick, Scotland, and Subang, Malaysia. Boeing said it expects the deal to close by mid-2025.
Deere to Cut 600 More Jobs
Deere & Co. initiated a new round of employment cuts at three plants in Illinois and Iowa, affecting about 610 workers by August 30. More cuts involving an undisclosed number of salaried positions are expected later this month, according to a statement released by Deere, the manufacturer of John Deere farm, forestry, and construction machinery. "We can confirm Deere leadership recently communicated that rising operational costs and declining market demand requires enterprise-wide changes in how work gets done to achieve our goals and best position the company for the future.”
According to the statement the changes Deere plans are meant to align the workforce to “strategic priorities while simplifying the organization and reducing overlap and redundancy in roles and responsibilities”; ensure Deere factories are optimized for future products and to operate more efficiently”; and eliminate low- and non-value-added tasks, activities, and expenses worldwide.
Read more at American Machinist
FAA Reauthorization Funds Workforce, Infrastructure
The FAA Reauthorization Act of 2024, signed into law on May 16, 2024, amounts to nearly 1,000 pages and aims to address the aviation industry’s challenges and evolution, supported by $105 billion in funding over the next five years. The act authorizes substantial funding for airport improvements, prioritizing investments in small and general aviation airports. It directs $200 million per fiscal year to replace the existing Airport Improvement Program supplemental initiative with a new discretionary grant program aimed at improving airport resilience
To address air traffic controller shortages and improve training, the act directs the FAA to implement healthier staffing standards and set maximum hiring targets, while increasing access to high-quality training with enhanced simulation systems. Additionally, it requires the FAA to update its staffing model to hire more safety inspectors and leverage its direct hire authority to fill key positions. To further bolster the aviation workforce, the act expands the Aviation Workforce Development Grant Program with increased funding to $60 million per year through 2028 and creates a pilot program to provide veterans with pilot training.
Microgrids Could Deliver a Short-Term Fix for America's Broken Energy System
Experts agree we need to completely replace the existing grid with a state-of-the-art “Smart Grid” using solid-state digital components. Unlike the current grid, designed solely to distribute current generated in the massive, fossil-fueled plants of the past to industry and homes, the Smart Grid will handle two-way electricity flow from widely distributed sources such as rooftop solar and wind farms, as well as two-way data flow that will allow much more precise real-time balancing of supply and demand.
As you can imagine, even with a massive plan in place and unlimited funding, it will take at least a decade to replace the 300,000 miles of transmission lines, substations, etc., complicated by a complex regulatory process that can also delay the start of individual projects by years. Unfortunately, there’s no such top-down nationwide project. How can we deal with this crisis? That’s where a patchwork, bottoms-up approach may be part of the solution. The same two-way digital components needed for the Smart Grid can also create small-scale projects built around local energy sources such as solar arrays and wind farms —and even tap excess electricity stored by EVs after their charging needs are met. They can serve areas as small as a neighborhood or as big as a city.