Member Briefing July 20, 2023
Foreign Investments in U.S. Manufacturing (From Everywhere But Europe) Are Booming
Data published last week by the U.S. Bureau of Economic Analysis (BEA) showed that foreign direct investments in greenfield projects, which include both the establishment and expansion of US businesses, hit $5.3 billion in the American manufacturing sector—more than double pre-pandemic levels. Within manufacturing, the computers and electronic products sectors took the largest share of greenfield investments, totaling $1.8 billion. Across all sectors (not just manufacturing), the number of $1 billion-plus greenfield projects also jumped last year to 16, from only five the previous year.
Examining BEA data, Simon Evenett, a professor of international trade and economic development at the University of St. Gallen in Switzerland, found that while non-European greenfield investments across all sectors, not just manufacturing, in the US spiked last year, investments from Europe actually fell. Total planned expenditures from European investors announced last year in US greenfield projects fell to $4.9 billion from over $20 billion in 2021, according to his calculations.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- EU Plans €20B Fund to Stock Ukraine’s Military for Years - Politico
- Milley: Ukraine Counter-Offensive is Far From Failure- Reuters
- Russia Says it Views All Ukraine-Bound Ships as Military Cargo Carriers - CNBC
- Ukrainian Soldiers Fight to Reclaim Their Own Towns From Russia - NYT
- Blasts Hit Military Base in Russian-Occupied Crimea - WSJ
- Kyiv says Russia Targets Grain Infrastructure with Strikes on Ukraine's Odesa Ports - Reuters
- Wheat Futures Continue Their Rally – Bar Chart
- Video Surfaces Purporting to Show Russian Wagner Chief Welcoming His Men to Belarus – Reuters
- Prigozhin in Video Tells Wagner Troops to Prepare ‘for Africa’ – Al Jazeera
- 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
Skilled Trade Jobs See Double-Digit Growth for Demand Since Start of 2023
Many U.S. employers are in desperate need of skilled labor or trade workers, as the industry sees double-digit growth in demand for services. Since the beginning of 2023, there have been more than 770,000 skilled job postings from nearly 95,000 different employers across the country, according to data from PeopleReady Skilled Trades.
Demand for carpenters has gone up 23% from March to May, while stonemasons are up 45% and construction laborers are experiencing an 18% demand surge in the same time period. "Masons, electricians, plumbers, it's a very varied industry, the building trades," Gateway Plumbing & Heating owner John Cataneo said. "It's good, honest work, and the pay can be very good. Plus, there's overtime and benefits. " The small business owner pointed out that younger generations aren’t encouraged to explore hands-on jobs like he was as a young man. The 54-year-old remembered learning his trade craft from his father.
U.S. Single-Family Home Starts Drop; Building Permits Hit 12-Month High
U.S. single-family homebuilding fell in June, but permits for future construction rose to a 12-month high as a severe shortage of previously owned houses for sale supports new construction. The decline in housing starts reported by the Commerce Department on Wednesday partially retraced an abnormally large 18.7% surge in May, which had pushed groundbreaking on single-family housing projects to an 11-month high.
Single-family housing starts, which account for the bulk of homebuilding, dropped 7.0% to a seasonally adjusted annual rate of 935,000 units last month. Data for May was revised higher to show starts vaulting to a rate of 1.005 million units, the highest level since June 2022, instead of 997,000 units as previously reported. May homebuilding was likely boosted by unseasonably warmer and drier weather. With the average rate on the popular 30-year fixed mortgage approaching 7%, according to data from mortgage finance agency Freddie Mac, the anticipated housing market rebound could be muted.
COVID Update - COVID-19 Metrics See First Increase Since January: CDC
COVID-19 indicators have started to show a small uptick nationally for the first time since January, according to the Centers for Disease Control and Prevention. The agency reported this week that coronavirus emergency department visits, test positivity rates and wastewater levels “have begun to show small increases nationally.” Additionally, COVID-19 hospitalizations have leveled out and are no longer declining.
The increases are small, and it’s unclear if the trend will last. But it’s a notable reversal after months of declining COVID-19 metrics. Coronavirus deaths in the U.S. are still decreasing. But deaths tend to lag behind increases in cases and hospitalizations. The vast majority of the U.S. has some level of protection against the virus through vaccination, infection or both. At the end of 2022, nearly 97% of Americans had some level of protection against COVID-19, according to CDC estimates.
July Fed Meeting Preview: Will The FOMC Hike Again?
Heading into the July meeting nest week, it’s all but certain the Fed will resume raising rates once again. Financial professionals see a 92% chance that the central bank will deliver a quarter of a percentage point rate increase on July 26, according to CME Group. If the FOMC meets these expectations, it would bring the fed funds target range to between 5.25% and 5.5%—a nearly 22-year high. More and more, it appears that the Fed is successfully navigating a “soft landing” for the U.S. economy. That means it’s bringing down inflation while avoiding a recession.
Recent data confirm that inflation is cooling, while the most recent University of Michigan consumer confidence survey shows that even inflation expectations are falling. Still, Fed officials warn that more work is needed to completely tame inflation. Minutes from the June FOMC meeting suggested that officials gave Fed Chair Jerome Powell unanimous support for a pause in exchange for another rate hike in July.
Biden Administration Proposes Tougher Rules for Mergers in Antitrust Push
President Biden’s efforts to slow corporate mergers took form Wednesday through an elaborate plan his top antitrust enforcers say will preserve competition. In a highly detailed 51-page joint document, the Federal Trade Commission and Justice Department outline 13 “guidelines” they will follow when reviewing deals — and hope the courts play along. The administration’s legal philosophy is grounded in an inherent skepticism toward mergers and aims to prevent an array of potential harms beyond high prices, such as reduced innovation, anemic labor markets, and weakened supply chains.
However, since taking their respective jobs — Jonathan Kanter at the Justice Department and Lina Khan at the FTC — the agencies have had a decidedly mixed track record. The FTC just last week lost a case to block Microsoft’s takeover of video game giant Activision Blizzard, and earlier this year its challenge to Meta’s acquisition of a virtual reality app fell through. Both interventions involved seldom-tested legal theories now articulated in the guidelines around how the agencies evaluate mergers in rapidly evolving markets around technology, particularly burgeoning markets like virtual reality. It remains to be seen if the administration’s rules will align with actual antitrust law.
Discover and Develop Leadership Talent Hiding in Plain Sight
We easily notice those who make sure their skills are in the limelight, but there are others who are working just as hard and achieving just as much, who remain virtually unknown in the organization. Hidden leaders possess valuable skills, expertise and qualities that can contribute to the success of the organization. By investing in their development and providing opportunities for growth, companies can unlock their untapped potential.
When we make the effort to uncover the invisible talent, employees gain the success they deserve and the company gains the insight of experienced, capable workers who already know the organization inside and out. If this kind of advantage on your competition appeals to you, read on and to find out why your next great talent may be hiding in plain sight. Here are four ways to identify the hidden talent in your organization. Look for the employees who are:
Four Things to Know About the Rapidly Changing Housing Market
Home prices are ticking up amid a sustained housing shortage, making it even more difficult for people to enter the market. Mortgage rates remain well above recent historic lows, and even with new homes coming on the market soon, according to recent data, experts don’t expect first-time buyers to see lower prices right away. Home prices are moving up largely due to inventory constraints, especially at the lower end of the market, where fierce demand leads to bidding wars. The intense competition drives home prices higher — and often above what many would-be homeowners can afford.
The four things you should know are: Prices are heating up again, mortgage rates are going to remain high, housing costs are driving inflation, and the Fed’s plans to raise rates will impact prices.
UK Inflation Falls Below 8% in Breakthrough Against Price Spiral
Britain's high rate of inflation fell by more than expected in June and was its slowest in over a year at 7.9%, according to data that will ease some of the pressure on the Bank of England to keep on raising interest rates sharply. Economists polled by Reuters had mostly forecast a smaller slowdown, to 8.2% in the 12 months to June from May's 8.7%. The BoE said in May it expected June inflation would fall to 7.9%, moving further away from October's 41-year high of 11.1% but still way above its 2% target.
Sterling weakened and investors scaled back their bets on future increases in borrowing costs as consumer price inflation growth came in at its lowest since March 2022, although it remained above the rate in other big, rich economies. Sterling was down by more than 0.5% against the U.S. dollar and touched its lowest against the euro since May.
Electricity Demand Slows In 2023 As Economic Downturn And Energy Crisis Weighs On Growth, IEA Says
Global electricity demand is set to increase by just less than 2% in 2023, the IEA forecast in its latest Electricity Market Report, down from 2.3% in 2022 and below the average annual growth rate of 2.4% from the five years before the Covid-19 pandemic. Dampened growth is largely driven by falling demand in advanced economies, the IEA said, many of which are facing economic downturns and dealing with shortages and soaring energy prices following Russia’s invasion of Ukraine.
The agency projected electricity demand in the U.S. and Japan will respectively fall by almost 2% and 3% in 2023, while the demand in the European Union is expected to decline by 3% for the second year running, which collectively make up the bloc’s “largest slump in demand on record” and takes consumption to levels last seen in 2002. Growing demand for electricity is poised to bounce back in 2024 alongside the improving outlook for the global economy, the IEA said. The agency said it expects the electricity demand growth to hit 3.3% in 2024.
Forbes Lists America’s Best Small Employers
While large businesses tend to get most of the attention, small businesses employ almost half of the American workforce and can offer many advantages. A smaller organization “affords more open lines for communication and collaboration,” says Melissa Gardner, vice president for marketing at the University of Mount Union, a small, private liberal arts university in Ohio. This “creates opportunities where employees can explore their passions and continue to grow.”
Many small businesses also provide the same offerings that large companies do, such as comprehensive benefits, development programs, a diverse workplace and much more. To help potential job seekers assess the landscape of small employers, Forbes is introducing our newest list: America’s Best Small Employers, defined here as companies employing between 200 and 1,000 employees.
Senate Puts NASA on Notice Over Mars Mission
The Senate is signaling deep skepticism about NASA’s ambitious plans to fetch samples of soil from the red planet, expressing concerns over the mission’s cost and viability. Senate appropriators are offering just $300 million in funding for fiscal 2024 for the Mars mission — less than a third of the $949 million budget request from NASA. Appropriators also say they have deep doubts about whether NASA can complete the mission, known as Mars Sample Return (MSR).
As NASA has been working on developing the technology needed for the mission, costs have ballooned. First estimates indicated the cost of this mission would be around $4 billion, but according to the committee’s report, the space agency has already spent more than $1 billion. The subcommittee also flagged that the planned 2028 launch date is very aggressive and likely to slip, increasing cost overruns. NASA also convened an Institutional Review Board to review the MRS mission and determine its best path of success. The board is expected to issue its findings in late August or early September.
Yellow Freight Challenges Increase
Yellow is facing a new risk to its business as the trucker's labor concerns and financial troubles converge. The Teamsters union is threatening a walkout after the debt-laden operator missed a payment due this month to the Central States pension fund and said it is looking to defer another payment in August. The WSJ writes that the union says drivers will walk out as soon as July 24 over the payments, raising new fears over the viability of the third-largest operator in the U.S. less-than-truckload market.
Wolfe Research says in a note that a strike would likely put Yellow “on the brink of bankruptcy.” Market analysts say some shippers already are shifting freight to other carriers. That may be costing Yellow revenue it needs to help solve its liquidity problem, which is hanging over the business even as Yellow tries to streamline its operations.
Tesla Q2 Net Income, Revenues Surge, But Profit Margins Slip
Electric vehicle giant Tesla Inc. on Wednesday reported across-the-board gains in most financial and production measurements, but said profit margins slipped. Net income for the quarter surged 20 percent to $2.7 billion while total revenue, including its solar business, gained 47 percent to $24.9 billion. Vehicle production skyrocketed 86 percent to nearly 479,700 vehicles while deliveries rose 83 percent to 466,140 units.
But Tesla said its gross margin fell in the second quarter from the previous three months, squeezing the EV maker's efforts to boost sales through price cuts. The company's shares rose slightly in aftermarket trading as the market absorbed the results.
Crude Oil Rises as Russian Seaborne Crude Exports Sink to Six-Month Low
Crude oil prices rebounded Tuesday from a pullback that was blamed on weak Chinese economic data and the restart of production at Libyan oil fields that had been shut down due to protests. The drop in oil prices during the previous few days came after a rally since late June that was driven by signs the market was tightening following production cutbacks by Saudi Arabia and Russia.
Front-month Nymex crude oil for August delivery closed +2.1% to $75.75/bbl, snapping a two-day decline that had taken a 4% chunk out of the price, and September Brent crude settled +1.4% to $79.63/bbl. Russia's seaborne crude flows plunged to a six-month low in the latest four-week period, as Russia finally appears to be fulfilling its pledge to cut supply to international markets.
Demand for Raw Materials and Components Weakened in Europe and North America in June
The demand for raw materials and components weakened sharply in Europe and North America in June, indicating greater risk to the economy heading into the second half of 2023, according to an analysis by supply chain software provider GEP. That finding comes from the New Jersey firm’s “GEP Global Supply Chain Volatility Index,” a leading indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses in over 40 countries.
For June, that index recorded -0.26, compared to -0.28 in May, marking a third successive month of excess global supplier capacity. Today's figure highlights the complete reversal in global supply chain frictions compared to a year ago, when GEP's index stood at 3.53. GEP’s survey found a worsening of global demand for raw materials, commodities, and components in June, specifically in Europe and North America. That trend could signal a deteriorated outlook for manufacturing as borrowing costs rise, and has already led to excess capacity at suppliers.