Member Briefing July 27, 2022
The IMF Warns that a Global Recession Could Soon be at Hand
In an update of the World Economic Outlook, the I.M.F. said economic prospects had darkened significantly in recent months as war in Ukraine, inflation and a resurgent pandemic inflicted pain on every continent. If the thicket of threats continues to intensify, the world economy faces one of its weakest years since 1970, a period of intense stagflation across the globe.
The I.M.F. downgraded its global growth forecasts from its April projections, predicting that output will fall to 3.2 percent in 2022, from 6.1 percent last year. With central banks around the world raising interest rates to tame inflation, growth is expected to slow further next year. Inflation is also rising more rapidly and broadly than the I.M.F. anticipated earlier this year. It now expects prices to rise 6.6 percent in rich countries and 9.5 percent in emerging markets and developing economies.
War in Ukraine Headlines
- Ukraine and Russia: the Latest News – The Guardian
- Russia Says it Wants to End Ukraine’s `Unacceptable Regime’ – AP
- More HIMARS, ‘Phoenix Ghost’ Drones Bound for Ukraine – DOD News
- Medic in Heels Commands Respect on Ukraine’s Front Lines – Yahoo News
- ‘He Simply Cannot be Trusted:’ World Leaders Slam Putin’s Attack on Odesa Following Sea Corridor Deal – CNBC
- Germany’s Gepard Tanks Finally Reach Ukraine – WSJ
- The Myth of Putin as World Energy Czar is Running Out of Gas – Fortune
- Ukraine Faces Hurdles Before Grain Exports Can Start Under New Deal with Russia, Expert Says – USNI News
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Fed Set to Impose Another Big Rate Hike to Fight Inflation
Conflicting signs about the health of the U.S. economy have thrust the Federal Reserve into a difficult spot. With inflation raging at a four-decade high, the job market strong and consumer spending still solid, the Fed is under pressure to raise interest rates aggressively. But other signs suggest the economy is slowing and might even have shrunk in the first half of the year.
When it ends its latest policy meeting Wednesday, the Fed is expected to impose a second consecutive three-quarter-point hike, elevating its key rate to a range of 2.25% to 2.5%. It will be its fourth rate hike since March, when it announced a quarter-point increase. Since then, with inflation setting new four-decade highs, the central bank has tightened credit ever more aggressively. Higher borrowing rates can reduce spending. But they cannot reverse other factors, notably the global shortages of food, energy, factory parts and other items, which have been worsened by Russia’s war against Ukraine and COVID-19-related shutdowns in China.
Senate Agenda on Hold as Clock Winds Down and Key Senators Cope with COVID and Cancelled Flights
Time is not on the side of Senate Democrats as their lengthy pre-August agenda outweighs the dwindling time remaining before senators break for recess and COVID-19 continues to toss a wrench in proceedings. The weather also did not cooperat as Majority Leader Charles Schumer (D-N.Y.) was forced to postpone Monday’s vote to end debate on the CHIPS legislation after a number of lawmakers had their flights to Washington delayed or canceled. That means final passage on the bill will not take place until Wednesday at the earliest.
The upper chamber has only nine legislative days left on the calendar before recess kicks off, forcing leaders to prioritize a number of items and leave others on the shelf until after Labor Day. Topping the to-do list this week is passing the long-delayed $280 billion bill to boost funding of the domestic production of computer chips, also known as the CHIPS Act.
U.S. COVID – Boosters for People Under 50 on Hold Amid drive to Speed Up New Vaccine
Booster shots of the coronavirus vaccine for people younger than 50 are on hold as the Biden administration tries to accelerate a fall vaccination campaign using reformulated shots that target the now-dominant omicron subvariants, according to federal health officials.
Officials are hoping vaccine makers – Moderna and Pfizer and its German partner, BioNTech – are able to make the updated shots available as soon as early to mid-September instead of later in the fall, said three officials who spoke on the condition of anonymity because they were not authorized to talk about the issue.
White House to Launch Effort to Develop Next Generation of Covid Vaccines
The Biden administration is preparing an initiative to develop a next generation of Covid-19 immunizations. To kick off the effort, the White House is gathering key federal officials, top scientists, and pharmaceutical executives including representatives of Pfizer and Moderna for a Tuesday “summit” to discuss the new technologies and lay out a road map for developing them.
One strategy would focus on the development of nasal vaccines that could create antibodies at the mucosal surfaces in the nose and elsewhere where viruses enter the body, thereby preventing infection and transmission. A second strategy would aim to create vaccine antigens that would work against a broader array of coronavirus strains, thereby providing more durable immunity. It may or may not be possible to combine the two strategies.
Polio in Rockland Wastewater as Early as June, Samples Show
New testing has found that the polio virus had infected at least one Rockland County resident and was present in wastewater sampled at a sewage treatment plant as early as June, the county’s health commissioner said Monday. The detective work on past wastewater samples began after the state and county reported a case of polio had occurred in Rockland County, the first in the U.S. since 2013.
The young adult who was ill was paralyzed during the illness in June, health officials said, but they would not say whether that was a permanent condition. The person, who had recovered from the virus, had never been vaccinated for polio. They had not traveled, health officials have said. “It’s a qualitative not a quantitative result,” Rockland Health Commissioner Dr. Patricia Schnabel Ruppert said of the single round of wastewater testing. “It could be from one case, or a number of different cases.”
Structural Changes in the World Economy Could make Inflation a Recurring Problem
Inflation has many causes, many of them obvious to the untutored eye. Some of the current challenges facing supply chains are transitory. A report by Dutch Financial Services Group ING suggests U.S. inflation may already have peaked. It would be wrong, however, to ignore the structural changes in the world economy that could mean inflation remains a recurring problem.
The link between labor shortages and wage inflation is a good example. We’re reaching the end of the golden period of cheap labor that began in the 1980s as Eastern Europe and China opened up to international markets and baby boomers pursued their careers. This labor influx kept inflation low and removed the incentive to invest in automation, with labor-intensive manual processes remaining a feature of the workplace today.
McMahon: US Economy Clears a Key Post-Pandemic Hurdle, While NY Still Trails
Amid raging inflation and mounting recession worries, the nation’s private-sector payroll jobs total finally cleared the pre-pandemic level last month. Preliminary June data from the Bureau of Labor Statistics (BLS) put seasonally adjusted private employment at 129,765,000 jobs—about 140,000 more than counted in February 2020.
As of June, 20 states—including neighboring New Jersey, as well as most of the southeast and much of the West—had surpassed their February 2020 private payroll counts, while New York remained 4.5 percent below its February 2020 private employment level. Only Hawaii, Alaska, North Dakota and Vermont remained further behind. As of June, 20 states—including neighboring New Jersey, as well as most of the southeast and much of the West—had surpassed their February 2020 private payroll counts, while New York remained 4.5 percent below its February 2020 private employment level. Only Hawaii, Alaska, North Dakota and Vermont remained further behind.
Read more at the Empire Center
Midyear Results Show Global Steel Output Slipping
Steel production dropped more than 11 million metric tons in the latest monthly summary report from the World Steel Assn., totaling 158.1 million metric tons for June. That figure, though less than -1.0% below the figure World Steel reported for May, is -5.9% lower than the June 2021 global production total, and brings the six-month total for 2022 to 949.4 million metric tons – which is -5.5% lower than the January-June 2021 total.
The declining output is evident in nearly all of the world’s major steel producing countries, and notably in China, but it contrasts with contrasts with World Steel’s latest Short-Range Outlook report for global steel consumption. It predicted 2022 consumption would remain fairly steady with 2021, and a year-over-year rise of just +0.4%. Rising inflation worldwide, and the instability surrounding the Russia-Ukraine war, are other growth-limiting factors cited in World Steel’s report.
Read more at American Machinist
Are Your Exports Affected by Sanctions on Russia? It’s Not Always Easy to Tell
Sanctions imposed on Russia for its invasion of Ukraine are having an undeniable impact on global supply chains, but individual companies might have a hard time determining precisely how they’re affected. There are broad sectoral restrictions on U.S. trade with Russia, in areas such as professional services (accounting, management consulting and the like), imports of Russian energy products, and technology with military application. An effective analysis must include every partner in the global supply chain, including sellers, buyers, banks and transportation and logistics providers.
Making the calculation especially difficult is a lack of transparency around Russian control or ownership of various businesses. There’s also the possibility of a product being sold initially to an authorized buyer, then ending up in the hands of a sanctioned party after multiple transactions downstream. That’s the kind of scenario that regimes such as the U.S. State Department’s International Traffic in Arms Regulations (ITAR) were set up expressly to prevent.
Read more at Supply Chain Brain
3M Will Spin Off its Health-Care Business Into a New Public Company
3M announced Tuesday it will spin off its health-care business into a separate publicly traded company. The new business will focus on wound and oral care, health-care IT and biopharma filtration, the material science company said in a release. That includes products like its bandages, skin adhesives, oral aligners, air purifiers and optical lenses. 3M health-care products recorded more than $8 billion in sales in 2021. The transaction is expected to be completed by the end of next year, and 3M will maintain a 19.9% stake in the new company.
The announcement comes alongside 3M’s second-quarter earnings report. Net income dropped to $78 million from $1.5 billion a year earlier, including a $1.2 billion pretax charge tied to resolving litigation related to Combat Arms Earplugs. Revenue fell nearly 3% to $8.7 billion.
General Motors’ Income Tumbles 40% on China Loss, Parts Shortages
General Motors Co.’s second-quarter net income fell 40% over the prior year, hurt by a loss in China and supply-chain troubles that left the auto maker with tens of thousands of partially built vehicles it couldn’t sell during the period. The company said net income for the April-to-June period totaled $1.69 billion, down from $2.84 billion a year earlier. The auto maker on Tuesday stood by its forecast for the full year of $9.6 billion to $11.2 billion in net profit.
GM said second-quarter revenue rose about 5%, to $35.76 billion. It posted pretax earnings per share of $1.14.GM warned earlier this month that a drop in vehicle output in North America would hit second-quarter results. A shortage of computer chips and other parts prevented the company from shipping 95,000 vehicles to dealers, GM said, though it expects to clear the backlog during the second half of the year.
NAM Pushes to End Green Card Backlog
Manufacturers are frustrated by green card backlogs and processing delays for employment-based immigrant visas at U.S. Citizenship and Immigration Services, which threaten to worsen labor shortages. The NAM is pressing the Department of Homeland Security to take action. NAM President and CEO Jay Timmons recently laid out the challenge and the need for action for Secretary of Homeland Security Alejandro Mayorkas.
“Nearly 45% of manufacturers in a recent Manufacturers’ Outlook Survey fielded by the National Association of Manufacturers reported that they had to forego business opportunities because they did not have enough employees,” said Timmons. “Foreign-born individuals play a key role in addressing our labor needs,” wrote Timmons. “The number of backlogged green cards is approximately 10 times the total number of employment-based green cards available each year.”