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Member Briefing July 29, 2024

July 29, 2024

Posted By: Harold King in Daily Briefing,

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PCE Inflation Gauge Slips to 2.5% in June

An important gauge for the Federal Reserve showed inflation eased slightly from a year ago in June, helping to open the way for a widely anticipated September interest rate cut. The personal consumption expenditures price index increased 0.1% on the month and was up 2.5% from a year ago, in line with Dow Jones estimates, the Commerce Department reported Friday. The year-over-year gain in May was 2.6%, while the monthly measure was unchanged. The report also indicated that personal income rose just 0.2%, below the 0.4% estimate.

Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations. Policymakers focus even more on core as a better gauge of longer-run trends as gas and groceries costs tend to fluctuate more than other items. Goods prices fell 0.2% on the month while services increased 0.2%. Housing-related prices in June rose 0.3%, a slight deceleration from the 0.4% increase in each of the last three months and the smallest monthly gain going back at least to January 2023.

Read more at Wells Fargo

U.S. Economy Grew At A 2.8% Pace In The Second Quarter, Much More Than Expected

Real gross domestic product, a measure of all the goods and services produced during the April-through-June period, increased at a 2.8% annualized pace adjusted for seasonality and inflation. Economists surveyed by Dow Jones had been looking for growth of 2.1% following a 1.4% rise in the first quarter.

Personal consumption expenditures, the main proxy in the Bureau of Economic Analysis report for consumer activity, increased 2.3% for the quarter, up from the 1.5% acceleration in Q1. Both services and goods spending saw solid increases for the quarter. However much of the spending was on non-discretionary items such as autos and auto parts, housing utilities and healthcare. Inventories also were a significant contributor, adding 0.82 percentage point to the total gain. Government spending added a tailwind as well, rising 3.9% at the federal level, including a 5.2% surge in defense outlays. On the downside, imports, which subtract from GDP, jumped 6.9%, the biggest quarterly rise since Q1 of 2022. Exports were up just 2%.

Read more at the CNBC

US Consumer Sentiment Falls to Eight-Month Low on High Prices

The Michigan Consumer Sentiment Index continued to tick lower in July. It’s the lowest level since November 2023, reflecting four consecutive months of decline for the widely-followed measurement. However, survey director Joanne Hsu said consumer sentiment over the last three months has remained virtually unchanged. “Sentiment has lifted 33% above the June 2022 historic low, but it remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes,” Hsu wrote. “Labor market expectations remain relatively stable, providing continued support to consumer spending.”

The report highlighted the differences between high- and low-income earners, wrote Oren Klachkin, a financial market economist at Nationwide. “In short, high-income earners are generally enthusiastic while lower-income cohorts are feeling the heat,” Klachkin wrote. “Lower-income households will suffer the greatest pain during the upcoming economic slowdown since they haven’t benefited from the run-up in stock prices and housing values to help them weather the pending slowdown in income growth.”

Read more at Investopedia

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Policy and Politics

NLRB Finalizes Rollback Of Trump-Era Union Election Rules

The National Labor Relations Board issued a final rule on Friday reviving a tactic commonly used by unions to delay votes on dissolving bargaining units or elections they think they will lose. It is the latest move by the Biden-era NLRB seen as favoring unions, after the agency last year adopted rules speeding up the union election process and created a new path for unions to organize workers outside of the longstanding secret-ballot election process.

The 2020 rule that the board wiped out on Friday had barred NLRB staff from temporarily blocking elections while a related case alleging illegal labor practices was being litigated. Unions had for decades routinely filed so-called “blocking charges” to delay elections. Employers could also file blocking charges, but the tactic is more commonly used by unions. The 2020 rule instead created a procedure in which an election would be held, but ballots would be impounded until the board resolved any pending litigation. Business groups who favored the Trump-era rule criticized the board's proposal to rescind it nearly two years ago, saying that blocking charges can trap workers in unions they did not choose.

Read more at Reuters

Despite Breakthrough, Manchin And Barrasso’s Permitting Reform Effort Faces Hurdles

Although Sens. Joe Manchin (I-W.Va.) and John Barrasso (R-Wyo.) finally reached an agreement on energy permitting reform this week, their effort still faces an uphill climb. They’ll need to convince leadership and lawmakers on both sides of the aisle and in both chambers to support their deal — and to give them floor space at the end of the year. For Manchin, who is not seeking reelection and will leave the Senate when his term ends in January, it marks the last chance to accomplish a long-time priority and one that is expected to be a legacy issue for him.

The Barrasso-Manchin bill, unveiled Monday after a two-year effort to get permitting reform across the finish line, comes shortly before lawmakers prepare to depart Washington for the August recess. The Senate is also slated to be out in October and early November, as many lawmakers focus on their reelection campaigns and the presidential race — leaving limited time on the legislative calendar. The legislation includes provisions that are aimed at strengthening and improving interregional connectivity for the nation’s electric grid, bolstering the buildout of renewable and fossil energy and shortening the window to sue to block energy projects.

Read more at The Hill

Uber, Lyft, DoorDash Prevail in California Gig-Worker Ruling

The California Supreme Court on Thursday upheld Proposition 22, the voter initiative that allows Uber, Lyft and other gig economy companies to classify drivers for their ride-hailing and delivery services as independent contractors rather than as employees. In a unanimous decision released Thursday morning, the state's top court rejected claims brought by a group of drivers and a major labor union that the law is unconstitutional because it interferes with lawmakers' authority over matters dealing with workers' compensation.

The ruling, which was expected after a lopsided hearing in the case in May, marks the end of a years-long legal fight over Proposition 22, which essentially carved out a new classification for workers who are entitled to limited benefits but not the array of rights granted full-fledged employees. Because the law has remained in effect throughout the legal process, the decision will not change how delivery and ride-hailing services operate in California. Uber, Lyft, DoorDash and other gig companies had argued their business models depended on the law being upheld and threatened to shut down in California if it was struck down. Gig companies that backed Proposition 22 celebrated the ruling, saying California's law affords workers control over their schedules.

Read more at Yahoo

Health and Wellness

What To Know About The Updated COVID Vaccines Coming This Fall

Last month, the Centers for Disease Control and Prevention recommended Americans receive the updated 2024-25 vaccine when it becomes available later this year. Health officials have used the term "updated vaccines" in anticipation of needing to formulate a new vaccine every year to match circulating variants as is done for the flu shot. Here's what you need to know about the updated COVID vaccines:

What variants does it target? The updated 2024-25 COVID-19 vaccines will target the JN.1 lineage of the virus, an offshoot of the omicron variant. The U.S. Food and Drug Administration has asked manufacturers to formulate a vaccine that closely matches the KP.2 strain of JN.1.
Who is eligible? The CDC recommends everyone ages 6 months and older receive an updated vaccine.
When will the vaccines be available? Updated vaccines from Pfizer, Moderna and Novavax will be available in either August or September. The CDC has said that it is safe to receive a COVID-19 vaccine at the same time as a flu shot or an RSV vaccine, for those who are being eligible.
Are the vaccines free? Those who are covered by Medicare, Medicaid or private insurance will receive coverage for the updated vaccines.
Why should I receive a vaccine? Data has shown that COVID-19 vaccines can reduce the risk of severe disease, hospitalization and death as well as lower the risk of developing long COVID.

Read more at ABC News

NYS COVID Update

The Governor updated COVID data for the week ending July 12^th.

Deaths:

Weekly: 23
Total Reported to CDC: 83,574

Hospitalizations:

Average Daily Patients in Hospital statewide: 1,127
Patients in ICU Beds: 99

7 Day Average Cases per 100K population

10.8 positive cases per 100,00 population, Statewide
12.0 positive cases per 100,00 population, Mid-Hudson

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Industry News

KC Fed: Central US Factory Output Plunges To 4-Year Low

Tenth District manufacturing activity continued to fall in July, while expectations for future activity stayed positive. Price growth for raw materials increased this month while cooling slightly for finished products, further constraining profits margins. The month-over-month composite index was -13 in July, down from -8 in June and -2 in May. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The decline was primarily driven by durable manufacturing, particularly transportation equipment, fabricated metal, and machinery.

All month-over-month indexes were negative and fell from last month, except the price indexes. The volume of shipments, new orders, and backlogs all decreased substantially from last month, while production and employment fell at a moderate pace. The year-over-year composite index for factory activity ticked down from -9 to -13 as employment was flat but new orders fell sharply once again. Despite this, capital expenditures grew modestly and are expected to increase more in coming months. The future composite index ticked down from 7 to 5 in July, as firms continue to expect increases in production, new orders, and employment.

Read more at the Kansas City Fed

3M Delivers Impressive Q2

Shares of 3M Co. charged up toward a 20-month high in early trading Friday, after the maker of Post-it Notes, Scotch tape and Command strips beat second-quarter earnings expectations and raised its full-year outlook. “We delivered another strong quarter with adjusted earnings growth up double-digits and robust cash generation,” said new Chief Executive Bill Brown. “I want to thank 3M employees for their exceptional execution, which we expect to continue in the second half of the year.”

The quarter marks a kind of fresh start for the 12-decade-old company. The legal settlements for “forever chemicals” in drinking water and the Combat Arms earplugs, which have been headwinds for years, and the spinoff of its healthcare business as Solventum Corp. are now behind it. 3M swung to net income of $1.15 billion, or $2.07 a share, from a loss of $6.84 billion, or $12.35 a share, in the same period a year ago. Total sales slipped 0.4% to $6.26 billion. Looking ahead, the company raised its guidance for adjusted EPS to $7.00 to $7.30 from $6.80 to $7.30, and reiterated its outlook for adjusted total sales growth of 0.25% to up 1.75%.

Read more at Market Watch

Bristol-Myers Squibb Beats Q2 Expectations, Boosts Guidance on Rising Drug Sales

Bristol-Myers Squibb (BMY) shares climbed Friday after the company beat expectations with its second-quarter results and raised its full-year guidance. The pharmaceutical giant now expects 2024 adjusted revenue to climb in the higher end of the low-single-digit percentage increase it called for in April. Adjusted earnings per share (EPS) guidance was raised to a range of $0.60 to $0.90, up from $0.40 to $0.70.

In the second quarter, Bristol-Myers Squibb posted adjusted EPS of $2.07 on revenue of $12.2 billion, beating consensus expectations of $1.63 and $11.54 billion of analysts polled by Visible Alpha. Eliquis, Bristol-Myers Squibb’s blood thinner drug, was a major driver of growth for the company’s legacy portfolio. Worldwide revenue for the drug jumped 7% year-over-year to $3.42 billion, including more than $2.5 billion in the U.S. The cancer drug Opdivo was a standout for what the company calls its growth portfolio, with revenue increasing 11% to nearly $2.4 billion.

Read more at Investopedia

America Is Running Out of Generic Drugmakers. Another One Is on the Brink.

A cavernous factory in northeastern Tennessee, by the Virginia border, is one of the last in the country that makes a vitally important medicine. Each day the USAntibiotics plant churns out a million doses of the crucial antibiotic amoxicillin that promise to cure Americans of everything from earaches to pneumonia—and ease a pressing shortage for children. But the plant’s prospects are dim. It can’t charge enough to cover overhead, because competitors sell their wares at bargain prices. USAntibiotics isn’t close to breaking even.

The generic drug business has become a hostile environment for American companies. Prices for the often critical medicines have dropped so low that it has become difficult for U.S. manufacturers to compete with companies overseas. One after another, generic-drug makers have gone bankrupt or moved their operations overseas or cut the number of products they offer. The number of facilities making generic drugs in their final form in the U.S. has dropped by roughly 20% since 2018, to 243, according to federal data.Drug shortages have become common. Today, 300 medicines are in short supply, according to the American Society of Health-System Pharmacists. Regularly now, hospitals and patients must scramble to find doses of the drugs they need if there is one hiccup in a pinched supply chain or a quality problem shuts down a manufacturing line.

Read more at The WSJ

GE Aerospace, Airbus Complete First Stage of Research on Next-Gen Helicopter Propulsion

GE Aerospace has completed the first stage of its global research with Airbus Helicopters on a next-generation helicopter propulsion system. The milestone marks a significant advancement in the collaboration between the two companies. The first stage of the project focused on foundational research with further insights and findings gained during the effort to lay the groundwork for subsequent phases of development.

"Collaboration is key to innovation, and our partnership with Airbus exemplifies this,” said Elissa Lee, executive director of commercial turboshaft engines at GE Aerospace. “Closing out the first stage of this joint study underscores the strength of our combined capabilities and shared vision for innovative rotorcraft propulsion solutions that will improve performance, efficiency, and sustainability.” As the partnership advances into the next phase, GE Aerospace and Airbus Helicopters plan to focus on detailed designs and component efficiencies to create a propulsion system to meet new sustainability objectives, including significant reduction of fuel consumption and CO2 emissions.

Read More at AIN online

Farnborough Air Show Proves Dismal, Boeing Gains Regardless

So the final word is out on the Farnborough Air Show, and apparently, it was a disaster. But Boeing BA investors weren’t particularly put out and sent the aerospace company’s shares up nearly 2% in Friday afternoon’s trading session. Reports from Barron’s declared the show a “dud” in terms of new jet orders, and that’s left both Boeing and its immediate competitor Airbus on the back foot. In fact, the report noted that 2024 was the worst year for new orders since 2006, and this was in an environment where Boeing and Airbus were, by some reports, sold out of production for the next several years.

It might be that airlines and other jet buyers simply saw the writing on the wall and placed few orders this year, realizing that they wouldn’t get filled any time soon anyway. Indeed, between Boeing and Airbus, there are about 15,000 planes that have already been ordered but are sitting in a backlogged state, which works out to more than 11 years’ worth of work based on current delivery expectations.

Read more at Tip Ranks

Struggle For Skilled Workers In Spotlight At Farnborough Airshow

Germany's Lilium Jet has a queue of young engineers and students waiting to board thanks to the interest of a five-year-old boy. The futuristic flying taxi is one of many high-tech projects on display as the Farnborough Airshow turns its attention to the aerospace industry's urgent recruitment problem. "We weren't intending to open up the cabin today but a five-year-old boy came along and said 'this takes off vertically and why can't I get on board' and since then we have had a queue of visitors," said talent acquisition head Alex Jordan.

"Aerospace is always the high frontier... you see things flying and you want to work for them," said Jeet Makadia, 27, a recent engineering graduate working on a project at Rolls-Royce. Visitors to the exhibition which ended on Friday will not immediately solve aerospace's problem in replacing workers lost during the pandemic. But the threat from labour shortages to current production and future growth plans casts a long shadow over the show. Aerospace's pitch to potential recruits includes visionary ambitions like space projects that few other industries can match. But aerospace giants like Boeing and Airbus face competition from nimble sectors like artificial intelligence that deploy many of the same engineering skills.

Read more at Reuters

Carmakers Tripped Up by Choppy Present as They Chase an EV Future

Automakers are warning of profit pressures in their traditional car businesses, a fresh worry that adds to the challenges already posed by the industry’s costly transition to electric vehicles. Ford Motor, Tesla and Jeep-maker Stellantis last week saw their share prices hammered after posting results that fell short of Wall Street’s expectations. General Motors beat estimates and raised its full-year profit outlook, but its shares also sank.

Reasons for the pressure on profits ranged from warranty expenses and bloated vehicle inventory to trouble in overseas operations. Taken together, they signaled to investors that carmakers—while pushing toward a transformation to tech-infused electric vehicles—are facing speed bumps. One particular concern among auto investors has grown louder: The strong pricing power that carmakers have enjoyed in the pandemic era is slowly fading. Several auto executives warned that in the second half of the year, they expect the average price paid by customers will edge lower.

Read more at The WSJ

It Is Now Easier to Pass AP Tests

More students are getting high scores on Advanced Placement tests, long seen as a gateway to elite college admissions as well as a way to earn college credit during high school. Changes by the tests’ maker in recent years have shifted scores upward. That has led to hundreds of thousands of additional students getting what’s considered a passing score—3 or above on the 1-to-5 scale—on exams in popular courses including AP U.S. History and AP U.S. Government.

The nonprofit behind the tests, College Board, says it updated the scoring by replacing its panel of experts with a large-scale data analysis to better reflect the skills students learn in the courses. Some skeptical teachers, test-prep companies and college administrators see the recent changes as another form of grade inflation, and a way to boost the organization’s business by making AP courses seem more attractive. The number of students cheering their higher AP scores could rise again next year. The College Board said it is still recalibrating several other subjects, including its most popular course, AP English Language, which attracts more than half a million test takers.

Read more at The WSJ

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