Member Briefing July 31, 2023
U.S. Economy Grew 2.4% Last Quarter, Suggesting the U.S. is Steering Clear of Recession
Gross domestic product grew at a seasonally and inflation adjusted annual rate of 2.4% in the second quarter, picking up slightly from 2% growth in the first three months of the year, the Commerce Department said Thursday. Consumer spending grew this spring, but at a slower pace for both goods and services. Business investment strengthened from April through June, with companies spending solidly on buildings and equipment. Companies rebuilt inventories, helping boost output.
Business investment grew at an annual rate of 7.7% in the second quarter, up sharply from 0.6% in the first quarter. Some long-term forces are helping boost investment despite higher interest rates. A surge in federal spending on chip-manufacturing plants and electric-vehicle factories is offsetting some other cutbacks. Net trade slightly subtracted from second-quarter growth, reflecting a sluggish global economy. Residential investment declined for the ninth consecutive quarter. Recent declines in residential investment reflect housing-market strains amid higher mortgage rates.
War in Ukraine Headlines
Moscow Targeted Again as Kyiv Steps Up Drone Attacks Inside Russia - CNN
Wage Growth and Inflation Ease
Employers spent 1% more on wages and benefits between April and June compared with the prior three months, the Labor Department said Friday. That was a slowdown from a 1.2% increase in the first quarter. The employment-cost index, a measure of compensation growth closely watched by Fed officials, rose 4.5% last quarter from a year earlier, a slowing from a 4.8% increase between January and March.
The personal-consumption expenditures price index, the Fed’s preferred inflation measure, rose 3% in June from a year earlier, the Commerce Department said in a separate Friday report. That was down from a 3.8% rise the prior month. Core prices, which exclude volatile food and energy categories, eased to a 4.1% increase last month, compared with a 4.6% gain in May. Fed officials are focused on core inflation because they see it as a better predictor of future inflation.
Biden Administration Proposes New Fuel Economy Standards, With Higher Bar for Trucks
Federal highway regulators have proposed new fuel economy standards that would require cars to improve their fuel economy by 2% every year, and light trucks by 4% each year, through 2032. Under the proposed standards from the NHTSA, fleet-wide fuel economy for new vehicles would be pushed close to 58 miles per gallon by 2032. That's up from the 49 mpg required by 2026 under the current iteration of the rules.
Vehicle fuel economy and emissions in the U.S. are regulated by three different bodies. California, a state with unique influence, sets increasingly stringent requirements that other states can choose to follow. The EPA regulates vehicle emissions nationwide, including pollution and greenhouse gases. And NHTSA regulates fuel economy, with an original mandate of improving America's energy security by reducing reliance on oil. The EPA rules were crafted so they would be essentially impossible to meet without producing zero-emission vehicles. NHTSA's fuel economy standards, in contrast, have to be designed so they could be met just by making gas and diesel vehicles more efficient.
COVID Update - The CDC Sees Signs of a Late Summer COVID Wave
Yet another summer COVID-19 wave may have started in the U.S., according to the Centers for Disease Control and Prevention. The amount of coronavirus being detected in wastewater, the percentage of people testing positive for the virus and the number of people seeking care for COVID-19 at emergency rooms all started increasing in early July, Jackson says. Hospitalizations jumped 10% to 7,109 for the week ending July 15, from 6,444 the previous week, according to the latest CDC data.
"We've seen the early indicators go up for the past several weeks, and just this week for the first time in a long time we've seen hospitalizations tick up as well," Dr. Brendan Jackson, the CDC's COVID-19 incident manager says. "This could be the start of a late summer wave." The increases vary around the country, with the virus appearing to be spreading the most in the southeast and the least in the Midwest, Jackson says.
NYS COVID Update
The Governor updated COVID data for the week ending July 28.
- Weekly: 34
- Total Reported to CDC: 79,921
- Average Daily Patients in Hospital statewide: 548
- Average Daily Patients in ICU Statewide: 58
7 Day Average Cases per 100K population
- 3.3 positive cases per 100,00 population, Statewide
- 3.4 positive cases per 100,00 population, Mid-Hudson
Hochul Names Blake Washington Budget Director
Governor Kathy Hochul today announced the appointment of Blake G. Washington as New York State Budget Director. Mr. Washington will begin his tenure this summer. Mr. Washington began his career as a Probation Officer with the Sullivan County Probation Department and earned both his master's and bachelor's degrees from UAlbany. He lives in the Capital Region with his wife and daughter.
Washington currently serves as Secretary to the New York State Assembly Ways and Means Committee, where he advises the Speaker and Assemblymembers on all budget and fiscal matters. Mr. Washington has worked for the Assembly Ways and Means Committee since 2002, previously serving as Director of Budget Studies, Deputy Director of Budget Studies and as a Legislative Budget Analyst. It is expected that he will face a difficult task as state revenue declines and Federal COVID support ends.
Report Calls for More Transparency in State Economic Development Programs
Lawmakers will consider changing state law to make economic development projects and state tax subsidy programs more transparent after good-government group Reinvent Albany released a report recommending significant reforms to change the structure of the related state agency and improve its public oversight.The report puts pressure on lawmakers to change state law and force economic development programs to publicize more data and improve their accountability — a conversation beginning as the state is expected to shoulder a more than $9 billion budget gap next year, and lawmakers begin to look for places to close that deficit.
“We understand that the Governor and Legislature use ESD to oversee the misguided and discredited subsidy programs that they concoct. Indeed, we think ESD’s Board and staff often have to choose between obeying the Governor’s dictates, which can be economically irrational and highly politicized, or fulfilling their duty to the people of New York, including obeying the transparency, accountability, and ethical responsibilities mandated in public authorities and public officers law.” The report reads.
European Central Bank Hikes Interest Rates to Combat Inflation and Leaves Door Open to More
The European Central Bank raised interest rates for the ninth straight time Thursday in its yearlong campaign to stamp out painfully high inflation and kept the door open to further hikes despite increasing fears of recession. ECB President Christine Lagarde had all but promised the quarter-percentage point increase and said the bank’s next moves would be determined by what the data — including inflation and job numbers — will show.
“We have an open mind as to what the decisions will be in September and in subsequent meetings,” she told reporters. “So we might hike and we might hold. Lagarde said that if the bank pauses, “it would not necessarily be for an extended period of time.” Decisions could vary from one meeting to the next, she said, but insisted that the ECB is “very strongly rooted in our determination to break the back of inflation.”
OSHA Plans to Publicize Your Injury Data
If allowed to stand by the courts, a rulemaking issued recently by the Occupational Safety and Health Administration (OSHA) will require employers to expose their reported accident illness and report data on the Internet, making it available to union organizers, personal injury lawyers, and their competitors. Scheduled to largely take effect on Jan. 1, 2024, It applies to employers with 100 or more workers in industries the agency defines as “high hazard,” although the list of these industries that OSHA provides appears to cover very nearly every employer in America today.
“With the new online availability of these records, employees, former employees and their representatives will be able to review your recordkeeping decisions by directly accessing the OSHA website without involving you,” explain attorneys who work for firm of Constangy Brooks Smith & Prophete. Another complaint raised in the legal challenges that were brought against the agency that could be resurrected this time around is the enormous cost to employers of adhering to the new rules, a subject remarked on by legal analysts as well.Employer attorneys advise covered organizations to begin preparing now for next year’s reporting requirements.
German Economy Stagnates in Second Quarter, Inflation Slows
The German economy stagnated in the second quarter of 2023, missing forecasts for modest growth, as weak purchasing power, higher interest rates and low factory order books all weighed on the euro zone's largest economy. According to the federal statistics office, there was no quarter-on-quarter change in gross domestic product in seasonally adjusted terms. A Reuters poll of analysts had forecast an increase of 0.1%, after the economy fell into a mild recession in winter.
German inflation fell in July, resuming the decline since the start of the year that was interrupted the previous month due to the base effects in June's data. German consumer prices, harmonised to compare with other European Union countries, rose by 6.5% on the year in July, preliminary data from the federal statistics office showed on Friday. This follows a 6.8% increase in June. Analysts had forecast a harmonised annual inflation rate of 6.6% in July when polled by Reuters.
Warren Slams Defense Contractors Over R&D Tax Credit Lobbying
Some of the United States’ largest defense contractors are lobbying to restore a tax credit that partially expired last year, drawing fire from Sen. Elizabeth Warren, D-Mass, and Rep. Chris Deluzio, D-Pa. Warren and Deluzio sent similar letters to four major defense contractors, hammering them over millions of dollars spent lobbying to fully restore a research and development credit Congress enacted in 2017 as part of former President Donald Trump’s sweeping tax cuts.
The four letters, addressed to the CEOs of Lockheed Martin, RTX, Northrop Grumman and General Dynamics, come after House Republicans on the Ways and Means Committee advanced a tax cut package for U.S. businesses in June. A provision in that bill includes the research and experimentation, or R&E, tax credit restoration that the four companies have asked Congress to enact. Defense contractors and industry groups, including the NAM, lobbied Congress to undo this amortization period, but Republicans and Democrats failed to secure a deal amid broader tax policy disputes.
Trucker Yellow Prepares to File for Bankruptcy as Customers Flee
Trucking company Yellow is preparing to file for bankruptcy, according to people familiar with the matter, heightening the threat that one of the nation’s largest freight carriers will shut down as customers abandon it amid a cash crunch and union negotiations. A bankruptcy filing by Yellow would put it at high risk of a liquidation since its customers already have started to abandon the trucker in large numbers, some of the people said. A Yellow representative said Wednesday that “in keeping with the fiduciary responsibility of the company’s executives, the company continues to prepare for a range of contingencies.”
Yellow has been losing thousands of shipments to other operators because of the risk that a labor dispute will disrupt its operations, according to equity analysts and industry executives. The company averted a planned strike this week by the Teamsters union that represents most of its workforce, but the customer exodus has continued. Yellow has seen freight volumes fall 80% in recent days, according to a research report Tuesday by TD Cowen.
Tesla Exaggerated Its Cars’ Driving Range—And Canceled Service Appointments If Drivers Complained, Report Says
Tesla programmed its dashboards to exaggerate how far the vehicles can drive on a single charge, and canceled service appointments for customers who noticed their cars’ range was shorter than expected, Reuters reported. It's unclear if the faulty algorithms are still being used for range estimates, but the company has been flagged several times for lying about vehicles' range, including by the South Korean government, which fined Tesla $2.2 million earlier this year.
The range estimates that appear on the dashboard ignored external factors like weather—extreme hot or cold temperatures can dramatically impact how far electric cars travel—as well as hilly terrain, headwinds or running the air conditioning, Recurrent Auto CEO Scott Case told Reuters, citing data analyzed by his company.
US Plans Water Heater Standards, Says They Will Save Consumers $11 Billion
The U.S. Department of Energy on Friday proposed energy efficiency standards on water heaters it said would save consumers $11.4 billion on energy and water bills annually. The standards on residential water heater efficiency, which are required by Congress, have not been updated in 13 years. Water heating is responsible for roughly 13% of both annual residential energy use and consumer utility costs, the DOE said. The proposal would require the most common-sized electric water heaters to achieve efficiency gains with heat pump technology and gas-fired water heaters to achieve efficiency gains through condensing technology.
In response to the proposal, Rinnai America Corporation, a leading manufacturer of tankless water heaters, issued a statement saying that, in its current form, the draft rule will unreasonably restrict consumer access to certain tankless water heater products, disproportionately impacting middle-income households and small businesses. “As currently drafted, DOE’s proposed rule will create an uneven market that effectively bans an already energy efficient product and puts American jobs at risk,” said Frank Windsor, president of Rinnai America.
Lockheed to Develop, Demo Nuclear Spacecraft
The federal Defense Advanced Research Projects Agency (DARPA) placed a contract with Lockheed Martin to develop and demonstrate a nuclear-powered spacecraft – for space exploration as well as defense. The value of the award was not announced, but it calls for Lockheed to conduct an in-space flight demonstration of a nuclear-thermal rocket engine vehicle by 2027.
Nuclear thermal propulsion (NTP) engines offer thrust as high as conventional chemical propulsion with two-to-five times higher efficiency, which means the spacecraft can travel faster and farther and can significantly reduce propellant needs. They also enable abort scenarios on journeys to Mars that are not possible with chemical propulsion systems. In an NTP system, a nuclear reactor quickly heats a hydrogen propellant and delivers that gas through the engine nozzle to create thrust. Lockheed is partnered with BWX Technologies to develop a fission-based reactor using a special “high-assay low-enriched uranium (HALEU)” to convert cryogenic hydrogen into an extremely hot pressurized gas.