Member Briefing July 5, 2022
ISM Manufacturing PMI Slumps to 53 in June
The business activity in the US manufacturing sector expanded at a much softer pace in June than it did in May with the ISM Manufacturing PMI dropping to 53 from 56.1. This print came in weaker than the market expectation of 54.9. Further details of the publication showed that Employment Index declined to 47.3 from 49.6 and New Orders Index fell to 49.2 from 55.1. Finally, Prices Paid Index dropped to 78.5 from 82.2, compared to analysts’ estimate of 81.
“the US manufacturing sector continues to be powered — though less so in June — by demand while held back by supply chain constraints,” noted Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Companies improved their progress on addressing moderate-term labor shortages at all tiers of the supply chain,” Fiore added. “Panelists reported lower rates of quits compared to May. Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues.”
War in Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- Last Major Ukraine-Controlled City in Luhansk Region Falls to Russia – Politico
- Russian Forces Turn Firepower on Donetsk After Capturing Luhansk – CNBC
- Ukraine Needs $750 Billion for Recovery Plan, Prime Minister Says – US News
- Turkey Halts Russian Ship, Investigates Ukrainian Grain Claims – Reuters
- After Doing Well Early in the War, Ukraine is Losing Ground. What Next? – The Economist
- Ukraine Retakes Snake Island from Russia Forces: 5 things to Know – CNN
- Deadly Missile Strike Hits Residential Buildings in Ukraine’s Odesa Region – NPR
- U.S. Won’t Push Ukraine to Negotiate, NSC’s Kirby Says – Politico
- In Russia’s Biggest Cities, Ukraine War Fades to Background Noise – WSJ
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Real Disposable Income And Real Consumer Spending Fell In May
Personal disposable incomes rose 0.5% in May but fell 0.1% after adjusting for inflation. Personal consumption expenditures rose 0.2% but dropped 0.4% after adjusting for inflation. The saving rate moved up slightly from a pandemic low of 5.2% in April to 5.4% in May. The savings rate is still at the lowest level since late 2009, when the economy was still struggling to recover from the grip of the Great Recession and the global financial crisis.
The only category of spending to eek out a gain after adjusting for inflation in May was the service sector. Spending on big-ticket vehicles and housing-related goods and nondurable goods, including food at the grocery store, were crimped by the surge in inflation we are enduring. Consumers are saying they are pulling back on plans for driving trips due to higher costs.
US Annual Core PCE Inflation Falls to 4.7% in May
Inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, stayed unchanged at 6.3% on a yearly basis in May, the US Bureau of Economic Analysis announced on Thursday. The Core PCE Price Index, the Federal Reserve’s preferred gauge of inflation, declined to 4.7% in the same period from 4.9% in April, in line with expectations
By this measure, inflation is rising at the fastest clip in decades as the Fed moves aggressively to contain it. Fed officials are keeping a close eye on the month-to-month changes in inflation measures for signs of progress as they attempt to tackle soaring costs. A hot inflation print released earlier this month factored in to the central bank’s decision to raise interest rates by a more-than-expected 75 basis points.
U.S. COVID – BA.4, BA.5
The US CDC is reporting 87.2 million cumulative cases of COVID-19 and 1,012,166 deaths. The average daily incidence has plateaued over the past several weeks, holding relatively steady at approximately 100-110,000 new cases per day. The current 7-day average is 108,505 new cases per day. The average daily mortality has held relatively steady at approximately 250-300 deaths per day since late May. However, the 7-day average appears to be rising and currently is 321 deaths per day.
Both new hospital admissions (+13% over the past week) and current hospitalizations (+5%) continue to increase. Considering the plateau in daily incidence, it is possible that hospitalizations could also remain elevated, rather than peaking and then declining. Community transmission is being driven by the Omicron BA.5 (36.6%) and BA.4 (15.7%) sub-lineages, which together are now more prevalent than the BA.2.12.1 sub-lineage (42%). Along with BA.2 (5.7%), these 4 sub-lineages of the Omicron variant represent all new SARS-CoV-2 infections in the US.
U.S. Study Shows Maternal Mortality Increased at Higher Rate than General Population
A new study examining maternal mortality rates in the US before and during the COVID-19 pandemic was published June 28 in the peer-reviewed journal JAMA Network Open. The study found that maternal mortality rose from 18.8 per 100,000 live births to 25.1 per 100,000 live births during the pandemic. This represents an increase of 33%, higher than the 22% increase in mortality expected as a result of the pandemic. Late maternal mortality increased 41%.
The largest increases in maternal mortality were seen for underlying cause-of-death codes related to indirect causes of death such as other viral diseases (2,374.7%), diseases of the respiratory system (117.7%), and diseases of the circulatory system (72.1%). Maternal mortality increases associated with direct causes of death were largely due to diabetes (95.9%), hypertension disorders (39%), and other pregnancy-related conditions (48%).
The Secrets of COVID ‘Brain Fog’ Are Starting to Lift
Many of these hard-to-define Covid-19 symptoms can persist over time—weeks, months, years. Now, new research in the journal Cell is shedding some light on the biological mechanisms of how Covid-19 affects the brain. Led by researchers Michelle Monje and Akiko Iwasaki, of Stanford and Yale Universities respectively, scientists determined that in mice with mild Covid-19 infections, the virus disrupted the normal activity of several brain cell populations and left behind signs of inflammation.
They believe that these findings may help explain some of the cognitive disruption experienced by Covid-19 survivors and provide potential pathways for therapies.
Supreme Court Limits Power of EPA, Other Regulatory Agencies
The Supreme Court last curtailed the Environmental Protection Agency’s powers to restrict greenhouse-gas emissions from power plants, in a decision that could limit the authority of government agencies to address major policy questions without congressional approval. While EPA had the power to regulate individual plants, the court ruled, Congress had not given it such expansive powers to set limits for all electricity generating units.
The majority justices said they recognized that putting caps on carbon dioxide emissions to transition away from coal-generated electricity “may be a sensible solution” to global warming. But they said the case involved a “major question” of US governance and jurisprudence and that the EPA would have to be specifically delegated such powers by the legislature. “It is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme,” they said.
Eurozone Inflation Hits New High, Pressuring ECB to Raise Key Rate More Forcefully
The eurozone’s annual rate of inflation accelerated to a fresh record high in June. The European Union’s statistics agency said Friday that consumer prices were 8.6% higher than a year earlier, a pickup from the 8.1% rate of inflation recorded in May and the highest since records began in early 1997. The acceleration was once again driven by energy and food prices. Household energy charges were 41.9% higher than a year earlier, while food prices were up 8.9%.
Consumer prices rose more slowly in the eurozone than in the U.S. during 2021, but have been catching up since the Russian invasion of Ukraine in February. That surge has prompted the ECB to bring forward its plans to raise its key interest rate, which it has said it would do on July 21. Policy makers last month said their first move would likely be an increase of a quarter of a percentage point.
Atlanta Fed GDP Tracker Shows the U.S. Economy is Likely Shrank by 2.1% in Q2
Most Wall Street economists have been pointing to an increased chance of negative growth ahead, but figure it won’t come until at least 2023. However, the Atlanta Fed’s GDPNow measure, which tracks economic data in real time and adjusts continuously, sees second-quarter output contracting by 2.1%. Coupled with the first-quarter’s decline of 1.6%, that would fit the technical definition of recession.
“GDPNow has a strong track record, and the closer we get to July 28th’s release [of the initial Q2 GDP estimate] the more accurate it becomes,” wrote Nicholas Colas, co-founder of DataTrek Research. The tracker took a fairly precipitous fall from its last estimate of 0.3% growth on June 27. Data this week showing further weakness in consumer spending and inflation-adjusted domestic investment prompted the cut that put the April-through-June period into negative territory.
Micron’s Dim Outlook Suggests Tech Spending Is on the Wane
Micron Technology Inc. gave a surprisingly downbeat forecast for the current quarter after demand for phones and computers weakened, but vowed to move aggressively to stave off a chip glut. The company — the largest US maker of memory semiconductors — warned that sales will be about $7.2 billion in its fiscal fourth quarter, far below the analyst estimate of $9.14 billion. Excluding certain items, profit will be about $1.63 a share, the company said, compared with the $2.57 predicted by analysts.
Chief Executive Officer Sanjay Mehrotra and his executives told analysts on a conference call that they are cutting spending on new plants and equipment to slow increases in factory output. For their part, the company’s customers — electronic device makers — are scaling back orders to reduce their inventory.
Supply Chain: Shifting Winds to Watch for in the 2nd Half of 2022
The second quarter of 2022 has been a time of both new and continued disruption. The world remains a turbulent place and these five ongoing trends will impact global manufacturing, and result in a re-engineering of most companies’ supply chains.
- China reopening cities after the expected post-Olympic COVID lockdowns.
- Return of the global shipping crisis.
- Shifts in the semiconductor industry.
- The ongoing Russian war in Ukraine.
GM Says Chip Shortage Hurt Q2 Sales, Sticks to Forecasts
General Motors Corp. executives on July 1 said lasting supply chain problems will ding its second-quarter sales because it is sitting on about 95,000 vehicles that still need parts, primarily semiconductors. Most of those unfinished vehicles were built in June. Not being able to ship many of them to dealers—which marks the point at which the company recognizes a sale—means sales for the second quarter were down about 15% from the prior-year period at roughly 582,000.
Despite that, the GM team said it expects the excess inventory to be sold by year-end and reiterated its full-year forecasts for profits (between $9.6 billion and $11.2 billion) and free cash flow ($7 billion to $9 billion). The sales warning and its citing of semiconductor shortage looks set to test GM CEO Mary Barra’s optimism of recent months that the chip shortage will ease significantly in the second half of 2022 and let GM grow wholesale volumes by 25% to 30%.
C-Suite May Soon Join the Great Resignation
A Deloitte survey, released on June 22, which was done in collaboration with independent research firm Workplace Intelligence, shows that executive-level business leaders are struggling with the stresses of work. The survey explores the C-suite’s role in organizational well-being and examines how an overall poor state of health is affecting retention for workers and executives alike.
The report discovered that 57% of employees and nearly 70% of the C-suite said they are seriously considering quitting for a job that better supports their well-being. Despite this mutual struggle, the C-suite largely doesn’t recognize that workers are struggling with their well-being, and this disconnect has the potential to further feed into The Great Resignation if leaders don’t do more to understand the needs of their workers and demonstrate that they truly care about their holistic well-being.
Chinese Posed as Environmentalists to Scuttle Rare Earth Projects
China has been running a disinformation campaign against rare earth mining and processing companies in the United States, the Pentagon confirmed this week. Cybersecurity company Mandiant said last week that Chinese actors used social media in a bid to discredit Lynas Rare Earths Ltd., an Australian company, and other rare earth mining firms to undermine the critical supply chain for the elements. The campaign comprised thousands of fake social media accounts, website and online forums.
Lynas is building a rare earth minerals facility in Texas for the Pentagon. Mandiant investigators said they identified Chinese agents posing online as “concerned local Texans” opposing the construction of the facility. China has aggressively moved to dominate the global market for ‘rare earth’ minerals, which are indispensable to many cutting-edge technological products, including smartphones, flat-screen TVs, medical equipment and water treatment systems. The U.S. and its allies have pressed in recent years to develop alternative sources of supply and production.