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Member Briefing July 8, 2024

July 8, 2024

Posted By: Harold King in Daily Briefing,

Top Story

US Trade Deficit Widens to Largest Since 2022 on Weaker Exports

The gap in goods and services trade grew 0.8% from the prior month to $75.1 billion, the widest since October 2022, Commerce Department data showed Wednesday. The median estimate in a Bloomberg survey of economists called for a $76.5 billion deficit. The value of goods and services exports decreased 0.7%, while imports fell 0.3%. The figures aren’t adjusted for inflation. A widening of the trade deficit is expected to subtract from gross domestic product for a second straight quarter. Looking closer at the numbers:

A drop in shipments of goods to overseas customers to the lowest since November was led by a decline in the value of industrial supplies, aircraft and automobiles.
Limited economic growth in overseas markets and a strong US dollar are restraining demand for US goods and services.
Total services exports increased to a record $92.1 billion during the month. Imports of services were also the highest in data.
Travel exports — or spending by visitors to the US — climbed to $18.1 billion, a fresh record.
Travel imports — a measure of Americans traveling abroad — rose for the first time in three months.
The US merchandise-trade deficit with China grew to $23.9 billion. The value of goods imported from China rose.
The goods shortfall with Mexico also widened to the largest in three months.

Read more at Wells Fargo

U.S. Economy Adds 206,000, Previous Months Revised Lower, Unemployment up to 4.1%

Nonfarm payrolls gains were solid in June, rising 206K, but the underlying details of Friday's employment report clearly signal that the U.S. labor market is softening. June job growth topped consensus forecasts by 16K, but this was more than offset by 111K of downward revisions to job growth in April and May. The separate household survey also showed a cooling labor market. The unemployment rate once again ticked higher to 4.1%, above both its post-pandemic low (3.4% in April 2023) and its pre-pandemic average (3.7% in 2019).

The composition of job growth continues to be led by sectors that are less cyclically sensitive. Nearly 75% of June's employment growth could be attributed to government (+70K) and health care & social assistance (+82K). Construction employment growth continues to be solid and registered 27K in the month, but beyond that most industries were either modestly down (manufacturing -8K, retail -9K) or only modestly up (financial services +9K, information +6K). Temporary help employment fell a precipitous 49K in June and is down 515K from its peak in March 2022 in another sign that labor demand is weakening.

Read more at Wells Fargo

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Policy and Politics

FTC Noncompete Ban Partially Blocked by Texas Judge

A Texas federal judge on Wednesday granted a tax services firm’s motion for a preliminary injunction of the Federal Trade Commission’s nationwide ban on noncompete agreements in employment contracts and has stayed its effective date for the plaintiffs. Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas held that FTC violated the Administrative Procedure Act and exceeded its statutory authority by issuing the ban, which she said has a “substantial likelihood” of being found arbitrary and capricious.

Brown said the injunction is limited in scope to the plaintiffs and plaintiff-intervenors named in the suit; it is not a nationwide injunction. She added that the court would rule on the merits of the agency’s action on or before Aug. 30, 2024. The FTC voted along party lines to approve the ban in April, and several lawsuits against the agency followed. Aside from Ryan, the U.S. Chamber of Commerce also sued FTC shortly after it announced the ban, but a judge placed a hold on that suit last month because Ryan was the first filed.

Read more at HR Dive

New Guidance On Student Loan Forgiveness, Repayment, And Consolidation Issued In Wake Of Court Rulings

The Education Department released new guidance this week providing borrowers with key updates on student loan forgiveness, income-driven repayment plans, and Direct loan consolidation. The new information follows multiple court rulings that threatened to throw the entire federal student loan system into disarray. Two federal courts blocked aspects of President Joe Biden’s SAVE program last week, a new income-driven repayment plan that lowers payments and provides loan forgiveness in 10 to 25 years, depending on the borrower’s specific circumstances. The injunctions halted plans to implement a more favorable repayment formula under SAVE, which would have reduced monthly payments for an estimated three million borrowers, and blocked student loan forgiveness.

While lower monthly payments under SAVE can proceed following the 10th Circuit’s stay, the situation remains murkier on the status of student loan forgiveness under the program. The Missouri injunction blocks the Education Department from implementing loan forgiveness under SAVE, but the scope of that order remains unclear. “If you can’t afford your loans, take a look at the information on loan forgiveness and other options on our Repaying Student Loans 101 page,” says the department’s guidance, the only reference to student loan forgiveness on the new website.

Read more at Forbes

Study Finds Widespread Affordable Care Act Fraud – House To Hold Hearings

The Paragon Health Institute recently published an analysis suggesting that, in many states, the number of users with income levels qualifying them for high subsidy levels is clearly much higher than the number of residents in those states without health coverage from Medicaid, Medicare or employer-sponsored group health plans. The Paragon analysts reported, for example, that they believe that the number of Florida HealthCare.gov users who have reported having income of 100% to 150% of the federal poverty level, which qualifies those users for maximum Affordable Care Act exchange plan subsidies, is about four times higher than their estimate of the number of Florida residents in that income category without employer or government health coverage.

Since the COVID-19 pandemic began, the federal government has offered ACA premium tax credits that are much higher than the usual ACA subsidies. The usual cutoff for access to premium tax credit subsidies is 400% of the federal poverty level, or $60,240 in 2024 in most of the United States for an individual and $124,800 for a family of four. Today, the subsidy is available to higher-income people if the cost of coverage purchased through an ACA public exchange would take up too much of their income. Democrats in Congress are now trying to make the higher level of subsidies permanent. The Congressional Budget Office recently estimated that making the pandemic-period subsidy increases permanent would increase the federal budget deficit by $335 billion over the period

Read more at Benefits Pro

Health and Wellness

Mental Health Crisis Worsens Among U.S. Workers Despite Increased Awareness

The topic of mental health in the workplace has gained significant attention over the past several years as employers work to destigmatize discussions about mental health and help employees through benefits and programs designed to bolster wellness. Yet according to data recently gathered by Wysa, many American employees remain at significant risk of suffering a mental health crisis, including thoughts of self-harm and suicidal ideation. Younger workers are particularly vulnerable to mental health challenges, with 35% of 18-24 year olds reporting recent thoughts of self-harm and suicide.

Other mental health challenges employees are dealing with include emotional distance from others (33%), a sense of isolation or withdrawal (29%), dwelling on the past (26%), a sense of distraction or lack of humor (25%) and a persistent feeling of hopelessness (23%). Despite an increased focus on the mental health crisis plaguing American workers, many employees are unwilling to approach their employers for help, with 38% saying they believe their employer sees mental health as a non-work issue. Employees also reported concerns that disclosing their mental health conditions would cause their manager to be more critical of their work or question their abilities, that they would miss opportunities for career advancement, or that their concerns would be ignored.

Read more at Benefits Pro

NYS COVID Update

The Governor updated COVID data for the week ending July 5^th.

Deaths:

Weekly: 14
Total Reported to CDC: 83,473

Hospitalizations:

Average Daily Patients in Hospital statewide: 831
Patients in ICU Beds: 80

7 Day Average Cases per 100K population

7.4 positive cases per 100,00 population, Statewide
7.7 positive cases per 100,00 population, Mid-Hudson

Useful Websites:

Election 2024

Industry News

Boeing Agrees to Plead Guilty to Felony in Deal With Justice Department

Boeing will plead guilty to a criminal fraud charge stemming from two crashes of 737 Max jetliners that killed 346 people after the government determined the company violated an agreement that had protected it from prosecution for more than three years, the Justice Department said Sunday night. Federal prosecutors gave Boeing the choice last week of entering a guilty plea and paying a fine as part of its sentence or facing a trial on the felony criminal charge of conspiracy to defraud the United States.

The plea deal, which still must receive the approval of a federal judge to take effect, calls for Boeing to pay an additional $243.6 million fine. That was the same amount it paid under the 2021 settlement that the Justice Department said the company breached. An independent monitor would be named to oversee Boeing’s safety and quality procedures for three years. The deal also requires Boeing to invest at least $455 million in its compliance and safety programs.

Read more at The AP

Carmakers Respond to EU Tariffs on Chinese-Made EVs

With the European Union's extra duties on Chinese-made electric vehicles (EVs) taking effect on Friday, some carmakers have been considering whether to raise their prices or take other measures in response. So far, only Tesla (TSLA.O), opens new tab has announced plans to increase prices, while Chinese brands MG and NIO (9866.HK), opens new tab suggested they might increase the cost of their cars in Europe later this year. Analysts think other manufacturers producing in China will also pass on part of the extra cost to consumers.

BYD, which faces the lowest tariff hike of 17.4% on top of the current 10% duty, has not decided yet whether to hike prices on EVs sold in the EU, sources close to the company told Reuters.
CHERY AUTO said its planned EV production in Spain, set up through a joint venture with Spain's EV Motors, should help offset tariffs on imports into the EU. Production at the Barcelona-based site is expected to start by year-end, said Charlie Zhang, the company's vice president.
POLESTAR After posting a first-quarter operating loss, the Swedish carmaker, owned by China's Geely (0175.HK), opens new tab, said it would need to take "mitigating measures" to offset tariffs and pressure on car prices.

Read more at Reuters

Home Affordability Got Tougher During Q2 2024

Real Estate data company ATTOM last week released its second-quarter 2024 U.S. Home Affordability Report, which revealed that median-priced single-family homes and condos remained less affordable in the second quarter of 2024 compared to historical averages in 99% of counties around the nation. Major expenses on median-priced homes consumed 35.1% of the average national wage in the second quarter – marking the highest point since 2007 and standing well above the common 28% lending guideline.

Nationwide, the typical cost of mortgage payments, homeowner insurance, mortgage insurance, and property taxes reached $2,114, consuming 35.1% of the average annual wage of $72,358, up from 31.9% in the first quarter and 32.1% a year ago. In over a third of the markets, these expenses consumed at least 43% of average local wages, a seriously unaffordable benchmark. Affordability declines hit upscale markets in the West and Northeast with median prices of at least $450,000. Major home ownership expenses required an annual income of $90,598, 25.2% more than the average national wage. In 343 of the 589 counties, annual wages over $75,000 were needed, a major obstacle as average wages exceeded this amount in only 11.9% of counties.

Read more at National Mortgage Professional

German Inflation Slows More Than Expected, Other Eurozone Nations Mixed

German inflation slowed after two months of accelerating as the country’s economic recovery showed signs of stalling. Consumer prices rose 2.5% from a year earlier in June — down from 2.8% in May and in line with a Bloomberg survey of analysts. Energy costs continued to decline, while goods eased and services, under particular scrutiny now, were unchanged at 3.9%. Separate reports Friday showed inflation also moderated last month in France and Spain. While picking up a touch in Italy, it remained below 1%. A gauge for the 20-nation euro zone will come on Tuesday, with analysts and a Bloomberg Economic Nowcast both predicting a slowdown to 2.5% from 2.6%.

Data remain tricky to interpret, however, as the impact of volatile energy costs a year ago washes out of the statistics. The Bundesbank expects inflation to ease slightly until September before picking up again by year-end. While the economy “continues to face headwinds, there are increasing bright spots,” it said last month. Wage growth poses an upside risk to prices. Negotiated pay increased 6.2% in the first quarter, and demands by Germany’s largest union for a 7% boost for almost 4 million workers in the metal and electric-parts industries suggest pressure will persist.

Read more at Yahoo Finance

Samsung Expects More Than 1,400% Profit Jump in Q2 on Demand for AI Chips

Samsung Electronics estimated Friday that its second-quarter profits increased nearly 15-fold from a year earlier, thanks to a strong recovery in the memory chip market driven by artificial intelligence demand. The world's largest manufacturer of memory chips said in a regulatory filing that its operating profit reached $7.5 billion for the April-June period, up 1,452.2% on year. Revenue jumped 23.3% to $53.6 billion. Samsung will not release a full earnings report until later this month, but market forecasters highlighted a spike in DRAM and NAND flash memory prices ahead of the results.

Rival SK Hynix has taken the lead in mass-producing the latest-generation HBM3E chips and is the largest supplier to NVIDIA, the Silicon Valley-based tech giant whose graphics processing units dominate the global AI chip market. Samsung is still working to pass a certification process to supply its HBM chips to NVIDIA. The Suwon-based firm has set up a new development team devoted to the chips, news agency Yonhap reported Thursday. HBM's share of the global memory market is expected to grow exponentially in the near future. In a report released last week, investment firm Goldman Sachs predicted a 100% compound annual growth rate for HBM chips over the next few years, skyrocketing in value from $2.3 billion in 2023 to $30.2 billion in 2026.

Read more at UPI

Supply-Chain Finance Programs Seeing Cuts as Companies Face High Interest Rates

Big companies including AT&T, Keurig Dr Pepper and Krispy Kreme are pulling back on a type of short-term financing that gives them more time to pay their invoices. These agreements with vendors, known as supply-chain or vendor financing, are popular because they allow buyers to hold on to their cash longer, and the short-term financing typically isn’t counted as debt on corporate balance sheets. But higher interest rates are changing the equation for some companies.

For most companies, supply-chain finance programs work like this: A third party, typically a bank, pays a vendor before the scheduled due date. The bank takes a cut of the supplier payment, with the amount typically determined by a benchmark interest rate and the buyer’s creditworthiness. The buyer then pays the bank at a later date. As interest rates have increased, the discounts vendors take on their payments have increased as well. AT&T, for example, is paying down a program that has seen sharply rising interest rates since the. “We used that as a cheap form of financing” when rates were at record-low levels, said Pascal Desroches, chief financial officer at AT&T. But those obligations have grown too expensive, Desroches said.

Read more at The WSJ

GE Appliance Resets its Supply Chain

A supply-chain overhaul turned into more than a cost-cutting efficiency plan for one of the largest home-appliances makers in the U.S. GE Appliances says it has managed to double revenue over the last seven years thanks in part to a multiyear effort to reset its manufacturing, tighten control of its inventory and rethink how it manages its production cycle. Marcia Brey, the company’s vice president of logistics, said GE Appliances began restructuring its supply chain in 2017, years before the pandemic, to better balance production and demand.

That effort accelerated as Covid disruptions took hold, and pressed companies around the world to rethink their supply chains. Brey says GE Appliances turned its process on its head, prioritizing real orders to pull goods forward rather than production schedules. The company’s inventory turns have improved some 50% as a result, and sales are up. One of the biggest changes has been to bring more manufacturing into the U.S. from Asia. GE Appliances has added 4,000 manufacturing jobs across its nine U.S. plants over the past seven years. Shifting production from overseas has cut shipping costs by reducing the number of bulky appliances that are sent across the Pacific Ocean and has given GE Appliances more control over production.

Read more at The WSJ

A New Age of Materials Is Dawning, for Everything From Smartphones to Missiles

There have been only a handful of ages of new materials in the history of humankind—ceramics, steel and plastics come to mind—and we are now on the cusp of the next one: composites. When we talk of composites, we’re speaking about such things as the carbon-fiber ones in wind turbines, race cars and the Boeing 787. Such materials have the advantage of being far lighter than the metal parts they typically replace, while being just as strong, and requiring fewer resources to make.

Materials scientists have had limited success making composites affordable and accessible for decades, or possibly millennia—technically, they were invented by the Mesopotamians. The labor-intensive nature of their manufacturing has made them expensive, which has limited their application to a handful of areas where their advantages outweigh their costs, such as the aerospace industry. Now, thanks to new manufacturing techniques that can churn out composite parts quickly and cheaply, all of that is changing, and the results could be both profound and exciting.

Read more at The WSJ

How Microfabrication Techniques Are Advancing Microelectronics

The electronics industry is trending toward the microscale. Consumer devices keep getting smaller, and increasingly popular medical applications require tiny form factors. Addressing those developments means that manufacturers must adopt new types of microfabrication techniques. Microfabrication is not necessarily new, but it is evolving significantly. These small-scale production techniques will change and their applications will expand further as microelectronics dominate more of the industry. Electronics manufacturers must take note of this trend to keep up with the rest of the sector. Here are some of the most common types of microfabrication methods to consider.

Photolithography. Photolithography is the most common microfabrication technique today, largely because it’s among the longest-standing ones. This process involves coating a surface — typically a semiconductor wafer — in a light-sensitive material called a photoresist, then exposing the surface to ultraviolet light to etch photoresist-covered areas.

Laser micromachining. While physical machining may be too abrasive for microfabrication, lasers offer a more controllable alternative. Laser micromachining works almost identically to conventional subtractive methods but replaces physical cutting tools with high-precision lasers. As a result, manufacturers can etch, carve, or cut components without damaging the material.

3D printing. Both photolithography and laser micromachining are subtractive techniques. Some manufacturers have started opting for additive types of microfabrication instead through various 3D printing methods. This is the newest development of the three major techniques, as 3D printing methods were not sufficiently precise enough for microfabrication, until relatively recently.

Read more at American Machinist

Tesla Shares Wipe Out Loss for the Year With 27% Rally Last Week

Tesla’s stock price rose enough on Friday to wipe out its loss for the year and bring its gain for the week to 27%. Shares of the electric vehicle maker closed Friday at $251.55. They ended last year at $248.48, and proceeded to fall as low as $138.80 in April. The latest rally was sparked by a better-than-expected deliveries report for the second quarter on Tuesday. While deliveries still dropped 4.8% from a year earlier, the falloff was less steep than the first-quarter decline, and gave investors reasons for optimism heading into the second half.

In April, Tesla shares hit a 52-week low after a string of troubling developments. Sales in the core automotive business fell in the first quarter, the company downsized through sweeping layoffs and there were reports that Tesla had scrapped plans to soon produce a low-cost family car at its Texas factory. Since last year, Tesla has been offering extensive discounts and incentives to attract customers to its aging lineup of EVs, including its popular entry-level Model 3 sedans, Model Y crossover utility vehicles and its more expensive flagship Model S sedans and Model X SUVs.

Read more at CNBC

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