Member Briefing June 13, 2023
NAM Manufacturers’ Q2 Outlook Survey: “Mounting Concerns”
The National Association of Manufacturers Q2 2023 Manufacturers’ Outlook Survey shows manufacturers’ mounting concerns over the onslaught of unbalanced federal regulations and the threat that poses to sustaining manufacturing investment, job creation and wage growth. The NAM conducted the survey from May 18 to June 1, 2023. Key Findings Include:
- Only 67% of manufacturers are positive about their own company’s outlook. This is down from 74.7% in Q1, making it the lowest since Q3 2020, and before the pandemic, the lowest since Q3 2019.
- If the regulatory burden on manufacturers decreased, 65% of manufacturers would purchase more capital equipment, and more than 46% would increase compensation.
- More than 63% of manufacturers report spending more than 2,000 hours per year complying with federal regulations.
- The top challenges facing manufacturers include attracting and retaining a quality workforce (74.4%), weaker domestic economy (55.7%), rising health care/insurance costs (53.1%), unfavorable business climate (52.1%), increased raw material costs (50.8%) and supply chain challenges (44.9%).
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine’s Offensive Begins With Ground Gained, Tanks Lost - WSJ
- Russia’s Improved Weaponry and Tactics Challenge Ukraine Offensive – Defense News
- Ukraine Claims First Gains in its Counteroffensive Against Russia - NBC
- Ukraine’s Offensive Relies on Army Gear That Doesn’t Shoot - WSJ
- Biden Administration Announces Additional Security Assistance for Ukraine – Defense Department
- Who Blew Up the Kakhovka Dam? Here Are the Three Theories – The Hill
- New U.S. Intelligence Shows Russia’s Deepening Defense Ties With Iran - Politico
- North Korea's Kim Vows to 'Hold Hands' With Putin for Strategic Cooperation - Reuters
- Leadership lessons from a top Ukrainian general – Chief Executive
- Russia Arrests American Travis Leake in Moscow on Drug Charges - WSJ
- Sweden’s Stalled NATO Bid Disrupts Nordic Defense Planning – Defense News
- Interactive Map: Assessed Control of Terrain in Ukraine - Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Execs: Factory Labor Inflation Will Persist Into Next Year
Above-average manufacturing wage pressures are likely to last well into 2024, the finance chiefs of Ingersoll Rand Inc. and Lincoln Electric Holdings Inc. told attendees of separate investment bank events June 7. Another sign that manufacturing wage inflation may not recede meaningfully soon: The National Association of Manufacturing second-quarter outlook survey showed that attracting and retaining a quality workforce remains industrial leaders' top challenge by a large margin.
Both Vikram Kini of Ingersoll Rand and Gabe Bruno of Lincoln Electric told their audiences that, after roughly two years of steep increases, they expect some improvement in labor cost inflation in what remains of 2023 and what lies ahead next year. But, both executives also added that the tight market will take more than another quarter or two to return to historical norms. Kini and Bruno delivered their remarks on the same day job-listing site Indeed published data showing annual wage growth slowing to 5.3% in May from more than 9% in early 2022.
OECD Sees Limited Global Growth pick-up of 2.7% This Year
Global economic growth will pick up only moderately over the next year as the full effects of central bank rate hikes are felt, the OECD said on Wednesday, the latest to flag the impact of monetary tightening. The world economy is set to grow 2.7% this year, the Organization for Economic Cooperation and Development (OECD) said, up from its previous forecast of 2.6% in March. Though boosted by the lifting of China's zero-COVID policy, that would be the lowest annual rate since the 2008-2009 global financial crisis with the exception of the pandemic-hit year of 2020, the Paris-based organization said.
Growth would then accelerate only slightly next year to 2.9% - unchanged from March's forecast - as rate hikes by major central banks over the last year increasingly drag on private investment, starting with housing markets.
COVID Update - China’s Covid-Positive Test Rate Jumped to 40% Last Month
China was walloped by a Covid-19 resurgence in May, with a positive test rate nearing the peak seen during the tsunami wave at the end of 2022, according to government data released over the weekend.
The proportion of people diagnosed with Covid at hospitals across the country has risen more than five-fold since April, reaching more than 40% of those tested at the end of May, data released by the Chinese Center for Disease Control and Prevention on Sunday showed.
Record Revenues but Plummeting Profits: The Fortune 500 is Trying to tell us Something About the State of the Economy
The Fortune 500 brought in more revenue last year than ever before in history—$18.1 trillion, up from $16.1 trillion in 2021 (and more than the GDP of China.) But profits fell sharply, to $1.56 trillion from $1.84 trillion. Why? The reasons are clear to anyone running a business. Supply chain problems raised prices, labor shortages increased wages, the Fed raised interest rates, and pretty much anything that could increase costs happened. The notion of “greedflation,” favored by some on the left, is belied by the numbers. Revenues may have jumped 12%, but costs rose faster.
What does any of this tell us about the future? Not a lot. Falling profits don’t always augur a recession—although they often do. What happened last year is just an exaggeration of normal cyclical trends—profits are higher in the early parts of a recovery, and moderate in later stages. The profit-busting trend has continued this year, with corporate profits tumbling in the first quarter. And hedge fund investor Stanley Druckenmiller said last week he believes corporate profits could fall another 20% to 30% before it’s over.
China Struggles With Weak Post-COVID Economic Recovery
China’s economy rebounded at the start of 2023, but after a good first quarter, factory output and consumer spending are weakening. An official survey in April found a record 1 in 5 young workers in cities were unemployed. China’s economic growth accelerated to 4.5% over a year earlier in the three months ending in March from the previous quarter’s 2.9%, but forecasters say the peak of that recovery might already be past.
Growth would need to pick up further to reach the ruling Communist Party’s target of “around 5%” for the year. “For now, the ongoing momentum seems not that promising,” said UBS economist Zhang Ning. Retail sales in April surged 18.4% over last year’s lackluster level, but that was barely half the growth of up to 35% called for by private sector forecasts. Factory output fell 0.5% compared with March and investment growth slowed.
May CPI Forecasts Show Little Slowdown in Inflation
The May CPI report is expected to show a 4.2% increase in inflation from year-ago levels, according to FactSet’s consensus forecasts. That would be slower than April’s year-over-year increase of 4.9% but still more than twice the Fed’s target levels. For May, the overall CPI is forecast to rise 0.2%, while core CPI (which excludes volatile food and energy cost) is expected to rise 0.4%.
In the April report, the overall CPI showed prices growing 0.4% from month-ago levels—an acceleration from the previous month’s reading of 0.1%. If the May report comes out in line with forecasts, the Fed will have to make a tough call, according to José Torres, senior economist at Interactive Brokers. “Everyone thinks the Fed is going to pause at the upcoming FOMC meeting,” he says. “But if they do, they’re sending the wrong signal to the market. We still have inflationary pressures to subdue.”
Impact of I-95 Collapse in Philadelphia to Last ‘a Long Time’
An elevated section of Interstate 95 in northeast Philadelphia collapsed Sunday, shutting the highway — a closure that could take the key freight artery offline for weeks if not longer. According to media reports, the early morning fire was caused by an oil tanker that caught fire underneath the elevated structure. The collapse is reported to be in a neighborhood of northeast Philadelphia known as Tacony, but the closure of the road is 7 miles long, from Exit 25 at Academy Road to Exit 32, Linden Avenue.
Truckers traveling north to south already can bypass that area by using the New Jersey Turnpike or Interstate 295, which parallels much of the New Jersey Turnpike and at a few points has less than a quarter-mile between the two roads. But that is only minimally relevant to traffic headed to the city itself. According to a website called The Greater Encyclopedia of Philadelphia, which includes a history of I-95 in that region, by 2010, the stretch of I-95 through Bucks County, which is north of the city, was carrying 136,000 cars per day and 19,000 trucks. Trucking capacity in Philadelphia has been looser than in the rest of the country. The Outbound Tender Rejection Index in SONAR for Philadelphia stood at 1.75 Saturday. For the U.S as a whole, it was 2.86.
Dockworkers and Port Employers Were on Their Way to a Deal, Then They Hit a Wall on Wages
U.S. retailers and manufacturers are facing mounting delays at West Coast ports as tensions rise between unionized dockworkers and employers who have been locked in labor talks for more than a year. Job actions that began early this month have delayed the flow of imports through the ports and led to calls for the Biden administration to intervene to get contract negotiations on track and ensure the country doesn’t see supply-chain disruptions that would hit a fragile U.S. economy.
The job actions so far have been targeted and relatively limited. But past contract talks have started out with sporadic disruptions that metastasized into broader disruptions that caused massive backups of container ships. Delays in cargo imports in the last contract cycle in 2014 cost retailers millions of dollars in lost sales and the backups at the ports took months to clear after an agreement was finally reached in 2015. Here is what the situation at the ports and at the negotiating table look like, and how we got to this point.
US Supreme Court's Dog Toy Ruling Puts Parody Products on Notice
The U.S. Supreme Court handed brand owners a win against parody products on Thursday when it ruled that "Bad Spaniels" dog toys resembling Jack Daniel's whiskey bottles are not shielded by the U.S. Constitution from the liquor maker's trademark lawsuit. VIP Products had argued that the First Amendment protected its toys' poop-themed variations on Jack Daniel's famous label and bottle design, which it described as commentary on alcohol brands' "self-serious bombardment of consumers with advertising" and dog owners' "joyful humanization of their pets."
But in a 9-0 decision, the justices said a precedent known as the Rogers test for assessing the use of trademarks in artistic expression did not apply to VIP's products, reversing a U.S. appeals court and raising the bar for parodies to survive trademark claims. The Rogers test is "not appropriate when the accused infringer has used a trademark to designate the source of its own goods - in other words, has used a trademark as a trademark," Justice Elena Kagan wrote.
Air-Bag Parts Maker Refusing U.S. Recall Request Had Workplace-Safety Woes
The auto-parts maker resisting a U.S. request to recall 67 million potentially dangerous air-bag inflators is a Chinese-owned firm that has been cited for workplace-safety violations and sued for claims of poor welding on some shipped components. ARC Automotive, a supplier that specializes in making propellants and inflators for air bags, in May rejected a request from the National Highway Traffic Safety Administration to recall the parts, which regulators have tentatively concluded are defective.
The auto-safety regulator said the inflators, which are designed to activate during a crash to rapidly fill the air-bag cushion, are at risk of blowing apart and sending metal fragments flying at the driver and passengers. Such explosions have killed two people and injured multiple others, NHTSA said. ARC, based in Knoxville, Tenn., has said extensive field testing has found no inherent defect, and it disagrees with NHTSA’s “sweeping request.” ARC didn’t respond to multiple requests for comment for this article.
Pratt & Whitney Tapped for High-Volume Engine Order
Latin America’s largest airline, LATAM Airlines Group, named Pratt & Whitney to supply engines for the outstanding aircraft to be delivered under its 2013 order for 42 Airbus A320neo jets. Including options, the agreement could involve engines for as many as 146 aircraft. Pratt & Whitney did not project its anticipated revenue from the deal, though with an estimated list price of $12 million per engine, the agreement could be worth as much as $3.5 billion.
The supplier also provides engine maintenance through a long-term, comprehensive service agreement. The GTF engines are one of two options available to operators of Airbus A320neo aircraft, and according to Pratt they offer the best available fuel efficiency and lowest greenhouse gas emissions. Reportedly, GTF-powered aircraft reduce fuel consumption and CO2 emissions by 16-20%; NOx emissions up to 50%; and noise footprint up to 75%. Also, GTF engines are certified to operate on 50% sustainable aviation fuel (SAF) and have been tested successfully to run on 100% SAF.
Eurozone Slides Into Recession as Inflation Hurts Consumption
While the U.S. economy has so far brushed aside higher borrowing rates and continues to grow thanks to robust consumption, employment and an extended market rally, Europe is lagging ever further behind, stuck in the economic equivalent of long Covid. While the U.S. economy is now 5.4% larger than it was before the Covid-19 pandemic struck, the eurozone economy is just 2.2% bigger.
The weakness in Germany is a particular concern. In past decades, the country’s economy often managed to recover rapidly from economic shocks thanks to the strength of its highly competitive exporters. But global trade has suffered under the Covid-19 pandemic and mounting geopolitical tensions, and it may not offer the same degree of support this time. Factory output in the country showed a steep drop in March. And the continuing war in Ukraine, a close neighbor, is another major source of uncertainty for the region. Because of its size, the German economy on its own can drag the eurozone up or down. The eurozone’s slide into recession at the start of the year came in spite of growth in France, Italy and Spain, its other large economies.
SpaceX Continues Launch Streak with Another Batch of Starlink Internet Satellites
SpaceX launched another set of its Starlink internet satellites into space before dawn Monday. Shortly after a successful liftoff, the rocket’s first stage booster touched down on a floating platform at sea. A stack of 52 Starlink satellites sat perched atop the sooty Falcon 9 rocket when it lifted off Monday at 3:10 a.m. EDT from Cape Canaveral Space Force Station in Florida, marking the first of two planned launches for the day.
Approximately eight minutes after launching, the Falcon 9’s first stage made its ninth landing as it returned to Earth and touched down on one of SpaceX’s drone ships parked in the Atlantic Ocean. While the first stage was headed back to Earth, the rocket’s upper stage continued its mission and deposited 52 Starlink satellites into low-Earth orbit about 65 minutes after liftoff. Those satellites make up a massive constellation of more than 4,500 satellites circling the globe to provide connectivity below.