Member Briefing June 13, 2024

Posted By: Harold King Daily Briefing,

Top Story

CPI = 3.3%.  Inflation Slows Slightly in May

The consumer price index showed no increase in May as inflation slightly loosened its stubborn grip on the U.S. economy, the Labor Department reported Wednesday. The CPI, a broad inflation gauge that measures a basket of goods and services costs across the U.S. economy, held flat on the month though it increased 3.3% from a year ago, according to the department’s Bureau of Labor Statistics. Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago.

Though the top-line inflation numbers were lower for both the all-items and core measures, shelter inflation increased 0.4% on the month and was up 5.4% from a year ago. Housing-related numbers have been a sticking point in the Federal Reserve’s inflation battle and make up a heavy share of the CPI weighting. Price increases were held in check, though, by a 2% drop in the energy index and just a 0.1% increase in food. Within the energy component, gas prices tumbled 3.6%. Another nettlesome inflation component, motor vehicle insurance, saw a 0.1% monthly decline though was still up more than 20% on an annual basis.

Read more at CNBC

Fed Leaves Rates Unchanged, Sees Just One Cut in 2024 Despite Inflation Progress

The Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December, with officials projecting only a single quarter-percentage-point reduction for the year amid rising estimates for what it will take to keep inflation in check. The markdown in the outlook for rate cuts, from three quarter-percentage-point reductions seen in the Fed's March projections, occurred despite the central bank's acknowledgement in its new policy statement of "modest further progress" towards its 2% inflation target - an upgrade from its May 1 statement. It likely removes the possibility of a rate cut before the Nov. 5 U.S. presidential election.

The Fed's statement and new Summary of Economic Projections show a central bank wrestling over how to respond to data that many read as pointing to slower inflation - consumer prices in fact did not rise at all in May on a month-over-month basis, according to data released on Wednesday - but also to steady growth and job creation. The new projections show the economy is still expected to grow at a slightly above-trend 2.1% this year despite a sluggish first quarter, and the unemployment rate will remain at its current 4% through the year.

Read more at Reuters

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Policy and Politics

Former NY Gov. Andrew Cuomo Testifies About Handling of COVID-19 Pandemic

It was just four years ago, but it seems longer: then-Gov. Andrew Cuomo provided daily pandemic briefings for New Yorkers detailing New York’s response. He held 111 often nationally televised, informational briefings about the state’s response starting in early March 2020. But Cuomo’s COVID legacy will also include how he handled deaths in nursing homes – a number that reached over 15,000. Cuomo has said New York followed federal guidance, the recommendations turned into a state mandate that said nursing homes can’t deny residents based on known or suspected COVID cases. "Today is is an opportunity to actually get the truth and the facts out, and I welcome that opportunity," Cuomo told reporters before the hearing.

House Select Subcommittee on the Coronavirus Pandemic Chairman Brad Wenstrup, R-Ohio, said Cuomo's testimony is "crucial to uncover the circumstances that led to his misguided policies and for ensuring that fatal mistakes never happen again." "It appears that politics, not medicine, was responsible for these decisions," Wenstrup said in a in a statement ahead of Tuesday's testimony. "Former Governor Cuomo owes answers to the 15,000 families who lost loved ones in New York nursing homes during the COVID-19 pandemic."

Read more at City & State

NAM, Partners Urge Administration to Withdraw “March-in” Proposal

If finalized, guidance proposed last year by the Biden administration to allow the federal government to seize manufacturers’ intellectual property rights would be ruinous to the U.S. innovation economy, the NAM and state partners told Commerce Secretary Gina Raimondo this week. Under the proposal, the government’s decision of whether to march in would be based on a product’s price—effectively imposing government-mandated price controls on innovative products like clean energy solutions, next-generation semiconductors and lifesaving medicines.

The NAM and a coalition of regional and state manufacturing associations are pushing back, highlighting the importance of ironclad IP rights to groundbreaking innovation. “[T]urning groundbreaking R&D into innovative products for the American people is only possible if creators—from university researchers to early-stage entrepreneurs to established businesses—can rely on strong intellectual property protections,” the associations told Raimondo. Manufacturers are calling on the Biden administration to reverse course. “We urge you to protect our local, state and regional economies, which benefit from breakthrough research, entrepreneurship and modern manufacturing, by withdrawing the proposed march-in guidance.”

Read more at ABC7 News

House Appropriators Spending Bill Report Shows Key Changes Across Procurement, R&D

House Appropriators’ $833 billion fiscal 2025 defense spending bill makes a range of programmatic changes, with funds tending to favor research and development over procurement. While there were no shocking funding additions or reductions in the realm of weapons procurement, weapons accounts were trimmed back across the board — a typical move for appropriators seeking funds for other programs in a tight budget year.

While the initial summary, released June 4, showed topline numbers, details were scarce on a program-by-program level. The committee’s bill report and detailed funding tables, first published by Politico, show cuts of over $1.4 billion from procurement across the military services for a new total of roughly $165 billion. The Pentagon’s collective R&D, however, would rise by nearly $2.8 billion for a topline of nearly $146 billion. Military personnel spending would additionally increase under the draft bill by over $1.8 billion for a new total of $183.7 billion.

Read more at Breaking Defense

Health and Wellness

Can Great Management Improve Mental Health?

In the latest State of the Global Workplace report, 41% of employees report experiencing “a lot of stress.” Yet stress varies significantly depending on how the organizations are run. Those working in companies with bad management practices (actively disengaged employees) are 60% more likely to be stressed than those working in environments with good management practices (engaged employees). In fact, experiencing "a lot of stress” is reported 30% more frequently by employees working under bad management than by the unemployed.

Recent research by the University of Oxford finds little evidence in support of any benefits from popular solutions include wellbeing apps or stress management training. Mindfulness apps or meditation can be effective for individuals, but they can be counterproductive in workplaces with poor management or a negative culture. In short, a meditation app can’t fix a bad manager. So, what works better? According to the Oxford study, “organisation-level initiatives such as improvements in scheduling change, management practices, staff resources or tailored job design.” In other words, organizations need better management practices.

Read more at Gallup

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Industry News

Double-Digit Drop in Machine Tool Orders in April

Contract machine shops cut their new orders for capital equipment during April, contributing significantly to the overall -25.6% drop in manufacturing technology orders from March, or a total of $317.9 million for the entire sector. That figure represents -5.4% decrease in new orders from April 2023, and it brings the four-month total for new orders to $1.428 billion, or -16.2% less than the January-April total for 2023.

The drop in new orders from contract machine shops is important because those operations represent the largest customer segment for manufacturing technology, though their decrease in orders was less than the double-digit decline in orders by overall market. Another crucial market segment, automotive manufacturing, also is reducing its investment in manufacturing technology. In contrast, aerospace manufacturing continues to invest in new capital equipment, which has been notably evident in new orders in the Southeast region.

Read more at American Machinist

Number of Drug Shortages Hits 23-Year High

Persistent drug shortages over the past decade may hamper Americans' ability to access the medications they need, when they need them. The average drug shortage now lasts for three years, up from two years in 2020, according to a new report form U.S. Pharmacopeia. Researchers used artificial intelligence and predictive analytics to identify four factors that can make drugs more vulnerable to shortages:

  • Low prices. Drug products, commonly older generics, with low prices have a higher risk of shortage. Product discontinuation increased by 40% in one year, from 100 drug products in 2022 to 140 in 2023, suggesting that tightening margins forced manufacturers to leave the market.
  • Manufacturing complexity. Drugs with higher manufacturing complexity, such as sterile injectables, are more vulnerable to shortage. Manufacturing complexity also can be seen in certain therapeutic classes, such as some antibiotics that require dedicated facilities and in certain active ingredients that require complex chemical synthesis.
  • Geographic concentration. Drugs in which the active pharmaceutical ingredient and/or finished dose are made in a single or a few locations are more susceptible to shortage.
  • Quality concerns. Quality-related issues that surface in regulatory agency inspection outcomes and manufacturer recalls also influence drug shortage risk, but these issues must be used along with other information to be meaningful.

Read more at Benefits Pro

Ransomware Attacks are on the Rise for Industry

Global conflicts in Ukraine and the Middle East are breading grounds for malware, specifically targeting Ukrainian critical infrastructure, and pro-Israeli and pro-Hamas hacktivists have targeted infrastructure as well, according to Dragos. While malware and hacktivists still pose a significant threat, ransomware remains the primary concern for industrial organizations worldwide. To track these threat groups and their cyber activity, Dragos released the OT Cybersecurity: the 2023 Year in Review.

Overall, Dragos tracked 21 threat groups targeting industrial organizations, including 10 active groups and three new threat groups for 2023. Most adversaries do not publicly disclose their operations, capabilities or teams. Ransomware still poses the greatest threat to industrial organizations. 2023 saw a 50% increase in ransomware attacks, which Dragos says is part of a long-term trend. In 2022, Dragos reported an 87% increase from 2021.

Read more at Plant Services

Import Cargo to Hit Highest Level Since 2022

This summer will mark the highest monthly inbound cargo volume at the nation’s major container ports in nearly two years this summer,  according to the Global Port Tracker report released June 10 by the National Retail Federation and Hackett Associates. Hackett Associates Founder Ben Hackett said an expected seven-month string of import levels above 2 million Twenty-Foot Equivalent Units – a level reached only twice since October 2022 – is partly due to changes in the annual “peak season” for shipping.

“Imports of containerized goods at U.S. ports are booming, with particularly strong growth on the West Coast,” Hackett said in a statement. “Reasons range from retailers restocking following strong sales after the pandemic to trying to get ahead of increased tariffs on goods from China set to take effect in August and ensuring sufficient inventories for the holiday season amid strong consumer demand.” U.S. ports covered by Global Port Tracker handled 2.02 million TEU in April, the latest month for which final numbers are available. That was up 4.6% from March and up 13.2% year over year and was the highest number since 2.06 million TEU last October.

Read more at Material Handling & Logistics

FedEx to Lay Off up to 2,000 Employees in Europe Amid Cost-Cutting Efforts

FedEx wants to reduce its head count in Europe by as many as 2,000 people as the parcel-delivery giant continues its cost-cutting efforts. The Memphis-based delivery company said it would remove between 1,700 and 2,000 positions on European back-office and commercial teams, according to a Wednesday securities filing. Operations will be consolidated in countries that are best aligned with its needs and existing real-estate footprint, the company said.

The latest round of layoffs at FedEx comes amid a persistent shipping slowdown weighing on the industry. FedEx’s efforts to reduce billions of dollars in operating expenses have included station and office closures, restructuring its Ground and Express operations and reducing its payroll across the globe. FedEx anticipates that its latest round of layoffs will cost between $250 million and $375 million through fiscal 2026. Savings from the plan are expected to be between $125 million and $175 million annually starting in fiscal 2027.

Read more at The WSJ

The World Will Be Swimming in Excess Oil by End of This Decade, IEA Says

Global oil markets are headed toward a major glut this decade, a global energy watchdog forecast, citing surging supplies and slowing demand growth for crude thanks to lower-emissions energy sources. The International Energy Agency, whose members include the world’s biggest oil consumers, predicted in its closely watched medium-term oil market report that so-called spare capacity—the amount of pumping capacity left unused because of adequate supply—could surge in coming years to levels only seen during the Covid-19 pandemic. 

Oil-demand growth is set to peak by 2029 and start to contract the next year, reaching 105.4 million barrels a day in 2030 as the rollout of clean-energy technologies accelerates, according to the Paris-based organization. Meanwhile, oil-production capacity is set to increase to nearly 113.8 million barrels a day, driven by producers in the U.S. and the Americas. In the short term, the agency cut its forecast for global oil-demand growth to 960,000 barrels a day this year from previous estimates of 1.1 million barrels a day, as weak deliveries in OECD countries pushed global demand in a narrow contraction in March. The IEA cited various risks to its demand forecast, including economic growth estimates, the trajectory of oil prices and the pace of adoption of electric vehicles worldwide.

Read more at the WSJ

AI's Looming Climate Cost: Energy Demand Surges Amid Data Center Race

On average, a ChatGPT query needs nearly 10 times as much electricity to process as a Google search. In that difference lies a coming sea change in how the US, Europe, and the world at large will consume power — and how much that will cost. For years, data centers displayed a remarkably stable appetite for power, even as their workloads mounted. Now, as the pace of efficiency gains in electricity use slows and the AI revolution gathers steam, Goldman Sachs Research estimates that data center power demand will grow 160% by 2030.

At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade. In the US and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in a generation. Along the way, the carbon dioxide emissions of data centers may more than double between 2022 and 2030. Over the last decade, US power demand growth has been roughly zero, even though the population and its economic activity have increased. Efficiencies have helped; one example is the LED light, which drives lower power use. But that is set to change. Between 2022 and 2030, the demand for power will rise roughly 2.4%, Goldman Sachs Research estimates — and around 0.9 percent points of that figure will be tied to data centers.

Read more at Goldman Sachs

The Undeniable Impact of AI on Modern Manufacturing

The emergence of artificial intelligence has given rise to several new technologies, processes and techniques, permanently changing modern manufacturing. Indicators suggest it still has plenty of room to grow. The industry’s reliance on robotics, automation and heavy machinery substantially contributed to the rise of AI’s use in manufacturing. Heightened global demand, widespread labor scarcity and the increasing cost of disruption have also been key drivers as many countries’ consumers grow less tolerant of unexpected wait times and missed delivery windows.

Micro, small and medium-sized enterprises’ (MSMEs’) reliance on robotics and automation technology provides the ideal conditions for AI integration. Because machine-learning (ML) models evolve with new data, manufacturers benefit from reduced retooling costs. Moreover, they preserve productivity, as they don’t have to train workers on new tools. AI’s predictive forecasting and automation capabilities are also noteworthy. These systems’ financial and performance benefits enhance decision-making, leading to facility-wide improvements. Business leaders can redirect their cost and productivity savings into technology investments, prototyping or hiring schemes, transforming their operations.

Read more at EE Times

New York Proposes Dropping Regents Exam as High School Graduation Requirement

The New York State Education Department proposed Monday ending a requirement that students pass Regents exams to earn a high school diploma, as part of the most sweeping overhaul of public-school graduation measures in decades. Officials advanced four “proposed transformations” to the Board of Regents based on recommendations made by a key commission in the fall. Also on the table are proposals to offer only one type of New York diploma, rework credit requirements, and broaden the skills and knowledge students need to graduate.

While tests would continue to be administered, the end of the requirement could have ripple effects in classrooms across New York, where students who fail the Regents have been shut out of earning a diploma, and some teachers feel hamstrung into teaching toward a test. But experts say that implementation is key. “But what the new era portends is questionable and troubling. It’s not clear from the presentation what New York high schools will look like in the future,” said David Bloomfield, a professor of education law and policy at Brooklyn College and the CUNY Graduate Center. “Rigorous coursework needs to be required, and there’s nothing in this presentation that assures that will be the case.”

Read more at The NY Daily News