Member Briefing June 19, 2024
US Industrial Output Rises More Than Forecast in Broad Advance
Production at U.S. factories increased more than expected in May, recouping all the declines in the prior two months, but the momentum is unlikely to be sustained amid higher interest rates and softening demand for goods. Manufacturing output jumped 0.9% last month following a downwardly revised 0.4% drop in April, the Federal Reserve said on Tuesday. Production at factories had declined in March and April. It gained 0.1% year-on-year in May.
- Motor vehicle and parts output rebounded 0.6% last month after tumbling 1.9% in April. Durable goods manufacturing production increased 0.6%. There were large increases in the output of wood products, machinery, computer and electronic products as well as furniture and related products.
- Nondurable manufacturing production shot up 1.1%, with a 1.5% fall in printing and support offset by sturdy gains elsewhere.
- Mining output climbed 0.3% after falling for two straight months. Utilities production advanced 1.6% after rebounding 4.1% in the prior month. Overall industrial production accelerated 0.9% in May. That followed an unchanged reading in April. Industrial production rose 0.4% year-on-year in May.
- Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, rose to 78.7% from 78.2% in April. It is 0.9 percentage points below its 1972–2023 average. The operating rate for the manufacturing sector increased to 77.1% from 76.6% in the prior month. It is 1.1 percentage points below its long-run average.
May Retail Sales Rise 0.1%, Weaker than Expected
Retail spending was weaker than expected in May as consumers continued to wrestle with stubbornly higher levels of inflation. Sales rose just 0.1% on the month, one-tenth of a percentage point below the Dow Jones estimate, according to a Commerce Department report Tuesday that is adjusted for seasonality but not inflation. However, the result was slightly better than the downwardly revised 0.2% decline In April. On a year-over-year basis, sales rose 2.3%.
The sales number was worse when excluding autos, with a decline of 0.1% against the estimate for a 0.2% increase. Moderating gas prices helped hurt receipts at gas stations, which reported a 2.2% monthly decline. That was offset somewhat by a 2.8% increase at sports goods, music and book stores. Online outlets reported a 0.8% increase, while bars and restaurants saw a 0.4% decline. Furniture and home furnishing stores also reported a 1.1% drop.
Global Headlines
Middle East
- Israel and Hamas: The Latest News – The Guardian
- Israel Says Rafah Offensive Goals Nearly Achieved – Yahoo
- Israel, Lebanon Escalate Rhetoric as US Tries to Prevent War - Reuters
- U.S. Pier for Gaza Aid Is Failing, and Could Be Dismantled Early - NYT
- Key Democrats Allow US Sale of F-15 Jets to Israel in $18 Billion Deal - CNN
- Aid Trucks Pile Up Inside Gaza Despite Pause in Fighting - WSJ
- Israel’s Northern Border is Ablaze – The Economist
- French Court Strikes Down Ban on Israeli Companies at Weapons Show – France 24
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
Ukraine
- Ukraine and Russia: The Latest News – The Guardian
- Russian Official Says Ukraine Pouring Troops into Contested Kharkiv Region – Reuters
- Hundreds of Russian Troops Are Cut Off In A Vovchansk Chemical Plant As Ukrainian Glide Bombs Rain Down - Forbes
- Putin Vows Trade, Security With North Korea Beyond Reach of West – Reuters
- Russia's Ambassador Reveals the 'Path to Peace' in Ukraine - Newsweek
- Latvia's President Rinkevics Visits Border With Russia – Yahoo
- Hungary and Slovakia Back Dutch PM Rutte as NATO’s Next Chief – Politico
- Ukraine’s F-16 Pilots Have A Problem: They’ll Have To Fly Low To Survive—And That Impedes Their Missiles - Forbes
- 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
Other Headlines
- EU Leaders Fail to Agree on von der Leyen’s Second Term - Politico
- South Korea Fires Warning Shots As North Korean Soldiers Cross Border Before Putin-Kim Summit - Forbes
- Central Banks Expect to Snap Up More Gold This Year Amid Dollar Pessimism - WSJ
- US Knocks ‘Aggressive’ China After Collision With Philippine Ship – The Hill
- Number of Haitians Fleeing Gang Violence Soars Since March, Says UN – France 24
- UK Industry Wants Better Strategy and EU Ties from Next Government, Make UK Says – Reuters
- A New Chinese Megaport in Peru Is Rattling the U.S. - WSJ
- How China's Nuclear Stockpile Compares to US and Russia – Newsweek
- US Citizen Still Missing In Greece After Other Tourists Found Dead—Here’s What To Know - Forbes
Policy and Politics
New York School District Await New Foundation Aid Formula from State
School districts across the state are in wait-and-see mode as the Rockefeller Institute prepares to release an update to the Foundation Aid formula by Dec. 1. The formula, which is the primary mechanism which determines how much school districts receive in state aid, hasn’t seen a full update since 2007. In April, Hochul announced the Rockefeller Institute would be spearheading the Foundation Aid formula update, to mixed reviews.
During the state budget process this year, Gov. Kathy Hochul had originally wanted to end "Save Harmless," a provision of the formula that ensures school districts receive at least as much funding for the current year as they did for the prior year. While lawmakers successfully quashed that move, the governor, who is concerned about costs, was able to institute a lower inflationary factor into the funding formula: Rather than a 5% increase, schools received a 2.8% increase. Robert Schneider, executive director of New York State School Boards Association, said he was hopeful that the process of updating the formula would be made easier with the Rockefeller Institute because it’s run by former New York state Budget Director Bob Megna. You can find the dates and locations of the public hearings around the Foundation Aid formula here: https://rockinst.org/foundation-aid-study/
Read more at NY State of Politics
Tough-on-China Stance Threatens Green America Push
The Biden administration is hoisting barriers to Chinese clean-energy imports to protect domestic industries as the presidential election nears. But the trade restrictions also threaten another of Biden’s priorities: building out renewable-energy generation. This month, the administration allowed a set of duties aimed at China-based manufacturers of solar panels to take effect—after having put the measures on hold two years ago. The International Trade Commission, a federal agency that analyzes trade issues, also gave its initial go-ahead to an antidumping petition that some U.S. solar manufacturers have backed. In the next few weeks, the administration is expected to close a tariff loophole that let companies bring in many solar panels duty-free.
Those moves, along with others that raise tariffs on green products such as batteries and electric vehicles, represent some of the strongest attempts yet to protect nascent industries from a glut of green Chinese products and wean the U.S. off clean-energy supply chains that Beijing dominates. But the U.S. still relies on imported solar components, and some industry executives say the moves—particularly the antidumping petition—are causing developers to pause panel acquisitions, push back work time lines and prepare for higher costs. That in turn threatens the fast rollout of renewable energy needed for the U.S. to hit ambitious clean-energy and climate goals, they say.
Biden Announces New Policy Shielding Undocumented Spouses of U.S. Citizens from Deportation
The Biden administration is taking executive action to protect undocumented spouses of American citizens — a move that would shield about 500,000 immigrants from deportation. The White House announced the election-year policy Tuesday, framing it as “new action to keep families together.” NBC News reported that an executive action protecting the spouses was likely to be announced soon, after urging from immigration advocates and Democratic lawmakers and as President Joe Biden courts Latino voters in crucial battleground states.
The action aims to provide a “significant benefit to the country” by allowing non-citizens who have been in the country for at least 10 years and are married to a U.S. citizen, and their children, to apply for permanent residence without leaving the country. The statement added that the spouses eligible to apply for this have been in the U.S. for 23 years on average. The program would also make it easier for some undocumented immigrants to get a green card and a path to U.S. citizenship. Sources also say that the undocumented spouses would be allowed to obtain work permits on a case-by-case basis.
Health and Wellness
New Weight-Loss Drugs and Devices Are Coming This Week
The weight-loss breakthroughs now dominating headlines all emerged from diabetes treatment. So medical meetings such as the coming weekend’s gathering of the American Diabetes Association are increasingly dominated by news on obesity drugs from Eli Lilly, Novo Nordisk, Zealand Pharma, Altimmune, and others. There will be news on the effectiveness of weight-loss pills, drugs that target novel hunger-receptors, and drugs that designed to trim weight but not muscle. Devices are also following drugs on the path from diabetes treatment to dieting data, so investors are expecting that Abbott Laboratories or Dexcom glucose monitors will be used by non-diabetics.
These drugs and devices have been the biggest movers of medical stocks in the last couple of years. Lilly and Novo became the world’s highest-valued drug companies, after the weight-shedding effects of their GLP-1 drugs lifted their stocks more than 160% in the last two years. Dexcom, for its part, has been one of the most active stocks in medical technology. Lilly currently markets tirzepatide for diabetes, as Mounjaro, and for weight-loss, as Zepbound. The injectable drug targets two cell-surface receptors that affect hunger. Talks at the conference will show how the drug acts on appetite circuits in the brain and eases sleep apnea.
Election 2024
- 2024 New York Voter Guide: What’s on Your Primary Ballot – Times Union
- Democratic Candidates Gear up for 106th State Assembly District Primary– NY State of Politics
- Trump Vows to Help GOP in House Races – Roll Call
- In First, EPA Union Endorses Biden for President – The Hill
- Biden Team Announces $50M Campaign Highlighting Trump Conviction - AP
- Real Clear Politics Latest GOP Primary Polls – Real Clear Politics
- Real Clear Politics Latest General Election Polls – Real Clear Politics
- Latest Polls - FiveThirtyEight
Industry News
NY Fed Survey: Service Sector Contracts Slightly
Activity declined slightly in the region’s service sector, according to firms responding to the Federal Reserve Bank of New York’s June 2024 Business Leaders Survey. After poking above zero last month, the headline business activity index fell eight points to -4.7.
- The business climate index moved up three points but remained firmly negative at -23.0, pointing to an ongoing worsening of the business climate.
- Despite the decline in business activity, the employment index rose six points to 9.4, suggesting that employment growth picked up.
- The wages index held steady at 33.0, a level similar to the prior two months, indicating that wage increases were little changed.
- The prices paid index moved down eight points to 50.0, and the prices received index fell five points to 17.9, indicating that price increases moderated.
- The capital spending index fell to -3.2, its lowest level in a year.
- The index for future business activity fell five points to 15.7, and the index for the future business climate fell seven points to -5.8, suggesting that firms were not very optimistic about future conditions. However, employment is expected to increase in the months ahead.
Heat Waves are a Drain on the Economy, and They’re Getting Worse
During the winter months, we often hear about cold weather and snowstorms playing havoc with retail sales or other economic activity, but there’s growing evidence that summer heat waves take a big economic toll too — and that their impact is growing as the climate warms. On a recent really hot day, workers were fixing masonry on the roof of Amir Jina’s building. “And the head contractor said, ‘During the hotter parts of the day, I’m just not going to send out people to work,'” he said.
This happens in a lot of industries when temperatures become unbearable and it’s unsafe to work outdoors. “All aspects of the economy slow down,” said Solomon Hsiang, a public policy professor at the University of California, Berkeley. Hsiang said that after a heat wave, the economy can get back to its normal baseline of productivity, but we often don’t make up for what we lost while it was hot. “A lot of little heat waves can add up to having this very large effect on overall economic performance in the long run,” he said. We’re already seeing that. According to research out of Dartmouth College, increased heat waves due to climate change erased at least $16 trillion from global gross domestic product between 1992 and 2013.
Amazon Labor Union Votes to Join Forces with Teamsters
Members of the Amazon Labor Union, the first group of company workers to organize at a U.S. warehouse, have voted to affiliate with the International Brotherhood of Teamsters, the groups said in a joint statement on Tuesday. Roughly 98% of ALU members voted in favor of joining up with the Teamsters, the groups said. The ALU and the Teamsters announced earlier this month they were taking steps to affiliate, and the last step was a vote from rank-and-file ALU members ratifying the move. It could pressure Amazon to come to the bargaining table with the ALU, a union based in New York, which is still trying to negotiate with the company.
The ALU gained national attention two years ago after it won a historic victory at one of Amazon’s warehouses in Staten Island, New York, known as JFK8. The group, started by current and former JFK8 employees, initially established itself as a grassroots, independent labor organization. But the group has struggled to negotiate a contract with Amazon, which sought to toss out the 2022 election results, and rifts formed between some members and its president Chris Smalls. The ALU is expected to hold an election this summer to determine the union’s next leadership. The Teamsters has long sought to organize Amazon delivery and warehouse workers.
Boeing CEO Calls Culture ‘Far From Perfect’ as New Whistleblower Surfaces
Boeing Chief Executive David Calhoun faces a congressional grilling Tuesday that is expected to include surprise allegations from another whistleblower over quality issues. Calhoun is set to appear before a Senate subcommittee that is probing problems at Boeing, from glitches in its production process in the wake of a Jan. 5 blowout to claims of retaliation against employees who raise red flags.
“Our culture is far from perfect, but we are taking action and making progress,” Calhoun is expected to say, according to his prepared remarks. The CEO said in March that he would step down by year’s end. Late Monday, the subcommittee released a staff memo that includes, among other information, allegations from a quality assurance inspector in Boeing’s 737 factory in Renton, Wash.
China Preps Plane Research Renewal After C919’s First Year in the Air
In the past year, China's domestically produced C919 aircraft has successfully completed its first year of commercial flights. This achievement has prompted the establishment of a research fund aimed at advancing new aircraft development and enhancing domestic part production capabilities. The initiative underscores China's commitment to further establishing itself as a key player in the aviation industry, ensuring sustainable growth and innovation within its aerospace sector.
A new research fund has been created to drive innovation in aircraft development and bolster local part manufacturing. China's move emphasizes long-term growth and self-sufficiency in aviation technology. The fund aims to elevate the country's aircraft production standards and efficiency.
AI Speeds Drug Development
High-tech drug development labs are training artificial intelligence to design therapeutic treatments more quickly. By harvesting tremendous amounts of data with mechanized accuracy, these labs can use AI tools to perform rapid experiments, recognize patterns and make predictions about possible solutions—all more quickly than a human practitioner. The companies are leveraging the new technology—which learns from huge amounts of data to generate answers—to try to remake drug discovery. They are moving the field from a painstaking artisanal craft to more automated precision, a shift fueled by AI that learns and gets smarter.
Traditional drug development processes are typically extremely slow and expensive and frequently end in failure during the human clinical trials stage—often because the drug is not effective enough, or because drugmakers discover unforeseen side effects. With the benefit of AI, biopharmaceutical companies may be able to overcome these challenges. Studies of the cost of designing a drug and navigating clinical trials to final approval vary widely. But the total expense is estimated at $1 billion on average. It takes 10 to 15 years. And nearly 90% of the candidate drugs that enter human clinical trials fail.”
Troubled Electric Vehicle Maker Fisker Files for Bankruptcy
U.S. electric vehicle (EV) maker Fisker filed for bankruptcy protection late on Monday, looking to sell its assets and restructure its debt, after succumbing to rapid cash burn to deliver its "Ocean" SUVs in the United States and Europe. EV makers such as Proterra, Lordstown and Electric Last Mile Solutions have also gone bankrupt in the past two years due to depleting cash reserves, fundraising hurdles and challenges in ramping up production due to global supply chain issues. Fisker's cars were also under investigation by U.S. regulators.
"After evaluating all options for our business, we determined that proceeding with a sale of our assets under Chapter 11 is the most viable path forward for the company." It is also in advanced talks with financial stakeholders for debtor-in-possession financing, the company said, without giving further details. The company's operating unit, Fisker Group Inc, filed for Chapter 11 bankruptcy in Delaware, listing estimated assets of $500 million to $1 billion and liabilities of $100 million to $500 million. It has about 200-999 creditors, per the court filing.
Carbon Removal Startup Equatic To Build A $100 Million Plant To Cut 100,000 Tons Of CO2
Equatic, a cleantech startup spun out of UCLA last year that says it can remove carbon dioxide from the atmosphere affordably while simultaneously making green hydrogen, is moving to commercialize the system with a large-scale $100 million plant in Quebec. For the plant, the Los Angeles-based company, cofounded by Gaurav Sant, director of UCLA’s Institute for Carbon Management and a professor of environmental engineering, is partnering with Deep Sky, a Canadian company that’s developing multiple carbon removal projects. Located on the St. Lawrence Seaway, it’s to open as early as 2026 and be scaled to remove more than 100,000 metric tons of CO2 annually while also generating 3,600 tons of hydrogen the company can sell.
“The plant will allow us to get to below $100 per ton (of CO2 removal) by 2030,” Equatic COO Edward Sanders told Forbes, factoring in projected revenue from hydrogen sales. Electricity will come from a “non-fossil source” though he declined to confirm it would be hydropower. “Engineering work starts now, with a goal of operating in 2026 – likely the end of 2026.”
Why Automakers are Backtracking on Their Ambitious EV Game Plans
The latest data from S&P Mobility finds that EV inventory at the end of April climbed 5.7% compared to the prior month and rose 105% compared to a year ago. This despite steep discounting for EVs through most of the year. “It’s tough sledding out there,” Tesla (TSLA) CEO Elon Musk said. EV-only startups are especially feeling the pain. California-based Fisker just filed for bankruptcy protection on Tuesday. Its demise follows Lordstown Motors' filing only a year ago.
Given that automakers other than Tesla are selling EVs at a loss, it's not surprising car manufacturers across the board have been backtracking. Last week, Ford (F) CFO John Lawler said COVID boosted EV sales. But once those buyers and early adopters were accounted for, the broader group of buyers failed to jump in. Mainstream buyers are "not willing to put up with some of the other issues that you might have with an EV around range and those types of things,” Ford CFO John Lawler told Yahoo Finance .“I think you're going to see the growth continue, [but] it's going be a little bit slower than what we've seen in the past.”