Member Briefing June 2, 2022
ISM: U.S. Manufacturing Sector Regains Speed in May
U.S. manufacturing activity picked up in May as demand for goods remains strong, which could further allay fears of an imminent recession. The Institute for Supply Management (ISM) said on Wednesday that its index of national factory activity rebounded to a reading of 56.1 last month from 55.4 in April.
- The ISM survey’s forward-looking new orders sub-index increased to 55.1 from 53.5 in April.
- The ISM’s measure of supplier deliveries slipped to 65.7 last month from 67.2 in April.
- The survey’s gauge of order backlogs rose to a reading of 58.7 from 56.0 in April.
- 10% of firms surveyed said they continue to have difficulty getting material from Asian suppliers.
- The prices index fell for the second straight month to a still-high 82.2%. The index has been above 70% in 17 of the past 18 months.
- Manufacturers are struggling to find workers, with the survey’s measure of factory employment falling to 49.6 from 50.9 in April.
Overall manufacturing remains in decent shape from an activity perspective, though the supply chain problem will take some time yet to fix. Fears of a near-term rollover in the sector look overdone, though we think it likely that the ISM index will soften over the next few months, before recovering somewhat in the fall. Clearly, the initial post-shock surge in activity is over, but output is still increasing at a healthy pace and some industries, notably autos, have a long way to go before a full recovery is complete.
Invasion of Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- Ukraine Beats Scotland in World Cup Qualifying Playoff Semifinal, Is a Win Away From Qatar – Sports Illustrated
- “Pob Lwc Cyrmru” – Ukraine to Face Wales for World Cup Ticket – MLS Soccer
- Documents Reveal Hundreds of Russian Troops Broke Ranks Over Ukraine Orders – WSJ
- U.K. Seeks U.S. Approval to Send Rocket Systems to Ukraine – Politico
- Biden Decoded: Ukraine Will Get HIMARS Rocket Systems, But Not Long-Range Missiles – Forbes
- More than 5 Million Children Need Humanitarian Aid Amid Ukraine War: UNICEF – The Hill
- Ukraine Won’t Attack Russian Territory, Zelensky Says – WSJ
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Fed Quantitative Tightening Began Yesterday
Quantitative Tightening (QT) finally began yesterday. The Fed’s program to drain the $9 trillion currently on its balance sheet, grown so large in big part due to Treasury bills and mortgage-backed securities backstopping the U.S. economy during the Covid era — and some would say well beyond that. Bear in mind we hadn’t paid down the Quantitative Easing (QE) from the Great Recession yet, and we just kept adding from there.
The $30 billion in bond and securities expiration beginning today is expected to double by September. The Federal Open Market Committee (FOMC), whose next official meeting takes place on June 14th and 15th, has already noted it reserves the right to raise or lower the expiration rate per month, depending how the economy responds to the draw-down.
852,000 Manufacturing Job Openings According to Latest JOLTS Report
Job openings declined by 455,000 from the upwardly revised March number to 11.4 million in April, about in line with the FactSet estimate, according to the bureau’s Job Openings and Labor Turnover Survey. That left a gap of 5.46 million between openings and the available workers. The JOLTS report showed that 4.4 million workers left their positions in April, little changed from the March reading and reflective of the ongoing “Great Resignation” that has seen unprecedented market movement amid the high demand for labor.
In the manufacturing sector there were 852,000 openings in April, down from 865,000 in March and 982,000 in April of 2021. 294,000, or 2.4%, of manufacturing workers quite their jobs in April, down from 322,000 (2.6%) in March and 354,000 (2.8%) in April of 2021.
US COVID – During the Omicron Wave, Death Rates Soared for Older People
Despite strong levels of vaccination among older people, Covid killed them at vastly higher rates during this winter’s Omicron wave than it did last year, preying on long delays since their last shots and the variant’s ability to skirt immune defenses. This winter’s wave of deaths in older people belied the Omicron variant’s relative mildness.
Almost as many Americans 65 and older died in four months of the Omicron surge as did in six months of the Delta wave, even though the Delta variant, for any one person, tended to cause more severe illness.
Omicron is Outrunning the Vaccines Designed to Fight it
New variants appear to be even more immune-resistant than the original Omicron strain, raising the possibility that even retooled vaccines could be outdated by the time they become available this fall. Preliminary data suggests that the most recent Omicron subvariants are significantly different from the original version that began spreading late last year.
One preprint released last week found that BA.4 and BA.5, which originated in South Africa, are substantially more resistant to antibodies — compared to an earlier strain, and also to the one that’s dominant in the U.S. right now — and thus more likely to lead to breakthrough infections. Other preliminary research has found that the latest subvariants are more pathogenic and can potentially evade even the immune protection that comes from a previous Omicron infection. Clinical trials are underway to study tweaked versions of the Pfizer and Moderna vaccines, and the FDA has said it will decide this summer whether to recommend these updated versions for use later this year.
More Than 80 Million Over-the-Counter COVID-19 Tests Distributed to New Yorkers
Governor Kathy Hochul today announced more than 80 million COVID-19 over-the-counter tests have been distributed to date by New York State as part of the administration’s ongoing efforts to keep New Yorkers protected throughout the pandemic. At-home rapid tests are being provided regularly to schools and nursing homes in the state.
While at-home testing continues to play an important role in identifying cases and curbing the spread of COVID, Governor Hochul and Commissioners Bassett and Bray are urging New Yorkers to get vaccinated and boosted as the best method of protection against COVID-19. The State’s free vaccine sites remain open and New Yorkers ages 50 and over are encouraged to get a second booster in accordance with the recently expanded CDC guidance.
Commerce Secretary: Global Chip Shortage Likely to Last Through 2023
The global shortage of critical semiconductors is likely to last at least through next year and perhaps longer, U.S. Commerce Secretary Gina Raimondo warned on Tuesday. Shutdowns of key Asian suppliers due to the Covid-19 pandemic crippled supplies last year, just when American consumers, flush with cash from government aid, went on a spending spree buying cars and electronics, which depend on the chips.
She said she convened a dozen CEOs, including leaders of chipmakers, during her time in South Korea to discuss the shortage “and they all agreed that … deep into 2023, possibly early ’24 before we see any real relief.” Raimondo repeated her call for Congress to act to provide funding for legislation that aims to stimulate domestic manufacturing of the computer chips that are key to a wide array of products, from smartphones to medical equipment to vacuum cleaners.
White House Appoints New Port and Supply Chain Envoy to Work on Disruptions
U.S. Department of Transportation announced that Retired General Stephen R. Lyons, former Commander of the U.S. Transportation Command, will be the new Port and Supply Chain Envoy to the Biden-Harris Administration Supply Chain Disruptions Task Force. Lyons will work with the U.S. Department of Transportation (USDOT), the White House National Economic Council (NEC), ports, rail, trucking and other private companies across our supply chains to continue to address bottlenecks, speed up the movement of goods, and help lower costs.
Lyons’ experience spans 36 years of military service in positions of progressive leadership responsibility. He became the 13th commander of U.S. Transportation Command (USTRANSCOM) in 2018 USTRANSCOM’s mission is to project and sustain military power globally in order to assure our friends and allies, deter potential adversaries, and if necessary respond to win decisively. His awards include the Defense Distinguished Service Medal.
Jamie Dimon Says U.S. Consumers Still Have Six to Nine Months of Spending Power
JPMorgan Chase & Co. Chief Executive Jamie Dimon said U.S. consumers still have some six to nine months of spending power left in their bank accounts but warned of an economic “hurricane” brewing. The head of the nation’s biggest bank said the recent drop in Americans’ savings rate hadn’t altered his view that the government’s pandemic stimulus is still padding consumers’ wallets. He estimated that some $2 trillion in extra funds are still waiting to be spent.
U.S. households boosted spending for a fourth straight month in April, but the rate at which they were setting aside savings fell to its lowest point in 14 years, according to data released last week. That raised concerns that consumers were tapping into savings to keep up with inflation and that the pandemic stimulus had run out.
CBO’s Latest Economic Forecast is a Head-Scratcher
Individual income tax collections for the fiscal year ending Sept. 30 are projected to land at their highest level as a share of the U.S. economy since the advent of the income tax in 1913. Overall federal tax revenue this year is expected to hit 19.6 percent of gross domestic product, a figure that’s been topped only three times: twice during World War II and again in 2000, before the dot-com bubble burst.
It’s not entirely unexplained; the CBO attributes much of the revenue growth this year and in the coming years to faster economic growth, higher wages and profits and capital gains realizations from elevated asset prices — and, yes, higher inflation.
S&P Case-Shiller: Home Prices Surged Over 20% in March as Interest Rates Also Rose
Rising mortgage rates did not slow down rising home prices in March. Nationally, home prices were 20.6% higher than they were in March 2021, according to the S&P CoreLogic Case-Shiller Home Price Index. That is higher than the 20% gain in February. The index is a three-month running average ending in March. The average rate on the 30-year fixed mortgage stood at 3.29% at the start of January and ended March at 4.67%, according to Mortgage News Daily.
The expectation is that prices will begin to ease, since home sales have been falling now for several months. Demand, however, is still high, and real estate agents report that they are still seeing multiple offers for homes that are priced correctly. More supply is also coming on the market, as sellers worry they will miss out on the last days of the hot market.
China Details Stimulus Measures to Support Virus-Hit Economy
China’s cabinet announced a package of 33 measures covering fiscal, financial, investment and industrial policies on Tuesday to revive its pandemic-ravaged economy, adding it will inspect how provincial governments implement them.
In terms of monetary and financial policies, China will boost financing efficiency via capital markets, by supporting domestic firms to list in Hong Kong, and promote offshore listings by qualified platform companies.
The State Council also vowed to further reduce real borrowing costs, and strengthen financial support for infrastructure and major projects.
Natural Gas Prices Up in June
The supply price for natural gas effective June 1 is increasing to 77 cents per 100 cubic feet (ccf), up from 64 cents per ccf in May because of continued volatility in energy, Central Hudson Gas and Electric announced on Tuesday. While the use of natural gas by homes and residents is typically lower in June, supply prices stated on bills and overall bill impacts will vary for individual customers depending on their billing cycle and energy usage.
Central Hudson does not mark-up or profit on the energy that is purchased on behalf of customers. Electricity and natural gas are provided by independent generators and suppliers in the competitive wholesale energy marketplace. The prices for other utility bill components, including taxes and delivery charges, are regulated by the state and are stable. Utility bills reflect both the price of energy and usage.
Why Oil Prices are Spiking Again
In the 1970s Arab states used the “oil weapon” of embargoes to punish Western governments for supporting Israel. On May 30th the heads of the 27 EU member governments agreed to turn the weapon on themselves, as part of their latest round of sanctions against Russia following its invasion of Ukraine. As well as cutting off Sberbank, Russia’s largest bank, from the swift cross-border payment system, the package will also ban purchases of Russian crude oil and refined petroleum products, such as diesel, by the end of the year. The price of Brent crude oil surged above $120 per barrel on the news, its highest level since March.
Combine tight supply and increased demand, and the consequence for consumers at the pump is higher prices. To make matters worse, a shortage of refinery capacity in America has raised the prices for petrol and diesel even further than the cost of crude. Francisco Blanch of the Bank of America points out that the surging dollar adds to costs for Europe and emerging markets. None of this is welcome news in an already-inflationary environment. According to figures published on May 31st, for instance, inflation in the euro area rose to 8.1% in the year to May, higher than economists had expected.