Member Briefing June 22, 2022

June 22, 2022

Posted By: Harold King in Daily Briefing,

The Conference Board Leading Economic Index Fell Again in May

The Conference Board Leading Economic Index (LEI) for the U.S. decreased by 0.4 percent in May 2022 to 118.3 (2016 = 100), following a 0.4 percent decline in April 2022. The LEI is now down 0.4 percent over the six-month period from November 2021 to May 2022. “The US LEI fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations,” said Ataman Ozyildirim, Senior Director of Economic Research. “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term.”

The ten components of The Conference Board Leading Economic Index for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 50 Index of Stock Prices; Leading Credit Index; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.

War in Ukraine Headlines

Anticipating U.S. Downturn, Elon Musk Details Tesla Staff Cuts

Elon Musk, CEO of Tesla said a 10% cut in salaried staff at the electric car maker will happen over three months, as the world’s richest man predicted a U.S. recession was more likely than not. Speaking at the Qatar Economic Forum organised by Bloomberg, Musk said the cuts would apply only to salaried workers, meaning a 3.5% reduction in total headcount, changes he described as “not super material”.

But he expressed concern about the prospect of a U.S. recession. “It’s not a certainty, but it appears more likely than not,” he said. Musk’s outlook echoes comments from executives, including JPMorgan Chase & Co CEO Jamie Dimon and Goldman Sachs President John Waldron. A “hurricane is right out there down the road coming our way,” Dimon said early this month.

U.S. Existing-Home Sale Prices Hit Record of $407,600 in May

The median existing-home sale price in the U.S. shot above $400,000 in May, setting a record, as the housing market stalled under the weight of higher mortgage-interest rates. Home-buying demand continues to exceed supply, buoying home prices to new highs. The median existing-home price rose 14.8% in May from a year earlier to $407,600, a record in data going back to 1999, NAR said.

Sales of previously owned homes slid for a fourth straight month, declining 3.4% in May from the prior month to a seasonally adjusted annual rate of 5.41 million, the weakest rate since June 2020, the National Association of Realtors said Tuesday. May sales fell 8.6% from a year earlier.

U.S. COVID Update – Paxlovid Associated With Lower Hospitalization Rates

In a recent study posted to the medRxiv pre-print server, researchers investigated the effectiveness of nirmatrelvir plus ritonavir in preventing hospitalizations among individuals aged 50 or older and vaccinated for coronavirus disease 2019 (COVID-19). In the present study, researchers used integrated healthcare data of Mass General Brigham (MGB) to identify recorded COVID-19 infections between January 1 and May 15, 2022, any subsequent hospitalizations through May 29, 2022, and deaths through June 12, 2022.

35% of the hospitalizations in the nirmatrelvir plus ritonavir arm of the present study occurred within two days of prescription. Note that the EPIC-HR trial comprised only unvaccinated individuals with a median age under 50 and had a 7% hospitalization rate in the placebo arm compared to the current study. Overall, nirmatrelvir plus ritonavir consistently protected hospitalization and death despite varying hospitalization rates across groups. Therefore, the authors emphasized continuous assessment of the clinical efficacy of nirmatrelvir plus ritonavir with other therapeutic options as future SARS-CoV-2 variants continue to emerge.

Shots for Toddlers

Pediatricians, children’s hospitals and pharmacies across the U.S. began administering COVID-19 vaccines today to kids between 6 months and 5 years old, after the FDA and CDC authorized the jabs last week for the country’s youngest children under emergency approval. Only 18% of parents say they will vaccinate their kids in the age group as soon as possible, according to recent poll from the Kaiser Family Foundation, due to the lack of “enough information about the vaccines’ safety and effectiveness.” A similar dynamic played out after the shots opened to children aged 5 to 11 last November, with less than a third of that demographic getting vaccinated (compared to the 75% fully vaccinated U.S. population over the age of 12).

According to the CDC, 480 children under the age of five have died from COVID-19 through May 2022, while more than 30,000 children in the U.S. have been hospitalized. Some children can also have lasting symptoms known as “long COVID,” while infections can spread within a household, or to adults that may be more vulnerable. The CDC is even advising vaccination for those who already had COVID-19 to protect against reinfection, with an estimated 75% of children showing evidence of having had the disease.

Israeli Study Uncovers Where COVID-19 Variants Come From

Although COVID-19 infections are much less deadly than during the pandemic’s first year, the cunning and elusive virus has since developed a large number of mutations far exceeding the rate that was initially observed. Where do these variants come from and what circumstances empower them? Virus “detectives” at Tel Aviv University (TAU) and Sourasky Medical Center have uncovered the answers.

Patients with weakened immune systems from chronic diseases and those taking medications that reduce the body’s ability to fight invading pathogens are at risk for chronic infection and develop several highly mutated coronavirus variants.
Although this is disconcerting, there is also some good news: While many different variants are formed in immunocompromised patients, these mutated forms are less likely to spread to others.

McMahon: Bear Market Spells Big Trouble for NY State and City Budgets

Wall Street generates an outsized share of New York’s tax revenue, so the recent drop in stock prices should worry both Gov. Kathy Hochul and Mayor Eric Adams — even if a recession doesn’t quickly follow. The securities industry generates 20% of total private wages in the city, despite comprising only 5% of private employment. In all, one out of every nine jobs in every category is either directly or indirectly associated with Wall Street, the state comptroller has estimated.

The state government built up a $9 billion reserve cushion in fiscal 2022, and Hochul projected another $5 billion surplus in fiscal 2023, which began April 1. But if the bear market is followed soon by a full-blown recession, projected state revenues could easily fall by 20% or more over the next few years. In that case, the state could begin draining, not building, reserves as soon as next spring.

Yen Dives to New 24-year Low vs Dollar

The Japanese yen plunged on Tuesday to the lowest levels versus the U.S. dollar since October 1998, as the Bank of Japan’s ultra-loose monetary policy stance continued to weigh. The yen dropped 0.9% to a new 24-year low of 136.330 per dollar, extending losses which have already seen it shed more than 18% of its value versus the greenback this year.

“The trend is your friend after the Bank of Japan last Friday stuck to its ultra-dovish policy mantra,” said Kenneth Broux, an FX strategist at Societe Generale. The currency lost more ground after the Bank of Japan on Friday dashed any expectations of a change in policy and continued to stand alone in its commitment to ultra-easy monetary settings.

Will the U.S. Dollar Continue to Dominate World Trade?

In the modern era, the U.S. dollar has a dominant international presence, followed to a lesser extent by the euro and a handful of other currencies. Although the use of specific currencies is remarkably stable over time, with the status of dominant currencies remaining unchanged over decades, there have been decisive shifts in the international monetary system over long horizons. For example, the British pound only lost its dominant currency status in the 1930s, well after Britain stopped being the leading world economy.

In a new study, we show that the currency that is used in international trade transactions is an active firm-level decision rather than something that is just fixed. This finding raises the question of what factors could augment or reduce the U.S. dollar’s dominance in world trade.

What Is the Scope of Russian Sanctions?

Since March 2022, U.S. companies doing business internationally have faced governmental sanctions imposed in response to Russia’s invasion of Ukraine. Controls affecting interactions with Russian, Belarussian and Ukrainian companies and individuals have created layers of challenges to be resolved.

As the war in Ukraine persists, many U.S. businesses are evaluating how best to proceed. A clear-eyed assessment of the scope of the new sanctions is essential to understanding how to navigate them in the months, and possibly years, ahead. Moreover, there are techniques available that companies may wish to consider as they evaluate opportunities in light of current and evolving restrictions.

Compliance Reporting Drops 30% Due to Pandemic

The fallout from the pandemic has reached the compliance arena, with reporting dropping 30% according to a new survey from Gartner, Inc. Employees are both less likely to observe misconduct and less likely to report it when observed. There are also new forms of misconduct that are emerging due to a virtual environment, such as inappropriate video backgrounds or online behavior.

There is a difference between remote employees who observe 11% less misconduct than their in-office peers. One of the drivers for this dip, according to the survey is the decrease in observed misconduct around travel, gifts and entertainment as opportunities for misconduct in these areas are significantly lower. Yet, types of misconduct that compliance typically has a very low tolerance for are holding steady or on the rise. “Bullying, intimidation and unwanted behavior are up 7% for remote workers; misuse of time and company assets is up 3%,” said Audet. “Sexual harassment is relatively steady at just 1% lower for remote employees since the pandemic.”

Freeport LNG Extends Outage After Fire, Targets Year End for Full Pperations

Freeport LNG, one of the largest U.S. operators of liquefied natural gas export terminals, on Tuesday said damage from last week’s fire at its Texas plant would keep it fully offline until September with only partial operation through year end. Natural gas prices slumped in the United States and soared in Europe on news of an extended shutdown. The facility accounts for about 20% of U.S. LNG exports and has been a major supplier to European buyers seeking alternatives to Russian gas since its invasion of Ukraine.

After 81 days in “uptrend,” the July Henry Hub contract has shifted into “neutral” according to the triple moving average system. This system uses three moving averages, one short, one medium, and one long. It indicates uptrend when the short moving average is higher than the medium moving average and the medium moving average is higher than the long moving average.

Kellogg to Focus on Snacks With Surprise Three-Way Split

Snack and cereal giant Kellogg said on Tuesday it would split into three independent companies, in the latest U.S. corporate overhaul aimed at simplifying its structure and focusing on expanding its snack business. Shares of the company, which began life in 1894 when W.K Kellogg created Corn Flakes and became known around the world for its breakfast cereals, jumped 6% in premarket trading.

The breakup of the Pringles, Cheez-It and Pop-Tarts maker would result in the creation of a global snacking business that would also house its international cereal and noodles brands and its North America frozen breakfast division. Its North American cereal unit and plant based segment, which includes brands such as MorningStar Farms, will be spun off to its shareholders in a tax-free transaction, the Frosted Flakes and Froot Loops cereal maker said. The business brought in net sales of $11.4 billion in 2021, accounting for 80% of its total revenue.

Law Banning Goods Produced by Uyghur Forced Labor Takes Effect

American businesses in China say they fear a U.S. law blocking most imports from China’s Xinjiang region that went into effect Tuesday might interrupt shipments and raise compliance costs, as uncertainty clouds how it will be enforced. The Uyghur Forced Labor Prevention Act presumes that all items produced in China’s western region of Xinjiang, or by entities linked to the government there, are made with forced labor and blocks companies from importing such products.

Before the law, the onus was on U.S. customs officials to provide evidence of the presence of forced labor when they impounded such shipments. Current and former U.S. business executives say the law is likely to result in short-term supply-chain disruptions as importers seek to adapt to the new requirements and see how rules are being enforced. In the longer term, some say, the law may accelerate a shift of some global supply chains out of China.