Member Briefing June 29, 2023
May Sees 0.7% Rise in U.S. Core Capital Goods Orders
New orders for key U.S.-manufactured capital goods unexpectedly rose in May, but the prior month's data was revised down, indicating that businesses remained cautious about new capital investment because of higher borrowing costs and an uncertain economic outlook. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.7% last month, the Commerce Department said on Tuesday. Data for April was revised lower to show these so-called core capital goods rising 0.6% instead of 1.3% as previously reported.
Shipments of core capital goods gained 0.2% in May after climbing 0.4% in April. Nondefense capital goods shipments including aircraft surged 3.4%. These feed into the calculation of equipment spending in the gross domestic product measurement.
War in Ukraine Headlines
U.S. Goods Trade Deficit Narrows in May, but Trade Expected to Weigh on Economic Growth
The U.S. trade deficit in goods showed a narrowing trend in May, driven by a decline in imports. The Commerce Department reported a 6.1% decrease in the goods trade deficit to $91.1 billion, partially offsetting the significant increase seen in April. This development suggests a temporary improvement in the trade balance, albeit not substantial enough to prevent trade from having a negative impact on the overall economic growth in the second quarter.
While the narrowing of the goods trade deficit in May is a positive sign, economists predict that trade will likely remain a drag on the U.S. economy in the second quarter. The lack of significant contribution from trade to the economy’s 1.3% annualized growth rate in the first quarter indicates that trade dynamics are not currently favoring economic expansion. Despite previous quarters where trade added to the gross domestic product, the recent trend suggests that trade’s contribution to growth has weakened.
U.S. Consumer Confidence Jumps to Highest Level Since Early 2022
The American consumer’s confidence jumped in June to its highest level in 18 months as a strong labor market continues to buoy the U.S. economy. The Conference Board reported Tuesday that its consumer confidence index rose to 109.7 in June from 102.5 in May. That’s the highest the reading has been since January of 2022 and much higher than economists had forecast.
The business research group’s present situation index — which measures consumers’ assessment of current business and labor market conditions — rose to 155.3 from 148.9 in May. The board said that consumers’ fears of a recession declined in June, with 69.3% of respondents saying a recession is somewhat or very likely in the next 12 months, down from 73.2% in May.
COVID Update - More than $200 Billion in COVID-19 Aid May Have Been Stolen, Federal Watchdog Says
More than $200 billion may have been stolen from two large COVID-19 relief initiatives. The numbers issued Tuesday by the U.S. Small Business Administration inspector general are much greater than the office’s previous projections and underscore how vulnerable the Paycheck Protection and COVID-19 Economic Injury Disaster Loan programs were to fraudsters, particularly during the early stages of the coronavirus pandemic. The SBA inspector general had previously estimated fraud in the COVID-19 disaster loan program at $86 billion and the Paycheck Protection program at $20 billion.
The inspector general’s report said “at least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors.” The fraud estimate for the COVID-19 Economic Injury Disaster Loan program is more than $136 billion, which represents 33 percent of the total money spent on that program, according to the report. The Paycheck Protection fraud estimate is $64 billion, the inspector general said.
Powell Says Rates Haven’t Been Restrictive Long Enough to Bring Inflation to Target
The Federal Reserve is likely to raise interest rates further even though officials this month decided to slow the pace of rate increases by holding off on another move higher, Chair Jerome Powell said Wednesday. Powell said because the Fed had lifted rates so quickly last year, there hasn’t been enough time to see the effects of those moves in slowing economic activity and inflation.
At their policy meeting this month, Fed officials left the benchmark federal-funds rate in a range between 5% and 5.25% after raising it rapidly at 10 consecutive meetings. Another increase at the Fed’s July 25-26 meeting would take the policy rate to a 22-year high. Most officials projected two more increases this year. Powell on Wednesday stressed the U.S. central bank would likely lift borrowing costs again as soon as next month because strong demand for labor is sustaining higher spending, which could fuel continued demand.
26% of Workers Are Seeking New Jobs
Keeping employees in their seats and on the factory floor continues to be a challenge. That is clearly demonstrated by a study, 2023 Global Workforce Hopes and Fears Survey, released on June 20 by PwC. The report found that one in four (26%) employees say it is likely they will change jobs in the next 12 months, up from 19% last year. Workers who said they are most likely to change employers include those who feel overworked (44%), struggle to pay the bills every month (38%), and Gen Z (35%).
Purpose, company culture and inclusion also remain key concerns. Among workers who said they are likely to change employers, less than half (47%) said they find their jobs fulfilling compared to 57% of those unlikely to change employers. Those likely to change employers are also eight percentage points less likely to say that they can truly be themselves at work than their counterparts who intend to stay (51% vs. 59%). The survey uncovered some underlying factors to explain those findings.
Yellen Plans July China Trip While US Preps Investment Curbs
Treasury Secretary Janet Yellen said in April that she wanted to travel to China. She also told “Marketplace” that she wanted to help set a “floor” under the relationship between the world’s two largest economies. Now Bloomberg has reported that Yellen plans to take a trip to Beijing in July. If a floor under the relationship is the goal, the Treasury chief will have her work cut out for her.
Many of the problems in the United States-China relationship are economic. For the U.S., it comes down to the structure of China’s economy, said Joshua Meltzer, a senior fellow at the Brookings Institution. “Particularly the heavy role of the state in subsidizing industries and providing other kinds of preferential support,” Meltzer said. Add relentless industrial espionage and technology transfer, and that’s just the short list. China has its own economic complaints, as the U.S. has gone after Chinese tech giants like Huawei and ZTE and banned the export of certain computer chips.
A Different Perspective on AI, ChatGPT and Job Security
The rapid advancement of artificial intelligence (AI) and the rise of ChatGPT and similar language models has raised concerns about the future of jobs. Many worry that these intelligent machines will replace human workers, leading to widespread unemployment and economic disruption. However, this AI expert, holds a different perspective. To understand the impact of ChatGPT and AI on the job market, we must consider the evolving nature of work. Throughout history, technological advancements have transformed industries and job roles. While automation replaces certain tasks, it also creates new opportunities that require different skills and expertise. AI is no exception.
Brian Sathianathan, Co-founder of Iterate.ai, looks at the changing nature of work, the evolving way we process language and sees collaboration between humans and AI that involves upskilling and greater wage growth.
Industry Increases Use of Robots-as-a-Service
The “as-a-service” model of technology delivery is most familiar through software-as-a-service (SaaS). Most companies already use Microsoft’s 365 to access Word, Excel, Outlook and Powerpoint via SaaS and the industrial software world is quickly following suit. In the past few years, Aveva, Siemens, Rockwell Automation and PTC, among others, have either released key software packages via SaaS or announced plans to transition availability of their software primarily via SaaS.
But the “as-a-service” model doesn’t just apply to software, it’s being applied to hardware as well—from packaging machinery to robotic systems. What we’re seeing now with robotics-as-a-service (RaaS) is similar to what we saw just a few years ago with SaaS, i.e., a way of accessing the technology that’s helping speed up the adoption of robots across industries at companies of all sizes. A key factor in Rapid Robotics speed of deployment is its pre-deployment of the system in its own facility before delivery to ensure the system works properly as designed.
The Race to Build a Better Air Conditioner
Companies such as Blue Frontier, Transaera and Montana Technologies are raising money from investors including industry giant Carrier Global and Bill Gates’s Breakthrough Energy Ventures to develop more efficient technologies. Many of those efforts focus on the humidity rather than the heat, using new materials like liquid salt to dry out the air. The startups are rushing to capitalize on a wave of government regulation and incentives such as tax credits and rebates for high-efficiency products that are part of the U.S. Inflation Reduction Act.
Air conditioners both cool the air and reduce humidity. Companies like Blue Frontier think the biggest efficiency gains can be made by changing the way ACs reduce humidity in the air. Conventional ACs remove heat from indoor air by converting chemicals called refrigerants from gas to liquid and back again and using fans to circulate cool air. They target humidity by cooling the air to the point that water vapor condenses to liquid, then draining it. Their inability to remove humidity independently of cooling makes them inherently inefficient, analysts say.
Cornell Center for Materials Research (CCMR) Program Can Help You Solve Your Technical Problems
Through collaborations with Cornell experts and with matching funds from NY State, the JumpStart program helps NYS small businesses solve identifiable problems related to materials. Applications Due Wednesday, July 12, 2023 at 5:00PM for the Fall 2023 Semester Projects. The award program provides:
- A semester-long project that utilizes Cornell University resources
- Up to $5,000 in NYSTAR funding
- An opportunity to build a relationship with university faculty and staff
JumpStart projects may involve up to $15,000 in project costs apportioned as 33% CCMR-NYSTAR funds, 33% company cash, and 33% company non-cash contributions (such as employee time, materials, travel expenses, and other expenses). Alternatively, the non-cash contributions can be less than 33%, with the proportion of the company cash contribution correspondingly increased. The CCMR-NYSTAR matching funds are provided through a matching grant from Empire State Development (ESD) to the CCMR
Is Your Manufacturing Company Eligible for Clean Energy Tax Credits?
The Inflation Reduction Act (IRA), enacted in late 2022, provides valuable tax credits that support clean energy manufacturing. Significantly, the law created the Advanced Manufacturing Production Tax Credit (45X MPTC), which is an incentive for producing clean energy components. In addition, the IRA expanded the Advanced Energy Project Investment Tax Credit (48C ITC) program. Eligible manufacturers that purchase property to re-equip, expand or establish facilities in relation to clean energy can apply for this credit, whose funding is limited. Two caveats to keep in mind: Your manufacturing company can claim only one credit, not both. Also, both credits begin to phase out in 2032.
So which, if any, of the two credits is right for your manufacturing company? If you won’t be manufacturing 45X MPTC-eligible components, the 48C ITC will be your only option. And know that you’ll benefit from the 48C ITC only if you apply in a timely manner, receive an allocation and meet the compliance requirements. If your facility will be manufacturing 45X MPTC-eligible components, you likely will be better off going with the 45X MPTC. But there are no absolutes.
Global Steel Output is Steady
Global steel tonnage remained nearly unchanged (+0.1%) from April to May 2023, with 161.6 million metric tons produced across the 63 nations reporting to the World Steel Assn. The figure for May also signifies a -5.1% year-to-year decrease in output, and it brings the global year-to-date total to 786.0 million metric tons produce, down -1.2% compared to the January-May 2022 result. The global result indicates rising production in major producer nations – but not in China, where steelmakers cut their output by -2.8% from April to 90.1 million metric tons during May.
World Steel’s monthly summary of output represents 97.0% of global steel capacity. The report covers carbon steel produced in basic-oxygen or electric arc furnaces and cast into semi-finished forms like billets for bar and rod products; slabs for flat products; or blooms, for beam and pipe products. (Specialty and stainless steel volumes are not included.) The Association recently forecast 2023 steel demand will rise 2.3% in 2023 to 1.82 billion metric tons, and then will improve further by 1.7% to 1.85 billion metric tons for 2024.
Trucker Yellow Is Suing Teamsters Union Over Changes to Operations
Relations between trucker Yellow and the Teamsters union are growing more rancorous as the two sides negotiate a new multiyear labor agreement. The trucking company filed a suit against the International Brotherhood of Teamsters on Tuesday, claiming the union is unjustly blocking a restructuring plan aimed at modernizing Yellow’s operations to better compete in the U.S.’s $58 billion less-than-truckload, or LTL, market.
Yellow said its proposed changes in operations are crucial if it is to survive in an industry dominated by nonunion carriers, particularly given the company’s need to refinance $1.3 billion in debt from loans maturing next year. The company wants some drivers to do more work on docks, loading and unloading freight, and to use more transportation purchased from outside companies, including railroads and nonunion companies. Calling the lawsuit unfounded, Teamsters General President Sean M. O’Brien responded Tuesday that the union has adhered to the terms of its contract and that Yellow is asking workers to pay the price after blowing through a $700 million bailout from the federal government.
Rolls-Royce Powers Sustainable Aviation with Ansys and Intel Technologies
Rolls-Royce leverages Ansys and Intel to accelerate engineering solve times, reduce operational power consumption, and create virtual prototypes of its energy- and fuel-efficient gas turbine engines up to 100X faster. As a result, Rolls-Royce can rapidly deliver clean and complex propulsion solutions for safety-critical applications in the air, at sea and on land. The advanced technology from Ansys and Intel also supports digital R&D, which incorporates simulation and digital twins to improve engine design for more sustainable, climate-neutral solutions for drive, propulsion, and power generation.
Ansys helps Rolls-Royce reduce memory requirements, accelerate performance, and improve parallel efficiency. Using the Intel oneAPI Math Kernel Library MKL, Ansys LS-DYNA enables simulations to consume less memory and run orders of magnitude faster, which conserves power and energy consumption.