Member Briefing June 8, 2022
U.S. Trade Deficit Narrows Sharply in April
The U.S. trade deficit narrowed sharply in April as imports declined, suggesting that trade could contribute to economic growth this quarter for the first time in two years. The Commerce Department said on Tuesday that the trade deficit dropped 19.1% to $87.1 billion. Imports of goods and services fell 3.4% to $339.7 billion, while exports increased 3.5% to $252.6 billion.
A record trade deficit chopped 3.23 percentage points from gross domestic product in the first quarter, resulting in GDP contracting at a 1.5% annualized rate after growing at a robust 6.9% pace in the fourth quarter. Trade has subtracted from GDP for seven straight quarters. The trade deficit has gyrated from month to month because of shipping disruptions and supply shortages tied to the pandemic, but the trend is up. The U.S. posted a record trade gap last year and is on track to do so again in 2022.
Invasion of Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- Russia Is Weaponizing Food Supplies in Ukraine, Europe Says – WSJ
- Ukraine’s Tactics Are Showing Smaller Countries How to Fight Back – Bloomberg
- Guerrilla Attacks Signal Rising Resistance to Russian Occupation – NYT
- Rouble Weakens as Russia Slightly Eases Capital Controls -Reuters
- Russia’s War on Ukraine Will Have Lasting Effects on Globalization – IndustryWeek
- Russia Says Two Ukrainian Ports Ready to Ship Grain But Kyiv Must Demine Coast – Reuters
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Janet Yellen Tells Lawmakers She Expects Inflation to Remain High
Treasury Secretary Janet Yellen said in Senate testimony that she expects inflation to remain elevated, underscoring the challenge facing the U.S. economy and the Biden administration as inflation runs at its highest rate in decades. “I do expect inflation to remain high, although I very much hope that it will be coming down now,” Ms. Yellen said, adding that the Biden administration was updating its forecast that inflation would average 4.7% this year.
Ms. Yellen said during a television appearance last week that she was wrong in 2021 when she said that inflation would quickly ease, an admission that fueled Republican criticism of Democrats’ handling of the economy. Ms. Yellen defended the legislation in testimony on Tuesday, saying it has played a central role in driving strong growth and supporting the economic recovery. Excerpts of a coming biography about Ms. Yellen stated that she harbored concerns about the size of the legislation and the impact the spending could have on prices.
World Bank Slashes Global Growth Forecast to 2.9%, Warns of Stagflation
The World Bank on Tuesday slashed its global growth forecast and warned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s. Global economic expansion is expected to drop to 2.9% this year from 5.7% in 2021 — 1.2 percentage points lower than the 4.1% predicted in January. Growth is expected to then hover around that level through 2023 to 2024 while inflation remains above target in most economies, the report said, pointing to stagflation risks.
Growth in advanced economies is projected to decelerate sharply to 2.6% in 2022 from 5.1% in 2021 before further moderating to 2.2% in 2023, the report said. Expansion in emerging market and developing economies, meanwhile, is projected to fall to 3.4% in 2022 from 6.6% in 2021, well below the annual average of 4.8% from 2011 to 2019. That as inflation continues to climb in both advanced and developing economies, prompting central banks to tighten monetary policy and raise interest rates to curb soaring prices.
US COVID – Pancoronavirus Vaccine
Health experts in the US are discussing the next generation of SARS-CoV-2 vaccines. The US FDA’s Vaccines and Related Biological Products Advisory Committee (VRBPAC) is scheduled to meet on June 28 to discuss whether and how the SARS-CoV-2 strain composition of vaccines should be modified. Pfizer-BioNTech and Moderna are conducting clinical trials of modified versions of their vaccines that target multiple variants, including more recent Omicron subvariants, and 2 additional novel SARS-CoV-2 vaccine designs are in clinical trials, including a plant-based vaccine and a receptor binding domain (RBD)-dimer-based vaccine. Additionally, different delivery methods, such as inhaled nasal administration, could produce better mucosal immunity and potentially reduce breakthrough infections.
As the next generation of SARS-CoV-2 vaccines are being developed, health officials are speculating about whether booster doses will be needed annually, similar to a flu shot. The aspiration is a pancoronavirus that protects against all variants and sublineages, including possibly yet-to-emerge versions.
Read more at the Johns Hopkins Center for Health Security
U.S. Has Wasted More Than 82 Million COVID Vaccine Doses
According to data from the US CDC, more than 82 million doses (11%) of distributed SARS-CoV-2 vaccines in the US were wasted between December 2020 and May 2022. Over a quarter of doses thrown away were distributed by CVS and Walgreens, the 2 largest US retail pharmacy chains. Other pharmacies and health centers, including Rite Aid, Costco, and DaVita, wasted fewer overall doses but a higher share of their received doses than CVS and Walgreens.
Packaging is a large contributing factor to vaccine wastage. The SARS-CoV-2 vaccines are packaged in multidose vials, and if a vial is not quickly used after opening, it has to be discarded due to their short shelf life under emergency authorizations. Concerns around vaccine wastage due to packaging are not unique to the US. Prior to the COVID-19 pandemic, the WHO cautioned that large vaccination campaigns using multidose vials will experience significant rates of vaccine wastage. The CDC is working with vaccine manufacturers to produce single-dose vials to help reduce waste. Additionally, Pfizer is making adjustments to extend shelf-life, improve handling and storage requirements, and minimize waste.
Mandatory COVID-19 Testing Ending for Unvaccinated State Workers
Thousands of unvaccinated state workers will no longer be required to submit to weekly COVID-19 testing beginning Tuesday, according to a directive issued late last week by the Governor’s Office of Employee Relations. The recent directive from the Governors Office of Employee Relations suspending the testing requirements was disseminated to state human resources managers and said that, after Tuesday, and “until further notice, employees do not need to test weekly pursuant to the state testing program.” The statement added: “Given the wide availability of tests, (human resources) managers should encourage all employees to continue testing through home tests or at testing locations … .”
A spokeswoman for the Governor’s Office of Employee Relations said the directive issued Friday ending the mandatory testing would not impact hundreds of unvaccinated nurses and other medical professionals who were forced off the job last year and have faced disciplinary proceedings after they declined to get vaccinated by the state-imposed Sept. 27 deadline.
Goldman Sachs Predicts Oil Will Surge to $140 a Barrel this Summer
Goldman Sachs economists have predicted oil prices will surge to $140 a barrel this summer, with a drop in Russian production and a gradual recovery in Chinese demand adding to the pressure on already low supplies. They added consumers will feel as though oil has hit $160 a barrel, because a lack of capacity at refineries means gasoline and fuel prices are rising more than would normally be expected, adding to costs across the economy.
They said bottlenecks at refineries — which turn crude oil into usable oil products — mean gas and fuel costs are considerably higher than would normally be expected compared to benchmark prices. The analysts said there was “an unprecedented refining shortage. The investment bank said it expects prices to stay high, even though a surge to around $140 would trigger some “demand destruction” by encouraging people to stop using as much energy.
Australia’s Central Bank Raises Rates by 50 Basis Points in Hawkish Surprise
Wrapping up its June policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate by 50 basis points to 0.85%, wrong footing investors who had wagered on a move of either 25 or 40 basis points.
“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today,” said RBA Governor Philip Lowe in a statement. “The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.”
Half-Point European Central Bank Rate Hike by July Is Coin Toss
Traders have priced in 37.5 basis points of tightening to the central bank’s rate by next month’s meeting, implying a 50% chance of a half-a-percentage point increase, which would be the first since 2000. Such a hike is already baked in by September. It’s a far cry from the start of the year when inflation was expected to be transitory and traders were betting on just 15 basis points of tightening this year.
The ECB has come under huge pressure after the region’s inflation extended a record surge in May, climbing to more than four times the central bank’s target of 2%. While ECB officials have long signaled that a quarter-point hike is coming, some Governing Council members have suggested that a bigger hike is possible.
Is This a Surprise? Pay is Top Priority for Blue Collar Workers
EmployBridge surveyed 19,500 workers for their 16th Annual Voice of the Blue-Collar Worker survey and found that 40% of the hourly workers picked pay as their top concern. Last year pay was also the top issue, however the percentage was 32%.
The EmployBridge survey also found that:
- While shift and schedule flexibility have been important in the past, this year they rank in the top three factors in workers’ decisions about which job they choose — and whether to stay at a job.
- Despite a tumultuous year, workers are optimistic about their own financial futures and “satisfied” with their current roles.
- COVID-19 concerns have declined significantly but are still present, particularly for female workers.
Target Cancel Orders, Cuts Prices to Shed Amassed Inventory
Target is canceling orders from suppliers, particularly for home goods and clothing, and it’s slashing prices to clear out amassed inventory ahead of the critical fall and holiday shopping seasons. The actions comes after a pronounced spending shift by Americans, from investments in their homes homes, to money spent on travel, nights out for dinner and dressier clothes, a change that arrived much faster than major retailers had anticipated. Other retailers including Gap, Macy’s, Walmart and Kohl’s have also reported rising inventories.
The speed at which Americans pivoted away from pandemic spending was laid bare in the most recent quarterly financial filings from a number of major retailers. Target reported last month its profit for the fiscal first quarter tumbled 52% compared with the same period last year. Sales of big TVs and appliances that Americans loaded up on during the pandemic have faded, leaving Target with a bloated inventory that it said must be marked down to sell.
EU Agrees Single Mobile Charging Port in Blow to Apple
Apple will have to change the connector on iPhones sold in Europe by 2024 after EU countries and lawmakers agreed on Tuesday to a single mobile charging port for mobile phones, tablets and cameras in a world first. The political intervention, which the European Commission said would make life easier for consumers and save them money, came after companies failed to reach a common solution.
iPhones are charged from a Lightning cable, while Android-based devices use USB-C connectors. Half the chargers sold with mobile phones in 2018 had a USB micro-B connector, while 29% had a USB-C connector and 21% a Lightning connector, according to a 2019 Commission study. “By autumn 2024, USB Type-C will become the common charging port for all mobile phones, tablets and cameras in the EU,” the European Parliament said in a statement.
Trade Turmoil in Solar Energy Industry
President Joe Biden invoked the Defense Production Act to spur domestic manufacturing of crucial equipment and promised his administration would not impose any new import tariffs on solar power equipment for up to two years while the administration conducts an ongoing trade probe.
The industry has been roiled by a Commerce Department investigation into whether companies based in four Southeast Asian countries have circumvented the tariffs on Chinese shipments of solar equipment to the U.S. That probe has slowed the development of large renewable projects. But the new actions have already drawn criticism from the small, California-based solar manufacturer that lodged the initial complaint that imports were circumventing existing duties. “President Biden is significantly interfering in Commerce’s quasi-judicial process,” said Auxin Solar CEO Mamun Rashid. “By taking this unprecedented — and potentially illegal — action, he has opened the door wide for Chinese-funded special interests to defeat the fair application of U.S. trade law.”