Member Briefing June 8, 2023
U.S. Trade Gap Widens in April as Exports Fall
The U.S. trade deficit grew in April on a pullback in exports, bringing the gap to its widest since October 2022, according to government data released on Wednesday. Although the country's imports have been boosted by resilient consumer spending, analysts expect this trend to weaken as well going forward. The slide in exports came on the back of a decrease in value of goods shipments, such as crude oil and fuel oil, along with some consumer goods.
In April, the overall trade deficit was $74.6 billion, expanding slightly less than expected by $14 billion, according to Commerce Department data. Exports fell by $9.2 billion to $249 billion in the month, while imports edged up by $4.8 billion to $323.6 billion. Imports of goods picked up with support from auto vehicles and parts, as well as some industrial supplies and materials. But imports are likely to weaken in the months ahead, according to economist Matthew Martin of Oxford Economics, as consumer strength declines and "businesses investment feels the pinch of tighter lending conditions and higher interest rates."
War in Ukraine Headlines
BLS – Manfuacturing Labor Productivity Continues to Drop
Manufacturing labor productivity fell 2.5% at the annual rate in the first quarter of 2023, declining for the sixth time in the past seven quarters. Output in the sector declined 1.0% in the first quarter, extending the 3.7% decrease in the fourth quarter. At the same time, the number of hours worked rose 1.6% in the first quarter, with hourly compensation inching up 0.5%. Unit labor costs among manufacturers increased 3.1%, rising for the eighth straight quarter.
Labor productivity for durable goods decreased 5.6% in the first quarter, building on the 3.7% and 2.2% declines in the third and fourth quarters, respectively. Output dropped 3.2%, but the number of hours worked rose 2.5%. Hourly compensation pulled back 1.2%, and unit labor costs for durable goods jumped 4.7% in the first quarter. In contrast, labor productivity for nondurable goods rose 1.3% in the first quarter after decreasing 0.2% and 4.3% in the third and fourth quarters, respectively. Output and hourly compensation increased 1.4% and 3.6%, respectively, with the number of hours worked flat. Unit labor costs for nondurable goods firms increased 2.2%.
Private Manfuacturing Construction Spending Doubles in 12 Months
Private manufacturing construction soared 8.7% from $173.84 billion in March to a record $188.96 billion in April. Private construction in the sector has trended significantly higher since bottoming out at $72.46 billion in February 2021. Over the past 12 months, activity has risen a whopping 104.6%. The data speak to the very sizable investments being made in the manufacturing sector, with firms strongly expanding their capacity to meet their long-term objectives. This should bode well for future growth in manufacturing in the U.S. moving forward.
At the same time, total private nonresidential construction spending increased 2.4% in April, with activity rising 31.2% over the past 12 months. In April, total private construction spending rose 1.3%, with private residential construction up 0.5% for the month. Private single-family construction dropped 0.8% in April, but new multifamily activity increased 0.6%. On a year-over-year basis, total private construction has risen 4.9% since April 2022, but with private residential activity down 9.2%. Private single-family residential construction has declined 24.7% over the past 12 months. Meanwhile, public construction spending increased 1.1% in April, with activity up 16.5% year-over-year.
COVID Update - Most US Adults are Declining COVID Boosters as CDC Warns of Health Risks
Adults who aren’t current on their COVID-19 vaccine booster doses may have "relatively little remaining protection" against hospitalization compared to those who haven’t been vaccinated at all, suggests a new study from the Centers for Disease Control and Prevention (CDC). The study spanned multiple states and examined more than 85,000 hospitalizations of people with "COVID-like illness."
Despite the CDC’s September 2022 recommendation that all vaccinated people 12 years and older should receive a booster dose, the vast majority of Americans have not received it.As of May 10, 2023, only one in five (20.5%) U.S. adults had received a bivalent booster dose.
UK's Sunak Seeks Stronger Economic Ties With U.S. on Washington Trip
Having left the European Union, Britain is seeking to further align itself with Washington to help navigate a more volatile world driven by the rise of China, the aggression of Russia and the development of Artificial Intelligence. Prime Minister Rishi Sunak will meet President Biden, U.S. business leaders and members of congress this week, arguing that the existing ties between the two countries mean they are better placed to take on the new challenges together. He arrives in Washington on Wednesday.
The ability to sign a full free trade deal with the United States was once seen by those who backed Brexit as its biggest economic prize, but a reluctance by Washington to consider such a move has left successive governments seeking agreement on individual areas instead. Sunak's government has also been under pressure to respond after Biden launched $369 billion of subsidies to drive the development of electric vehicles and other clean technologies, a policy that prompted Brussels to set out its own industrial plan.
New York Becomes World’s Most Polluted City As Canadian Wildfires Cause ‘Unhealthy’ Air Quality
The National Weather Service has issued an Air Quality Health Advisory for New York City and surrounding regions that will remain in effect till 11.59 pm E.T. on Wednesday. Officials in New York City canceled all outdoor activities at public schools in the city and issued a health advisory, warning people with respiratory issues to avoid strenuous activities outdoors, as air quality in the city plummeted to “unhealthy” levels due to smoke from hundreds of wildfires in Canada.
The drop in air quality over the northeastern region has been caused by a series of forest fires in the Canadian province of Quebec. Earlier this week, Canadian officials said 26,000 people across the country had been evacuated from their homes due to the wildfires. Local authorities in Quebec have also advised people to keep their windows closed, their air conditioners off and put a piece of cloth around their doors until the air quality improves.
Administration Announces National Clean Hydrogen Strategy
As the White House on June 5th it released the U.S. National Clean Hydrogen Strategy and Roadmap. The roadmap is a comprehensive framework for accelerating the production, processing, delivery, storage, and use of clean hydrogen. The roadmap was developed by the U.S. Department of Energy (DOE), in partnership other federal agencies. The Strategy and Roadmap identifies three key strategies to ensure that clean hydrogen is developed and adopted as an effective decarbonization tool, including:
- Targeting strategic, high-impact uses for clean hydrogen, which will ensure that clean hydrogen will be utilized in the highest benefit applications, where limited alternatives exist (such as the industrial sector, heavy-duty transportation, and long-duration energy storage to enable a clean grid);
- Reducing the cost of clean hydrogen by catalyzing innovation and scale, stimulating private sector investments, and developing the clean hydrogen supply chain; and
- Focusing on regional networks with large-scale clean hydrogen production and end-use in close proximity, enabling maximum benefit from infrastructure investment, driving scale, and facilitating market liftoff while leveraging place-based opportunities for equity, inclusion, and environmental justice.
Space Force Plots New Funding Pot for Commercial Buys
The Space Force’s primary acquisition command is seeking to establish a new, consolidated budget basket for commercial tech and services to underpin its multi-pronged effort to more rapidly and effectively take advantage of industry innovation, according to a senior official responsible for the effort. “Right now, in the 2024 budget, I’m hoping to work to get [congressional] language to establish a commercial space budget line,” Col. Rich Kniseley, who heads Space Systems Command’s (SSC) recently established Commercial Space Office, said today. “So, the goal is to try and establish a 2024 line, and then work to get budget [money] hopefully in the 2025 timeframe.”
In addition to the new budget line, Kniseley and others discussed new “marketplaces” and innovation labs to speed work with industry, and acknowledged a bit of a “rebranding” when it comes to the Space Force’s reach when it comes to commercial ISR. Kniseley explained that currently there is no “dedicated funding line” for SSC to use for commercial acquisition.
Old Dominion Freight Line’s Revenue Per Day Fell 15.7% in May
Thomasville, N.C.-based national less-than-truckload (LTL) carrier Old Dominion Freight Line (ODFL) reported that revenue per day fell 15.7% in May compared to May 2022, which it said was mainly driven by a 14.4% decrease in LTL tons per day. And it said that the decrease in LTL tons per day was due to an 11.4% decrease in LTL shipments per day and a 3.4% decrease in LTL weight per shipment.
ODFL also noted that for the quarter-to-date period, LTL revenue per hundredweight and LTL revenue per hundredweight, excluding fuel surcharges, was up 0.1% and 7.9%, respectively, on an annual basis. In a recent interview ODFL CEO Adam Satterfield explained that ODFL paya a lot of attention to the ISM [manufacturing] index, which has been below 50 (a reading of 50 or higher indicates growth is occurring) for several months now. “We are kind of getting to the end of what a normal average down cycle might be…and would look to start seeing some industrial strength returning,” he said. “And industrial related revenue is about 60% of our overall revenue base.
Manufacturing, Retail Seek White House Port Mediation
The Biden administration is coming under renewed pressure to intervene and resolve labor issues across US west coast ports as industrial action stretches into a fifth day, and the threat of strikes north of the border emerges. David French, senior vice president of government relations for the Washington DC-based National Retail Federation, called on the US government to intervene, commenting: “Thousands of retailers and other businesses depend on smooth and efficient operations at the ports to deliver goods to consumers every day. … It is imperative that the parties return to the negotiating table. We urge the administration to mediate to ensure the parties quickly finalise a new contract without additional disruptions.”
Jay Timmons, president and CEO of the National Association of Manufacturers, tweeted: “Manufacturers implore the White House to bring negotiating parties together and reopen America’s shipping gateways on the West Coast.”
Start-up Solar Component Manufacturer Hopes to Take on China With Help of U.S. Subsidies
For 15 years, U.S. startup CubicPV has tried and failed to build a solar-component factory. Now, it thinks massive green subsidies will help it finally get a foothold in a market dominated by China. CubicPV’s roller-coaster journey suggests it won’t be easy, despite billions of dollars in tax credits and government loans passed into law last year. How companies like CubicPV fare will go a long way in determining if President Biden’s signature climate legislation can successfully reduce U.S. dependence on Chinese clean-energy manufacturing.
CubicPV focuses on a key solar-panel component called silicon wafers—97% of which are produced in China. None is manufactured in the U.S. The company, founded by Massachusetts Institute of Technology engineers in 2008 and originally named 1366 Technologies, has tried to build a wafer factory in three different countries, including the U.S. Each attempt collapsed, in part because of competition from less-expensive Chinese products.
Mortgage Demand Drops
Mortgage rates fell back from their recent highs, but demand dropped for the fourth straight week. Total mortgage application volume declined 1.4% last week, compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.81% from 6.91%, with points falling to 0.66 from 0.83 (including the origination fee) for loans with a 20% down payment. That was still, however, the second-highest weekly average rate of 2023 to date.
Applications to refinance a home loan fell 1% for the week and were 42% lower than the same week a year ago. The refinance share of mortgage activity increased to 27.3% of total applications from 26.7% the previous week. Applications for a mortgage to purchase a home slipped 2% for the week and were 27% lower than a year ago.
The Surprising New Source of Lithium for Batteries
Large troves of lithium will be needed to make the batteries for growing numbers of electric cars on the road. To find new supplies, companies and researchers are turning to an unexpected source: oil-and-gas reservoirs.
These oil-and-gas sites harbor not only hydrocarbons, but also brine that contains metals including sodium, calcium and some lithium. When drillers poke holes into oil-saturated formations, the brine flows back to the surface along with the molecules that end up as fuel, and companies have been prompt to discard the earthy marinade. But now that the EV battery material has become a prized commodity, lithium companies are developing technologies to remove it from this brine—and oil-and-gas companies are also taking a second look.
At 100, Henry Kissinger Asks Tough Questions of America
Henry Kissinger turned 100 last week, warning, with undimmed fervor, of two contemporary threats to an increasingly unstable world: the standoff between America and China, and the growing power of artificial intelligence. Yet how those challenges might be met could well hinge on a deeper question that Mr. Kissinger first flagged three decades ago: how the United States chooses to engage in a “new world order” that it can no longer design or dominate, as it did during the years following World War II.
What does America, still the leading power, want in the world? Can it break out of its “historical cycle of exuberant overextension and sulking isolationism,” in Mr. Kissinger’s words? And with America’s rivals and allies all watching keenly, the U.S. has yet to resolve the core conundrum that Mr. Kissinger identified in his 1994 book “Diplomacy,”: that in navigating this evolving new order, “the United States can neither withdraw from the world nor dominate it.”
New York Legislators to Pass Bill Creating a Reparations Study Commission
State legislators plan to pass a bill this week to create a commission tasked with studying the history of slavery and racial discrimination in New York and recommending possible reparation payments, three individuals familiar with talks said. “We have a two-way agreement. We’re confident that we’re going to pass the bill,” Assembly sponsor Michaelle Solages (D-Nassau County), said. The commission would look at more than just slavery. It would also examine “the lingering negative effects of the institution of slavery and discrimination on living people of African descent.”
“Throughout history, here in New York and across the country, African Americans have been subjected to racial, economic and institutional injustices that have plagued communities for decades,” Assembly Speaker Carl Heastie said in a statement provided to POLITICO. Heastie, the first Black speaker of his chamber, referred to the bill as a “historic piece of legislation.” Topics such as mass incarceration and housing discrimination will be examined, Solages said.