Member Briefing March 21, 2023
Uncertainty Reigns as Fed Considers Interest Rate Hike
Traders and economists remain split on whether the Federal Reserve will raise its benchmark policy rate on Wednesday, as more actions by the world's major central banks to stem banking strains and the fallout from the takeover of Credit Suisse kept markets on edge. The U.S. central bank will begin its two-day policy meeting on Tuesday as policymakers consider whether still too-hot inflation merits an interest rate hike or whether turmoil in financial markets outstrips those concerns. The Fed's current target range is 4.5%-4.75%.
"Barring a catastrophic collapse of the banking sector between today and Wednesday -- one that reverberates globally -- they will be focused on developments in the economy, which currently supports more policy tightening," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. She pointed to a string of recent economic data, including a key inflation report last week, that suggest inflationary pressures are far from tamed, and expects the Fed this week to lift its median projection for the funds rate at year-end to 5.4% from 5.1% at December's meeting.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Xi Promotes China as Peacemaker on First Trip to Russia Since Ukraine Invasion - NBC
- Russia and China Want to Disrupt the World Order, NSC Spokesperson Says – Politico
- Russia Defies Putin Arrest Warrant by Opening its Own Case Against ICC - Reuters
- US Sending $350M in Weapons, Equipment to Ukraine in Latest Aid Package – The Hill
- Ukraine Cheers Rollover of Grain Deal, but Russia Objects Again – BBC
- Drone Strikes, Sabotage, Shelling: Russia’s War on Ukraine Comes To Russia – Washington Post
- How Ukraine Survived Russia’s Mission to Turn Off the Lights – The WSJ
- Russia is Using Old Oil Tankers to Bypass Export Sanctions, Risking Spills – Washington Post
- The Kremlin Bans iPhones Saying the Devices May be Vulnerable to Western Intelligence Agencies - Computerworld
- Does Putin Have ‘Catherine envy'? It Would be Natural – Nat Geo
- Interactive Map: Assessed Control of Terrain in Ukraine - Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Rockwell CFO: Supply Chain Still Limiting Factor To Growth
A Federal Reserve Bank of New York index tracking the health of the world’s supply chains improved markedly in February to dive below its historical average and to its lowest level since August 2019. But the Global Supply Chain Pressure Index’s suggestion that things “have returned to normal” rings a little hollow to business leaders still dealing with component shortages and shipping delays. Count Rockwell Automation Inc. CFO Nick Gangestad among them.
The key culprits remain the same: Semiconductors and other electronic components account for the majority of constraints for Rockwell, which finished 2022 with a backlog worth $5 billion versus its pre-pandemic level of about $2 billion. The situation with more classic industrial components, Gangestad added, is getting closer to normal but it will be a while before Rockwell makes a serious dent in that $5 billion backlog.
Small Businesses Stress Test Their Banks After Silicon Valley Bank’s Collapse
Responding to the recent banking-industry turmoil is particularly challenging for small businesses, which typically don’t have large finance teams or sophisticated cash-management strategies. Small-business owners with conservative habits often keep lots of cash on hand as a cushion. Loan restrictions can make it tough to split that cash among multiple institutions.
Many small-business owners are doing nothing for now, but the actions of others provide an early sign of how the banking industry’s troubles are rippling through the economy and leading some entrepreneurs to scrutinize relationships and habits they took for granted. Some owners of small and midsize businesses are moving funds to other institutions, splitting them between multiple banks, moving cash into money-market funds or buying Treasurys. Others are more closely reviewing the finances of their banks, while some entrepreneurs are even thinking about the potential risks for key partners and customers.
COVID News – New York Health Officials Shift COVID Reporting and Strategies
For three years, the New York governor's office would compile and release daily updates on COVID-19 cases, hospitalizations, deaths and, later on, vaccinations. That reporting is set to be scaled back this month and state health officials will also assess how COVID data is collected from local officials, Gov. Kathy Hochul's office said. COVID data was closely watched for much of the pandemic, but a major spike in cases has not occurred in more than a year after the onset of the highly contagious omicron variant.
COVID data will also still be available on the state Department of Health's website. A news release that was sent out five days a week will now be scaled back to weekly on Fridays. Hochul's office also announced the Department of Health is considering changes to how COVID information is collected from local health officials and health care providers "in order to alleviate the burden on providers and leverage other data sources to maintain its ability to monitor the state of the disease and health care delivery system capacity," according to the governor's office.
ITIF Report: US Should Pursue “Hamiltonian” Industrial Policy
A report from the Information Technology & innovation Foundation argues that the long-prevailing neoliberal economic and trade doctrine is rightly under attack given its significant failures and poor fit for the current era, wherein technology competition with China is the central economic issue facing the nation. Progressives want to use that opening to install a new doctrine that can be termed “green equity” industrial policy to transform how Americans live and work.
Progressive green equity industrial policy rejects growth in favor of redistribution, globalization in favor of autarkic nationalism, and large corporations for small business. It also ignores or even rejects the China challenge. Policymakers should reject that approach because it would produce poorer, weaker America. Washington should instead adopt “Hamiltonianism,” which decouples industrial policy from social policy to focus squarely on aligning business interests with the national competitive interest in winning the global race for advanced industry leadership.
Manufacturers Move Back to China as Renewal of U.S. Trade Deal Is Delayed
The expiration of the Generalized System of Preferences, or GSP, in December 2020 meant more than 100 countries lost tariff-free access to the U.S. market for thousands of goods, from travel bags and jewelry to car parts and lamps. The program has expired more than a dozen times since it came into force in 1975, but has usually been swiftly renewed. This time, renewal has been complicated by political wrangling over how to decide which countries should be eligible for GSP benefits, as well as procedural hurdles linked to broader disagreements in Congress over trade and China.
For the U.S. economy as a whole, the lapse isn’t significant, accounting for a tiny percentage (a bit under 1%) of U.S. imports, which overall notched almost $4 trillion in 2022. But for some businesses, it has meant surging costs and hard choices about where to manufacture. More broadly, executives and trade experts say, the failure to renew the GSP is an avoidable flaw in U.S. trade policy toward China that risks denting investment in countries that show promise as alternatives for manufacturing outside China’s vast factory floor.
Biden’s ‘Go It Alone’ EV Subsidies Trade Deals Draw Warnings From Congress
The Biden administration is accelerating its efforts to pursue trade agreements that bypass Congress as it seeks to counter China, but the moves have sparked a fight with lawmakers that threatens to upend the president’s trade strategy at a critical point of rising global competition. Tensions have boiled over in recent days amid the administration’s push to forge a free-trade deal on critical minerals to resolve a dispute with the European Union over electric-vehicle subsidies, the latest in a string of such pacts that skirt congressional approval.
Along with the EV minerals deal, Biden administration officials are now accelerating negotiations on several other agreements, including the Indo-Pacific Economic Framework, or IPEF, Mr. Biden’s most ambitious trade initiative, which seeks to enhance ties with more than a dozen friendly nations amid intensifying rivalry with China.
Texas Leads in the Creation of Manufacturing Jobs
Texas created the most net new manufacturing jobs in January, adding 5,900 workers. Other states with notable employment growth for the month included New Jersey (up 3,300), California (up 2,100), Wisconsin (up 2,100) and Massachusetts (up 1,500). Texas (up 58,100) also had the most manufacturing employment growth. Other states with significant year-over-year gains included California (up 31,900), Florida (up 21,800), Missouri (up 15,800), Illinois (up 14,100) and Ohio (up 13,800).
In January, the U.S. unemployment rate fell to 3.4%, the lowest since May 1969. At 2.1%, North Dakota and South Dakota had the lowest unemployment rates nationally, followed closely by Utah (2.4%), Montana (2.5%) and Nebraska (2.5%). At the other end of the spectrum, Nevada had the highest unemployment rate in the country at 5.5%. Other stat es with elevated rates included Oregon (4.8%), Delaware (4.6%), Washington (4.6%) and Illinois (4.5%).
Mike Rowe Warns that 7 Million American Men are 'Done' Looking for Work and Have 'Punched Out' of the Workforce
Men have been steadily clocking out of the American workforce since pre-pandemic times — even now despite there being millions of job openings and an uncertain economic climate. While the U.S. labor market remains incredibly tight — with the economy adding another 517,000 jobs in December — around 7 million “prime age” men between the ages of 25 and 54 are reportedly sitting it out.
“They are affirmatively not looking for work. They've punched out. They're done,” TV host Mike Rowe said on The Brian Kilmeade Show, citing research from economist Nick Eberstadt. Eberstadt says a vast majority of these prime-age men spend around 2,000 hours a year on screens, do little housework and don’t spend time volunteering. However, there might be more to the story than men simply slacking off and sitting at home. The decline of men in the workforce may be partially due to the drop in manufacturing jobs since the 1960s, which have either been automated or moved offshore.
French Government Narrowly Survives Key No-Confidence Votes Over Pension Reform
The French parliament on Monday rejected a multiparty no-confidence motion brought by a small group of centrists, Liot, against the government. The motion received 278 votes Monday, falling short of the 287 needed to pass. A second no-confidence vote, tabled by the far-right Rassemblement National (National Rally or RN) is currently under way in France's lower-house National Assembly. It is thought unlikely to pass.
The upper-house Senate, which is dominated by conservatives, approved the pension reform last week. The no-confidence motions each need the backing of 287 lawmakers in the National Assembly to pass. French Prime Minister Élisabeth Borne and her allies in Macron's camp have the largest number of MPs in the Assembly, but they do not control an absolute majority in the chamber – meaning they could have been defeated if the entire opposition united in one of the ballots.
U.S. Department of Commerce Issues First Notice of Funding Opportunity for Commercial Fabrication Facilities Under the CHIPS Act
On Feb. 28, 2023, the Department of Commerce issued the first Notice of Funding Opportunity (NOFO) for commercial fabrication facilities. The NOFO provides the application requirements and timelines for applications for the construction, expansion or modernization of commercial facilities located in the U.S. The current NOFO limits eligibility to four facility types: leading-edge facilities, current-generation facilities, mature-node facilities and back-end production facilities.
The NOFO also outlines the program’s priorities, which relate to various requirements and evaluative criteria that form the basis of the DOC’s application review process. These “program priorities” are (1) economic and national security objectives, (2) commercial viability, (3) financial strength, (4) project technical feasibility, (5) workforce development and (6) the broader impacts of the project.
Employer Wins Unpaid Overtime Lawsuit brought by Oil and Gas Field Technicians
Claims brought by former field technicians in the oil and gas industry, who alleged they were wrongly denied overtime over a three-year period, were rejected by a federal jury in Texas. During a trial that concluded March 10, defense attorneys for Flowco Production Solutions successfully argued the employees were exempted from federal law addressing overtime pay because they were primarily administrative employees. The lawsuit represented workers in Texas, Colorado, New Mexico and Pennsylvania.
The jury verdict said it was true Flowco failed to pay overtime, however, the employee class was exempt from the overtime requirement under the administrative employee exemption. “This verdict signifies the administrative exemption is still alive and well, and more importantly, is available for use when formulating compensation structures,” Flowco attorney Dan Pipitone said.
New Toyota CEO Considers Hydrogen a Priority Despite EV Focus
Toyota’s new CEO, Koji Sato, has confirmed that hydrogen will still receive a lot of attention from the automaker. This was despite Toyota increasing its efforts to develop and produce more compelling all-electric vehicles. Sato’s comments were shared on the sidelines of an endurance race at Suzuka Circuit in western Japan recently. “We want to ensure that hydrogen stays a viable option. We need a production and transport supply chain. Unless we see evolution there, we cannot expect a volume increase in the energy’s use,” Sato said.
While Toyota is arguably the company that ushered in the mainstream acceptance of hybrid vehicles with its Prius, the company’s bet on hydrogen cars has been far less successful. The company currently offers the Mirai, a hydrogen-powered zero-emissions sedan that is currently in its second generation. Toyota was so confident in the Mirai’s second generation that it increased its production capacity to 30,000 units per year, a 10x increase.