Member Briefing March 7, 2023
Fed’s Rate Moves Put Manufacturing Sector at Risk
The American manufacturing sector is starting to show signs of weakness after two years of strong growth, as higher interest rates and a slowdown in exports threaten production. Weaker manufacturing data suggests that consumers and businesses are starting to retrench in the face of economic uncertainty, said Jonathan Millar, senior U.S. economist at Barclays PLC. A manufacturing downturn could be a sign of trouble in the broader U.S. economy.
The Fed’s aggressive pace of interest-rate increases to fight inflation has made it more expensive to borrow for big-ticket items such as consumer appliances or business machinery. Fed officials have signaled they are likely to raise rates again when they convene later this month. “As the Fed continues to hike, manufacturing is going to be in the crosshairs,” Mr. Millar said. “It’s hard to see this sector not suffer some sort of a downturn that is more significant than what we’ve seen already.”
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia’s Wagner Troops Exhaust Ukrainian Forces in Bakhmut - WSJ
- Wagner Chief Says Russian Position at Bakhmut at Risk Without Promised Ammunition - Reuters
- Russia Bars Its Own Shadow Army Rep in Explosive Public Feud – Daily Beast
- In Irpin, Ukrainians Slowly Rebuild their Burned-Out Homes – Politico
- Garland In Ukraine says Ukrainian Victims of War with Russia Deserve Justice - NPR
- Administration Announces Additional Security Assistance for Ukraine – Department of Defense
- EU Closer to Joint Arms-Buying to Aid Ukraine but Hurdles Remain - Reuters
- Under the Radar, Germany Trains Ukrainians on Advanced Air Defence Weapon - Reuters
- Metsola Wants Ukraine EU Membership Talks to Start this Year – Politico
- 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
Manufacturing Tops Nonresidential Categories for Construction Spending Gains
Nonresidential U.S. construction spending posted historically strong numbers in 2022, and momentum is slower but steady early in 2023, according to government and industry data. The latest Commerce Department figures showed nearly $1.3 trillion was spent on construction of U.S. manufacturing projects during 2022, including new facilities, expansions and renovations. That was up about 34% from 2021 and the highest rate of annual improvement among all nonresidential categories.
Manufacturing projects are being spurred in part by the trend of several industries now “onshoring” and “reshoring” manufacturing and logistics to domestic locations, to avoid overseas supply chain disruptions rampant in the early months of the pandemic. It is being further fueled by government programs supporting domestic private production of computer chips, electric vehicles and EV batteries.
U.S. Factory Orders Drop 1.6% on Falloff in Boeing Contracts
New orders for U.S.-manufactured goods fell in January, pulled down by a plunge in civilian aircraft bookings, but increases in machinery and a range of other products suggested that manufacturing could be regaining its footing. The report from the Commerce Department on Monday also showed shipments of manufactured goods rebounding after two-straight monthly declines, while inventories were unchanged.
Factory orders dropped 1.6% after increasing 1.7% in December. Economists polled by Reuters had forecast orders declining 1.8%. Orders rose 4.3% on a year-on-year basis in January. The drop in factory orders in January mostly reflected a 13.3% decline in transportation equipment, which followed a 15.8% jump in December. Transportation equipment orders were weighed down by a 54.5% tumble in orders for civilian aircraft. Motor vehicle orders increased 1.3%.
US COVID – The Winter COVID-19 Surge That Wasn’t
While hundreds of Americans are still dying from the coronavirus each day, it’s significantly fewer fatalities than the past two winters, which saw thousands of daily deaths. Weekly COVID-19 deaths reached nearly 4,500 in January. Last winter, weekly deaths peaked at over 17,000 in February 2022. The highest ever weekly death count came the winter before that, with more than 23,000 reported in January 2021.
So what caused the drop-off in numbers? The main driver was the high level of COVID-19 immunity in the population, according to experts. The vast majority of Americans have some level of immunity against COVID-19 through infection or vaccination or both. While immunity levels wane over time, research shows that protection against severe disease and death lasts substantially longer than protection against infection.
Study: Sniffer Dogs Performance is Stable Over Time in Detecting COVID-19
Rapid antigen diagnostic (RAD) tests have been developed for the identification of the SARS-CoV-2 infection. However, they require nasopharyngeal or nasal swab, which is invasive, uncomfortable, and aerosolising. The use of saliva test was also proposed but has not yet been validated. Trained dogs may efficiently smell the presence of SARS-CoV-2 in biological samples of infected people, but further validation is needed both in laboratory and in field.
The present study aimed to (1) assess and validate the stability over a specific time period of COVID-19 detection in humans’ armpit sweat by trained dogs thanks to a double-blind laboratory test–retest design, and (2) assess this ability when sniffing people directly. Dogs were not trained to discriminate against other infections. The findings support the idea that biodetection dogs could help reduce the spread of the virus in high-risk environments, including airports, schools, and public transport.
Biden's Upcoming Budget Part of 2024 Political Messaging
The White House budget plan will be a “what if” document, aimed at telling voters what the federal government could do if Democrats were solidly in control of the White House and Congress. Right now, the Republican majority in the House opposes almost all of Biden's ideas. Biden hinted in a Monday speech that tax increases on the wealthy will be at the core of his budget plan, saying he will be proposing a tax that targets billionaires.
Democrats and Republicans are jockeying to show the public who is the most fiscally responsible. Phillip Swagel, director of the nonpartisan Congressional Budget Office, issued guidance on Monday saying that projected deficits would need to be cut by $5 trillion during the next decade to match the 50-year historical average.
Manufacturing Apprenticeships a Boon to Students, Employers
When his pursuit of a mechanical engineering degree at Penn State New Kensington was derailed, Cameron Fouse turned to Plan B. “I tried machining for the first time and learned everything I could online,” said Fouse, 29, of Ford City. An entry-level job at Metplas Inc. in Harrison landed Fouse the chance at a four-year apprenticeship, where he can earn his certification while getting paid.
Through the apprenticeship offered by the National Tooling & Milling Association (NTMA), Fouse and other students spend hundreds of hours in class at Northern Westmoreland Career and Technical Center inside Valley High School in New Kensington. The program is a boon to the students and the employer, said Eric Galbreath, program manager of defense projects at Metplas. “It’s definitely beneficial,” Galbreath said. “Not everyone is cut out for four-year college. Here, they learn a trade while they’re getting paid.”
Cars Are Giving the Chip Sector a Boost as Demand for Other Semiconductors Uses Wanes
Chip sales that have declined across many customer segments are still enjoying one area of rising demand: cars. Growing sales of electric vehicles—which tend to use more semiconductors than their gas-powered counterparts—coupled with greater automation of all vehicles, have kept producers of chips for cars busy. The long-term outlook for the market appears robust, Tesla Inc. suggested this past week, as Chief Executive Elon Musk detailed plans for his car company to scale up to 20 million vehicles a year by 2030, from around 1.3 million in 2022.
“We’re consuming about 700,000 12-inch wafer equivalents,” Tesla’s supply-chain vice president Karn Budhiraj said Wednesday, referring to the material individual chips are made of. “We’re going to need 8 million wafers,” he added, once the company reaches its 20-million-car production target. Tesla also indicated it was working on ways to use fewer chips per vehicle and didn’t anticipate chip-making capacity as an impediment, given how that industry was expanding.
Chip Supplier Reports $200M Revenue Hit After Ransomware Attack Halted Operations
MKS Instruments is expecting a 20% hit to quarterly revenue following a ransomware attack that disrupted its supply chain operations in February. The Feb. 3 ransomware attack materially impacted the company’s business systems, disrupting its ability to supply technology for semiconductor manufacturing and advanced electronics, President and CEO John Lee said Tuesday during the company’s quarterly earnings call. The incident also impacted the operation of its photonics and vacuum solutions divisions affecting its ability to process orders, ship products and provide customer service.
The attack will result in at least a $200 million hit to company revenue during the first quarter, the company said. Prior to the incident, MKS Instruments expected to report about $1 billion in revenue.
Housing Affordability is at the Lowest Level in Over a Decade
The Atlanta Fed's Housing Affordability Monitor, which compares median home prices and other housing costs with median household income, shows that housing affordability is worse today than during the peak of the 2008 housing bubble. As of December, the median American household would have to spend about 42.9% of their income to afford the median-priced house, according to the index.
That is near the highest share since August 2006, when the median U.S. household had to spend about 41.1% of their income to afford the median-priced house. It is also well above the 32.6% share just one year ago; at this rate, the typical American is paying about $607 more per month to own a median-priced home compared to last year.
U.S. Export Limits Target 28 Chinese Entities, Citing Alleged Ties to Iranian Military
The U.S. Commerce Department on Thursday targeted more than two dozen Chinese entities with export restrictions, part of a broader effort by the Biden administration to mitigate what it says is a growing national security threat from China. In adding the 28 Chinese firms and individuals to its Entity List, Commerce’s Bureau of Industry and Security said the firms represented a range of potential national security risks including through alleged dealings with an Iranian electronics firm previously sanctioned by the U.S. for its alleged ties to Tehran’s military.
The listings are designed to prevent U.S. goods from being used by entities Washington believes are a potential threat to Western interests. The move comes amid rising diplomatic tensions between the world’s two largest economies. China’s dealings with Western foes Russia and Iran and the recent discovery of China’s suspected surveillance balloon program are fueling calls for the Biden administration to levy its sanction authority and tighten restrictions on trade and investment between the two powers more forcefully.
Caterpillar Commits to Not Closing Union Plants Under New Contract
Caterpillar Inc. said it has agreed to not close additional union-represented plants under a new tentative contract deal with the members of the United Auto Workers union. The moratorium on plant closings, outlined this past week, follows years of Caterpillar consolidating operations and moving production away from unionized work sites in the Midwest.
Nearly a decade ago, Caterpillar said it would cut its manufacturing space by 10% and eliminate thousands of jobs in a broad reorganization of its production, prompted by slumping demand for its construction and mining equipment. Caterpillar later closed unionized plants that built wheel loaders and excavators near Aurora, Ill.; components in Joliet, Ill., and engines for its railroad locomotive business near Chicago.
Tesla Cuts U.S. Model S and Model X Prices Between 4% and 9%
Tesla Inc has cut prices on its two most expensive electric vehicles in the United States, according to the company's website, days after Chief Executive Elon Musk said recent price cuts on other models had stoked demand.The price cuts, Tesla's fifth adjustment since the start of the year, ranged from 4% on the performance version of the Model S to 9% on the more expensive Model X.
Musk has said repeatedly in recent months that Tesla would focus on bringing prices down to drive demand and that it had seen success in sparking orders with global discounts introduced in January. "The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla," Musk said last week at Tesla's investor day.
UAW Presidential Runoff Too Close to Call, Fain Has Narrow Lead
The United Auto Workers presidential runoff election is too close to call, with reform candidate Shawn Fain claiming a narrow lead over the weekend. Whether Fain will oust incumbent President Ray Curry depends on 1,608 remaining challenged ballots, UAW Members United and Unite All Workers for Democracy—which back Fain—said in an update sent on March 4.
The UAW’s court-appointed monitor confirmed that “because the number of unresolved challenged ballots is greater than the margin between the candidates” the challenged votes were now being reviewed. Ballots can be challenged and set aside if either slate raised objections over issues such as a voter’s eligibility.
Natural Gas Plunges over 12% As Extreme Volatility Continues
Forecasts for milder weather and lower heating demand have seen natural gas prices plummeting by over 12% on Monday, after a strong rally on Friday to five-week high. At 10:07 a.m. EST on Monday, front-month gas futures for April delivery were down 12.30% to $2.639 per million British thermal units, the biggest drop since January 30th, when nat gas prices shed 14%.
The large drop comes only days after Freeport LNG boosted exports at its Texas plant after reopening last month following a shutdown that had lasted for eight months. At full capacity, Freeport can pump out 2.1 bcfd of LNG from natural gas. On Monday, according to Reuters citing Refinitiv data, Freeport was poised to take in some 1.7 billion cubic feet of gas per day. So far in March, total intake of feed gas to U.S. LNG export plants rose from 12.8 bcfd to 13.7 bcfd, breaking last year’s monthly record of 12.9 bcfd.