Member Briefing May 16, 2024

Posted By: Harold King Daily Briefing,

Top Story

Empire State Manufacturing Survey: Activity ‘Continued to Deline’ 

Manufacturing activity continued to contract in New York State, according to the May survey. The general business conditions index came in at -15.6, similar to last month’s reading. Employment indexes cooled and optimism about the future outlook remained subdued.

  • The new orders index was unchanged at -16.5, pointing to an ongoing significant decline in orders.
  • The shipments index climbed to -1.2, suggesting that shipments held steady. Unfilled orders continued to fall modestly.
  • The inventories index came in at 2.0, indicating that inventories were steady.
  • The delivery times index inched down to -9.1, suggesting that delivery times shortened.
  • The index for number of employees came in at -6.4, and the average workweek index moved up to -5.8, pointing to an ongoing decline in employment levels and hours worked.
  • The prices paid index retreated five points to 28.3, and the prices received index declined three points to 14.1, indicating that price increases moderated slightly.
  • The index for future business conditions dipped five points to 16.7.
  • The outlook for employment growth weakened noticeably.
  • The capital spending index fell to 6.7, suggesting that capital spending plans remained soft.

Read more at The NY Fed

CPI = 3.4. US Consumer Prices Rise Less Than Expected in April;

U.S. inflation eased in April, with a key measure of price pressures slowing to its lowest level since spring 2021. The consumer-price index, a gauge for goods and service costs across the U.S. economy, rose 3.4% in April from a year ago, the Labor Department said Wednesday. So-called core prices that exclude volatile food and energy items climbed 3.6% annually, the lowest increase since April 2021. Investors saw positive signs in the report that the Federal Reserve’s inflation fight is gradually slowing down the U.S. economy.

For the inflation report, price gains on the month were driven heavily by increases in both shelter and energy.  Shelter costs, which have been a particular trouble spot for Federal Reserve officials expecting inflation to come down this year, increased 0.4% for the month and were up 5.5% from a year ago. Both are levels uncomfortably high for a Fed trying to drive overall inflation back down to 2%. The energy index rose 1.1% for a month and was up 2.6% on an annual basis. Food was flat and up 2.2% respectively. Used and new vehicle prices, which had contributed to the early rise in inflation during the worst of the Covid pandemic, both declined, falling 1.4% and 0.4% respectively.

Read more at CNBC

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Policy and Politics

China Vows 'Resolute Measures' After Biden's New Tariffs

China has vowed to resolutely defend its interests in the face of huge new US tariffs and warned that the trade barriers would affect the wider relationship between the two economic superpowers. President Joe Biden on Tuesday announced that tariffs on $18 billion worth of imports of Chinese electric vehicles and an array of other products would soar over the next two years. The White House said the measures were designed to protect American workers and businesses in the face of China’s unfair trade practices, including “flooding global markets with artificially low-priced exports.”

“China opposes the unilateral imposition of tariffs which violate (World Trade Organization) rules, and will take all necessary actions to protect its legitimate rights,” Chinese foreign ministry spokesperson Wang Wenbin told reporters Tuesday shortly before the widely anticipated White House announcement. A glut of cheap Chinese goods is flooding the world and stoking trade tensions. The Commerce Ministry said China would take resolute measures to defend its rights and interests and urged the Biden administration to “correct its wrongdoing.”

Read more at CNN

House Defense Bill Retains Spending Caps, Creates Innovation Research Program

The House Armed Services Committee’s $883.7 billion annual defense policy bill sticks to the military spending caps Congress imposed for fiscal 2025 as part of last year’s debt ceiling deal, according to a text of the measure released on Monday. The spending caps authorize a 1% increase over the FY24 defense policy bill, which came in at $874.2 billion. Despite the spending caps, House lawmakers seek to partially fund a second Virginia-class submarine – overruling the Pentagon request for just one attack submarine – even as they try to procure 10 fewer F-35 fighter jets than the Defense Department sought amid mounting frustrations with the program.

The bill also establishes a chief talent management officer at the Pentagon to improve recruitment, retention and workforce development for military personnel and civilian employees alike. Under the draft legislation, the defense secretary would appoint someone to the position. A separate provision in the bill would identify several “promising” Small Business Innovation Research Program and Small Business Technology Transfer Program grant recipients and formally make them part of the Pentagon’s budgeting process. The bill would also require the Defense Department to create a test and evaluation hub for in-demand technology at the Defense Innovation Unit.

Read more at Defense News

Liberal Groups’ Analysis Finds Fault With the State’s IDAs

In 2015, the Governmental Accounting Standards Board (GASB) issued new rules requiring state and local governments to disclose certain tax abatements in annual financial reports. This new requirement makes information about tax abatements at the state and local government levels available for the public to review, according to the Tax Policy Center. The organizations Good Jobs First and Reinvent Albany recently published an analysis of that public information.

The groups found that tax breaks to businesses provided by New York's 107 Industrial Development Agencies (IDAs) between 2018 and 2021 cost public schools billions of dollars. In 2021 alone, tax abatements cost New York state school districts $1.8 billion, according to the report. According to those who support IDAs, the entities are supposed to help promote business development in municipalities by providing tax breaks. The Good Jobs First and Reinvent Albany analysis is fundamentally flawed, they argue, because it assumes the deals would have moved forward without IDA funding and tax abatements.  Given New York State’s high tax and regulatory climate this is not a reasonable assumption.

Read more at NY State of Politics

Health and Wellness

U.S. Drug Deaths Declined Slightly in 2023 but Remained at Crisis Levels

Preliminary data released Wednesday from the Centers for Disease Control and Prevention found fatal drug overdoses in the U.S. fell by roughly 3% in 2023. That is a significant reversal from previous years, when street fentanyl and other toxic synthetic drugs including methamphetamines sparked an unprecedented surge in drug deaths. But the toll from the overdose crisis in 2023 remained devastatingly high, claiming 107,543 lives.

That compares with 111,029 overdose deaths in 2022. Drug deaths in 2023 remained above the 106,699 fatalities recorded by the CDC in 2021. Before the explosion of fentanyl and methamphetamine use, the U.S. suffered far fewer overdose deaths — roughly 53,356 fatalities, for example, in 2015. The total number of fentanyl deaths actually declined modestly in 2023, dropping from 76,226 to 74,702. Meanwhile, fatal overdoses from psychostimulants (including methamphetamine) and cocaine, rose from 63,991 to 66,169.

Read more at NPR

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Industry News

Report: Optimism Amongst Manufacturers is On the Rise

Sikich has released the results of its latest Industry Pulse report, which seems to indicate that optimism amongst manufacturers is on the rise. To obtain these results, Sikich surveyed more than 100 manufacturing and distribution executives in February 2024. The executives came from a range of industries, including industrial equipment, metal fabrication, food and beverage, transportation, and more.

According to the data, on a scale of one to 10, manufacturing executives rated their optimism an average of 7.07. This is the highest recorded rating since June 2021. When asked why they were optimistic about business prospects over the next six months, 51% of manufacturers cited an increase in customer demand, with labor challenges and costs having less of an impact than in August 2023. In addition, over the past three years, 76% of manufactures have implemented at least one operational efficiency project, and 75% of survey respondents are planning an operational efficiency project for this year.

Read more at Plant Services

US Retail Sales Were Flat in April as Inflation Bites

Retail sales were flat in the month, according to data from the Commerce Department, furthering concerns about the state of the consumer amid sticky inflation and higher interest rates. By comparison, a year ago, retail sales surged by 3% and marked a slowdown from the 0.6% month-over-month increase seen in March. Economists had expected a 0.4% increase in spending, according to Bloomberg data.

Excluding autos and gas, retail sales declined by 0.1% last month in line with expectations. Nonstore retailers led the declines, falling 1.2% from the month prior. Sporting goods and hobby stores also declined 0.9%. Meanwhile, sales at clothing and accessories stores rose 1.6% in the month, while gasoline sales picked up 3.1%. While there are plenty of reasons to be skeptical about the sustainability of consumer spending, today's soft print for retail sales says more about one-off factors than it does a meaningful downshift in spending activity.

Read more at Barron’s

NY Fed Research: Unexpected Inflationary Shocks Have Limited Impact on Workers’ Wages

Historically, the consequences of an unexpected jump in prices were a valid concern. In the inflation episode of the 1970s, when a high share of workers were unionized and subject to bargaining agreements with automatic cost-of-living adjustments (COLAs), increases in the cost of living could certainly be expected to pass through to higher wages. This fostered concerns among policymakers about “wage-price spirals,” whereby higher inflation from an oil shock would result in workers demanding higher nominal wage increases, contributing to higher inflation in the non-energy sector as firms responded to higher wages by raising prices.

However, today only about one in ten American workers is unionized, and there is little evidence that automatic COLAs are a prominent feature of modern labor contracts.  While we may expect some pass-through in sectors where workers’ wages may be governed by union contracts with automatic COLAs, we expect that the pass-through of unexpected, inflationary supply shocks to wages is small for most American workers: when there is an unexpected increase in the price of something like energy, nominal wage inflation is largely unaffected, which means that real wages fall. 

Read more at NY Fed

Republican AGs Say EEOC Harassment Guidance Oversteps

Tennessee Attorney General Jonathan Skrmetti is leading 18 states in a lawsuit against the Equal Employment Opportunity Commission (EEOC) over new sexual harassment guidance, our affiliate station WSMV reports. Skrmetti filed the suit on Monday against the EEOC's new guidelines that he claims “unlawfully extends Title VII’s protections against sex-based discrimination to cover gender identity.” In other words, he says the new guidelines may hold an employer liable under Title VII if they or another employee use a name or pronoun that doesn’t coincide with an employee’s preferred gender identity, WSMV reports.

“Additionally, under the EEOC’s guidance, an employer can be liable if it limits access to a bathroom or other sex-segregated facility, such as a shower or locker room, based on biological sex and not on gender identity. Employers also may be liable if a customer or other non-employee fails to use an employee’s preferred pronouns or refuses to share a restroom with someone of the opposite sex,” Skrmetti says.

Read more at Local 3 News Tennessee

NTSB Report: Dali Suffered Blackouts Before Leaving Baltimore Port

Federal investigators say the Dali containership lost power several times in the hours before the vessel crashed into Baltimore’s Francis Scott Key Bridge. The preliminary report from the National Transportation Safety Board looks closely at the ship’s electrical system, including the actions by the crew as the Dali lost power twice minutes after it left the Port of Baltimore.

The WSJ reports that one blackout about 10 hours before the disaster came after a crew member mistakenly closed an engine exhaust damper, the report said, and a second outage was related to insufficient fuel pressure for a generator. The findings provide the most detailed account so far of the crash that killed six road-crew workers and largely shut down the Port of Baltimore. Now, investigators will try to determine whether the dockside blackouts had an impact on the accident.

Read more at The WSJ – Watch Video of the controlled explosion

The 100-Year Quest to Make a Paper Bottle

For more than a century, businesses have struggled to solve a curiously complicated challenge: How to make a paper bottle that doesn’t get soggy and keeps drinks fresh. Now they say they are the closest they have ever been. Diageo, Pernod Ricard and Procter & Gamble are among a raft of companies testing paper-bottle designs they are betting can help their brands stand out on shelves, woo consumers concerned about plastic and cut carbon emissions.

But putting liquids in paper is inherently challenging. Paper bottles tested so far have needed an internal plastic barrier to stop them leaking. Companies have struggled with other problems too, including keeping flavors intact and stopping fizzy drinks from going flat. The paper-bottle push comes as paper is growing in popularity as a substitute for plastic packaging, with companies already using it to sell chocolate, ice cream, chewing gum and chips. Despite the uncertainties, consumer-products companies are plowing ahead. Their holy grail is a paper bottle that is easy to recycle, avoids fossil fuel-based plastic and—ultimately—boosts sales.

Read more The WSJ

Boeing Violated Agreement Protecting It From Criminal Charges Over 737 Max Crashes, Justice Department Says

The Justice Department said Tuesday that Boeing breached a 2021 prosecution agreement protecting it from charges over two deadly 737 Max crashes in 2018 and 2019, according to multiple outlets, meaning the aerospace company is now open to criminal prosecution, but it is unclear at this point whether prosecutors will pursue charges. Boeing will have 30 days to respond to the decision while prosecutors will tell the court no later than July 7 whether it intends to move forward with charges, the Associated Press reported.

Boeing violated the agreement by “failing to design, implement, and enforce a compliance and ethics program to prevent and detect violations of the U.S. fraud laws throughout its operations,” NBC reported, citing a statement from the Justice Department. Specifically, Boeing could be hit with a conspiracy to defraud the U.S. charge it avoided with the deal, which included an agreement for Boeing to pay $2.5 billion to settle allegations it concealed information from the Federal Aviation Administration about the operation of its 737 Max following the two crashes that killed 346 people.

Read the Letter at Forbes

New York Map Reveals Areas With Most High School Dropouts

Newsweek analyzed the latest data from the U.S. Census Bureau, which tracked the number of residents ages 25 and over with at least a high school diploma to determine which of New York's 62 counties had the highest percentage of dropouts.

  • Three of the counties with the highest percentage of dropouts are in New York City and among the state's most populous.
  • Bronx County, which has a population of more than 1.3 million, topped the list with 24.3 percent of residents without a high school diploma. Queens County, the state's second-most populous with more than 2.2 million people, had 17.2 percent. Kings County, the most populous county, was third with 16.1 percent.
  • Most of the counties with the lowest number of high school dropouts were rural ones with populations of less than 200,000.
  • Tompkins County had the least, with just 3.4 percent of residents not having at least a high school diploma. That was followed by Saratoga County with 4.9 percent, Ontario County with 5.2 percent, Madison County with 5.9 percent and Putnam County with 6.1 percent.
  • New York had a high school graduation rate of 86.4 percent in 2023—down slightly from the previous year's rate of 87 percent, according to data released by the state Education Department in March.
  • The department noted that many of the students graduating in 2023 entered high school in 2019 and saw their schooling disrupted significantly due to the COVID-19 pandemic.

Read more at MarketWatch

College Class of 2024: Shaped by Crisis, Seeking Community

The class of 2024 began its college years as virtual students, arriving on once-vibrant campuses muffled by COVID-19. Most had missed out on high school graduations and proms. Now they’re graduating from college during another season of turmoil, this time caused by protests about the war in Gaza that have swept colleges and roiled national politics. As these seniors begin to pack up, many are seeking to make sense of their college experience amid fractious national political debates and rapid technological change. They have seen community fall away – and have learned something about building it back. They are celebrating their graduation, but with a mix of pensiveness, anxiety, and cautious anticipation.

“It just felt like it went super fast,” says Wesley Mitchell, a senior film and TV major at New York University in Manhattan, who left his last class on Monday to enjoy the sunshine in nearby Washington Square Park. The first year was rough, he says. And now he’s graduating during a time of rancor over the Israel-Hamas war.  Still, Mr. Mitchell says he feels upbeat about graduating, given that his cohort of 2024 graduates has weathered so much. He reflects on the sense of liberation that came with an end to pandemic policies such as mandatory face masks, and how students came together again. He sees the same yearning for community in many protesters, even if he doesn’t share their politics or passions.

Read more at Christian Science Monitor