Member Briefing May 18, 2022
Auto Production Leads Growth in April Industrial Output
The industrial sector had a solid month for production in April. According to the latest numbers from the U.S. Federal Reserve, industrial production rose by 1.1% last month as manufacturing output increased by 0.8%. Here are some highlights
- In its report, the Fed noted that April now marks the fourth month in a row that has seen industrial production grow by at least 0.8%.
- In April, much of the increased factory production went towards building cars. Motor vehicles and parts production rose by 3.9%.
- Excluding auto production, factory output grew just half a percent.
- Most other durable goods industries also increased production, but by notably less than automotive manufacturers.
- In nondurable goods, food and beverage production continued to grow at 0.9% last month.
- There was a 0.8% decrease in plastics and rubber products production.
- Capacity utilization also grew in April in both industry and manufacturing specifically. Industrial businesses used an average of 79% of their capacity in April, up 0.8% from March, and manufacturing factories specifically saw capacity utilization grow 0.6% to 79.2% last month.
Invasion of Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- Ukrainian Soldiers Lay Down Arms at Mariupol’s Azovstal Steel Plant – WSJ
- US considering Move on Russian Debt Payments – YahooNews
- Kremlin Says G7 Using Russia’s Reserves for Ukraine Would be ‘Outright Theft’ – Reuters
- The Right Way to Sanction Russian Energy – Foreign Affairs
- Ukraine Will Get Worse for Isolated Russia, Analyst Says on State TV – Reuters
- The Putin Show – How the War in Ukraine Appears to Russians – The Economist
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
U.S. Home-Builder Sentiment Fell Sharply in May Amid Rising Mortgage Rates — NAHB
Confidence among home builders in the U.S. decreased for a fifth straight month in May as rising mortgage rates, increasing material costs and high prices for homes took a toll on demand, according to a survey from the National Association of Home Builders released Tuesday. Here are the report’s main takeaways:
The association’s housing-market index–which gauges the single-family housing market–fell to 69 in May from 77 in April, its lowest level since June 2020, when activity started to recover from the Covid-19 pandemic trough. The decline of the index in May was driven by a sharp drop of the three components it is formed of. The index measuring traffic of prospective buyers declined nine points to 52; the measure gauging current sales conditions decreased eight points to 78, while the indicator measuring sales expectations in the next six months fell 10 points to 63.
U.S. Retail Sales Grew 0.9% in April
Retail sales—a measure of spending at stores, online and in restaurants—aren’t adjusted for inflation. That means that while consumers have continued to spend more, they are likely getting less due to rapidly rising prices. In March, for instance, retail sales rose largely because of a sharp jump in gasoline purchases linked to record high prices following Russia’s invasion of Ukraine in late February.
Sales of vehicles likely rose in April as supply-chain disruptions eased slightly, while spending on gasoline likely declined as prices pulled back briefly from a sharp run-up related the war in Ukraine. Gasoline prices have since risen again, hitting a record high earlier this month. Consumers have also shifted some spending to services from goods as a winter surge of Covid-19 from the Omicron variant faded and many people resumed more in-person activities.
US COVID – Extending the Public Health Emergency
The number of new US COVID-19 cases is at its highest level since November, when the initial Omicron surge began. Experts say the true size of the wave is unknown, but people can expect the number of new cases in their communities to be 5 to 10 times the official counts. Cases—which are being driven by the BA.2 and BA.2.12.1 subvariants—are rising across the nation, but the Northeast and Midwest regions are experiencing surges that are now higher than during last summer’s peak caused by Delta.
The administration is expected to extend the COVID-19 public health emergency declaration past mid-July. The declaration allows the US to grant emergency use authorization (EUA) of therapeutics, diagnostics, vaccines, and other medical tools, as well as provide those products at no cost to millions of residents and extend Medicaid benefits to allow millions to receive health coverage.
Court-Appointed Master Releases New York State Senate Map
A court-appointed special master released New York’s new state Senate district lines Monday, releasing a draft plan for the next decade that will lean Democratic for more than half of the upper house. Jonathan Cervas, of the Institute for Politics and Strategy at Carneige Mellon University, reconfigured the state’s 63 Senate seats from the Legislature’s original plan struck down by New York’s highest court for unconstitutional gerrymandering.
The new Senate map reflects 38 districts that lean Democratic, 10 that lean Republican and 15 in the 45-55% competitive range, based on 2016 and 2020 election data. Democrats secured a supermajority in the Senate after the 2020 election. The maps will be open for public comment submitted to the state Supreme Court through Wednesday.
Pfizer’s Covid-19 Booster Cleared for 5- to 11-Year-Olds
U.S. health regulators cleared for use a booster shot of the Covid-19 vaccine from Pfizer Inc. and BioNTech SE for children 5 to 11 years, expanding booster access to about 28 million youngsters. The decision Tuesday by the U.S. Food and Drug Administration permits a third dose of the shot at least five months after the second dose. It comes weeks after the drugmakers said a third shot safely generated a strong immune response in the children, including significantly increasing antibody levels against the Omicron variant.
Many children now eligible for the shots might not get them, however. Vaccinations among the youths have been relatively low compared with rates in older people. Opinion surveys have found limited support among parents for vaccinating their children, suggesting many of them don’t plan to have their children get a booster.
NY Fed Survey – Businesses See Inflation Moderating after Next Year
Supplementary questions to the May Empire State Manufacturing Survey focused on businesses’ short- and longer-term expectations for inflation, as well as recent and expected changes in their own selling prices. Businesses were asked for their best estimate of what inflation would be over the next twelve months. The median expectation was 6.5 percent among manufacturers. Asked about inflation expectations three and five years out the median expectation was that inflation would decelerate to 4.0 percent by 2025 and 3.0 percent by 2027.
In addition to asking businesses about their expectations for overall CPI inflation, we asked how much they expect their own selling prices to change over the next year. The median manufacturer reported an increase of 10 percent for the past year but anticipated a more moderate rise of 5 percent in the year ahead. Finally, businesses were asked if they had experienced larger than normal increases in their overall costs since the beginning of 2022; the vast majority said they had. In general, manufacturers appear to have been passing along more of their costs than service firms.
Katy Perry Earnings… You’re Hot: Home Depot Raises Full-Year Outlook after Earnings Beat, Record First-Quarter Sales
Home Depot on Tuesday raised its full-year outlook after reporting strong quarterly earnings, fueled by the company’s strongest first-quarter sales on record. Shares of the company rose 4% in premarket trading. Here’s what Home Depot reported:
- Earnings per share: $4.09 vs. $3.68 expected
- Revenue: $38.91 billion vs. $36.72 billion expected
- Net income of $4.23 billion, or $4.09 per share, up from $4.15 billion, or $3.86 per share, a year earlier.
- Net sales rose 3.8% to $38.91 billion, topping expectations of $36.72 billion.
- Same-store sales increased 2.2% in the quarter.
Katy Perry Earnings… You’re Cold: Walmart Reports Big Earnings Miss as Higher Costs, Supply Chain Eat into Profits
Walmart on Tuesday reported quarterly earnings that missed Wall Street’s expectations by a wide margin, as the nation’s largest retailer felt pressure from rising fuel costs and higher levels of inventory. The company raised its outlook for sales this year, saying it expects net sales to increase about 4% in constant currency for the full year. It previously anticipated a 3% increase.
But Walmart also lowered profit expectations. Earnings per share for the year will decrease by about 1% compared with the mid single-digit increase it previously expected, the company projected. The discounter’s bottom line results “were unexpected and reflect the unusual environment,” CEO Doug McMillon said in a release Tuesday morning. Inflation in the U.S. is at a nearly four-decade high.
Why the U.S. Can’t Just Increase Imports to Solve the Baby Formula Shortage
The U.S. Food and Drug Administration will be more flexible in approving foreign-manufactured infant formula for sale in the U.S. and “will prioritize review of applications that are most likely to be successful and will get the most formula to U.S. shelves as quickly as possible,” U.S. Press Secretary Karine Jean-Pierre told reporters in a Monday briefing. The U.S. hopes that the temporary measures, which will last for the next six months, can help get formula back in the hands of parents, and the bottles of babies.
The FDA insists it is not reducing health and safety standards in order to expedite import approvals, but will be more lenient on other technical requirements, such as formatting on labels. The FDA says it will permit agents to apply discretion if a foreign manufacturer does not list its baby formula ingredients in the exact order prescribed by FDA regulations, for example.
Powell Prepares US for Fed’s Inflation Fight – There Will Be Pain
Federal Reserve Chairman Jerome Powell warned Tuesday the U.S. could feel “some pain” as the central bank raises interest rates to fight inflation, insisting the Fed would do whatever it takes to curb price growth. During a live interview for The Wall Street Journal’s “Future of Everything” summit, Powell said the Fed will continue to raise interest rates until inflation starts to fall and the forces driving prices higher fade, even at the risk of a deeper economic slowdown.
Powell expressed confidence the U.S. economy could handle rising interest rates without falling into a recession. With two open jobs for every unemployed person and a jobless rate near 50-year lows, he said, the U.S. economy has plenty of room to handle a decline in activity driven by higher interest rates. But Powell made clear the Fed would not stop fighting inflation until it was on its way back toward the bank’s 2 percent annual target, even if it meant raising rates to levels meant to restrict the economy.
Shanghai Hits Prized ‘Zero COVID’ Status But Lockdown Lingers
Shanghai achieved its long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones on Tuesday but most residents will have to put up with confinement for a while longer before resuming more normal life. For other cities in China that have been under lockdown, three days with no new cases in the community usually means “zero COVID” status and the beginning of the lifting of restrictions.
The commercial hub of 25 million set out on Monday its clearest timetable yet for exiting a lockdown now in its seventh week. Shanghai plans to resume outdoor activities in stages, with some shops reopening this week, but with most restrictions on movement remaining in place until May 21, after which public transport and other services will resume gradually.
EIA Nat Gas Forecast – Nasty in 2022, Better in 2023
The US Energy Information Agency expects Henry Hub prices to average $8.59/MMBtu in the second half of 2022. High forecast natural gas prices reflect expectations that natural gas storage levels will remain less than the five-year (2017–2021) average this summer. Henry Hub spot prices will average $4.74/MMBtu in 2023. The drop for 2023 reflects expectations that the rate of natural gas production will increase while LNG export and demand growth slow, contributing to higher storage levels in 2023 than in 2022.
Lower-than-average storage levels partly result from limited opportunities for natural gas-to-coal switching for power generation, which EIA forecasts will keep demand for natural gas for power generation high despite high prices. EIA expects that U.S. LNG exports will remain high during the summer.
Microsoft CEO Satya Nadella Tells Employees that Pay Increases Are on the Way
Microsoft CEO Satya Nadella told staffers on Monday that the company is raising compensation as the labor market tightens and employees contend with increasing inflation. A spokesperson for the company confirmed the pay increase. “People come to and stay at Microsoft because of our mission and culture, the meaning they find in the work they do, the people they work with, and how they are rewarded,” the spokesperson told CNBC in an email. “This increased investment in our worldwide compensation reflects the ongoing commitment we have to providing a highly competitive experience for our employees.”
Nadella told employees that the company is “nearly doubling the global merit budget” and allocating more money to people early and in the middle of their careers and those in specific geographic areas. He said the company is raising annual stock ranges by at least 25% for employees at level 67 and under. That includes several tiers in the company’s hierarchy of software-engineering roles.