Member Briefing May 2, 2024
ISM Report: Manufacturing Falls Back Into Contraction Territory
After reporting expansion following 16 months of contraction in March, the April Purchasing Manager’s Index of 49.2% indicates that manufacturing economic activity has dropped back into contraction. The April PMI is down 1.1 points compared to the previous month. “Of the six biggest manufacturing industries, two (transportation equipment; and chemical products) registered growth in April,” says Timothy Fiore, chair of the ISM’s manufacturing business survey committee.
Although down 3.3 points, the production index remains in expansion territory with a reading of 51.3%.
New orders dropped back into contraction, registering 49.1% in April.
The employment index is contracting at a slower rate, up 1.2 points from March.
The comments of the survey showcase a mixed bag of business conditions depending on the sector.
“Only one out of five subindexes that directly factor into the Manufacturing PMI is in expansion territory, down from two in March,” says Fiore.
US Job Openings Hit Three-Year Low, Showing Cooling Labor Market. Mfg Openings Fall to 570K
Job openings at the end of March fell to 8.49 million, leaving them down 12% over the past year and 30% below their peak in March 2022. At 5.1%, the opening rate has fallen to more than a three-year low. The moderation adds to the latest readings on small business hiring plans—which currently sit at a nearly eight-year low—and Indeed job postings signaling that employers are less interested in bringing on new workers. The number of job openings per unemployed worker in March slipped to 1.32, and while still above the 2019 average of 1.19, demonstrates that labor market continues to gradually loosen. There were 570,000 job opening in manufacturing in March down from 587,000 in February and 693,000 in March of 2023.
The hiring rate fell back to 3.5% to match its lowest rate outside the throes of the pandemic since 2014. The lower rate of gross hiring comes as more workers are staying put in their current roles. The quit rate sank to 2.1% in March, its lowest level since the summer of 2020, and remains notably below its pre-pandemic average. With retention significantly improved over the past year and demand for new workers ebbing, we would expect to see employment costs resume their downward trend in the quarters ahead. There were 341,000 hires in March down from 400,000 in February and 414,000 in March of 2023.
Read more at Wells Fargo and the BLS
Fed Says Inflation Progress Has Stalled. Holds Rates Steady. Continues Balance Sheet Runoff
The Federal Reserve held interest rates steady at their highest level in two decades and acknowledged recent inflation setbacks, extending a wait-and-see posture that could last well into the year if the economy doesn’t weaken. In their policy statement released Wednesday, officials highlighted a “lack of further progress” toward bringing inflation down in recent months. Earlier this year, officials said the risks to achieving their goals of low inflation with a healthy labor market were “moving into better balance,” but officials tweaked their statement to suggest that such improvement had stalled.
Separately, the central bank approved plans to slow the ongoing reduction of its $7.4 trillion asset portfolio in a bid to extend the wind-down of emergency pandemic stimulus efforts it launched four years ago. The stakes are high for Fed officials, who are trying to navigate two risks. One is that they ease too soon, allowing inflation to become entrenched at a level above their 2% target. The other is that they wait until the economy crumples under the weight of higher rates.
Global Headlines
Middle East
- Israel and Hamas: The Latest News – The Guardian
- Over 300 Pro-Palestinian Protesters at New York City University Campuses Arrested - BBC
- Iran University Offers Scholarships to Expelled US Students – Newsweek
- Trump: Netanyahu ‘Rightfully has Been Criticized’ for Oct. 7 Attack – Politico
- Israel Allows Trucks From Newly Reopened Erez Crossing Into Gaza – Reuters
- Blinken Says 'Time is Now' for Israel-Hamas Deal in Gaza - BBC
- The Houthis Are Ready to Play Their Part in a Total Iran-Israel War - Newsweek
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
Ukraine
- Ukraine and Russia: The Latest News – The Guardian
- Russia Ramps up Arms Production as US Boosts Support for Ukraine - Reuters
- Blaze Engulfs Oil Refinery Deep Inside Russia After Ukraine Drone Strike - Newsweek
- US Issues Hundreds of Sanctions Targeting Russia, Takes Aim at Chinese Companies - Reuters
- Russia Flaunts Western Military Hardware Captured in War in Ukraine - BBC
- Surprise F-16 Update Issued by Ukraine - Newsweek
- Open-Source Intel Offers Glimpse of War Casualty Figures Russia is Trying to Hide - VOA
- Ukrainian Woman, 98, Escapes Russian-Occupied Home on Foot With Slippers, Cane - AP
- 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
Other Headlines
- Workers, Activists Across Asia and Europe Hold May Day Rallies to Call for Greater Labor Rights - VOA
- Georgia Deploys Tear Gas, Water Cannon Against Pro-EU Protesters Amid ‘Russian Law’ Outcry - Politico
- India's Economy: The Good, Bad and Ugly in Six Charts -BBC
- Ecuador Accuses Mexico of Blatant Interference at World Court Hearing - Reuters
- China Flexes Muscle at Sea as New Aircraft Carrier Starts Trials – Nikkei Asia
- US Losing Ground to Russia in Geopolitical Battle Over Africa – The Hill
- Heavy Rains Kill 8 in Brazil's Rio Grande do Sul, Affect Over 100 Cities – Reuters
- Inspired by US Students, Gaza Protest Movement Grows in French Universities - VOA
Policy and Politics
Greene Unveils Plan to Force Vote on Speaker Johnson Ouster. It’s Unlikely to Succeed
Rep. Marjorie Taylor Greene (R-Ga.) announced Wednesday she’ll act next week to force a vote on whether to oust Speaker Mike Johnson (R-La.), an extraordinary move highlighting the internal turmoil in the GOP. But the effort is all but certain to fail after Democratic leaders said they would vote to protect the Speaker from her coup attempt. Rep. Marjorie Taylor Greene (R-Ga.) announced Wednesday she’ll act next week to force a vote on whether to oust Speaker Mike Johnson (R-La.), an extraordinary move highlighting the internal turmoil in the GOP. But the effort is all but certain to fail after Democratic leaders said they would vote to protect the Speaker from her coup attempt.
Meanwhile Speaker Mike Johnson (R-La.) brushed off Rep. Marjorie Taylor Greene’s (R-Ga.) sharpened threat to force a vote to oust him from his post, in an interview set to air in full Wednesday on NewsNation’s “The Hill.” “I don’t think she is proving to be, no,” Johnson said in a preview of the interview, which was taped Tuesday night, when asked if he thinks Greene is a “serious lawmaker.”
The U.S. Drug Enforcement Administration Will end its Ban on Cannabis
In a historic move, the U.S Drug Enforcement Administration will end its ban on cannabis by reclassifying it as a less dangerous drug. According to the Associated Press, the DEA has proposed moving marijuana from its current status as a Schedule I narcotic—alongside heroin and LSD—to Schedule III, which includes drugs such as ketamine, Tylenol with codeine, anabolic steroids and opioid-use disorder medication buprenorphine. The move marks the most significant change in marijuana reform since pot was outlawed by the Controlled Substances Act in 1970.
The proposal is not yet final as it must first clear the White House Office of Management and Budget and undergo a public-comment period. The news that the Biden administration would reclassify marijuana immediately electrified the $28 billion cannabis industry—composed of 38 states that have some form of regulated marijuana sales, with 24 states allowing sales to people 21 and older. Some pot stocks were up 25% within hours of AP report.
Biden Administration Forgives $6.1 Billion in Student Debt for 317,000 Former Art Institute Students
The Biden administration on Wednesday announced that it would forgive more than $6.1 billion in student debt for 317,000 former students of The Art Institutes, the once giant chain of for-profit schools. The relief will go to borrowers who enrolled at any of the dozens of Art Institute campuses across the country between Jan. 1, 2004 and Oct. 16, 2017. The Education Dept. said The Art Institutes falsified average salaries among graduates, among other abuses.
The U.S. Department of Education, which reviewed evidence provided by the attorneys general of Iowa, Massachusetts and Pennsylvania, concluded that the schools and its parent company, the Education Management Corporation, or EDMC, made “pervasive and substantial” misrepresentations to prospective students about post-graduation employment rates, salaries and career services. Eligible borrowers will get the forgiveness automatically, whether or not they went through the formal process for loan relief for defrauded borrowers.
Health and Wellness
The Cost of Burnout: Why Addressing Workplace Mental Health is Essential
Addressing mental wellbeing gaps amid tough business climates may not feel top of mind. But doing so pays dividends. According to Gallup, burned-out and disengaged employees can cost $3,400 for every $10,000 of salary due to lack of productivity. The expense to replace employees runs one-half to two-times their annual salary. Meanwhile, the National Institutes of Health puts the cost of depression in the workplace at $210.5 billion. And the World Health Organization estimates that depression and anxiety account for $1 trillion in lost productivity globally.
What’s more you can expect employee mental health to remain a key factor for securing top talent. A 2023 work study from the American Psychological Association found that 92% of workers said it's important to work for an organization that values their emotional and psychological wellbeing. And a study from Harvard Business Review reinforces those findings with 91% of employees stating that employers should support their mental health at work.
Read more at The Business Journals
Election 2024
- NY-23, Democrat Tim Kennedy Wins Special Election to Replace Higgins - Politico
- Surprise Tactics and Legal Threats: Inside R.F.K. Jr.'s Ballot Access Fight - NYT
- House Majority: Ten Races to Watch - Reuters
- Trump’s Trying to Dismantle the Blue Wall Again. That Would be Disaster for Biden. - Politico
- Real Clear Politics Latest GOP Primary Polls – Real Clear Politics
- Real Clear Politics Latest General Election Polls – Real Clear Politics
- Latest Polls - FiveThirtyEight
Industry News
US Still Investing In Automation Led By Automakers
According to the International Federation of Robotics, U.S. manufacturers’ installations of industrial robots totaled 44,303 units during 2023, up 12.0% from the year before. The automotive industry led all other sectors in the number of new robot installations, followed by the electrical and electronics industry. Robot sales to the automotive industry increased 1.0% over 2022, with a record number of 14,678 robots installed from January through December 2023. The rise follows a 47.0% year/year increase last year, with a total of 14,472 units installed.
In the electrical and electronics industry, new robot installations increased by 37% from 2022 to 5,120 units last year. That number approached the electronics sector’s pre-pandemic record level of 5,284 units, from 2018. U.S. demand for industrial robots in this segment is influenced by a trend to strengthen domestic supply chains and projects that drive the clean-energy transition. Other U.S. manufacturing sectors recording heavy demand for robotics in 2023 (i.e., more than 3,000 units installed) included metal and machinery (4,123 units, +6%) and plastic and chemical products (3,213 units, +5%). They represent a market share of 9% and 7% of industrial robot installations in 2023, respectively.
Read more at American Machinist
CFOs Continue to Flex Their Cost-Cutting Muscles
Across the economy, finance leaders and the CEOs they report to continue to wield their scalpels—as well as blunter tools on occasion—to push back against inflationary pressures, enable growth investments and safeguard margins. A recently published U.S. Bank survey of more than 2,000 finance leaders showed that trimming expenses and driving efficiencies across their organizations was a top priority for 37% of respondents, up four points from last year and eight points from 2022. The only category to score higher as a top priority: Cutting costs and driving efficiencies within the finance function itself.
One in three manufacturing leaders have a negative outlook for what remains of this year. But the cost-cutting focus and plans to invest in technology have made them more chipper about what’s likely to come after that: Only 17% are negative about the U.S. economy over the next three years and 55% are optimistic about their companies’ outlook through 2026. A recent Grant Thornton report similar to U.S. Bank’s showed that 50% of finance leaders surveyed by the accounting and advisory firm expect their operations costs to rise in the coming year—a record and 12 points higher than in late 2023. But a greater share of executives are confident their firms can use cost controls to meet their goals.
China’s Factory Activity Keeps Growing But Loses Steam
The country’s official manufacturing purchasing managers index expanded for a second straight month in April but at a slower pace, data from the National Bureau of Statistics showed Tuesday. The headline reading fell to 50.4 in April from 50.8 in March, but still beat the forecast of 50.2 by a Wall Street Journal poll of economists. China’s official nonmanufacturing PMI, which covers both services and construction activity, declined to 51.2 in April from 53 in March, the statistics bureau said. The subindex tracking services activity fell but remained in positive territory, while the construction subindex rose.
A competing private gauge that focuses more on private and export-oriented companies also signaled continued growth in manufacturing. The Caixin Media Co. and S&P Global PMI rose to 51.4 from 51.1 in March, the highest reading since February 2023. That marked a sixth month of growth as the overall market continued to strengthen, in line with China’s economic improvement in the first quarter, said Wang Zhe, senior economist at Caixin Insight Group.
Tesla Retreats from Next-Generation ‘Gigacasting’ Manufacturing Process
Tesla (TSLA.O), opens new tab has backed away from an ambitious plan for innovations in gigacasting, its pioneering manufacturing process, according to two sources familiar with the matter, in another sign that the electric-vehicle maker is retrenching amid falling sales and rising competition. Tesla has been a leader in gigacasting, a cutting-edge technique that uses huge presses with thousands of tons of clamping pressure to die-cast large sections of the car’s underbody. On a typical vehicle, the underbody can consist of hundreds of individual parts.
Last year, as Tesla developed a new small-vehicle platform, it aimed to punch out the underbody in a single piece, Reuters exclusively reported last September. The long-term goal was to radically simplify manufacturing and slash costs. But Tesla has since halted the effort, opting to stick with its more proven method of casting vehicle underbodies in three pieces: two gigacasted front and rear sections and a midsection made of aluminum and steel frames to store batteries. That is largely the same three-piece method the company has used for its last two new models, the Model Y crossover SUV and the Cybertruck pickup.
AMD Says it Will Sell $4 Billion in AI Chips This Year
Advanced Micro Devices reported first-quarter earnings and sales on Tuesday that were slightly ahead of Wall Street expectations, and provided an in-line forecast for the current quarter. Here’s how it did versus LSEG consensus expectations for the quarter ended in March: Earnings per share were 62 cents adjusted and revenue was $5.47 billion vs. $5.46 billion expected.
AMD said it expects about $5.7 billion in sales in the current quarter, in line with Wall Street estimates of the same approximate total. That would represent about 6% annual growth. The company reported net income of $123 million, or 7 cents per share, versus a net loss of $139 million, or 9 cents per share, during the year-earlier period. Revenue was up about 2% from a year earlier. The chipmaker said its closely watched Data Center segment grew 80% year-over-year to $2.3 billion thanks to sales of its MI300 series AI chips, which compete with Nvidia’s graphics processing units.
Amazon Gets More Fuel for AI Race, Operating Earnings Reach All Time High
For most of its 27 years as a public company, Amazon investors have been asked to sacrifice profit for growth. That’s no longer necessary. In its first-quarter earnings report on Tuesday, Amazon’s operating margin reached double digits for the first time on record. The company’s margin climbed to 10.7% in the period, up from 7.8% in the fourth quarter and topping a previous high of 8.2% in the first quarter of 2021.
While overall revenue growth has been stuck in the low double digits for several quarters — and was mired in single digits for parts of 2021 and 2022 — profit-hungry investors have been satisfied by the combination of CEO Andy Jassy’s hefty cost cuts and stronger growth rates in higher-margin businesses like advertising and cloud computing. Operating income more than tripled in the quarter to $15.3 billion, while net income also jumped more than 200% to $10.4 billion. Amazon expects a continued jump in profitability for the second quarter but at a more measured pace. Operating income will be $10 billion to $14 billion, up from $7.7 billion a year earlier. That’s still much higher growth than in revenue, which the company expects to increase by 7% to 11% to between $144 billion and $149 billion.
Pfizer Raises Full-Year Outlook
Pfizer Inc released its 8-K filing on May 1, 2024, disclosing the financial outcomes for the first quarter of 2024. The company reported a notable decline in revenue, primarily due to reduced sales of COVID-19 related products, Comirnaty and Paxlovid. However, excluding these products, Pfizer achieved an 11% operational growth in its non-COVID portfolio. Pfizer, a leading global pharmaceutical company, is renowned for its extensive range of prescription drugs and vaccines.
For Q1 2024, Pfizer reported revenues of $14.9 billion, a 20% decrease from the previous year, primarily driven by a significant drop in COVID-19 product sales. The adjusted diluted EPS was $0.82, which includes a favorable impact of $0.11 from final revenue adjustments related to Paxlovid. This EPS notably exceeded the analyst estimate of $0.52. Pfizer has reaffirmed its full-year 2024 revenue guidance, projecting revenues between $58.5 to $61.5 billion. The adjusted diluted EPS guidance for the year has been raised to $2.15 to $2.35, reflecting confidence in ongoing business strength and cost management effectiveness.
Brazil’s Embraer Plots a New 737-Sized Jet to Rival Boeing
With Boeing BA 1.95%increase; green up pointing triangle in the throes of its latest crisis, one of its smaller rivals, Embraer ERJ 0.41%increase; green up pointing triangle, is exploring options for a new model to challenge the duopoly for large jets that has dominated the industry for almost three decades. Internal assessments conducted by Embraer have determined that the Brazilian company has the technological know-how and manufacturing might to develop a next-generation narrow-body aircraft, its first in that market segment, according to people familiar with the company’s strategy and planning. Embraer has a market value of around $5 billion and specializes in regional and business jets.
The plane would compete head-on with the successors to Boeing’s 737 MAX and Airbus’s A320 in a category that is key for both manufacturers. Greenlighting the project would also represent a potentially make-or-break bet: New aircraft programs typically cost tens of billions of dollars to develop, can take more than a decade from inception to entering service and regularly don’t get to market.
Start-up of $26 Billion TMX Pipeline Set to Boost Demand and Increase Price of Canada Crude
After 12 years and C$34 billion ($25 billion), Canada's Trans Mountain pipeline expansion project (TMX) began commercial operations on Wednesday, a major milestone expected to transform access to global markets for the country's producers. Pipeline constraints have forced Canadian oil producers to sell oil at a discount for many years, but TMX will nearly triple the flow of crude from landlocked Alberta to Canada's Pacific coast to 890,000 barrels per day (bpd).
For Canada, the world's fourth-biggest oil producer, the additional pipeline capacity is set to boost crude prices, lift national gross domestic product and expand access to Asian oil markets. Both TMX and the existing pipeline are now able to transport crude oil and the company has the ability to load cargoes from all three berths, Trans Mountain said in a press release, adding that 70% of the expanded pipeline is full by volume. TMX will substantially boost Canada's oil export capacity and could help shrink the discount on benchmark Canadian heavy crude, currently around $13.50 a barrel below U.S. crude, to less than $10 a barrel, analysts at RBC Capital Markets said in a note to clients. Asian buyers are already showing interest.