Member Briefing May 21, 2024

Posted By: Harold King Daily Briefing,

Top Story

NY Fed Survey: Supply Chain Disruptions, While Easing, Remain a Concern

Supplemental questions in the May 2024 Empire State Manufacturing Survey focused on supply availability. Businesses were asked if they were experiencing supply chain disruptions, and how such disruptions were affecting business activity, employment, and prices. These same questions were also asked in October 2021. Forty eight percent of manufacturing firms reported at least some difficulty obtaining the supplies they needed over the past month. These shares were considerably smaller than in October 2021, when 94 percent of manufacturing firms reported such difficulties. Forty three percent of manufacturers said that supply disruptions were impeding business activity, again well below the 89 percent s of those who said so in 2021.

Firms were also asked if they had taken any actions over the past three months because of supply chain disruptions. Forty-seven percent of manufacturing firms had reduced their business operations or output. Among manufacturers, the share was lower than the 61 percent who reported such in 2021. In the May 2024 survey, fewer than 10 percent had reduced employment, and 11 percent of manufacturing firms reduced hours worked, all shares that were not materially different than in 2021. Thirty eight percent of manufacturing firms raised selling prices because of supply disruptions, well below the parallel shares reported in 2021.

Read more at the New York Fed

Import and Export Prices Rose 0.9% In April the Largest Monthly Increase Since March 2022

In April, U.S. imports rose 0.9%, the largest monthly increase since March 2022, driven by higher prices for both fuel and nonfuel imports. Over the past year, import prices are up 1.1%, marking the largest annual rise since December 2022.  Fuel import prices increased 2.4% in April and are up 3.3% over the past year. Nonfuel import prices rose 0.7%, the largest monthly increase since March 2022. In April, prices for foods, feeds and beverages rose 1.7%, the largest monthly increase since July 2023, driven by higher costs for bakery products and fruit.

Nonfuel industrial supplies and materials saw a 3% price increase, mainly due to higher prices for agricultural products. Finished goods import prices also increased, with automotive vehicles up 0.3% after a 0.2% rise in March. U.S. export prices increased 0.5%, following a 0.1% rise in March, due to higher nonagricultural prices that offset a decline in agricultural prices. Over the past year, export prices have fallen 1%. Agricultural export prices declined 0.9% in April, while nonagricultural export prices rose 0.7%, driven by higher prices for nonagricultural industrial supplies and materials (1.1%). Finished goods export prices also rose, with capital goods up 0.4%, automotive vehicles 0.8% and consumer goods 0.1%.

Read more at The Bureau of Labor Statistics

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Policy and Politics

School Budget Votes Set for Today Throughout Region

Residents throughout the region and state will vote on school budgets and elect school board members on Tuesday, May 21st. The votes come a month after the state finalized its spending plan for next year, which includes $35.3 billion in total school aid for next year — $475.7 million more than Governor Hochul proposed in January 2024. In an agreement with the Governor, the Senate, and the Assembly have passed bills to increase school aid in the 2024-25 school year by $1.3 billion, including $934 million in foundation aid and full funding of expense-based aids. Importantly, no school district will receive less foundation aid in 2024-25 than it received during the current school year (a longstanding practice called “hold harmless” or “save harmless.”).

In recent years, New York residents have overwhelmingly supported school budgets. According to the NYSSBA, voters approved approximately 98.5 percent of proposed school district budgets last year. Per NYSSBA data, 62 percent of winning school board candidates were incumbents the previous year. In 2022, incumbents represented about 58 percent of winning candidates.

Read more at Mid-Hudson News

N.Y. Businesses Push Back Against Consumer Protection Bill, Heating up Debate

Dozens of business organizations from across the state are fighting hard against lawmakers' efforts to expand consumer protections — shifting their pushback into high gear by sending a letter to all members of the Legislature this week with three weeks of session remaining. More than 30 business groups, led by the Business Council of New York State, warn small businesses will suffer the consequences if legislation is signed into law to enhance the state's consumer protection laws after 44 years.

"The inclusion of 'unfair' and 'abusive' practices in the general business law, coupled with the nearly 2,000% increase in statutory damages and the mandate for courts to award attorney’s fees, threatens to dramatically increase extortionate litigation," business leaders wrote. "The expansion proposed here is overly broad and relies heavily on subjective interpretations. This could lead to a surge in lawsuits against businesses of all sizes."

Read more at NY State of Politics

Senate Drug Shortage Bill Zeroes in on Supply Chain, Would Pay Hospitals to 'Stockpile'

With drug shortages at an all-time high in the United States, the Senate Finance Committee has introduced the Medicare Drug Shortage Prevention and Mitigation Program, which would encourage improved contracting and purchasing practices in the drug supply chain. During the first three months of 2024, 323 drugs were in short supply, according to the American Society of Health-System Pharmacists and the Utah Drug Information Service. The previous record high was 320 shortages in 2014.

The proposed legislation would require Medicare participants to adopt new standards for supply chain resiliency reliability and transparency for generic drug purchasing to receive Medicare payment incentives. These standards would include minimum three-year contracts with manufacturers, purchase volume commitments, requirements for contingency contracts with alternate manufacturers and transparency around manufacturer quality control issues. Providers who meet core standards would be eligible for quarterly lump-sum incentive payments.

Read more at Benefits Pro

Health and Wellness

Rescheduling Marijuana: Schedule 1 vs Schedule 3, Explained

President Biden endorsed the Justice Department's move to reclassify marijuana from a Schedule I drug to a Schedule III drug Thursday. The United States Drug Enforcement Administration puts regulated drugs into five categories, per the Controlled Substance Act from 1970, each indicating a level of "abuse potential," with five being the lowest and one being the highest, while also taking into account the drug's use in medicine, according to the DEA.

Schedule I drugs have no approved medical usage, according to the DEA, and include substances like heroin, LSD, and ecstasy, which are highly likely to be abused. In comparison, Schedule V drugs have the least potential for abuse, and the drugs in this group are usually used for "antidiarrheal, antitussive, and analgesic purposes," according to the DEA. Schedule III drugs, which is where marijuana could move to, as defined by the DEA, are "drugs with a moderate to low potential for physical and psychological dependence." If pot does become a Schedule III drug, it would be in company with testosterone and Tylenol (which contains less than 90 milligrams of codeine), according to the DEA.

Read more at USA Today

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Industry News

Weak Yen and Lower Costs Lure Factories Back to Japan

The depreciating yen is reviving Japan's appeal as a manufacturing hub for goods such as cosmetics, while the lower costs for exporters have bolstered the competitiveness of Japanese goods, such as rice. The country is also drawing interest from global companies looking for a cost-competitive place to manufacture, a reversal from the 1990s when the stronger yen drove the offshoring of production.

Japan's large manufacturers saw exchange rate stability as the biggest factor they wanted out of the central bank's monetary policy, a Bank of Japan survey showed on Monday. Roughly 70% of firms polled said they experienced drawbacks from the BOJ's 25-year-long monetary easing measures including a weak yen that pushed up import costs, the survey showed. About 90% of the total also saw benefits from the BOJ's prolonged easing such as low borrowing costs, the poll showed.

Read more Reuters

Cost of Living Top Concern for Younger Workers, ‘Purpose’ Also Important

This doesn’t seem like news, but almost 23,000 respondents across 44 countries, who participated in Deloitte’s 2024 Gen Z and Millennial Survey said that the cost of living is their top concern. Almost six in 10 Gen Zs (56%) and millennials (55%) live paycheck-to-paycheck—up five points for Gen Zs and three points for millennials since last year. And around three in 10 say they do not feel financially secure.

However, these workers are optimistic that things could improve.  Just under a third of Gen Zs and millennials believe the economic situation in their countries will improve over the next year—the highest percentage since the 2020 Millennial Survey, fielded just before the onset of the COVID-19 pandemic. And, nearly half of Gen Zs (48%) and four in 10 millennials (40%) expect their personal financial situations to improve over the next year. Purpose is key to workplace satisfaction and well-being, according to nearly nine in 10 Gen Zs (86%) and millennials (89%). And increasingly, these generations are willing to turn down assignments and employers based on their personal ethics or beliefs.

Read More at Material Handling & Logistics

Dali: Ship That Hit Baltimore Bridge on the Move Again

The Dali was "moved by tugboats under favourable environmental conditions," according to the US Army Corps of Engineers. Moving the ship is the latest step in clearing key shipping routes. The Dali crashed on 26 March, causing the bridge to collapse and killing six construction workers. The Army Corps of Engineers said that it would take around 21 hours to move the Dali to a nearby terminal.

The ship lost power before veering off course and striking the bridge. The collision sent around 4,000 tonnes of debris into the Patapsco River and trapped the boat. An investigation into the incident is ongoing. The 948ft (289m) ship had remained at the scene and was covered in scrap metal from the bridge, until a controlled demolition last week cleared some of the debris.

Read More at the BBC

Ship Freight Rates Soar as Red Sea Diversions Become a Norm

Ship diversions from the Red Sea helped push up container freight rates by roughly 30% in the past couple of weeks, with costs for importers set to rise further as they boost their volumes ahead of the busy summer season. Ship owners and brokers say nine out of 10 large container ships are diverting from the Red Sea, the entry point to the Suez Canal on their way from Asia to Europe, after a spate of attacks by Iran-backed Houthi rebels since November.

The canal normally handles about 15% of world shipping traffic, including roughly 30% of global container trade. Many of those ships now go around the Cape of Good Hope in South Africa, adding up to two and a half weeks of traveling time.  Rates surged to around $20,000 per box shipped from China to California at the height of the pandemic in 2022, about six times higher than normal levels. The cost now stands at $4,500, up from around $3,100 at the end of April, with rates from China to Europe hitting $3,800 this past week from $2,750 last month.

Read more at The WSJ

Tired of Being ‘Shock Absorber’ on Inflation, Defense Industry Wants New Protections: AIA Chief

The Pentagon may be heading toward a reckoning with industry over the cost of parts, equipment and weapons, with defense companies less amenable to taking on financial risk in future contracts, the head of the Aerospace Industries Association warned on Thursday. The defense industry has acted as an initial “shock absorber” for the Pentagon on inflation, taking the brunt of cost increases caused by rising labor costs and the price of high-demand commodities like titanium, Eric Fanning told reporters during a roundtable.

But companies have signaled that they have been forced to assume too much risk, and the Defense Department needs to prepare for a decrease in purchasing power that could challenge its ability to fund its modernization priorities, said Fanning, whose organization represents more than 330 aerospace and defense vendors. The aerospace and defense industries have seen demand skyrocket in the wake of the COVID-19 pandemic and Russia’s invasion of Ukraine, creating a stream of new orders at a time where the supply chain is still in recovery mode.

Read more at Breaking Defense

Neuralink Gets FDA Green Light for Second Patient, as First Describes His Emotional Journey

The U.S. Food and Drug Administration gave a green light to Elon Musk’s Neuralink to implant its brain chip in a second person, signing off on the company’s proposed fixes for a problem that occurred in the first test participant. The fixes include embedding some of the device’s ultrathin wires deeper into the brain, according to a person familiar with the company and a document viewed by The Wall Street Journal.

As Neuralink prepares for its second test participant, the first, Noland Arbaugh, is opening up about the impact of the device on his life and the emotional roller coaster he experienced before, during and after the device lost part of its functionality.  In the days after his January implantation, Arbaugh used the Neuralink implant to control a cursor on a computer screen with only his thoughts. A quadriplegic with no movement below his shoulders for the past eight years, Arbaugh suddenly was able to communicate with friends, play games and interact with his world in ways that hadn’t seemed possible after his accident.

Read more at The WSJ

BMW, Jaguar Imported Cars With Parts Linked To Forced Chinese Labor, Senate Probe Says

BMW, Jaguar Land Rover and Volkswagen purchased parts from a banned Chinese supplier, some of which were used in vehicles imported to the U.S., according to findings from a Senate investigation published Monday, amid a crackdown by officials on goods manufactured by forced labor in China. The three automakers purchased LAN transformers—enabling the vehicle’s electronic parts to communicate with each other—manufactured by Sichuan Jingweida Technology Group (JWD), a Chinese firm flagged by the U.S. for relying on forced labor, according to a Senate Finance Committee report

The part was sold by Lear Corp., a supplier of automotive electronics, which notified the automakers in January it unknowingly sold them an electronic unit containing the banned component, the report said. Volkswagen informed U.S. customs at the time that some cars in transit to the U.S. contained the part and subsequently replaced the part before the cars entered the country. Jaguar Land Rover told the committee its North American subsidiary did not receive a notification from Lear about the part until April, noting the parts were used in older vehicles no longer for sale. The committee said BMW imported at least 8,000 MINI vehicles with the banned part after being notified, though the company said it halted imports of the component and would replace the part in vehicles that used them.

Read more Forbes

How Honda and GM are Proving Hydrogen Cars Can Work

Just over half a century since the automotive world got properly revved up by the prospect of hydrogen fuel cell cars (FCEVs), they still haven’t happened. They failed to take over the world in the same way that BEVs appear to be doing. But the same key FCEV players from back in the day are still quietly getting on with it. In February, Honda unveiled the production version of its CR-V e:FCEV plug-in, which goes on lease sale to customers in Japan and the US later this year. The FCEV is powered by a fuel cell system made by a GM and Honda joint venture called Fuel Cell System Manufacturing (FCSM), based in Michigan.

With a range of 372 miles on a full tank of hydrogen plus a further 37 miles of battery range (according to the WLTP test cycle) and a refuelling time akin to that of a petrol or diesel car, the CR-V e:FCEV is built in Ohio at Honda’s Performance Manufacturing Centre. FCSM started mass production of fuel cell systems in January and what is possibly more significant than the launch of the new car is Honda’s claim that this is the first time hydrogen fuel cell systems have been produced “at scale”.

Read more at Autocar (UK)

Chocolate Prices Have Soared. A New EU Law Threatens to Keep Them High.

Starting from Dec. 30, chocolate makers that sell or produce in the EU will have to show that the cocoa they use wasn’t grown on land cut from forests since the end of 2020. In practice, it means that each morsel of cocoa that makes its way into the bloc will need to be linked to the GPS coordinates of the farm where it was harvested. That’s where people like Brice-Armel Konan, who helps monitor cocoa farm data in Ivory Coast for the Rainforest Alliance, a nonprofit based in New York and Amsterdam, and his smartphone come in. Such nonprofits, along with industry groups, governments and chocolate companies, are racing to help farmers record the data they need in time.

Ivory Coast’s cocoa and coffee regulator says it has mapped just over 80% of the country’s estimated 1.55 million cocoa farms. That leaves some 300,000—or about 2,000 a day—to be mapped or otherwise accounted for by Oct. 1, the start of the new cocoa season. Many farmers are only now finding out about the new EU requirements.  Even if the mapping is completed in time, the system where companies will need to upload the GPS data is still under development, raising concerns over a last-minute scramble to log millions of coordinates.

Read more at The WSJ