Member Briefing May 6, 2024
Commercial Aircraft, Motor Vehicles Lift US Factory Orders
New orders for U.S.-manufactured goods increased solidly in March, boosted by demand for commercial aircraft and motor vehicles, but gains elsewhere were moderate. Factory orders rose 1.6% after gaining 1.2% in February, the Commerce Department's Census Bureau said on Thursday. The increase in orders was in line with economists' expectations. Orders gained 0.3% year-on-year in March. Excluding transportation, orders increased 0.5% in March. Manufacturing, which accounts for 10.4% of the U.S. economy, remains constrained by 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022. In March:
- Commercial aircraft orders soared 30.6% after rising 15.6% in February.
- Transportation orders increased 7.8% after climbing 1.7% in February.
- Machinery orders slipped 0.1%.
- Orders for computers and electronic products rose 0.7%.
- Orders for electrical equipment, appliances and components were unchanged.
- Shipments of manufactured goods rose 0.3%, while inventories were unchanged.
- Unfilled orders at factories increased 0.4%.
- Nondefense capital goods orders increased 5.4% as initially estimated. Shipments of these goods decreased 1.7% instead of 1.5% as reported last week.
Manufacturing Employment Stays the Same In April
Manufacturing employed a seasonally adjusted 12,961,000 workers in April, up just marginally from 12,953,000 in March and 12,957,000 in February. The number of people employed in manufacturing was also up only slightly from April 2023, when it was a seasonally adjusted 12,941,000. There were a seasonally adjusted 8,144,000 workers in durable goods manufacturing in April, flat from March’s number. Nondurable goods had a seasonally adjusted 4,817,000 employees, also essentially unchanged from the prior month.
The average workweek in the manufacturing industry was unchanged from March, at 40.0 hours. In the larger economy, the workweek for all nonfarm employees inched down by 0.1 hour in April, to 34.3 hours. Average earnings in manufacturing were also little changed from March to April, coming in at $33.61 an hour in the latest reading, down only slightly from $33.65, but up from February’s $33.44.
NFIB Jobs Report: Labor Quality Remains Top Concern
The percent of small business owners reporting labor quality as their top small business operating problem remains elevated at 20%, according to NFIB’s monthly jobs report. Labor costs reported as the single most important problem for business owners increased one point to 9%, four points below the highest reading of 13% reached in December 2021. Forty percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, unchanged from November.
Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 16% planning to create new jobs in the next three months, down two points from November and 16 points below its record high reading of 32 reached in August 2021. Overall, 55% of owners reported hiring or trying to hire in December, up one point from November. Of those hiring or trying to hire, 89% of owners reported few or no qualified applicants for the positions they were trying to fill. Twenty-eight percent of owners reported few qualified applicants for their open positions and 21% reported none.
Global Headlines
Middle East
- Israel and Hamas: The Latest News – The Guardian
- Cease-Fire Talks Between Israel and Hamas Again at an Impasse - NYT
- A New Sea Route for Gaza Aid is on Track, USAID Says. Treating Starving Children is a Priority - AP
- US Sanctions Target Russia's Military Suppliers - NYT
- Hamas Took More Than 200 Hostages From Israel. Here’s What We Know. - WSJ
- Israeli Authorities Raid Al Jazeera After Shutdown Order - Reuters
- Cindy McCain: There is ‘Full-Blown Famine’ in Northern Gaza – The Hill
- Turkey Halts Trade With Israel Over 'Humanitarian Tragedy' in Gaza - BBC
- The Unprecedented Destruction of Housing in Gaza Hasn’t Been Seen Since World War II, the UN Says - AP
- 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 Says it Shot Down Four U.S.-Made Long-Range Missiles Over Crimea - Reuters
- Kyiv Can Use British Weapons Inside Russia – Cameron - BBC
- EU Finally Ready to Bring Down Russia’s Gas Empire … Sort of – Politico
- Russia's Gazprom Group Reports First Net Loss in 24 Years - Bloomberg
- Russian Su-25 Jet Shot Down Over Eastern Ukraine – Reuters
- Top Ukrainian Spy Fears Tough Month as Putin Grinds Forward – Politico
- Cubans Lured to Russian Army by High Pay and Passports - BBC
- 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
- Russian Military Personnel Move Into Niger Air Base Housing Some US Troops - Forbes
- Top French University Shuts as Police Remove Pro-Palestinian Group - Politico
- Japan Town Begins Blocking Mount Fuji View from Tourists – France 24
- U.K. Conservatives Suffer Sharp Setbacks in Early Results of Local Elections - NYT
- Hundreds Die In Floods Around The World As Schools Closed, Flights Canceled, Mandatory Evacuations Ordered - Forbes
- India Waits for Details on Arrests in Canada Over Sikh Separatist's Murder – Reuters
- America’s War Machine Runs on Rare-Earth Magnets. China Owns That Market. - WSJ
- Paris Inaugurates Massive Water Storage Basin to Clean up River Seine for Olympics – France 24
Policy and Politics
Acting Labor Sec. Defends Status, Rules At Tense Hearing
The head of the Labor Department attempted to defend controversial rules governing retirement advice and independent contractors before an at-times hostile congressional panel, arguing that those rules and other items on the department’s agenda are important protections for investors and workers. Acting Secretary Julie Su appeared Wednesday for a lengthy hearing of the House Committee on Education and the Workforce, where she faced a friendly reception from Democrats on the panel but pointed criticism of the department’s policies—and her unconfirmed appointment status from committee Republicans.
Su, who was previously deputy labor secretary, was tapped for the top job after Secretary Marty Walsh stepped down to head the NHL Player Association. Her nomination was advanced by the Senate Health, Education, Labor and Pensions Committee but was unable to muster the votes to pass the full Senate, so she remained acting secretary. In 2022, Su was confirmed as deputy labor secretary in a close vote. It is possible that actions taken by the Department of Labor while Su is leading it will be deemed illegal.
Warehouse Worker Protection Act Introduced in Senate
On May 2, Senators Ed Markey (D-MA), Tina Smith (D-MN) and Bob Casey (D-PA) introduced The Warehouse Worker Protection Act. In the coming weeks a bipartisan House version of the bill is expected to be introduced. The aim of the bill, as characterized by a release from the Teamsters, is to hold “Amazon accountable for its dangerous safety practices and abusive production quotas.” Some are referring to this bill as the Amazon bill due to the issues at its facilities.
The bill will require large warehouse employers to disclose quotas to workers. It would also direct the Department of Labor to create new rules requiring safe warehouse design and ensuring injured workers have access to outside doctors. The National Association of Wholesaler-Distributors’ (NAW) Brian Wild, chief government relations officer, released the following statement: “This bill represents a costly and unnecessary threat to the U.S. economy, especially for wholesaler-distributors and small businesses. The bill’s quota requirements will negatively affect productivity across the supply chain, leading to delays and price hikes for consumers. It creates an unnecessary 'Fairness and Transparency Office' within the Department of Labor, further entangling businesses in bureaucratic red tape and stifling their ability to expand and generate jobs.
Biden Administration Finalizes Water Heater Energy Efficiency Standards
The U.S. Department of Energy on Tuesday finalized new energy efficiency standards for several types of residential water heaters, in a rule it expects will generate more energy savings than any other appliance rule the agency has issued. The new rule, which goes into effect in 2029, will save consumers about $7.6 billion annually on energy and water bills, DOE estimated. The amended standards “represent a moderate increase in efficiency for gas-fired, oil-fired and larger electric storage water heaters,” the agency said, and will require the most common-sized electric water heaters to achieve efficiency gains with heat pump technology.
The rule does not impact gas-fired instantaneous water heaters, but the agency said it is considering new standards for those products. DOE said the energy savings from the final rule will generate more than 17.6 quadrillion British thermal units of energy savings over 30 years, “the largest savings ever from a single DOE efficiency standard, representing more than the energy use of the entire U.S. residential building sector in a single year.”
Health and Wellness
It’s Okay to Not Be Okay: Tips and Resources for Mental Health Awareness Month
May is Mental Health Awareness Month, a good reminder to focus on the importance of mental health and its impact on our well-being. Mental health conditions can affect anyone, regardless of gender, age, race, ethnicity, or income level. Recent data (PDF | 622 KB) help underscore that our nation is facing an unprecedented mental health crisis among people of all ages and backgrounds, including young children and older adults. To put this into perspective, if you were standing in a room full of people, at least one out of every five of those people likely experienced anxiety, depression, or other mental health conditions in the last year.
The more we talk about mental health together, the more normalized these conversations become – ultimately empowering people to seek the help they need. And fortunately, more people are now talking about and prioritizing their mental health, just as they would their physical health. They are also embracing self-care to improve overall well-being. This is critical because when you take care of your mental health, your physical and emotional health also improves, and you’re more likely to learn and work productively, and effectively cope with life stressors. However, self-care looks different for everyone. Exercise, sleep, and a balanced diet might be the strategy for some, while others might benefit from joining a support group, or seeing a mental health professional. It’s important to identify what works best for you.
NYS COVID Update
The Governor updated COVID data for the week ending May 3rd.
Deaths:
- Weekly: 16
- Total Reported to CDC: 83,269
Hospitalizations:
- Average Daily Patients in Hospital statewide: 435
- Patients in ICU Beds: 40
7 Day Average Cases per 100K population
- 2.5 positive cases per 100,00 population, Statewide
- 3.0 positive cases per 100,00 population, Mid-Hudson
Useful Websites:
Election 2024
- 6 Months Out From Election Day: Denial and Uncertainty Loom Over a Biden-Trump Rematch - AP
- Democratic Convention Organizers Work to Balance Free Speech With Safety Amid Tensions Over Protests - NBC
- Biden’s Natural Gas Pause Could Complicate Pennsylvania Strategy – The Hill
- 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
Geopolitics Takes a Central Role in Supply Chains
“Supply chain managers today are thinking more about geopolitical risk than they are about any other risk,” said Brian Bourke, chief commercial officer at Seko Logistics, a Schaumburg, Ill.-based freight forwarder. Companies’ top supply chain concerns until recently were how to find a reliable source for products at the lowest cost, said Oscar de Bok, chief executive of contract logistics provider DHL Supply Chain. That led many companies to China with its cheap labor and unparalleled ecosystem of factories, parts suppliers and raw materials.
De Bok said many companies today are prioritizing a supply chain that can withstand geopolitical shocks. That new onus is taking them to other countries and continents where they are setting up alternative supply chains that reduce their reliance on a single country or region. Some of the changes companies are making were spurred by the Covid pandemic when factory shutdowns in China, soaring prices for ocean shipping and crippling transportation delays caused parts shortages and empty shelves. Grant Anderson, a vice president of supply chain management at Jabil, said the “pandemic spooked a lot of companies into how reliant they were on China.”
Narrowly Smaller U.S. Trade Deficit in March
Led by a surprising jump in aviation exports and strong automotive imports, U.S. trade is running at a record rate this year, according to U.S. Census Bureau data released Thursday. U.S. trade totaled $1.26 trillion through March, an uptick of 0.48%. Exports are down 0.31% while imports increased 1.02%. Exports, while down slightly from the 2023 record pace, are up substantially, 25.26%, from three years ago while imports have gained 18.99% in that time.
The U.S. merchandise trade deficit increased to $248.24 billion, the second largest in history through the first quarter, topped only by the 2022 total of $299.54 billion. The balance of trade — the ratio of exports to imports - stayed at 40% exports and 60% imports for the second year in a row. Over the last 20 years, this percentage, which moves slowly, has hovered between a low of 36% exports in the first quarter of 2006 to 41% in the first quarter of 2013 and 2014. While overall exports fell $1.56 billion in the first quarter, the category that includes aircraft and fuselage parts increased $3.97 billion, an increase of 16.23%. Because the Census Department limits the detail in this category, largely to benefit BoeingBoeing 0.0%, it is not possible to know the percentage that is aircraft vs. parts.
U.S. Hiring Slowed to 175,000 Jobs in April
The employment situation report for April kicked off the second quarter with signs that the labor market is cooling. Nonfarm payrolls increased by 175K in the month, below consensus expectations for a 240K gain, while the unemployment rate rose a tenth to 3.9%. Meantime, average hourly earnings growth slowed and, at just 3.9% year-over-year, is not too far above the 3.3% average that prevailed in 2019.
Overall, today's data point to a jobs market that is still tight, but not nearly as hot as it was a year or two ago. This should support a further slowdown in inflation as the year progresses, even if improvement proceeds only gradually. We think it is unlikely the FOMC will be ready to start cutting rates by its next meeting in June, but our base case for the first rate cut to occur at the September 18 FOMC meeting remains firmly in play based on today's employment data.
Warren Buffett Fears AI Has ‘Enormous Potential for Harm’
Count Warren Buffett among those concerned about the dangers of artificial intelligence. The 93-year-old chairman and chief executive of Berkshire Hathaway compared the fast-growing technology to the development of the atomic bomb, saying that both could have devastating consequences on society, if used incorrectly. “We let a genie out of the bottle when we developed nuclear weapons,” Buffett said Saturday during Berkshire’s annual meeting in Omaha, Neb. “AI is somewhat similar—it’s part way out of the bottle.”
The billionaire investor acknowledged that he knew little about how the underlying technology works, but said he had reason to worry. He recently saw his own image and voice so convincingly replicated by an AI tool that Buffett said even his wife and children would have struggled to determine they were fake. The power of so-called deepfakes will likely enable even more effective scams, as criminals use AI to ask relatives for money, Buffett predicted.
China Launches Moon Mission in Base Race With U.S.
The latest frontier of the U.S.-China technological Cold War orbits 240,000 miles above us. Though lacking the specter of nuclear war from the U.S.-Soviet space race six decades ago, this new rivalry puts this century’s superpowers on track to spar over lunar real estate, extraterrestrial weaponry and national pride. The lunar territory that both countries covet is the south pole. It contains resources that could sustain a crewed base, so supplies wouldn’t have to be brought from Earth. It has ice, which can be turned into water and oxygen for humans, and into hydrogen for rocket fuel. Some south-pole regions enjoy round-the-clock sunlight, a potential source of solar power.
“My concern is if China got there first and suddenly said, ‘OK, this is our territory. You stay out,’” NASA Administrator Bill Nelson told a congressional hearing last month. Nelson said China’s aggressive territorial claims in the South China Sea offer a clue as to how Beijing would handle a potential lunar dispute.
Apple Sales Fall in Nearly All Countries
Apple sales have fallen in almost every market across the globe, according to the latest results from the tech giant. The company said that demand for its smartphones dropped by more than 10% in the first three months of this year, while overall sales fell in every geographic region except for Europe. Apple said that overall, revenues across the company declined by 4% to $90.8bn, which was the biggest drop for more than a year. Nevertheless, the results were not as bad as expected and Apple's share price rose in after-hours trading in New York.
The company said the figures were distorted by Covid-related supply disruptions, which led to unusually strong sales during the same period last year. It said it expected sales to return to growth in the months ahead, noting upcoming product launches and investments in artificial intelligence (AI). Overall sales in the critical greater China market dropped by 8%. Competition in that market has been intensifying from local rivals such Huawei. Globally, smartphone shipments rose 10% in the first three months of the year, expanding after a long lacklustre period, according to research firm Canalys.
Hershey Announces Earnings Beat. Higher Prices Helped.
Stock in The Hershey Company jumped on Friday after the chocolate seller reported better-than-expected profits and sales on the back of higher prices. For the first quarter of 2024, adjusted earnings per share were $3.07, increasing 3.7% from last year. Analysts polled by FactSet expected Hershey’s earnings to shrink by 6.8% to $2.76 a share. Net sales of $3.25 billion also came ahead of the $3.1 billion consensus among analysts. Sales were “driven primarily by price realization,” the company said.
Ahead of earnings, investors were worried that the high cost of cocoa, influenced by a drought in West Africa and recent rot-causing diseases, could have affected Hershey’s input costs and, in turn, earnings. But much like prior quarters, Hershey raised prices of its products to cover the elevated cocoa costs. In the first quarter, prices rose by 5.2% from a year ago on top of the 6.5% increase seen in the previous quarter. Prices haven’t driven away customers yet—volumes overall increased by 3.4% in the quarter from a year earlier.
Renewable Energy Needs to Be Stored. China Is at the Forefront.
Environment ministers from the G-7 Western economies have targeted a sixfold increase in storage for renewable energy by 2030. Most of that will come from battery energy storage systems, BESS for short, which can hold solar- or wind-generated power, then release it when the sun doesn’t shine or the wind stops blowing. The announcement is good news for the planet. The cost of storage batteries has plummeted by 90% over the past 15 years, the International Energy Agency reports, making the G-7 target realistic. Storage is something of a missing link to a lower-carbon future, as solar generation increasingly matches fossil fuels on cost, but remains unreliable for obvious reasons.
The news is more mixed for the Western policymakers themselves. If Chinese producers are ahead in the race for electric vehicle batteries, they outright dominate utility-scale storage batteries so far. Both battery families depend on lithium. For electricity storage, that’s mixed with iron and phosphate (LFP), which are cheaper but heavier than the nickel-manganese-cobalt (NMC) alloy used in higher-performing EVs.
NY Fed Looks at US Manufacturing Market Concentration
The increasing dominance of large firms in the United States has raised concerns about pricing power in the product market. The worry is that large firms, facing fewer competitors, could increase their markups over marginal costs without fear of losing market share. In a recently published paper, we show that although sales of domestic firms have become more concentrated in the manufacturing sector, this development has been accompanied by the entry and growth of foreign firms.
Import competition has lowered U.S. producers’ share of the U.S. market and put smaller, less efficient domestic firms out of business. Overall, market concentration in manufacturing was stable in recent decades, though import penetration has greatly altered the makeup of the U.S. manufacturing sector.