Member Briefing May 9, 2023
U.S. Trade Deficit Falls in March on Rise in Exports
The U.S. trade gap narrowed in March as exports of goods including industrial supplies rose, according to government data released Thursday, but trade flows could weaken going forward. As the world's biggest economy shows signs of cooling, analysts have said they expect softening in trade as consumers pull back on spending -- adding to the impact of cooling external demand. In March, the overall trade deficit stood at $64.2 billion, narrowing more than expected by $6.4 billion from February, according to the Commerce Department.
Exports rose by $5.3 billion to $256.2 billion in March, while imports slipped by $1.1 billion to $320.4 billion. As weakening external demand and a strong dollar bogs down exports, while flagging domestic demand brings imports lower, economist Matthew Martin of Oxford Economics added: "We anticipate trade will pose a drag on GDP growth for the remainder of the year."
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia Hits Ukraine With Huge Barrage of Iranian-Made Drones - Politico
- Security Worries Overshadow Russia's Victory Day Preparations - Reuters
- U.S. and Allies Look at Potential China Role in Ending Ukraine War - WSJ
- Russia Evacuates Ukraine Region that Holds Europe's Largest Nuclear Plant – Fox News
- IAEA Concerned About Safety of Ukraine’s Nuclear Plant - VOA
- Ukraine's Defense Minister is Worried the West Will Get Cold Feet if Kyiv's Much-Expected Counterattack is a Flop - Insider
- Homemade, Cheap and Lethal, Attack Drones Are Vital to Ukraine - NYT
- What Do We Know About Drone Attacks in Russia? - BBC
- How to Stop Putin Getting Away with Murder in Ukraine – Politico
- Slide Show: Latest Ukraine Satellite Images Reveal Devastation of Russian Invasion – Politico
- 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
America’s Factory Boom Drives Sales Surge for Excavators, Steel and Trucks
Manufacturers of construction equipment, trucks, building supplies and industrial software are still ringing up sales, despite slowdowns in other parts of the U.S. economy.A backlog of orders stemming from supply-chain bottlenecks during the pandemic and higher demand from new factories under construction have boosted manufacturing companies, helping offset the effects of rising interest rates and weakening U.S. economic growth.
New factories are driving demand for construction materials, including steel, as well as the systems and equipment needed to operate the plants once they are completed. Strength in such construction projects has helped Texas-based Caterpillar and other manufacturers exceed expectations of investors and industry analysts, some of whom have worried that economic turbulence could cut into sales or diminish profit guidance. Caterpillar’s sales of machinery and engines from North America rose 32% in the first quarter of 2023 from the same period a year earlier, offsetting slumping sales in China and smaller growth rates in other overseas markets.
Manufacturing Jobs and Wages Flat - at Historically Low Unemployment
Unemployment in and outside of manufacturing remained at historically low levels last month, according to the latest data from the Department of Labor. Manufacturing jobs growth remained similarly flat, with 11,000 jobs added last month, though the manufacturing unemployment rate remained at a historic low of 2.8. That’s one-tenth of a percent lower than it was in March, but still one percentage point higher than its previous low point of December 2022, when it hit 1.8%.
Almost all jobs added in manufacturing were in durable goods production, which made up 10,000 of new manufacturing jobs in April. Most other features of manufacturing surveyed by the Bureau remained mostly flat as well. Average hours worked and overtime in manufacturing were all relatively unchanged. Despite the historically low unemployment numbers, wage growth also remained close to flat, with unremarkable increases. In compensation, average hourly earnings in manufacturing ticked up by 13 cents an hour to $32.02, slightly slower than average wage growth overall, which rose 16 cents an hour to $33.36.
COVID News – CDC’s Rochelle Walensky Resigns, Citing Pandemic Transition
Dr. Rochelle Walensky, the head of the Centers for Disease Control and Prevention, submitted her resignation Friday, saying the waning of the COVID-19 pandemic was a good time to make a transition. Walensky, 54, has been the agency’s director for a little over two years, and the announcement took many health experts by surprise. In her letter to Biden, she expressed “mixed feelings” about the decision and didn’t explain exactly why she was stepping down, but said the nation is at a moment of transition as emergency declarations come to an end.
She leaves at a time when the national COVID-19 death toll stands at about 1.1 million. Reported cases, hospitalizations and deaths have all been trending down for months.At CDC, Walensky started a center for forecasting and outbreak analytics and took steps to modernize data collection and analysis. Last year, she began a reorganization designed to make the agency more nimble and to improve its communications with the public.
Leaders Brace for Critical Biden-McCarthy Meeting as Debt Limit Deadline Looms
Congress is heading into a critical week in the debt limit battle, when a meeting between President Biden and top congressional leaders will set the tone for negotiations — or lack thereof. There are few signs of the two sides reaching a deal any time soon. Today’s meeting will be a gauge of the odds of that happening in the few weeks left before a debt default deadline that could arrive as soon as June 1, threatening to upend a shaky economy.
For Republicans, getting Biden to finally agree to a meeting on the topic at all was a success, even if it is just a first step. But even as Republicans surprised Washington late last month by passing a debt limit increase and spending cut bill through the House, Democrats and the White House are standing firm in demanding a “clean” debt increase — though they have little leverage to achieve it.
Government Employees Union Sues Yellen, Biden Over ‘Unconstitutional’ Debt Limit Law
The National Association of Government Employees (NAGE) filed a lawsuit to block enforcement of a law that sets the nation’s debt limit, arguing it is unconstitutional as a political divide over raising the borrowing cap comes to a head. The lawsuit contends that, if the debt limit is reached, President Biden and Treasury Secretary Janet Yellen would be forced to decide which payments to prioritize, violating the separation of powers by taking over Congress’s spending authority.
Filed in Massachusetts’ federal trial court on Monday, the lawsuit further states that federal debts must be paid under the 14th Amendment, which states that the “validity of the public debt of the United States … shall not be questioned.”
NFIB Jobs Report: 92% of Owners Report no Qualified Applicants for Open Positions
Small business owners continue to struggle to find workers, with 45% (seasonally adjusted) of all owners reporting job openings they could not fill in the current period. The share of owners with unfilled job openings exceeds the 49-year historical average of 23%. Of those hiring or trying to hire, 92% of owners reported few or no qualified applications for the positions they were trying to fill. Overall, 60% of owners reported hiring or trying to hire in April.
The percent of small business owners reporting labor quality as their top small business operating problem remains elevated at 24%, up one point from March. Labor costs reported as the single most important problem to business owners decreased two points to 9%, just four points below the highest reading of 13% reached in December 2021. Small business owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 17% planning to create new jobs in the next three months, up two points from March but 15 points below its record high reading of 32 reached in August 2021.
Fed Report Shows Banks Worried About Conditions Ahead
The Fed’s quarterly Senior Loan Officer Opinion survey said requirements got tougher for commercial and industrial loans as well as for many household-debt instruments such as mortgages, home equity lines of credit and credit cards. The loan officers further said they expect troubles to persist over the next year, owing largely to diminished expectations for economic growth as well as fears over deposit outflows and reduced risk tolerance.
Asked their expectations for the next year, respondents gave a fairly gloomy outlook of what’s ahead. “Banks reported expecting to tighten standards across all loan categories,” the report said. “Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.” In particular, the report showed “tighter standards and weaker demand” for commercial and industrial loans, an important bellwether for economic growth.
Private Manufacturing Construction Rose to a Record $147 Billion
Private manufacturing construction rose 4.6% from $140.58 billion in February to a record $146.99 billion in March. Over the past 12 months, activity has soared 62.5%. These data speak to the very sizable investments being made in the manufacturing sector, with firms strongly expanding their capacity to meet their long-term objectives. This should bode well for future growth in manufacturing in the U.S. moving forward.
At the same time, total private nonresidential construction spending increased 1.0% in March, with activity rising 21.3% over the past 12 months. In March, total private construction spending rose 0.3%, with private residential construction edging down 0.2% for the month. Private single-family construction dropped 0.8% in March, but new multifamily activity increased 0.4%. On a year-over-year basis, total private construction has risen 1.0% since March 2022, but with private residential activity down 10.0%. Private single-family residential construction has declined 22.9% over the past 12 months.
German Industrial Output Slumps, Recession Fears Rise
German industrial production fell more than expected in March, partly due to a weak performance by the automotive sector, spurring again recession fears in Europe's largest economy. Production decreased by 3.4% on the previous month following a slightly revised increase of 2.1% in February, the federal statistical office said on Monday. In a Reuters poll, analysts had pointed to a 1.3% fall.
The manufacture of motor vehicles and automotive parts fell by 6.5% on the previous month. Production in machinery and equipment fell by 3.4% and output in the construction sector decreased by 4.6% on the month. In the first quarter, production was 2.5% higher than in the last quarter of 2022, according to the statistics office. In March, German industrial orders fell by 10.7% from the previous month on a seasonally and calendar adjusted basis, posting the largest month-on-month decline since 2020 at the height of the COVID-19 pandemic.
ECB’s Knot Vows More Rate Hikes Amid ‘Too High’ Core Inflation
The European Central Bank needs to continue raising interest rates amid a “too high” underlying inflation rate, said Governing Council member Klaas Knot.The ECB will have to raise borrowing costs “as long as the underlying inflation hasn’t been tamped down,” Knot said in an interview on the Buitenhof TV show on Sunday. “Our real problem at the moment is that core inflation is still too high.”
The central bank on Thursday raised the deposit rate by a quarter-point to 3.25%, following three moves of double that size. ECB President Christine Lagarde also signaled that there will likely be more interest-rate hikes to come. “We have more ground to cover, and we are not pausing,” she said. Euro-area consumer prices, stripped of volatile items like fuel and food, rose 5.6% from a year ago in April — down just a shade from March’s record 5.7%. The Dutch central banker, who is among the region’s more hawkish officials, said the ECB may reach its 2% inflation goal “sometime in 2025.”
‘America’s Retirement Score’ Drops: Savers Only Have 78% of Income Needed
Fidelity Investments is the latest financial services firm to raise warning flags over the state of readiness when it comes to saving for retirement. In its recently released Retirement Savings Assessment, Fidelity surveyed working Americans and found that there has been a decline in retirement readiness, possibly linked to concerns about inflation and recession. The report scored the financial preparedness of American household and found a five-point decline from the all-time high score of 83, reached in 2020.
For the 2023 analysis, the retirement score had moved to 78—indicating that American households had on average 78% of the income needed to cover expenses during retirement. The Fidelity report found that a number of actions can be taken to improve preparedness. For employers and retirement advisors, more emphasis on certain benefits, such as financial wellness resources, could be helpful. The report also pointed to Health Savings Accounts (HSAs) as offering a tax advantage when it comes to saving.
Labor Deal at West Coast Ports Comes Into View
Contract talks between unionized longshore workers and employers at West Coast ports appear to be headed into their final stretch following agreements on several major issues, potentially clearing the uncertainty that has been hanging over U.S. importers heading into their crucial fall selling season. Some shipping officials familiar with the talks hope a tentative agreement could be reached by June, ending a contentious period in port labor relations that prompted some of the country’s biggest retailers and manufacturers to shift goods away from the region to avoid possible disruptions.
The sides have been negotiating for almost a year on a contract covering more than 22,000 dockworkers at ports from California to Washington state. The union and the PMA reached a tentative agreement on healthcare benefits last July, soon after talks began. The negotiations bogged down over local issues at individual ports after that and the employer group accused the ILWU recently of undertaking job actions that slowed the movement of cargo containers.
Tyson Foods Posts Surprise Loss, Cuts 2023 Revenue Forecast as Beef, Pork Prices Fall
Tyson Foods Inc posted a surprise second-quarter loss and cut its full-year revenue forecast on Monday as prices for its beef and pork have declined, sending the U.S. meatpacker's shares tumbling 12%. The weaker-than-expected results indicate cash-strapped consumers are cutting back on meat spending in a high-inflation environment while a shrinking cattle herd forces Tyson to pay more for livestock, eroding margins.
CEO Donnie King, who is seeking to cut costs, said meat markets are challenging and Tyson is focused on improving profit margins. The company lowered its forecast for fiscal year 2023 sales to $53 billion to $54 billion from $55 billion to $57 billion. "This quarter was definitely a tough one," King told analysts on a conference call. "The current macro backdrop is clearly tough."