Member Briefing November 2, 2023
ISM Manufacturing Index Contracts Dramatically ‘Its More Than Just Strike Related’
U.S. manufacturing contracted sharply in October after showing signs of improvement in prior months as new orders and employment slumped, partially impacted by the United Auto Workers (UAW) union against Detroit's Big Three car makers. The Institute for Supply Management (ISM) said on Wednesday that its manufacturing PMI dropped to 46.7 last month from 49.0 in September. It was the 12th consecutive month that the PMI remained below 50, which indicates contraction in manufacturing. That is the longest such stretch since the 2007-2009 Great Recession. It would be unwise to wave this off as completely strike related. Wells Fargo economists believe the auto-related slowdown is minimal as the only three industries that saw a rise in new orders (plastics & rubbers, primary metals, transport equipment) are all related to the auto industry.
According to the ISM, the manufacturing sector saw layoffs last month after expanding hiring in September (chart). At 46.8 in October, the employment component of the ISM saw the largest drop of any sub-component and is consistent with a decrease in hiring. Only four of 18 industries reported employment growth, and the release signaled declining labor management sentiment. Specifically, the report noted “Attrition, freezes and layoffs to reduce head counts increased during the period, with layoffs the primary tool, indicating a more urgent need to reduce staffing”.
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- First Foreigners Start Leaving Gaza Strip For Egypt As War Intensifies - Forbes
- Americans Among Those Departing Gaza, White House Confirms – The Hill
- Paris Police Shoot Woman at Station After Threats - BBC
- Speaker Johnson Tells Senate GOP That Israel Money Must Move by Itself – Politico
- Jordon, Key US Ally, Pulls Ambassador from Israel in Protest of Gaza War – The Hill
- U.S. All but Stopped Spying on Hamas in Years After 9/11 - WSJ
- U.S. Discussing Peacekeeping Force for Gaza After Hamas Falls, Senators Say – Politico
- Israel Deploys Missile Boats in Red Sea as Houthis Attack From Yemen - Reuters
- Cornell Student Arrested Over Posts Threatening Jewish Students On Campus – Cornell Daily Sun
- Israel-Hamas War in Gaza: What is the History of the Conflict? – Reuters
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine Says Oil Refinery Hit, Power Lines Damaged in Russian Drone Attack - Reuters
- Kyiv Tries to Rally Troops, Urging Them to Resist Burnout as Russian Attacks Intensify - CNBC
- Frustrated Zelensky Says Ukraine's War Effort Is Being Underestimated - NYT
- Speaker Johnson Tells Senate GOP he Backs Ukraine Aid, Funding Path Through Jan. 15 – Politico
- The Russians Installed A GPS-Jammer In Ukraine. The Ukrainians Blew It Up—With A GPS-Guided Bomb - Forbes
- Any F-16s Given to Ukraine Will Only Last ‘Around 20 days,’ Russia Claims- CNBC
- Russia Detains Two of Its Soldiers in Killing of Ukrainian Family - WSJ
- The Drones Fighting Cat and Mouse Battles Behind Russian Front Lines in Ukraine - Reuters
- 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
Fed Holds Rates Steady, Upgrades Assessment of Economic Growth
The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target. The Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023. The decision included an upgrade to the committee’s general assessment of the economy.
The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.” Projections the Fed released in September put expected GDP growth at 1.5% in 2024. In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP to 1.2% from 2.3%.
JOLTS: US job Openings Stay Elevated, Layoffs Hit Nine-Month Low
U.S. job openings increased in September, pointing to persistent labor market tightness that is supporting the economy. The Job Openings and Labor Turnover Survey, or JOLTS report from the Labor Department on Wednesday also showed layoffs dropping to a nine-month low. There were 1.50 job openings for every unemployed person in September, slightly up from 1.49 in August and way above the pre-pandemic ratio of 1.2. Job openings, a measure of labor demand, were up 56,000 to 9.553 million on the last day of September.
Data for August was revised lower to show 9.497 million job openings instead of the previously reported 9.610 million. The job openings rate was unchanged at 5.7%. Hiring increased 21,000 to 5.871 million, indicating that some companies continued to experience difficulties finding workers. The hires rates was unchanged at 3.7%. Layoffs dropped 165,000 to 1.517 million. There were notable declines in job losses in construction, manufacturing, professional and business services as well as state and local government education. The number of people quitting their jobs fell 2,000 to 3.661 million. The quits rate, viewed as a measure of labor market confidence, was unchanged at 2.3%.
COVID Update - Map Shows States Where Case Counts Are Highest
The southwestern states and the Great Plains regions are the worst-hit areas by COVID-19 cases this week, despite a country-wide drop in case numbers. COVID data from the Centers for Disease Control and Prevention (CDC) as of the week ending October 21 shows that the United States as a whole has an 8.7 percent test positivity rate, meaning that of all the tests taken, 8.7 percent came back positive. This is 0.7 percent lower than it was the week prior when the country as a whole had a 9.5 percent test positivity rate.
There have been 16,186 COVID hospital admissions over the last week, a 0.2 percent drop from the week before. This amounts to around 4.88 admissions per 100,000 people across the country, on average. Deaths from COVID have increased somewhat over the past week, however, with 2.7 percent of deaths being due to the virus. The prior week, this was 2.4 percent. The decline in positive tests indicates that infections are stabilizing; however, as the winter months near, cases may spike once more as other infections weaken the public's immune system.
Read more view the map at Newsweek
Rinse and Repeat… As Government Shutdown Looms, Partisan Fights Could Further Delay Passing a Federal Budget
After narrowly averting a government shutdown in late September, Congress now has less than three weeks to pass a budget. However partisan proposals in the House are increasing the chance of more delays and thus a shutdown. The House has so far passed five of the 12 appropriation bills that would fund the government for a full year. September’s continuing resolution extended the budget deadline to Nov. 17. Meeting that deadline will be a tall order for newly elected House Speaker Mike Johnson, R-LA., who assumed the position just last week.
Even with an ambitious schedule to pass the remaining seven appropriation bills, Johnson is floating another temporary funding measure to keep the government open until Jan. 15. Partisan proposals could further hold up a final budget. At least two of the appropriation bills that House Republicans have already passed include deep spending cuts that face opposition from the Democratic-controlled Senate and President Joe Biden. In addition to a budget, congressional Republicans are split over how to address Biden’s emergency funding request for military aid to Ukraine and Israel. That fight is drawing attention and resources away from passing appropriation bills.
Nvidia’s $5 Billion of China Orders in Limbo After Latest U.S. Curbs
New U.S. export controls may compel artificial-intelligence giant Nvidia to cancel billions of dollars in next-year orders for its advanced chips to China, a move that could deprive Chinese tech companies of crucial AI resources. The Santa Clara, Calif.-based company had already finished delivering orders of its advanced AI chips to China for this year, according to people familiar with the matter, and was pushing to deliver some 2024 orders in advance before the new rules were scheduled to come into effect in mid-November. Then the U.S. government told Nvidia in a letter last week that the new export restrictions on the sale of high-end chips to countries including China were instead effective immediately.
A spokesman for Nvidia said the company has been working to allocate its advanced AI computing systems, which use graphics chips affected by the rules, to customers in the U.S. and elsewhere and is pursuing additional supply. “These new export controls will not have a meaningful impact in the near term,” the spokesman said. Earlier this year, Colette Kress, Nvidia’s chief financial officer, said that in the longer-term prohibiting sales of AI chips to China would result in a permanent loss of opportunities for the U.S. chip industry.
UAW Deal Shows Unions Are Winning. How Long Will It Last?
Labor shortages since the pandemic hit in 2020 gave both unionized and nonunion workers more leverage than they had enjoyed in decades, driving big boosts in pay and benefits. If growth cools and unemployment rises, however, as many economists forecast, workers’ momentum could chill and tip the balance of power back toward employers.
Union workers, however, have seen slower compensation growth than their nonunion counterparts because it takes time for multiyear union contracts to come up for renewal. Wages and benefits for union workers rose 3.8% in the July-through-September period from a year before, compared with a 4.4% gain for nonunion workers, according to the Labor Department. More than 300,000 union members have walked off the job so far this year, the most since 2019, according to the Labor Department. The U.S. lost more than 11 million workdays to labor disputes this year through September, more than any full year since 2000.
Nonunion Toyota Boosts Hourly Wages 9.2%, Cuts Progression Time as UAW Votes Await
Toyota Motors announced Wednesday that the Japanese automaker will raise the wages of the company’s nonunion U.S. factory workers. The announcement comes just days after the United Auto Workers (UAW) union won major pay and benefits enhancements from Detroit's three biggest automakers. The company has confirmed that hourly manufacturing workers at the peak pay level will see an approximately 9% increase in their wages starting from January 1. Additionally, wage hikes are also being extended to other nonunion employees in logistics and service parts.
Toyota also revealed that it is cutting the amount of time needed for U.S. production workers to reach the top pay scale from 8 years to 4 and increasing paid time off. "We value our employees and their contributions, and we show it by offering robust compensation packages that we continually review to ensure that we remain competitive within the automotive industry,” said TM’s North American VP, Chris Reynolds. The pay of production Toyota workers in Kentucky at top scale will rise by $2.94 to $34.80 an hour.
Toyota Raises its Outlook as Strong Hybrid Demand Juices Profits
Toyota Motor on Wednesday said its quarterly profit more than doubled from a year ago on strong global demand for hybrids and favorable exchange-rate moves. The auto giant also raised its guidance for the fiscal year that will end on March 31 and increased its dividend and share-repurchase program. Its U.S.-traded shares were up more than 5% in midday trading. Toyota’s revenue of 11.44 trillion yen ($75.7 billion) was 24% higher than a year ago, as it sold more vehicles in all regions than it did in the year-ago period.
Toyota for years resisted making big investments in purely electric vehicles, saying repeatedly that it felt its well-regarded hybrids were a better bet for most customers and with car shoppers, particularly in the U.S., edging away from EVs amid higher financing costs and concerns about public charging, Toyota is now in the position of benefiting from higher demand for its stalwart hybrids. Sales of Toyota’s conventional hybrids rose 41% from a year ago, to about 888,000, and sales of its plug-in hybrids were up nearly 90% year-over-year to roughly 39,000.
AI Startups Fear That Biden’s AI Executive Order Could Stifle Innovation
Artificial intelligence startups welcomed President Joe Biden’s new executive order which placed regulations on the technology, though some CEOs expressed concerns over whether it could impede smaller companies and stifle innovation. The White House’s order puts guardrails on the development and use of AI, most notably granting itself oversight on future large language models — including OpenAI’s GPT-5 and Google’s Gemini — before they can be released to the public.
The new order has given pause to a class of upstart companies looking to shake up tech’s current landscape. “It is crucial for the government to foster an open AI ecosystem, especially for startups,” Florian Douetteau, cofounder of Dataiku, a startup which helps companies to build AI tools, told Forbes in an email. “Cloud vendors monopolizing AI after heavy investments is akin to privatizing the electric grid. Such monopolization would stifle innovation and deter smaller players from contributing to the AI evolution.”
JetBlue Removes Over 3,000 Flights From January 2024 Schedule
JetBlue Airways is making some major changes to its route network that will be reflected early next year. The carrier will reduce several routes, mainly impacting cities in the Northeast, including its New York hub. The changes come after the airline’s Northeast Alliance with American Airlines ended earlier this year. The route impacts will significantly decrease connectivity in the Northeast, considering JetBlue already altered its flight schedule in August due to the alliance breakup.
According to data from aviation analytics firm Cirium, the carrier removed over 3,000 scheduled flights in January 2024. As of last week, 29,563 flights were scheduled for the month, representing 4,521,757 total seats. This week, data reflects that 26,425 flights will be scheduled in January, offering 4,060,312 seats. The adjustment is a difference of 3,138 flights and 461,445 seats. Nearly all affected routes are out of New York’s three area airports, but there are also some cuts from Boston and Florida airports.
Some Apple Watches Are About To Be Banned In The U.S. What Happens Next?
The International Trade Commission issued an order to halt the importation of certain Apple Watches into the U.S. last week, handing a major win to medical device-maker Masimo. It’s an important bargaining chip for Masimo founder and CEO Joe Kiani, who said his company has spent upwards of $65 million related to ongoing patent and trade secret litigation with Apple over its pulse oximeter, a blood oxygen sensor that has become a selling point for premium smartwatches and fitness trackers.
The Commission sided with Masimo that Apple infringed on two patents related to the pulse oximeter, and the ban would prohibit certain Apple Watches that include the sensor from being imported into the U.S. It also includes a cease-and-desist order that stops sales of infringing products already in the country. unless Apple can convince the Biden administration to veto the ruling in the next two months, the ban would go into effect while the appeals process plays out in federal court. A presidential veto of an International Trade Commission ruling is exceedingly rare.
New Study Finds Trump Tax Cuts and Jobs Act Strongly Boosted Corporate Investment
The 2017 Tax Cuts and Jobs Act (TCJA) was the largest corporate tax reform in a generation, lowering the corporate tax rate from 35 percent to 21 percent, temporarily allowing full expensing for short-lived assets (referred to as bonus depreciation), and overhauling the international tax code. A new detailed and thorough study from economists associated with the National Bureau of Economic Research and the Treasury Department finds the reforms substantially raised U.S. capital investment and boosted economic growth.
The study is based on a large sample of 12,000 corporate tax returns covering several years prior to the enactment of the TCJA and two years after. The authors find that, on average, firms impacted by the policy changes increased domestic investment by about 20 percent in the subsequent two years relative to firms with no tax change. The ultimate result is an estimate that the U.S. domestic corporate capital stock will grow 7.4 percent over the long run as a result of the law. Most of the growth in investment and the capital stock is predicted to occur within 10 years, and nearly all of it in 15 years. As the capital stock grows, so do worker productivity and wages. The study estimates a 0.9 percent increase in real wages over the long run.
Read more at The Tax Foundation
Boeing's Research Shows The Global Passenger Market Is Nearing Pre-COVID Levels
The Vice President of Commercial Marketing at Boeing, Darren Hulst, recently presented the 2023 Commercial Market Outlook (CMO). The company shows that global passenger numbers have been on a robust recovery path in the last three years and are nearing 2019 levels. The year 2020 ended with fewer than 50% available commercial flights compared to the year before. However, many flights that did take off were used as repatriation flights or for transporting essential cargo. Global passenger traffic was less than 25% of 2019 level
Boeing's data shows that in 2023, 97% of passenger flights have been recovered. Moreover, over 90% of global passenger traffic has returned to pre-pandemic levels. According to Boeing. With new entrants to the market and increased accessibility of air travel in high-population areas, the industry is anticipating long-term traffic growth. Airlines offer nearly 92% passenger capacity, with most of their grounded fleet returning to the skies. Boeing estimates that 97% of the passenger fleet is currently active.
What the 'Great Trucking Recession' is Warning Us About the Economy
Two months ago, 30,000 truckers at Yellow lost their jobs when one of the nation’s oldest and largest trucking companies filed for Chapter 11 bankruptcy protection. Last week, Convoy, the digital freight broker that was supposed to reinvent the wheel and disrupt the trucking industry in a positive way, also abruptly shuttered its doors. These kinds of closings by both freight carriers lay bare the uncertain state of trucking, an industry that is an indicator of the mood of the consumer and also the beating heart of our economy.
“In my opinion, this industry is heading in the wrong direction, and when trucking and supply chain freight is heading in the wrong direction, so is the country. I am just not sure that people understand there is a problem,” said Rick McQuaide, who runs a freight company in Cambria County, Pennsylvania, as well as in Florida. Beginning last year consumers' spending spree started to ebb, McQuaide said, and that hits the truckers and truck companies hard: “The economy is slowing from its frenzy, people aren’t buying anymore, which means there are more trucks on the road than there are loads, and it's forcing the rates down.” McQuaide said his company's rates are about 20% lower than last year.
Read more at the The Washington Examiner