Member Briefing November 30, 2023
Q3 Real GDP Growth Revised Higher, But Real Income Growth Continues to Lag
Revised data that were released yesterday showed that real GDP grew at an annualized rate of 5.2% in Q3-2023 relative to the previous quarter, which was stronger than the initial estimate of 4.9% that was reported a month ago. Although the Bureau of Economic Analysis (BEA) revised the growth rate in real personal consumption expenditures (PCE) down to 3.6% from 4.0%, growth in real fixed investment spending was not as weak as initially reported. Furthermore, the revised data showed that real government spending grew 5.5% in Q3, up from the 4.6% growth rate that was initially reported.
Yesterday's data release also provided our first look at corporate profits in the third quarter. In short, profitability remained in solid shape. Corporate profits bounced 3.3% (not annualized) in Q3, or by $105.7 billion. This marked the largest quarterly gain since the second quarter of last year and signals some stabilization in firms' profitability. Margins improved in the third quarter as well. Rebounding profits can be supportive of economic growth, but to the extent there is renewed pressure on margins in coming quarters, headcounts and thus broader growth may be at risk of slowing. Recession risks are elevated, but a downturn is far from a certain outcome particularly in an environment of rebounding profits growth.
Henry Kissinger, American Diplomat and Nobel Peace Prize Winner, Dead at 100
Former presidential adviser Henry Kissinger has died, according to a statement posted on his website, bringing to a close one of the most polarizing and influential diplomatic lives in U.S. history. He died Wednesday at his home in Connecticut, said a statement by his consulting firm. He was 100 years old. The German-born academic was the only American official ever to concurrently serve as both secretary of state and White House national security adviser, giving him immense power during the Richard Nixon and Gerald Ford presidencies.
Kissinger won the Nobel Peace Prize in 1973, along with the Vietnamese leader Le Duc Tho, for pursuing secret diplomatic talks that forged the Paris Peace Accords, ending the U.S. military campaign in Southeast Asia. Kissinger accepted his prize “with humility,” and offered to return it after the fall of South Vietnam two years later. In 2022, at the age of 99, he published “Leadership: Six Studies in World Strategy,” in which he profiled post-World War II leaders whom he called visionary. Among his lasting achievements was overseeing the Nixon administration’s clandestine outreach in the early 1970s to the People’s Republic of China, resulting in the restoration of full diplomatic relations between Washington and Beijing.
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Israel, Hamas Due to Release More People Amid Efforts to Extend Truce - Reuters
- Why Israel’s Push Into Southern Gaza Could Be a ‘Real Hell of a Fight’ – The Hill
- Gaza Protests at Colleges Open a Generational Divide - WSJ
- Israel Assessing Hamas Claim that 10-Month-Old Hostage Was Killed in Gaza - NBC
- Netanyahu: Don’t Accuse Me of Boosting Hamas With Qatari Money - Politico
- What to Know About the Hostages Still Held by Hamas - NPR
- Schumer: Too Many Americans are ‘Leaping Toward a Virulent ‘Antisemitism’ – The Hill
- Held Hostage by Hamas: How Two Girls Survived Captivity in Gaza - WSJ
- Interactive Map- Israel’s Operation in Gaza – Institute for the Study of War
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Zelenskyy’s Split With Military is ‘Russian Propaganda’ – Politico
- Putin Won't Make Peace in Ukraine Before 2024 US Election -US Official - Reuters
- Russia to Require Foreigners to Sign ‘Loyalty Agreement’ – Al Jazeera
- Ukraine Fighting is Deadlocked, Spy Chief Kyrylo Budanov Tells BBC - BBC
- How the Kremlin Keeps Dodging Tough Sanctions - Politico
- Ukraine Makes New Push to Defeat Russia’s Electronic Warfare - CNN
- Paul Whelan Attacked in Russian Prison, Brother Says – The Hill
- White House: US funding for Ukraine Arms has Poured into Pennsylvania, Arizona and Texas - 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
U.S. Trade Deficit in Goods Widens 3.4% in October
The nation’s trade deficit in goods widened 3.4% in October to $89.8 billion, the Commerce Department said Wednesday. An advanced estimate of wholesale inventories, meanwhile, showed a 0.2% drop in October. Retail inventories were flat, the department said. Imports of goods were roughly flat in October at $260.7 billion. Exports of American-made goods fell 1.7% to $170.8 billion.
The full trade report for October, which includes services such as tourism and travel, comes out next week. Higher trade deficits add to gross domestic product, the official scorecard for the economy. So do lower inventories. The trend has moved back to the upside after 2 months of more tame deficits. An increase in the deficit is a negative for GDP. However, trade has not been a major factor in GDP this year and that’s expected to continue, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
OECD Cuts Global GDP Growth Projection for 2023
Warning that the Israel-Hamas war in the Middle East could further pose short-term risk to growth, The Organization for Economic Cooperation and Development (OECD) adjusted its forecast for global economic expansion in 2024 to 2.7%, with 3.0% growth expected in 2025. Global economic growth for 2023 is projected to be 2.9%. "If the conflict were to intensify and broaden within the wider region, there are much stronger risks that could slow growth and push up inflation," said the OECD, which advises its 38 member countries on economic policy.
"The broad picture for the world economy over the next two years is one of a moderate slowdown followed by eventual normalization, with growth returning to near-trend rates, and inflation converging back to central bank targets by 2025," said the OECD. Persistent inflation and rising consumer prices have been identified as drags on economic growth, whereas rising incomes and dwindling interest rates are seen as factors driving it.
COVID 19 News - Life Expectancy Rises, But Still Trails Pre-COVID Level
The average life expectancy for 2022 ticked up from the previous year but still remained below pre-pandemic levels, according to the most recent data published Wednesday by the Centers for Disease Control and Prevention (CDC). The CDC describes life expectancy at birth as “the average number of years a group of infants would live if they were to experience throughout life the age-specific death rates prevailing during a period.”
In 2022, it was 77.5 years, a dramatic 1.1-year increase from the 76.4-year life expectancy in 2021. Still, the change does not fully make up for the loss of 2.4 years of life expectancy from 2019 to 2021, which, the CDC said, “resulted mostly from increases in excess deaths due to the COVID-19 pandemic.” For at least the last two decades, life expectancy rose steadily each year, but declined dramatically from 78.8 years in 2019 to 77 years in 2020, and then to 76.4 years in 2021.
Javier Rodriguez, Top Biden Labor Nominee, Falls on Senate Floor
One of President Joe Biden's top Labor Department nominees went down on the Senate floor on Tuesday after two Democrats voted with Republicans to block the nomination. Sens. Joe Manchin of West Virginia and Bob Menendez of New Jersey both voted against advancing the nomination of Jose Javier Rodriguez to be the assistant secretary of Labor. Nominees need just a simple majority in the Senate. But Democrats' 51-vote majority means two defections can spell doom for any nominee.
Manchin voted against Rodriguez because "he has concerns about his political activism and lack of experience," according to a spokesperson. Rodriguez is a former Democratic lawmaker in the Florida statehouse and is a workers' rights attorney. The final vote was 44-51. Majority Leader Chuck Schumer switched his vote to no, which will allow him to bring up Rodriguez for another vote in the future.
NY Still Hasn’t Released State Test Scores
State education officials are refusing to release the results of federally required assessments in grades 3 through 8, deliberately keeping parents and taxpayers in the dark—not only about how New York’s public schools performed, but also about how that performance was measured. When the same delay occurred last year, state education officials blamed the pandemic—this year, it was the process to establish New York’s new standard for student proficiency.
Moreover, this year, state assessment results come with a huge disclaimer: they cannot be accurately compared to previous years, since they are now being measured against a brand-new standard for grade-level proficiency. What is the new standard for considering students “proficient” in math or English language arts? That also remains under wraps. What we do know is the “cut scores” that set the threshold to pass state exams in those subjects are likely to be lowered.
Retailers Have Cleaned Up Their Inventories for the Holidays
Retailers are heading into their most crucial sales period of the year with a very different inventory strategy than they undertook in 2022. Warehouses are no longer stuffed with merchandise and store shelves aren’t spilling over with discounted goods in hopes of luring wary consumers into last-minute sales. Instead, merchants from big-box retailers like Walmart and Target to more specialized sellers like Best Buy and Dick’s Sporting Goods have pared back their inventories while trying to focus their supply chains more tightly on products that shoppers want.
Forecasting shopper demand has been one of the biggest challenges for retailers mapping out their supply chains during the pandemic, as volatile shifts in buying patterns had consumers switching their spending rapidly from items such as home decor to office apparel and then towards travel. Many retailers have spent much of the year working through the stockpiles from last year and now say they have cleaned up their distribution centers and their balance sheets.
Car Dealers Press Biden to Ease US Electric Vehicle Mandates
A total of 3,882 franchised car dealers from 50 states sent a letter to Biden Tuesday urging his administration to slow down its EV mandates. "Last year, there was a lot of hope and hype about EVs," they wrote, describing demand from early adopters. "But that enthusiasm has stalled. Today, the supply of unsold BEVs (battery electric vehicles) is surging, as they are not selling nearly as fast as they are arriving at our dealerships — even with deep price cuts, manufacturer incentives, and generous government incentives. With each passing day, it becomes more apparent that this attempted electric vehicle mandate is unrealistic based on current and forecasted customer demand. Already, electric vehicles are stacking up on our lots which is our best indicator of customer demand in the marketplace."
Customers cite a variety of reasons for avoiding EVs. They're too expensive, buyers have no place to charge at home, and public charging is too time-consuming, for example. Dealers say some customers have even traded in their EVs, complaining their driving range was affected by towing a trailer or even extreme temperatures.
GM Executives Detail UAW Deals’ $575-Per-Car Costs
General Motors Corp.’s leaders on Nov. 29 said the recently resolved United Auto Workers strike will add $575 in labor costs to each vehicle the company makes over the life of employees’ new contract. In the longer term, Chair and CEO Mary Barra and CFO Paul Jacobson said UAW workers’ new contracts will add $9.3 billion to GM’s costs—with $200 million hitting in what remains of this year and $1.5 billion coming in 2024.
Some of the savings initiatives to absorb those expenses have been underway for several quarters and are on track to generate $2 billion in savings by the end of next year while other cutbacks will come from lowering capital spending. Addressing the higher labor costs, Barra took solace in the fact that other auto makers such as Honda and Hyundai have followed suit recently in raising their workers’ wages, something she said the GM team had expected. .
GM Plans $10 Billion Stock Buyback in Bid to Assuage Investors
GM on Wednesday outlined plans for an accelerated $10 billion share repurchase for next year, its largest stock buyback in recent memory. The company will fund it in part by freeing up capital previously earmarked for development of EVs and autonomous vehicles, which have been the main pillars of Barra’s growth strategy. Chief Executive Mary Barra is trying to jump-start GM’s flailing shares while also refocusing investors on the underlying strength of its main business: selling gas- and diesel-powered trucks and SUVs. It marks a shift in the message from recent years, during which the CEO sought to recast GM as a tech company poised to transcend the messy world of car manufacturing.
GM said it would log strong profits this year despite a six-week strike that shaved $1.1 billion from its bottom line in the third and fourth quarters. The company expects full-year operating profit of $11.7 billion to $12.7 billion, after withdrawing its guidance last month during the strike. Several aspects of GM’s strategy for growth, meanwhile, have been running behind plan and hitting challenges, testing investors’ patience. GM’s stock price had fallen 14% this year.
Consumer Reports: EVs are Far Less Reliable Than ICE, Hybrids
Electric vehicles may be the future, but in some ways they look a lot like the past. Particularly reliability. That’s the bottom line from Consumer Reports’ eagerly anticipated annual reliability survey of about 70,000 vehicles, which sounds like an ‘80s tribute act: the top tier, brands credited with excellent or very good reliability, is dominated by Japanese automakers, with a smattering of Europeans and a South Korean. Electric vehicles are among the worst offenders.
EVs in model years 2021-24 suffered about twice as many reliability problems as internal combustion engines, or ICE,
EVs have 79% more problems than ICE vehicles, according to CR’s survey.
CR excludes problems with commercial CD fast chargers from the report. They’re an infrastructure issue, but they’re also another reason many buyers are reluctant to commit to EVs.
Hybrids were the big winners, with an average 26% fewer problems.
Faring worst were plug-in hybrid vehicles, an extremely promising technology that features a bigger battery than a regular hybrid, so the vehicle can go farther on electricity in daily driving, but also has a gasoline engine for long trips. PHEVs had 146% as many issues as ICE vehicles.
U.S. Suicides Reached a Record High Last Year
America’s mental-health crisis drove suicides to a record-high number last year. Nearly 50,000 people in the U.S. lost their lives to suicide in 2022, according to a provisional tally from the National Center for Health Statistics. The agency said the final count would likely be higher. The suicide rate of 14.3 deaths per 100,000 people reached its highest level since 1941. Men 75 and older had the highest suicide rate last year at nearly 44 per 100,000 people, double that for people 15-24.
Firearm-related suicides become more common with age as people experience declining health, the loss of loved ones and social isolation. While women have consistently been found to have suicidal thoughts more commonly, men are four times as likely die by suicide. But there is some evidence that efforts to reach people in crisis are helping. Suicide rates for children 10-14 and people 15-24 declined by 18% and 9%, respectively, last year from 2021, bringing suicide rates in those groups back to prepandemic levels.
Eli Lily's Mounjaro is More Effective for Weight Loss Than Ozempic, Study Shows
Eli Lilly's weight-loss drug outperformed Novo's rival medication in a first-of-its-kind study. The study examined electronic health records for more than 41,000 patients who started taking Lilly's tirzepatide or Novo's semaglutide between May 2022 and September 2023 for diabetes treatment. After a year, patients on tirzepatide were three times more likely to have lost at least 15% of their body weight. Tirzepatide sells as Mounjaro in diabetes treatment and as Zepbound as a weight-loss drug. Novo's drug sells as Ozempic and Wegovy, respectively.
The study comes with some caveats. Truveta Research, which performed the analysis, noted the results have yet to be peer reviewed. Further, there haven't yet been randomized studies pitting Lilly's tirzepatide against Novo's semaglutide. Lilly is now running a study and hopes to wrap in 2025.
GE, Boeing Contracted for Carrier’s Expansion Program
GE Aerospace is on track to supply over 180 LEAP-1B turbofan engines to SunExpress, the carrier that earlier this month ordered up to 90 Boeing 737-8 and 737-10 aircraft. The engine order could be worth more than $1.3 billion to GE’s joint-venture business CFM International, which developed the LEAP engine series that powers Boeing’s narrow-body jets. LEAP engines are installed in both the Boeing 737 MAX and Airbus A320neo narrow-body jets, the two highest-selling aircraft now in service.
The LEAP-1A, LEAP-1B, and LEAP-1C are high-bypass turbofan engines developed by CFM International and produced separately by each of the co-equal partners in that joint venture, GE Aerospace and Safran Aircraft Engines. SunExpress, a joint-venture airline between Turkish Airlines and Lufthansa, ordered 45 Boeing 737 MAX aircraft (28 737 MAX-8s and 17 737 MAX-10s) as it plans to double the size of its all 737 fleet over the coming decade. Including options for 45 more aircraft, that booking is projected to be worth about $5 billion to Boeing based on list prices. The tourist airline that flies more than 175 routes between Europe and Turkey carries more than 10 million passengers annually.
Map: Investing in American Manufacturing – 2023
The map shows where manufacturers are choosing to invest their resources, whether they are building new production facilities or expanding existing plants.