Member Briefing October 18, 2023
Industrial Output Remains Under Pressure Despite September Rebound
The U.S. industrial sector continues to wobble amid the unfavorable mix of restrictive conditions and heightened economic and geopolitical uncertainty. The 0.3% gain in industrial production in September continues a recent seesaw trend in monthly manufacturing activity
- Durable goods manufacturing output rose at a 2.3% annualized rate, which was offset by a 2.4% pace of decline in nondurable manufacturing.
- Motor vehicle and parts output rose 0.3% last month, in spite of the UAW strike, after declining 4.1% in August.
- Mining output rose 0.4% after gaining 0.2% in August. Utilities production fell 0.3% after increasing 0.7% in the prior month. Overall industrial production rose 0.3% in September after being unchanged in August.
- Industrial output increased at a 2.5% rate in the third quarter. That followed a 0.7% growth pace in the second quarter.
- Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, rose 0.2 percentage point to 79.7% in September. It is now equal to its 1972–2022 average.
Despite last month's strong showing, manufacturing remains constrained by slowing demand for goods because of higher interest rates. Since March 2022, the Federal Reserve has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.
War in Israel Headlines
- Israel and Hamas: The Latest News – CNBC
- Biden’s Trip to Israel Carries Risks for U.S. Policy—and His Own Legacy - WSJ
- President Will Also Travel to Jordan for Meetings with Abbas, Al Sisi, King Abdullah - WSJ
- King Abdullah on Gaza: 'No Refugees in Jordan, no Refugees in Egypt' – Reuters
- Israel-Hamas War Threatens Regional Gas Volatility – The Hill
- Dissed by Saudi Arabia, Lectured by Egypt: U.S. Diplomacy Meets Mideast Reality – Politico
- Top Iranian Envoy Warns ‘Preemptive Action’ Against Israel Expected Soon – The Hill
- Hochul in Israel on ‘Solidarity Mission’ - Politico
- Gaza Families Ordered South Return Home, Say Nowhere is Safe from Israeli Bombs – Reuters
- China Says Israel Has Gone Too Far – Politico
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russian Duma Takes First Step to Revoke Ratification of Nuclear Test Ban Treaty - Reuters
- Ukraine Uses Secretly Shipped U.S. Missiles to Launch Surprise Strike - Politico
- All 31 Abrams Tanks in Ukraine, US Military Confirms- VOA
- Ukraine Says it Strikes Russia's Military Equipment Near Luhansk - Reuters
- Russia Goes on the Offensive in Ukraine—and Suffers Heavy Losses - WSJ
- Ukraine 'Destroys Russian Helicopters in Berdyansk and Luhansk' - BBC
- Ukraine Claims a Major Strike on Russian Airfields - PBS
- Putin’s Plan to Profit from the Israel-Hamas War – The Economist
- 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
Retail Sales Beat Expectations in Boost to Third-Quarter GDP
U.S. retail sales increased more than expected in September as households stepped up purchases of motor vehicles and spent more at restaurants and bars, cementing expectations that economic growth accelerated in the third quarter. Strong demand illustrated by the report from the Commerce Department on Tuesday, however, raises the risk of the Federal Reserve hiking interest rates in December. The data followed on the heels of stronger-than-expected employment growth and consumer price readings in September.
Sales at auto dealerships accelerated 1.0% last month after rising 0.4% in August. Receipts at gasoline stations climbed 0.9%, reflecting higher pump prices. Excluding motor vehicles and gasoline stations, retail sales rose a solid 0.6%. Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.6% in September. Data for August was revised up to show these so-called core retail sales gaining 0.2% instead of 0.1% as previously reported. Consumers are increasingly relying on credit cards to fund purchases.
Homebuilder Sentiment Drops to 10-Month Low, as Mortgage Rates Soar
The monthly National Association of Home Builders/Wells Fargo Housing Market Index dropped four points to 40 in October, and September’s read was revised down one point. Anything below 50 is considered negative. This marks the third straight monthly decline in builder confidence. Builders point squarely to mortgage rates, which are now at a 23-year high. The average rate on the popular 30-year fixed mortgage has remained over 7% for two months. Affordability has fallen to near record lows.
Of the index’s three components, current sales conditions fell four points to 46, sales expectations in the next six months dropped five points to 44, and buyer traffic dropped four points to 26. In addition, 32% of builders said they cut home prices. That is unchanged from the previous month but still the highest rate since December (35%). The average price discount is steady at 6%.
COVID Update - Penn Study Finds Serotonin Reduction Causes Long COVID Symptoms
Patients with long COVID – the long-term symptoms like brain fog, fatigue, or memory loss in the months or years following COVID-19 – can exhibit a reduction in circulating levels of the neurotransmitter serotonin, according to new research published today in Cell. The study, led by researchers from the Perelman School of Medicine at the University of Pennsylvania, sheds new light on the mechanisms of how persistent inflammation after contracting the SARS-CoV-2 virus can cause long-term neurological symptoms.
Researchers evaluated the effects of long COVID in blood and stool samples from various clinical studies and in small animal models. They determined that a subset of patients with long COVID had traces of the SARS-CoV-2 virus in their stool samples even months after acute COVID-19 infection, which suggests that components of the virus remain in the gut of some patients long after infection. They found that this remaining virus, called a viral reservoir, triggers the immune system to release proteins that fight the virus, called interferons. These interferons cause inflammation that reduces the absorption of the amino acid tryptophan in the gastrointestinal (GI) tract.
Another Speaker Vote Set For Today After Jordan Falls Short
Rep. Jim Jordan and his allies took Tuesday afternoon to regroup after a vote in the House earlier in the day had 20 Republicans come out against his bid to become Speaker. Jordan (R-Ohio) secured 200 of the necessary 217 votes, while Minority Leader Hakeem Jeffries (D-N.Y.) got the full backing of Democratic members, with 212 votes.
The House has been in recess since the vote ended, just before 2 p.m., and a second vote is now expected at 11 a.m. Today. Jordan had gained some major momentum, picking up endorsements from key players who had initially said they would not vote for him. But during Tuesday’s midday vote, 20 Republicans cast votes for other members.
Read more and get updates at The Hill
Women in STEM Event Tomorrow at Arlington High School – Presenters Wanted
Arlington High School will host a Women in STEM – Manufacturing and Engineering Career night Thursday, October 19th beginning at 6:00 PM. The event is intended to encourage students to pursue STEM Careers – particularly in manufacturing and engineering. “Come and engage with successful Women in STEM, where students can walk around, learn career lessons, explore new and exciting jobs and expand their professional network. A brief introduction of the panel will be at 6:00 pm.
Women in manufacturing are still needed to share their experiences with participants. If you are interested you can contact Johnnieanne Hansen at the Council of Industry or Kimberly Sweck at Arlington High School.
Gov. Kathy Hochul Has More Than 350 Bills on Her Desk to Sign or Veto Here’s and Update
Gov. Kathy Hochul has been working her way through hundreds of pieces of legislation since the end of the scheduled legislative session in June, and she has made significant progress on the nearly 900 bills that would need her signature. In recent weeks, Hochul made her way through about 50 bills, but over 350 still need to be sent to her desk for signature – or veto.
Governors in New York typically take time for their office to review legislation before requesting it from the Legislature. A governor has 10 days – minus Sundays – to sign or veto a bill before it automatically becomes law once lawmakers deliver it to her desk. Although lawmakers could do that any time they want, they generally wait until the governor asks for them to send the legislation in order to ensure she has sufficiently reviewed it or engaged in any additional negotiations for amendments to the bill before signage. Keep up with the legislation still up in the air with City & State’s non-exhaustive list. Bills the governor signed have been removed from the list. This post was last updated on Oct. 16.
Firm Says UAW Strike Has Cost Industry $7.7 Billion
The United Auto Workers strike at targeted Detroit Three automaker facilities has cost the auto industry $7.7 billion through the fourth week of the work stoppage, according to a new assessment by East Lansing-based Anderson Economic Group LLC. The consulting firm calculated the following losses of the strike against Ford Motor Co., General Motors Co. and Stellantis NV:
- Original equipment manufacturer direct wages: $359 million
- Detroit Three: $3.45 billion
- Supplier wages and earnings: $2.67 billion
- Dealers, customers and others: $1.21 billion
Tuesday marked day 33 of the UAW's strike against the Detroit Three. UAW President Shawn Fain first called out workers at Ford's Michigan Assembly plant in Wayne, Stellantis' Toledo Jeep plant in Ohio and GM's Wentzville Assembly in Missouri. The strike has been expanded multiple times to include: all of the GM and Stellantis parts warehouses, GM's Lansing Delta Township assembly plant, Ford's Chicago Assembly Plant and, most recently, its profit-rich Kentucky Truck Plant.
Automakers Have Big Hopes for EVs; Buyers Aren’t Cooperating
The auto industry’s push to boost sales of electric vehicles is running into a cold, hard reality: Buyers’ interest in these models is proving shallower than expected. While EV sales continue to grow—rising 51% this year through September—the rate has slowed from a year earlier and unsold inventory is starting to pile up for some brands. The first wave of buyers willing to pay a premium for a battery-powered car has already made the purchase, dealers and executives say, and automakers are now dealing with a more hesitant group, just as a barrage of new EV models are expected to hit dealerships in the coming years.
“The curve isn’t accelerating as quickly as I think a lot of people expected,” said John Lawler, Ford Motor’s chief financial officer at a conference in September, on the EV adoption rate. “We’re seeing it flatten a bit.” The abrupt slowdown in EV sales is a contrast to a year ago, when carmakers found themselves caught off guard by long waiting lists for battery-powered cars and trucks. It is also a troublesome sign for the car manufacturers plowing billions of dollars into building factories and battery plants to support what they hope will be a strong pickup in demand for plug-in models.
Toyota Halts Six Auto Plants After Explosion at Parts Supplier
Toyota Motor has suspended operations at six domestic plants following a blast at a factory run by one of its component suppliers. The explosion occurred Monday at Chuo Spring’s factory in Aichi Prefecture, where vehicle suspension coils are made for a number of Japanese carmakers. One employee was hospitalized and another treated for slight injuries, the supplier said Tuesday.
It’s the biggest domestic production halt since August, when the world’s largest carmaker was forced to shut down all 14 of its domestic plants for a day due to a glitch in its manufacturing system. Toyota declined to reveal how many production units will be affected because of the latest incident. Toyota said operations at 10 manufacturing lines across six facilities in Japan have been halted. Toyota Auto Body’s Yoshiwara and Inabe plants as well as some production lines have been offline since Monday evening, while the Takaoka and Tsutsumi plants were stopped Tuesday morning.
NY Fed Business Leaders Survey: ‘Significant’ Decline in Activity
Business activity fell significantly, according to the Federal Reserve Bank of New York’s October 2023 Business Leaders Survey. The headline business activity index declined a steep sixteen points to -19.1, its lowest reading since May. The business climate index fell nine points to -35.9, suggesting that the business climate remains worse than normal, and to a greater extent than in recent months.
The employment index climbed five points to 8.9, pointing to a modest increase in employment despite the decline in activity. The wages index was little changed at 39.5, a sign that wages increased at about the same pace as last month. Both the prices paid and prices received indexes fell three points, indicating that input and selling price increases moderated slightly. The capital spending index came in at 5.1, suggesting a small increase in capital expenditures. The index for the future business climate plunged twenty-four points to -25.5. However, employment is expected to grow modestly in the months ahead, and wage increases are expected to remain widespread.
Apple’s iPhone Loses Top Spot in China to Huawei
Apple’s iPhone has officially been dethroned from its position as the smartphone market share leader in China, according to a Monday report from Jefferies analysts. The analysts said smartphone sales in China have showed positive growth year over year, driven primarily by high double-digit growth in Android sales led by Huawei, Xiaomi and Honor devices. But Apple’s iPhone has seen a significant, double-digit decline, and its volume growth year over year has been negative since the iPhone 15 launched, according to the analysts.
As a result, Huawei overtook the iPhone in the No.1 spot for market share. “We believe weak demand in China would eventually lead to lower-than-expected global shipments of iPhone 15 in 2023,” the analysts wrote, adding that the trend suggests the iPhone will “lose” to Huawei next year. The Jefferies analysts wrote that Android’s volume growth can’t be chalked up to discounts and that discounts on iPhones, excluding the iPhone 15 models, have been stable, while the average discount for Android “is not high.” The analysts noted that resale iPhone 15 devices are all “trading at discounts to official selling prices,” which also reflects the weak demand in China.
Lockheed Martin Beats Earnings Forecasts, Defense Contractors In Focus
Lockheed Martin earnings declined 1.5% to $6.77 per share adjusted on 2% revenue growth to $16.9 billion. Lockheed's aeronautics segment revenues fell 5.4% to $6.72 billion, compared to Wall Street predictions of $6.79 billion for the quarter. Missiles and fire control sales rose 3.8% to $2.94 billion, topping forecasts of $2.89 billion. Lockheed reported an 8.9% jump in rotary and mission systems revenue to $4.12 billion, which beat expectations of $3.97 billion. The defense contractor's space segment saw sales increase 7.6% to $3.1 billion compared to estimates of $3.01 billion.
Lockheed generated $2.5 billion in free cash flow for the quarter. Lockheed also announced a Q4 dividend payment of $3.15 per share, up 15 cents per share from the prior quarterly payment. For the 2023 fiscal year, Lockheed Martin guided up to 25.6% earnings growth to range from $27 and $27.20 per share. The company expects 2023 sales between $66.25 billion and $66.75 billion, up to a 1.3% increase from last year.
Read more at Investor’s Business Daily
2023 Already the Worst Year for Hacks—and We’re Not Out Yet
As of the end of September, corporations had reported 2,116 data compromises for the year, according to the Identity Theft Resource Center (ITRC). That’s already higher than the previous annual record of 1,862, set in 2021. And the fourth quarter is already off to a rollicking start, with the high-profile hack of 23andMe, which could impact millions of the company’s customers.
The third quarter saw 733 total reported compromises, affecting 66,658,764 people. Financial services was the most-attacked sector, topping healthcare for the first time since Q2 2022. That could be because the number of financial institutions reporting data compromises spiked in the third quarter. All totaled, 204 notices were issued, which is more than the 135 total of reported compromises in financial service businesses in the past two years