Member Briefing October 19, 2022
U.S. Industrial Output has Solid Gain in September
Production at U.S. factories rose in September led by output gains in both durable and nondurable goods, indicating the manufacturing sector remains on reasonable footing despite the Federal Reserve's efforts to hamper demand through higher interest rates. Manufacturing output rose 0.4% last month, keeping pace with an upwardly revised 0.4% gain in August, the Federal Reserve said on Tuesday. Output increased 4.7% from a year earlier.
The gain was above economists' expectations of a 0.1% gain, according to a survey by The Wall Street Journal. Output in August was revised to a slight decline of 0.1% from the initial estimate of a 0.2% fall. Importantly capacity utilization rose to 80.3% in September from 80.1% in the prior month.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Pentagon Eyes Locking in Starlink Funding for Ukraine - Politico
- News Blackout in Southern Ukraine Means 'Something Big is Going On' – Sky News
- Iran Agrees to Ship Missiles, More Drones to Russia, Defying the West - Reuters
- Ukraine Moves to Cut Diplomatic Ties with Iran After Drone Attacks - Reuters
- Zelenskyy: Russia Has Destroyed 30 Percent of Ukraine’s Power Stations - Politico
- Blackouts in 1,162 Towns and Villages After Russia Strikes - BBC
- How to Detect an Imminent Russian Nuclear Attack – The Economist
- Central Kyiv Hit by Kamikaze Drone Strikes - CNBC
- Russia’s Terror Strikes Fail to do Much Damage to Ukraine – The Economist
- Planning for the Chaotic Post-Putin World - Politico
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
NY Fed Survey: Service Sector Activity Declines
Activity declined in the region’s service sector, according to firms responding to the Federal Reserve Bank of New York’s October 2022 Business Leaders Survey. The survey’s headline business activity index dropped twenty-one points to -15.5, its lowest level in nearly two years. The business climate index fell thirteen points to -41.6, also a multiyear low. Despite the decline in activity, employment grew at a faster pace than last month, and wage increases remained widespread. Price indexes were little changed and remained elevated. Looking ahead, firms turned pessimistic about the six-month outlook.
Conditions are expected to worsen over the next six months. The index for future business activity fell twenty-four points to -7.9, and the index for the future business climate dropped twenty-seven points to -30.2; this marks the first time in nearly two years that both indexes were negative. Employment is expected to grow in the months ahead, and wage and price increases are expected to remain widespread.
The Strong Dollar’s Unexpected Victims
The strong dollar has been a headwind for blue chip US companies in the Dow and S&P 500 this year. That’s understandable since a surging greenback eats into the international profits of companies like Apple, Procter & Gamble, McDonald’s and Coca-Cola, which all have significant exposure overseas. But it may come as a surprise that smaller US companies, which tend to have a more domestic focus, have not held up better during this time of dollar strength.
Investors are worried about a looming economic slowdown in the US, so any benefit from a stronger dollar — i.e. less exposure to the global economy — is being offset by recession worries domestically. Also, the dollar is so strong — the US Dollar Index, which tracks the greenback against the euro, pound, yen and several other currencies has soared 18% this year — it’s making foreign imports cheaper. That is bad news for smaller US companies trying to compete with rivals from Europe and Asia.
US COVID – US Warned to Get Ready as Europe Deals With New COVID-19 Rise
Rising COVID-19 cases in Europe are setting off warnings that the U.S. could experience a new surge this winter. Previous jumps in the U.S. have followed a pattern in which cases first rise in Europe, making officials nervous they could see a spike in U.S. cases as the weather turns.
World Health Organization Director-General Tedros Adhanom Ghebreyesus stated last week that a rise in cases in Europe was expected due to cooling temperatures, but stressed that hospitalizations and deaths did not have to rise as well due to the viral therapeutics that are now available. Confirmed coronavirus-related deaths across the European Union have remained low, with a seven-day average of 280 as of last week. In the U.S., cases and deaths have continued to trend down, but dropping temperatures that push people indoors, dismal booster vaccination numbers and an overall disregard for pandemic mitigation practices are setting the stage for a winter wave resembling the one across the Atlantic.
On the One Hand… NYT Siena Poll: Independent Woman Favor Republicans
A New York Times-Siena College poll released on Monday shows female independents favoring the GOP by 18 points, a sizable increase since September at a critical juncture before the midterm elections. The findings come as Republicans zero in on inflation under President Biden as their closing argument.
“At the end of the day, voters are paying more for everything from groceries to energy. When families are struggling to make ends meet, and are having to decide between heating and eating, they are going to vote for change,” Karoline Leavitt, the Republican House nominee challenging Rep. Chris Pappas (D) in New Hampshire’s 1st Congressional District, told The Hill on Monday. Democrats have focused much of their campaign pitches on abortion rights after the Supreme Court decision overturning Roe v. Wade roiled up their base.
On the Other Hand… Abortion Pushes Some Suburban Women in West Michigan Toward Democrats
Both parties say that appealing to suburban women, a key swing group, will be critical to winning races across the country this fall. Women are more likely to vote for Democrats, and pollsters and political strategists say abortion access is an issue that could push independent and some Republican suburban women toward the party. Polling has consistently shown that most Americans support legal access to abortion in all or most cases.
In the final stretch of midterm campaigning, abortion is at the center of competing pushes by the two major parties. Democrats are centering their advertising on abortion because polls show they have an advantage with voters on the issue. That has prompted some Republicans in recent weeks to play down and in some cases backpedal on their support for abortion restrictions in an effort to minimize the issue in the run-up to Election Day.
Johnson & Johnson Likely to Make Some Cuts to Workforce Despite Higher Sales, Profit
Johnson & Johnson posted higher sales and earnings for the recently ended quarter even as the stronger U.S. dollar and rising labor costs dented results. The New Brunswick, N.J., healthcare-products company on Tuesday lowered its full-year sales guidance on the continuing impact of the runup in the dollar relative to other currencies around the world. For the third quarter, J&J posted a quarterly profit of $4.46 billion, or $1.68 a share, up from $3.67 billion, or $1.37 a share, a year earlier. Adjusted for one-time costs, J&J’s per-share profit was $2.55. Wall Street analysts had been forecasting an adjusted profit of $2.48, according to FactSet.
J&J is likely to make modest cuts to its workforce both as a result of economic pressures and in connection with the planned separation of its consumer-health business next year, Chief Financial Officer Joseph Wolk said in an interview. The consumer business, which sells Tylenol and Band-Aids, will be called Kenvue. “We’re not immune to some of the economic pressures that are out there just like many companies are facing in many industries,” Mr. Wolk said in the interview. “So we’re taking this opportunity to really look at the resources, how we deploy them.”
Student Debt Relief Draws 8M+ Applications in First Two Days
More than 8 million Americans have applied for federal student debt relief since the Education Department began accepting applications late on Friday evening, President Joe Biden said on Monday. The application website “landed and handled more than 8 million applications without a glitch or any difficulty,” Biden said. He urged other Americans with federal student debt to apply for the program using the online form that is “easy, simple and fast.”
Biden on Monday also expressed optimism that his administration would be able to defend the program against a barrage of legal challenges from Republican officials and conservative groups, who are suing to stop it. “Our legal judgment is that it won’t” be struck down by a court, he told reporters.
New England Risks Winter Blackouts as Gas Supplies Tighten
New England power producers are preparing for potential strain on the grid this winter as a surge in natural-gas demand abroad threatens to reduce supplies they need to generate electricity.
The region’s power-grid operator, ISO New England Inc., has warned that an extremely cold winter could strain the reliability of the grid and potentially result in the need for rolling blackouts to keep electricity supply and demand in balance. The warning comes as executives and analysts predict power producers could have to pay as much as several times more than last year for gas deliveries if severe weather creates urgent need for spot-market purchases.
Tens of Thousands March in Paris to Protest Rising Living Costs
Thousands of people took to the streets of Paris on Sunday to protest against soaring prices as weeks of strikes for higher wages at oil refineries spurred demands for a general strike. Budget Minister Gabriel Attal said the left-wing coalition was attempting to exploit the current situation, marked by ongoing strikes at French utility EDF's nuclear plants and at French oil refineries.
The leader of hard-left party La France Insoumise (France Unbowed), Jean-Luc Melenchon, marched alongside this year's Nobel Prize winner for Literature, Annie Ernaux. He called a general strike for Tuesday. "You're going to live a week like no other, we are the ones who started it with this march." Melenchon followed the footsteps of four unions - but not France's biggest, the moderate CFDT - which have called for strikes and protests on Tuesday for wage increases.
Microsoft Lays Off Employees After Slowdown in Earnings Growth
Microsoft Corp. laid off more employees this week, becoming the latest tech company to show signs of concern about future demand. In July the software maker said it had plans to cut a number of positions, affecting less than 1% of its total workforce. At the time, Microsoft, which employs more than 200,000 people, said it was making the cuts as a part of a regular adjustment at the start of its fiscal year.
On Monday, the company didn’t give a figure for the number of layoffs that have started this week and didn’t confirm whether they were part of the earlier announced plans. Axios earlier reported the latest cuts. “Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly. We will continue to invest in our business and hire in key growth areas in the year ahead.” a Microsoft spokeswoman said.
GM Establishes New Unit to Help Connect EVs With the Power Grid
One of the largest looming questions about the mass adoption of electric vehicles is whether the power grid can keep up with increased demand. General Motors wants to provide an answer to ensure reliability for both utility operators and motorists. The automaker unveiled a new business unit Tuesday called GM Energy that houses EV-related products and services for residential and commercial customers.
Ultium Home and Commercial will offer products and services that enable bidirectional charging, allowing an EV to draw power from an electrical service or send excess power back to utilities and perhaps receive compensation.
Dozens of LNG Laden Ships Queue Off Europe's Coasts Unable to Unload
Dozens of ships carrying liquefied natural gas (LNG) circling off the coasts of Spain unable to secure slots to unload have prompted grid operators for the country to warn they may have to suspend loading to deal with this "exceptional situation". Europe is facing an energy supply squeeze as Russia has progressively cut gas flows after the West imposed sanctions in response to Russia's invasion of Ukraine in late February.
There are more than 35 LNG-laden vessels drifting off Spain and around the Mediterranean, with at least eight vessels anchored off the Bay of Cadiz alone, traders, analysts and sources at LNG terminals familiar with the situation said on Monday.
Amazon’s Attrition Costs $8 Billion Annually According to Leaked Documents
Amazon churns through workers at an astonishing rate, well above industry averages. According to a tranche of documents marked “Amazon Confidential” provided to Engadget and not previously reported on, that staggering attrition now has an associated cost. “[Worldwide] Consumer Field Operations is experiencing high levels of attrition (regretted and unregretted) across all levels, totaling an estimated $8 billion annually for Amazon and its shareholders,” one of the documents, authored earlier this year, states. For a sense of scale, the company's net profit for its 2021 fiscal year was $33.36 billion.
“Regretted attrition” – that is, workers choosing to leave the company – “occurs twice as often as unregretted attrition” – people being laid off or fired – “across all levels and businesses,” according to this research. The paper “indicates regretted attrition [represents] a low of 69.5% to a high of 81.3% across all levels (Tier 1 through Level 10 employees) suggesting a distinct retention issue.” By way of explanation, Tier 1 would include entry-level roles like the company’s thousands of warehouse associates, while a vice president would be positioned at Level 10. It also notes that “only one out of three new hires in 2021" stay with the company for 90 or more days.
Amazon Workers Vote Against Unionizing in Upstate New York
Amazon.com Inc. workers in upstate New York voted against unionizing, a setback for labor activists trying to expand their unionization push at the tech giant. The election at the facility, named ALB1 and located at Castleton-on-Hudson, N.Y., is the fourth vote this year at an Amazon warehouse. The ALB1 center is much smaller than the facility that unionized in Staten Island, named JFK8. About 950 people were eligible to vote at ALB1, compared with the roughly 8,300 eligible voters at the time of the JFK8 election in April. More than 600 workers cast ballots in the ALB1 election.
The National Labor Relations Board said about 66% of employees who cast valid ballots at a company facility near Albany rejected the Amazon Labor Union, which earlier this year won a landmark union vote at an Amazon warehouse in Staten Island, N.Y. An Amazon spokeswoman said the company is glad that workers chose to keep a “direct relationship with Amazon,” which the company sees as best for employees and customers. “We are filled with resolve to continue and expand our campaign for fair treatment for all Amazon workers,” Chris Smalls, president of the Amazon Labor Union, said Tuesday. “It isn’t a loss, it’s an ongoing battle,” he said.