Member Briefing October 19, 2023
Cars.com Survey: Inventories And Consumer Patience Are Thinning As UAW Strikes Continue
In the fifth week of the United Auto Workers’ cascading “stand up” strikes against the Detroit Three automakers, supplies of some of the most popular models are starting to dwindle and consumer preferences are in flux, according to research by car reviews and research site Cars.com. The strikes are actually affecting both purchase timing and, for some, brand preferences, according to the Cars.com consumer survey, which generated 3,561 responses between the first day of the strikes on September 15 and September 25.
Of the 77% of respondents who said they are “aware” of the UAW strikes, 15% said they are now considering a vehicle built by UAW labor, while 8% said a UAW-built car or truck is no longer on their lists. The strikes have also affected whether or not those currently in the market for a new vehicle would consider any vehicle from a Detroit Three automaker. According to the survey, 29% said they are now “more likely” to consider an import because of the strike. Of those who said they “intend” to purchase a new vehicle, 14% said they're sitting it out until the strikes end while 11% said they're not waiting and will buy sooner.
War in Israel Headlines
- Israel and Hamas: The Latest News – CNBC
- U.S. Intelligence Shows Gaza Militants Behind Hospital Blast - WSJ
- Middle East War Adds to Surge in International Arms Sales - NYT
- Top US General Makes Surprise Visit to Israel – The Hill
- Biden Backs Israel Over Blast at Gaza Hospital – Reuters
- Summit in Jordan with Arab Leaders is Canceled as Fears Grow of Regional Escalation - WSJ
- China Says Israel Has Gone Too Far – Politico
- Senate Holds Hearing on Nomination for Ambassador of Israel – The Hill
- OPEC Plans no Immediate Action after Iran Urges Israel Oil Embargo, Sources Say - Reuters
- Why Hochul Went to Israel – Politico New York Playbook
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- US Has Provided Ukraine Long-Range ATACMS Missiles, Sources Say - CNN
- Putin Dismisses Importance of U.S.- Supplied Weapons to Ukraine - NBC
- Xi and Putin Think They're Winning — and Maybe They Are - Bloomberg
- G7 to Discuss Four Versions of Russian Diamond Ban this Week- Sources – Reuters
- Putin Sends Jets With Hypersonic Missiles to Patrol Black Sea – Times of India
- Ukraine, Partners Fight to Avoid Stalemate as Headwinds Grow - WSJ
- Ukraine’s Special Forces Use Daring Raids and Distraction Tactics in Bid to Free Crimea - CNN
- Putin Praises 'Dear Friend' Xi, Pitches Russia's Northern Sea Route – 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
China GDP: Economic Recovery Regains Momentum in Third Quarter
China’s economic recovery regained mild momentum in the third quarter, rising by 1.3 per cent from the previous three months, amid ongoing calls for increased policy support to sustain a consistent growth trajectory. The third-quarter growth was higher than the sequential rise of 0.8 per cent in the second quarter. Year on year, China’s gross domestic product grew by 4.9 per cent in the third quarter, the National Bureau of Statistics (NBS) said on Wednesday.
The year-on-year figure was higher than the average economist’s estimate of a 4.5 per cent rise, as surveyed by Chinese data provider Wind. Retail sales, a major gauge for spending sentiment, grew by 5.5 per cent in September, compared with 4.6 per cent growth in August, and higher than the 4.9 per cent growth predicted by Wind. Industrial output, meanwhile, rose by 4.5 per cent in September, unchanged from August, but lower than the 4.6 per cent growth predicted by Wind.
U.S. Housing Starts Perk Up in September
Total housing starts moved in line with expectations in September, improving 7.8% to a 1.4 million-unit pace. September’s gain was broad-based across single- and multifamily construction. Builders continue to ride the tailwind of resilient single-family demand as they find success using incentives to sell homes in the higher mortgage rate environment. We find it unlikely that this level of demand can be sustained, however.
Mortgage rates have climbed near 8.0% in recent weeks, which will likely test builders’ abilities to continue bridging the affordability gap for buyers. Meanwhile, multifamily starts picked up for the first time in four months, driving the bulk of September’s gain. We caution that multifamily data is highly volatile from month to month, and an ongoing slide in multifamily permits points to weaker apartment construction ahead.
COVID Update - Combo COVID Vaccine Works in Mice; Human Tests Scheduled for 2024
Duke researchers are working on a vaccine to protect against three different deadly strains of coronavirus. The vaccine shows success in mouse studies, according to researchers at the Duke Human Vaccine Institute. The vaccine included components of a previous vaccine that was shown to protect mice and primates against multiple variants of SARS-CoV-2, which is the virus that causes COVID-19.
In this study, the vaccine protected mice from SARS-CoV-1, another form of SARS coronavirus that can infect humans, and a MERS coronavirus that has led to periodic, deadly outbreaks around the world. Researchers are working to expand the components of the vaccine to include an additional SARS-related virus and MERS virus. In lab studies, as well as in mice, the researchers found that the vaccine created antibodies against all three pathogenic human coronavirus types.
Jim Jordan Lost a Second House Speaker Vote. Round 3 Set for Thursday
House members cast a second round of ballots for Speaker, but House Judiciary Committee Chairman Jim Jordan (R-Ohio) fared no better, in fact losing support from the first vote on Tuesday. The final Speaker vote was 199 for Jordan, 212 for House Minority Leader Hakeem Jeffries and 22 for someone else. But speaking after the vote, Jordan was undeterred in his work to reach 217 votes and flip holdouts. The next vote will be Thursday.
“We picked up some today, a couple dropped off, but they voted for me before. I think they can come back again. So we’ll keep talking to members. Keep working on it,” he said. Meanwhile, the push to expand the power of Speaker Pro Tem Patrick McHenry (R-N.C.) is heating up as the fractured GOP conference struggles to see a way forward. Senate Republican Whip John Thune (S.D.) said McHenry “might be a landing place” to allow the House to start conducting pressing business. “He’s somebody who’s solutions oriented and practical and understands that part of the job around here, whether we like it or not, is to govern. I think that’s something that he gets, so we’ll see,” Thune said.
New York GOP House Members Go it Alone on Jordan Vote
Swing-district Republicans in New York are avoiding association with conservative House Rep. Jim Jordan for as long as they can. The vulnerable House members accounted Tuesday for four of the 20 GOP votes against Jordan for House speaker in the first round of ballots, with jockeying over the party’s leadership expected to carry on until at least Wednesday. In the Hudson Valley, Rep. Mike Lawler voted for former House Speaker Kevin McCarthy over Jordan. He’s another Republican who faces a tough reelection bid. Rep. Anthony D’Esposito of Nassau County joined with fellow Long Island Reps. Andrew Garbarino and Nick LaLota in backing former Rep. Lee Zeldin for speaker.
The New York City suburbs will be pivotal for both parties next year. But as Republicans remain deadlocked over leadership on Capitol Hill, their resistance to Jordan was intended to reassure voters they will stand up to firebrand conservatives.
Benchmark Treasury Yield Hits New 16-Year High, Climbs Toward 5%
The yield on the 10-year Treasury note rose to 4.84% Tuesday, hitting the highest level since August 2007. A solid retail report and good data on industrial production lifted 10-year yields by 0.13 percentage points Tuesday, a pretty big one-day jump in the Treasury market. The yield on the 10-year Treasury note — basically what financial markets would charge the U.S. government to borrow for 10 years — forms a foundation for most other borrowing activity.
Borrowing costs for a range of assets from corporate bonds, to 30-year home mortgages, are tied to the yield on the benchmark Treasury bond. If the U.S. government — the pre-eminent military, financial and economic power on earth — has to pay more, likely everybody else does, too. The rise in yields over the last six months reflects an emerging higher-for-longer consensus view in the markets, which, in turn, reflects the fact that the U.S. economy has a ton of momentum and inflation continues to have an impact.
Mortgage Demand Falls to the Lowest Level Since 1995 as Interest Rates Near 8%
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.70% from 7.67%. Applications for a mortgage to purchase a home dropped 6% week to week and were 21% lower than the same week one year ago. Applications to refinance a home loan fell 10% for the week and were 12% lower than one year ago.
“Both purchase and refinance applications declined, driven by larger drops for conventional applications,” said Joel Kan, vice president and deputy chief economist at the MBA, in a release. He added that the adjustable-rate mortgage (ARM) share was 9.3%, the highest share in 11 months. Mortgage rates moved even higher to start this week, with the 30-year fixed hitting 7.92% on Tuesday, according to Mortgage News Daily. That is a cyclical high. The increase was due to a much stronger-than-expected monthly retail sales report.
A Brand New (Grand Scale) Biden Student Loan Forgiveness Plan is in the Works
The Biden administration is moving forward with its second attempt to cancel the student loans of some borrowers after the U.S. Supreme Court rejected its initial plan. The latest attempt is based on the Higher Education Act, which gives the education secretary authority to waive student loans, although how far that power extends is the subject of legal debate. The Education Department hopes to settle the dispute by adding federal rules that clarify when the secretary can waive loans. It’s unclear who will be eligible for forgiveness under the new plan or how much relief they would get.
The Education Department released a position paper identifying several categories of borrowers who could qualify for student loan forgiveness under the new program. These include:
Borrowers who have experienced significant balance growth because of interest accrual and fees.
Those who have been unable to apply for existing student loan forgiveness programs.
Borrowers with extreme financial hardships.
Those who took out student loans many years ago but who did not receive sufficient value from the educational program they attended.
Hudson Gateway Association of Realtors: Home Sales Down by Double-Digits in Region
The combination of high interest rates and low inventory have dampened buyer demand and were the chief reasons for double-digit declines in home sales in the third quarter of the year in the Hudson Gateway Association of Realtors market area, the trade organization says.
Westchester County had the lowest decline in sales of single-family home at a 19.9 percent drop when comparing the third quarter of 2022 to the third quarter of 2023. Sales dropped by 24 percent in Orange County when comparing the third quarter of each year. In Rockland County, sales declined by 25.1 percent. In Sullivan County sales dropped by 28.5 percent while they declined the most in Putnam County, at 30.7 percent.
Companies Grapple With Rising Health Care Costs
Companies’ health care costs are rising steeply, leading finance chiefs to look for alternative ways of attracting and retaining employees. Health-insurance costs, which are among the largest expenses for many U.S. companies, are projected to rise around 6.5% for 2024, according to consulting firm Mercer. The surge … may add significantly to costs for employer plans that Mercer said already average more than $14,000 a year per employee. Many companies are expected to take on most of the increases.
In addition to inflation and higher interest rates, rising health care price tags are the result of a combination of higher labor costs in hospitals and elsewhere in the health care system, a rise in elective care (which declined during the global pandemic) and a demand for new drugs. Finance officers are largely seeking ways to manage the growing costs without “add[ing] pressure to employees’ budgets as health care costs rise,” according to the Journal. Whether that will be possible in the longer term will depend mainly on the state of the labor market and how high prices rise. Some companies are considering sharing the increased cost burden with employees, while others are pushing preventive care as a way to save money down the road.
Inflation, Interest Rates Slowing Steel Consumption
The World Steel Association updated its semiannual Short Range Outlook for steel demand, forecasting that global demand will grow +1.8% year-over-year for 2023, to 1.814 billion metric tons. This would follow the -3.3% decline in demand recorded for 2022. The target is slightly lower than the 2023 forecast that World Steel offered in April of this year (1.822 billion metric tons.)
Steel demand in the U.S. has been affected by interest-rate increases, particularly from the residential construction sector, though commercial construction is showing some resistance to that trend – which the forecasters attribute to reshoring activities. U.S. steel demand is also benefitting from infrastructure investments. However, the U.S. manufacturing sector has been slowing, except for automotive production, though those operations may begin to feel a lagging effect from high interest rates in 2024.
Read more at American Machinist
Delta Sees 757 Engine Overhauls As Smart Investment
Delta Air Lines sees a recent jump in maintenance costs to overhaul engines for its venerable Boeing 757 fleet as an easy decision given the benefits those aircraft offer in its network. “The returns are very good related to how we deploy it and fly it within our network,” CFO Dan Janky said on the company’s recent 2023 third quarter (Q3) earnings call. “So we have leaned on it. We have reactivated more as we continue to see new deliveries slide.”
Delta’s order book includes 737-10s as well as Airbus A321neos and A220-300s. Deliveries of all three have been delayed for various reasons. The 737-10 is not yet certified, while A321 deliveries have been delayed by several months for some operators. The 757’s mission profile is closest to these two models. Delta’s investment in its older Boeing narrowbodies gives it both insurance against more supply chain problems and some future capacity flexibility. Delta has 112 757s in service and another 12 parked or in long-term storage.
Stubborn UK inflation holds steady as Petrol Prices Rise
British consumer price inflation (CPI) unexpectedly held at 6.7% in September, remaining the highest of any major advanced economy and keeping alive the possibility of another rise in interest rates. A rise in petrol prices between August and September was the main factor stopping a fall in the annual rate, the Office for National Statistics said on Wednesday. But two other less volatile measures closely watched by the Bank of England (BoE) - core inflation and services prices - were also robust, which is likely to leave some policymakers worried about longer-term price pressures.
Wednesday's data showed core inflation fell less than expected to 6.1% in September from August's 6.2%. This measure excludes volatile food, energy, alcohol and tobacco prices and is often considered a better guide to longer-term price trends. Services price inflation - another CPI component the BoE studies as it shows the impact of rising domestic labour costs on consumers - increased to 6.9% in September from 6.8%, driven by more expensive hotel rooms.