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Member Briefing October 21, 2024

October 21, 2024

Posted By: Harold King in Daily Briefing,

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US Industrial Production Declines on Strike, Hurricane Effects

US industrial production fell in September, restrained by a decline in factory output that reflected a strike at Boeing Co. and two hurricanes. The 0.3% decrease in production at factories, mines and utilities followed a downwardly revised 0.3% gain a month earlier, Federal Reserve data showed Thursday. The Fed’s report showed weaker production of motor vehicles, furniture and textiles during the month. Output of business equipment, while restrained by the drop in aircraft, was also held back by weaker production of industrial and information processing equipment.

Manufacturing output dropped 0.4%, after a sizable downward revision in the previous month. Mining and energy extraction slid 0.6%, depressed by hurricanes Francine and Helene. Output at utilities increased for the first time in three months. A strike by aircraft machinists held down industrial production by an estimated 0.3%, while the effects of the hurricanes subtracted a similar amount, the Fed said. Production of aerospace equipment tumbled 8.3% during the month. Manufacturing, which accounts for three-fourths of total industrial production, has struggled amid high interest rates as well as uncertainty about the US presidential election.

Read more at Yahoo Finance

NY Fed: Regional Service Sector Activity Steady

As has been the case in recent months, business activity was little changed in the New York-Northern New Jersey region, according to the October survey. The headline business activity index edged down to -2.2. Twenty-eight percent of respondents reported that conditions improved over the month and 30 percent said that conditions worsened. The business climate index was similar to last month at -26.0, pointing to an ongoing worsening business climate.

The employment index held steady at 4.4, a sign that employment grew, but only to a small degree. The wages index fell seven points to 28.3, its lowest level in nearly a year, indicating that wage increases slowed.
The prices paid index edged up three points to 47.8, indicating input price increases were slightly stronger than last month, while the prices received index fell four points to 19.0, suggesting selling price increases slowed somewhat.
The capital spending index picked up several points to 8.9, indicating that capital spending grew modestly.
The index for future business activity edged up two points to 17.3, and the index for the future business climate index climbed seven points to 4.9, its first positive reading in several months.
The two readings pointing to some improvement in optimism compared to last month, though optimism remained subdued. Modest increases in employment are expected in the months ahead.

Read More at The NY Fed

Retail Sales Post Broad Advance in September

Despite worries about the financial health of the consumer and potential weakening in the labor market, U.S. retailers had a solid month in September. Control group sales rose more than twice the expected amount, pointing to stronger Q3 consumer spending. The headline increase of 0.4% for September was just a bit ahead of the 0.3% increase that had been expected, but the real upside was in the core measures of spending.

Excluding sales at auto dealers and gas stations, retailers notched a solid 0.7% increase which was more than double the 0.3% gain that had been expected. These gains came despite the fact that August's sales numbers were revised higher. Control group sales, which tends to line up with personal consumption spending in the GDP report, also came in much stronger than expected with 0.7% gain. That is the biggest gain in three months and the third largest monthly gain of 2024.

Read more at Wells Fargo

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Policy and Politics

Senate Republicans Raise Questions After SBA Funds For Disaster Loans Exhausted

A group of GOP senators are pressing the Small Business Administration (SBA) for answers after officials said its disaster loan program exhausted its funds earlier this week in the aftermath of a pair of major hurricanes. In the letter, the senators raised concerns about the administration’s handling of its disaster loan account and what they described as the office’s “failure to provide its authorizing committees statutorily required information…. These concerns are only heightened by the SBA’s lack of transparency, including the failure to provide an official Office of Management and Budget (OMB) request, and the requisite notifications and reports to authorizing committees,” they wrote.

The senators additionally took aim at certain administrative changes with terms of the disaster loan program that they said “lead to a substantial increase in its subsidy rate” and that the “SBA failed to properly model and did not properly notify authorizers of the ramifications of these changes,” among other concerns. A spokesperson for the agency said in a statement to The Hill that the agency “first raised the need for additional funds to congressional appropriators in September 2023.”

Read more at The Hill

Biden Administration Eases Restrictions On Space-Related Exports To Allies

The Biden administration on Thursday eased export restrictions on U.S. commercial space companies to ship certain satellite and spacecraft-related items to allies and partners. The changes are intended to make it easier for the growing U.S. commercial space industry to expand sales while also protecting national security and foreign policy interests. U.S. space companies like Elon Musk's SpaceX, and large defense contractors with space units like Lockheed Martin, L3Harris Technologies and Boeing, could benefit from the new rules, which were posted in the Federal Register on Thursday afternoon.

The rules could help the U.S. push ahead with the trilateral AUKUS security pact between Britain, the U.S. and Australia formed in 2021 to respond to China's growing power in the Indo-Pacific region. Part of the pact is focused on technology sharing.

Read More at Reuters

How the U.S. Is Trying to Challenge China’s Cobalt Chokehold

The Biden administration has held talks with three firms in recent weeks about purchasing one of the world’s largest non-Chinese cobalt producers, according to people familiar with the matter, as the U.S. attempts to loosen Beijing’s global grip on a metal seen as central to the green-energy revolution. The talks over Chemaf, a mining company based in the Democratic Republic of Congo, are part of a push by the administration to secure global supplies of a metal used in everything from jet fighters and drones to electric-vehicle batteries.

For more than a decade, Chinese companies have spent billions of dollars buying out U.S. and European miners in Congo, which produces nearly 75% of the world’s cobalt supply. That has put China in a dominant position in both the production and processing of the mineral. In recent weeks, U.S. government officials have spoken with mining and artificial-intelligence company KoBold Metals, copper miner First Quantum Minerals and investment firm Orion Resource Partners about participating in a deal to acquire Chemaf, either separately or jointly, according to people familiar with the matter.

Read more at The WSJ

Health and Wellness

Managers Impact Mental Health As Much As Spouses—And Other Workplace Well-Being Insights

Struggling with mental health symptoms and issues in the workplace has become commonplace. In fact, the World Health Organization estimates that at least 15% of working-age adults have a mental health condition. Workplaces that fail to address these issues, or worse, exacerbate them (as many do, according to some data), are likely to pay a price—literally. According to the WHO, an estimated 12 billion working days are lost every year to depression and anxiety at a cost of $1 trillion per year in lost productivity.

A survey of 3,400 workers across 10 countries conducted by UKG in 2023 found that managers impact employees' mental health by 69%—the same effect as had by a spouse or partner and larger than the effect doctors (51%) or therapists (41%) have on well-being. According to a 2023 workplace study conducted by the American Psychological Association, found that employers tend to believe that workplaces are better for well-being than employees. More than half of workers (55%) feel their employer overestimates the mental health of their workplace, with 43% worried that disclosing a mental health condition could negatively impact their job.

Read more at The State

NYS COVID Update

The Governor updated COVID data for the week ending October 18^th.

Deaths:

Weekly: 31
Total Reported to CDC: 84,272

Hospitalizations:

Average Daily Patients in Hospital statewide: 651
Patients in ICU Beds: 76

7 Day Average Cases per 100K population

3.2 positive cases per 100,00 population, Statewide
4.1 positive cases per 100,00 population, Mid-Hudson

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Election 2024

Industry News

Tentative Deal Announced To End Boeing Machinist Strike

A tentative deal has been reached to end the five-week-long strike at troubled aircraft maker Boeing, the union announced to its 33,000 striking members early Saturday. The deal still needs to be ratified by a majority of the rank-and-file membership of the International Association of Machinists before it can take effect and workers can return to work. The union will hold the vote on Wednesday.

The new proposal includes 35% wage increases over four years, a higher signing bonus of $7,000, guaranteed minimum payouts in an annual bonus program and higher 401(k) contributions. Many union members had expressed anger over the loss of the pensions. The union credited Acting Labor Secretary Julie Su with brokering the deal in indirect talks between the union and management. The strike began Sept. 13 after more than 30,000 machinists overwhelmingly rejected a tentative agreement that included 25% wage increases over four years. Boeing later made a sweetened offer but the union blasted it saying it was not negotiated.

Read More at CNN

Boeing’s CEO Is Shrinking the Jet Maker to Stop Its Crisis From Spiraling

Even if the tentative agreement reached Saturday between Boeing and leaders of its largest union is ratified on Wednesday and union members go back to work, the company remains in a perilous financial position. Industry insiders and analysts have begun to ponder something previously unthinkable: whether a breakup or bankruptcy is in Boeing’s future if it remains on its current trajectory. Boeing has spread itself too thin and must shrink, CEO Kelly Ortberg wrote in a note to employees earlier this month. “We need to be clear-eyed about the work we face,” he wrote. “We also need to focus our resources on performing and innovating in the areas that are core to who we are.”

Ortberg has moved to raise at least $10 billion in cash and slash thousands of jobs to stem losses that have exacerbated Boeing’s manufacturing woes and damaged a complex supply chain. Boeing is exploring asset sales that could bring in much-needed cash while shedding noncore or underperforming units, according to people familiar with the discussions. The company’s board met at Boeing’s Arlington, Va., headquarters, last week where directors quizzed division heads and combed through reports on the state of each unit, mulling next steps for the beleaguered plane maker.

Read more at The WSJ

China Posts Slowest Economic Growth In 18 Months

China's economy expanded in the third quarter at the slowest pace since early last year, as the country struggles to boost flagging growth. On an annual basis, gross domestic product (GDP) rose by 4.6% in the three months to the end of September, according to China's National Bureau of Statistics. That is less than the previous quarter and below the government's "around 5%" target for this year. But it was slightly better than analysts expected, while other official figures released on Friday, including retail sales and factory output, also beat forecasts. The world's second largest economy has been hit by a number of challenges, including a property crisis, as well as weak consumer and business confidence.

China's industrial output in September grew 5.4% from a year earlier, up from a 4.5% pace in August, providing some encouragement to policymakers as they step up efforts to revive a sluggish economy as the year-end draws closer. The official data from the National Bureau of Statistics (NBS) on Friday beat expectations for a 4.5% rise in a Reuters poll of 40 analysts. Retail sales, a gauge of consumption, rose 3.2% in September, accelerating from a 2.1% growth in August. Analysts had forecast a 2.5% rise.

Read More at The BBC

P&G Earnings: Sales Slip in China - Holding the Line on Prices

Procter & Gamble on Friday reported weaker-than-expected revenue as lower demand in China again weighed on its sales. Earnings per share: $1.93 adjusted vs. $1.90 expected while revenue was $21.74 billion vs. $21.91 billion expected. P&G reported fiscal first-quarter net income attributable to the company of $3.96 billion, or $1.61 per share, down from $4.52 billion, or $1.83 per share, a year earlier.

Net sales dropped 1% to $21.71 billion. Organic revenue, which strips out foreign exchange, acquisitions and divestitures, rose 2%, helped by higher prices. The company reported flat volume for the quarter. The metric excludes pricing, which makes it a more accurate reflection of demand than sales. Like many consumer companies, P&G has seen demand for its products fall after several years of price hikes. Last quarter was the first time in more than two years that its volume increased. In the U.S., P&G’s volume grew in eight of its 10 categories, and the company isn’t seeing any trade down to private-label products, CFO Andre Schulten said on call with press. But it’s a different story in Greater China, the company’s second-largest market. P&G is forecasting that it will take several quarters for demand to pick up again, although the Chinese government has recently laid out plans to boost the country’s economy.

Read more at CNBC

Deere & Co. Is Laying Off Around 300 People Amid Falling Demand For Farm And Construction Equipment

John Deere has announced another round of layoffs, this time affecting 287 workers in the Quad Cities, including 80 in Davenport. The other layoffs, effective Jan. 3, are of 200 workers at the company’s Harvester Works in East Moline, Illinois, and seven at its Seeding and Cylinder operations in Moline, Illinois, the company's headquarters city. In a company statement KWQC-TV posted on its website, John Deere emphasized the layoffs were not a result of moving production to other facilities but rather due to a sluggish farm economy.

Demand for new farm machinery has fallen in the wake of low crop prices and high borrowing costs, forcing dealers to limit their inventory. “It is important to note these layoffs are due to reduced demand for the products produced at these facilities. They are not related to production moves," the company wrote. "As we have repeatedly stated, layoffs this fiscal year are due to the weakening farm economy and a reduction in customer orders for our equipment.”

Read more at Inside Defense

TSMC's AI-Backed Outlook Impresses Investors

Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, raised its expectation for annual revenue growth and said sales from AI chips would account for mid-teen percentage of its full-year revenue. The forecast from the leading producer of advanced AI chips reinforced investor confidence in the outlook for chipmakers whose market values have skyrocketed in the past two years due to a surge in chip spending by Big Tech.

TSMC's outlook also offered some respite to investors after deep forecast cuts from chipmaking equipment giant ASML sparked fears of a slower-than-expected recovery in demand for semiconductors not used in AI. "Fortunately, everything is fine in AI land," Coatsworth said. "TSMC said demand was strong for both AI-related business and from smartphones, implying that the chip sector still has momentum."

Read more at Yahoo Finance

Samsung Delays Taking Deliveries Of ASML Chip Gear For Its New US Factory, Sources Say

Samsung Electronics has postponed taking deliveries of ASML chipmaking equipment for its upcoming factory in Texas as it has yet to win any major customers for the project, three people familiar with the matter said. Samsung has been also holding off on placing orders to some other suppliers for the $17 billion factory in Taylor city, prompting them to look for other customers and send staff deployed on site back home, three other people familiar with the matter said. The delay in equipment deliveries is a fresh setback to the Taylor project, which is at the heart of Samsung chairman Jay Y. Lee's ambition to expand beyond its bread-and-butter memory chips into contract chip manufacturing, which Taiwan's TSMC dominates.

ASML, the world's biggest chipmaking equipment supplier, cut its 2025 sales forecast on Tuesday, citing weakness in markets other than AI, and delayed fabs. The Dutch company did not name clients who have delayed their fabs. Reuters is the first to report that Samsung has pushed back deliveries of some ASML equipment. Two of the sources said the delayed shipments to Samsung's Taylor factory involve ASML's advanced chipmaking equipment called extreme ultraviolet (EUV) lithography. EUV machines, which cost around $200 million each, create design features on silicon wafers by using beams of light and are widely used to manufacture advanced chips found in smartphones, electronic devices and AI servers.

Read more at Reuters

Airbus to Cut 2,500 Defense Jobs

Airbus SA is preparing to revamp and downsize its Defence and Space business to create “a more effective and efficient organization structure,” which will include eliminating up to 2,500 positions by mid-2026. In 2023, Airbus Defense struggled as inflation boosted its expenses on various aircraft programs while it continued to combat delivery delays. And reportedly its Space activities have been hurt by loss of access to the Russian space program. The new round of job cuts will not involve compulsory measures, the announcement indicated.

In contrast, the Airbus civil aerospace division is thriving, with an order book full of confirmed contracts for new aircraft into the next decade. Airbus Defence CEO Mike Schoellhorn said that the objective of the restructuring will be to establish Airbus Defence “as a leading and competitive player in this ever-evolving market. This requires us to become faster, leaner and more competitive.”

Read more at Reuters

Nestlé Slashed Its Annual Outlook, Will Expand Discounting To Boost Consumer Spending

Shoppers around the world are spending more cautiously, Nestlé warned Thursday, prompting the packaged-food company to increase promotions to persuade consumers to open their wallets. Having repeatedly raised prices to offset higher costs in recent years, Freixe indicated that Nestlé would offer more discounts and cut prices to attract shoppers to its products, which include KitKat chocolate, Nescafe coffee and Purina pet food. “We are out of a period of high inflation,” he said. “The environment is now more intense.”

The comments came as Nestlé reported weaker-than-expected third-quarter results and slashed its full-year sales forecast, warning that consumers around the world are pulling back on spending even as price rises ease. Nestlé reported a 1.9% rise in third-quarter organic sales growth, which strips out currency and M&A impacts, below analysts’ forecasts of a 3.1% rise. The figure consists of a 0.6% rise in prices and a 1.3% gain in sales volumes. The company cut its sales guidance for the full year to 2%, down from a previous target of at least 3%.

Read more at The WSJ

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