Member Briefing October 23, 2023
Leading Economic Index for the U.S. Continues Fall in September
While macro-level data on hiring and consumer spending continue to suggest the economy remains resilient, the Leading Economic Index is telling us to proceed with caution. The LEI has now declined for 18 straight months and is consistent with an economy that is already in recession. Economic data are giving mixed signals. Macro data on the labor market and consumer spending continue to show a resilient U.S. economy, which has led many forecasters and analysts to revise growth forecasts higher and even remove recession projections from their 2024 outlooks. Yet, the warning signs remain clear from the Leading Economic Index (LEI), which continues to suggest weakness ahead.
The LEI slipped 0.7% in September and previous months' data were also revised lower. The index has now declined for 18 straight months, and all of the usual cuts of this data are consistent with an economy that is already in recession. Economists at Wells Fargo still view a modest contraction as more likely than not next year and acknowledge that even if we avoid a technical recession, growth prospects appear dim under the weight of tighter financial conditions and some initial signs of economic moderation.
War in Israel Headlines
- Israel and Hamas: The Latest News – CNN
- Petraeus: Gaza Ground War Could be ‘Mogadishu on Steroids.’ – Politico
- Israel Expands Evacuations as Lebanon Border Clashes Escalate – Reuters
- McConnell Supports Biden's Israel and Ukraine Aid Bundle – Yahoo
- US to Further Increase Military Presence to Bolster Deterrence in Middle East – The Hill
- First Emergency Convoy Reaches Gaza - Reuters
- Israeli Soldier Killed During Raid Inside Gaza, Military Says - WSJ
- Israeli Official Slams Greta Thunberg After She Backs Palestinians in Gaza - Politico
- U.N. Calls for Cease-Fire to Break Bottleneck at Rafah Crossing and Get Aid Into Gaza - NBC
- Mapping the Destruction in Gaza - Reuters
- Israel-Gaza Conflict Views & Potential Economic Implications – Wells Fargo
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russian has Likely Suffered up to 480K Casualties in Ukraine: UK Intel - Insider
- Three Weapons That Israel and Ukraine Both Need From the U.S. - NYT
- Ukraine Says it Took Out Almost 50 Russian Tanks in Failed Russian Attack - Insider
- Kyiv Troop Build-Up Reported Across Dnipro River - BBC
- Russian Missile Kills Six at Ukraine Postal Depot – Washington Post
- Russian American Journalist Alsu Kurmasheva Detained in Kazan - BBC
- Russian Court Extends Custody of US Journalist in 'Foreign Agent' Case - Reuters
- India Pushes Back Against Russia Demands to Pay for Oil in Yuan - Bloomberg
- Ukraine's Counteroffensive Is More Successful Than You Think - Foreign Policy
- 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
Detroit 3 lay off 270 More Workers in Mich., Ohio, Ind.
Stellantis on Thursday said it will temporarily idle 100 more UAW members at the Toledo Machining Plant in Ohio, effective Monday. Workers there supply components for Jeeps built at the nearby Toledo Assembly Complex, which has been down since the strike started Sept. 15. The automaker has laid off approximately 1,520 employees because of the work stoppage. Earlier Thursday, General Motors announced seven layoffs at its Parma Metal Center in Ohio and 13 at its Marion Metal Center in Indiana, bringing the company's total to 2,350. Ford Motor Co. late Wednesday said it was laying off 150 more workers at its Sterling Axle Plant.
The latest announcement brings the total number of layoffs at Ford to about 2,700, the most among the Detroit 3. Workers laid off because of the strike may not be eligible for unemployment benefits and are not entitled to strike pay, although the union has promised to give them $500 per week from its strike fund regardless. UAW President Sean Fein said ‘more to be won’ despite record offers from automaker, though he declined to expand the strikes.
The J.P. Morgan Global Manufacturing PMI™ in September
The J.P. Morgan Global Manufacturing PMI™ edged up from 49.0 in August to 49.1 in September, with activity stabilizing slightly despite contracting for the 13th consecutive month. The declines for new orders (up from 48.1 to 48.4), output (up from 49.4 to 49.7) and exports (up from 47.0 to 47.7) slowed somewhat in September, but employment (down from 50.6 to 49.6) fell for the first time since December 2022. Delivery times (down from 51.2 to 51.0) narrowed for the eighth straight month in September despite some slowing, another sign that supply chain bottlenecks have improved. Meanwhile, input prices (up 51.2 to 52.5) accelerated again, building on August’s gains.
Just one of the top 10 markets for U.S.-manufactured goods experienced expanding growth in the sector in September, down from three in August. Interestingly, China was the lone country to see expanding manufacturing activity on rebounding sentiment in the past couple of months, although it continued to struggle with subpar growth and lingering challenges. Brazil and Mexico both slipped back into contraction territory for the month. Overall, the data was mixed. Four of the top 10 markets had higher PMI readings in September than in August, with six lower.
COVID Update - U.S. Government Project Bets Big on Intranasal Vaccines
Six months after announcing the $5 billion Project NextGen to develop treatments and vaccines that can “stay ahead of COVID-19,” the U.S. government has awarded 20 contracts that reveal what much of that sum will support. The Department of Health and Human Services (HHS) announced on 13 October that up to $1.2 billion will go to three vaccine developers aiming to develop better shots, adding to another $1 billion already awarded to companies that will test them in yearlong, 10,000-person clinical trials. Another half-billion will support development of monoclonal antibodies (mAbs) that can block SARS-CoV-2 infection.
Each company will receive $300 million to $400 million but will only be paid if they hit milestones such as meeting regulatory requirements for the clinical trials. Florian Krammer, a virologist at the Icahn School of Medicine at Mount Sinai who co-invented the CastleVax vaccine, applauds the decision to award the money to startup companies pursuing the riskiest, most innovative research, rather than the Big Pharma vaccine makers that Warp Speed favored. “It’s going to allow us to move forward,” Krammer says.
NYS COVID Update
The Governor updated COVID data for the week ending September 29th.
Deaths:
- Weekly: 124
- Total Reported to CDC: 80,693
Hospitalizations:
- Average Daily Patients in Hospital statewide: 1,291
- Average Daily Patients in ICU Statewide: No Data
7 Day Average Cases per 100K population
- 8.2 positive cases per 100,00 population, Statewide
- 9.6 positive cases per 100,00 population, Mid-Hudson
Useful Websites:
House Speaker Race Starts Again With Candidates Entering After Jordan’s Friday Ouster
With the battle to become speaker back to square one, there's a long list of Republicans in various states of candidacy to lead the House. To help sort it all out, we've compiled a quick list. It was an anticlimactic ending for Jim Jordan on Friday. And minutes after the Republican conference booted the Ohio Republican as its speaker nominee, 86-112, the anticipated rush of alternative candidates began for the endlessly chaos-ridden House GOP.
Republicans had until Sunday at noon to submit their names for speaker, and more than a half-dozen are already making calls or floating their names: Majority Whip Tom Emmer (R-Minn.), Budget Committee Chair Jodey Arrington (Texas), Republican Study Committee Chair Kevin Hern (Okla.), and Reps. Dan Meuser (Pa.) Austin Scott (Ga.), Jack Bergman (Mich.) and Byron Donalds (Fla.). None of those candidates is currently close to the near-total support in the GOP that’s needed to become speaker. And the sheer number of hopefuls jumping in is likely to only make it tougher for one to emerge with that support.
China to Curb Graphite Exports
China said on Friday it will require export permits for some graphite products to protect national security, springing a surprise with another bid to control critical mineral supply in response to challenges over its global manufacturing dominance. China is the world's top graphite producer and exporter. It also refines more than 90% of the world's graphite into the material that is used in virtually all EV battery anodes, which is the negatively charged portion of a battery.
Beijing requires the export permits at a time when many foreign governments are ratcheting up pressure on Chinese companies over their industrial practices. The European Union is weighing levying tariffs on Chinese-made EVs, arguing they unfairly benefit from subsidies. Also, the U.S. government earlier this week widened curbs on Chinese companies' access to semiconductors, including stopping sales of more advanced artificial intelligence chips made by Nvidia. China's graphite curbs are similar to those imposed since Aug. 1 for two chip-making metals, gallium and germanium. The restrictions have slashed exports of those metals recently and pushed up prices outside of the country.
Beige Book Sees ‘Slightly Weaker’ U.S. Economy — And Easing Inflation
The U.S. economy exhibited “stable” to “slightly weaker” growth in the early fall, a Federal Reserve survey found, helping to loosen up a tight labor market and ease inflation. The Fed’s regular survey of the economy, known as the Beige Book, covered the six weeks leading up to Oct 6. It was prepared ahead of the Fed’s next meeting on Oct 31-Nov. 1. “This report should give the doves … some additional ammunition in their arguments for the Fed to pause their rate hikes one more time in November,” said chief economist Scott Anderson of Bank of the West.
On the economy, most parts of the country “indicated little to no change in economic activity since the September report,” the Beige Book found.
On inflation, higher wages, oil prices and insurance costs kept the upward pressure on inflation, the Beige Book found.
On the labor market Fed officials had hoped that rising interest rates would reduce the demand for labor and cool off a rapid increase in wages that were contributing to high inflation. The latest Beige Book suggests the Fed is succeeding.
The 30-year Fixed Mortgage Rate Just Hit 8% for the First Time Since 2000 as Treasury Yields Soar
The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. That is the highest level since mid-2000. The milestone came as bond yields soar to levels not seen since 2007. Mortgage rates follow loosely the yield on the 10-year U.S. Treasury. Rates rose sharply this week and last week, as investors digest more reads on the economy. On Wednesday, it was housing starts, which rose in September, though not as much as expected, according to the U.S. Census Bureau.
Building permits, an indicator of future construction, fell, but by a less than the expected amount. Last week, retail sales came in far higher than expected, creating more uncertainty over the Federal Reserve’s long-term plan. These higher rates have caused mortgage demand to plummet, as applications fell nearly 7% last week from the previous week, according to the Mortgage Bankers Association.
Existing Home Sales Declined in September
Existing home sales dipped 2.0% to a 3.96 million-unit pace in September, the fourth straight monthly drop. The last time the monthly pace of resales was as sluggish was in October 2010 in the aftermath of the Great Recession. Total sales are now down 15.4% over the past year. The pullback was broad-based, with single-family sales declining 1.9% during the month and condo and co-ops sales falling 2.3%. The recent leg-up in mortgage rates has been exerting a drag on buying and selling activity beyond the usual seasonal slowdown from the spring buying season winding down.
One small silver-lining of the pull-back in resales over the past few months has been a modest increase in homes available for sale. Existing inventories rose 2.7% to 1.13 million in September, which equates to 3.4 months' supply at the current monthly sales pace. That pool of homes for sale remains shallow and continues to be a major constraint for home buyers. The mild inventory improvement and slowdown in sales, however, looks to be leading to a more moderate pace of home price appreciation. The median existing home price rose 2.8% on a year-over-year basis in September, slightly cooler than the 3.2% annual pace registered in August.
EY Analysis for NAM: Tax Policy’s Harm to Manufacturers Will Grow
The economic impact of allowing a stricter interest deductibility limitation to remain in effect could be devastating, according to a new EY analysis prepared on behalf of the NAM. Failure to reverse the stricter limitation that went into effect in 2022 could result in the following losses in the U.S., according to the study:
867,000 jobs
$58 billion in employee compensation
$108 billion in gross domestic product
Those figures have roughly doubled since the 2022 EY analysis released last year when EY estimated that leaving the stricter limitation in place would result in 467,000 lost jobs, $23.4 billion in lost employee pay and $43.8 billion in lost GDP. Prior to 2022, companies could deduct interest of up to 30% of their earnings before interest, tax, depreciation and amortization (EBITDA). However, since 2022, the deduction has been limited to 30% of earnings before interest and tax (EBIT), a significant change that disproportionately affects manufacturers, given their capital-intensive investments.
NAM Tax Priorities Sign-On Letter - Deadline: October 23, 2023
As part of manufacturer’s ongoing advocacy with respect to securing passage of tax priorities relating to research and development, interest deductibility and full expensing, the NAM is leading a sign-on letter calling on Congress to protect businesses' ability to continue to immediately deduct R&D expenses, finance job-creating investments through a pro-growth interest deductibility standard and fully deduct capital equipment purchases.
The Council of Industry has signed the letter along with other along with many other Interested industry associations, state and local chambers, allied organizations and manufacturing companies. Follow the link below to add your organization’s name to the letter. The deadline to sign on to this letter is today, October 23, 2023.
Amazon Introducing Warehouse Overhaul With Robotics to Speed Deliveries
Amazon is introducing an array of new artificial intelligence and robotics capabilities into its warehouse operations that will reduce delivery times and help identify inventory more quickly. The revamp will change the way Amazon moves products through its fulfillment centers with new AI-equipped sortation machines and robotic arms. It is also set to alter how many of the company’s vast army of workers do their jobs.
Amazon says its new robotics system, named Sequoia after the giant trees native to California’s Sierra Nevada region, is designed for both speed and safety. Humans are meant to work alongside new machines in a way that should reduce injuries, the company says. It is unclear how the new system will affect Amazon’s head count, and the company declined to provide details about its expectations except to note that it doesn’t see automation and robotics as vehicles for eliminating jobs. Sequoia enables the company to put up items for sale on its website faster and be able to more easily predict delivery estimates, said David Guerin, the company’s director of robotic storage technology.
Weapons Production Pressure Mounts Amid Global Conflicts
The U.S. has launched a new effort to quickly find more precision weapons and artillery shells to rush to Israel as the Middle Eastern country conducts hundreds of strikes a day against Hamas targets in Gaza. A newly formed team inside the Pentagon has been tasked with scouring U.S. stockpiles, searching for ammunition to resupply Israel as it fires off munitions at a frantic pace, according to three people familiar with the effort.
The need to shuttle supplies for the Ukraine and Israeli wars is creating an “inflection point” for America’s defense industry, said Dak Hardwick, vice president of International Affairs at the Aerospace Industries Association, an industry trade group. While Ukraine is fighting a different type of war than Israel, there are weapons that both countries want from the U.S. Those include 155mm artillery shells, along with air-launched small diameter bombs, joint direct attack munitions and Hellfire missiles, demands that will only grow as the two wars grind on and the U.S. continues to ready itself for any potential clash with China.
US Cutting Tool Demand Remains Positive
U.S. machine shops and other manufacturers purchased $219.2 million worth of cutting tools during August according to the latest Cutting Tool Market Report, rising 16.2% from the consumption total for July. The new total remains 4.0% ahead of last August’s total. Cutting-tool consumption is an indicator of overall manufacturing activity because those purchases reflect activity across a range of manufacturing market segments served by machining operations.
Through eight months of 2023 activity, cutting-tool consumption stands at $1.65 billion, which is 8.6% higher than the January-August 2022 total. “The August cutting tool report shows the continued strength of the manufacturing sector,” offered Costikyan Jarvis, president of Jarvis Cutting Tools. “Obviously, there are some concerns, both immediate and medium-term. On the immediate side, the UAW strike creates uncertainty around automotive production. “On the medium-term side, where and how the higher interest rates affect production remain to be seen, and, globally, we now have two major armed conflicts.
Read more at American Machinist
Musk's Pessimism on Tesla Growth Leads to Analyst Downgrades, Fear of More Price Cuts
Elon Musk said that Tesla "dug its own grave" with the Cybertruck, as he warned that it would take years for the company to ramp up production of the electric pickup. Speaking on Tesla's Q3 earnings call on Wednesday, the Tesla CEO said that the Cybertruck's unique design meant the company faces immense challenges in scaling production, with Tesla aiming to produce a quarter of a million trucks a year by 2025. "We dug our own grave with the Cybertruck," Musk said.
Musk lost roughly $24 billion in net worth after the electric carmaker reported lackluster financial results in the third quarter and Musk expressed pessimism about the global economy, sinking shares almost 9% Thursday morning. Musk is still the wealthiest person on Earth, who Forbes estimates to now be worth $231 billion
Read more at American Machinist
U.S. Weekly Jobless Claims Total 198,000, Fewer than Expected
Weekly jobless claims totaled a seasonally adjusted 198,000 for the period ended Oct. 14, the Labor Department reported Thursday. That marked a decline of 13,000 from the previous week and was below the Dow Jones estimate for 210,000. It was the lowest weekly level since Jan. 21. Continuing claims, which run a week behind, totaled 1.734 million, up 29,000 from the previous week and higher than the FactSet estimate for 1.698 million.
Claims have been in a general deceleration pattern since the summer, but some economists worry that could change. Announced layoffs have been on the rise in recent weeks, indicating that the tide of lower claims could turn soon.