Member Briefing October 24, 2023
UAW Expands Strike to Stellantis Pickup Truck Plant in Michigan
The United Auto Workers union is expanding its strike to a Stellantis plant in Michigan that produces Ram 1500 full-size pickup trucks, dealing another blow to the Detroit automakers as negotiations drag on. The new work stoppage includes roughly 6,800 workers at Stellantis’ Sterling Heights Assembly Plant in suburban Detroit, the union announced Monday after initiating the walkout. The walkout at the Sterling Heights plant brings the total number of UAW members on strike with the Detroit automakers to more than 40,000. It marks the first escalation in the union’s strike in nearly two weeks and the first new work stoppage at Stellantis in over a month.
“We’ve tried to do things the right way. We’ve taken our time, we’ve been patient with these companies. It’s time to amp up the pressure and SHAP just seemed like the the proper target at this time,” UAW President Shawn Fain said outside the plant on Monday, calling the facility Stellantis’ “money-maker.” The unannounced walkout is the latest example of what Fain called a “new phase” of bargaining with the automakers in which the union would take a more aggressive tack. Sterling Heights is one of the most important U.S. plants to Stellantis.
War in Israel Headlines
- Israel and Hamas: The Latest News – WSJ
- Israel Mounts Limited Gaza Ground Raids as Troops Mass on Border - Reuters
- NYT Admits Error in Gaza Hospital Report -Early Coverage “Relied Too Heavily on Claims by Hamas” - Politico
- Third Gaza-Bound Aid Convoy Enters Rafah Crossing from Egypt – Reuters
- Gaza Strip in Maps: What it's Like for the People Who Live There - BBC
- US Sends Military Officers to Israel to Advise on Operations in Gaza – The Hill
- Israel-Hamas War Revives Interest in U.S. Production of Iron Dome Missiles - WSJ
- Pentagon bolsters U.S. presence in Middle East following Iran proxy attacks on troops – Politico
- Israel Steps Up Gaza Bombing as Biden Urges It to Protect Civilians - WSJ
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia Says It Downed 3 Ukraine Missiles Targeting Crimea – Barron’s
- Russian rockets kill 6 in Ukraine - PBS
- What's in Vladimir Putin's 2024 Calendar... and What Isn't? - BBC
- Ukraine’s American-Made M39 Missiles May Have Wrecked 21 Russian Helicopters In A Single Operation - Forbes
- Russia Says it Thwarted Ukrainian Attempts to Cross Dnipro in Kherson Region - Reuters
- Russia Dismisses US Claims of North Korea Supplying Munitions to Moscow - VOA
- Putin Pushes More Soldiers to Frontline Despite Failing Offensive - Independent
- 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
10-Year Yield Tops 5% for First Time Since 2007
The yield on the benchmark 10-year U.S. Treasury note rose above 5.0% on Monday, hitting the July 2007 milestone that it briefly attempted to scale last week. The run-up in yields on the 10-year Treasury bond, seen as a safe-haven in times of economic uncertainty and a benchmark for borrowing costs around the world, has been driven by investors pricing in stronger U.S. growth as well as fiscal slippage.
Yields at the long-end rose quickly after Federal Reserve Chair Jerome Powell said last week that the U.S. economy's strength and hot labour market might warrant tighter financial conditions. The 10-year yield reached 5.012% on Monday, and was last up almost 9 basis points (bps) on the day. It was briefly bid at a 16-year high of 5.001% on Thursday. It has risen 160 basis points since mid-May. Alongside the Fed’s hawkishness, worries over fiscal matters have caused term premiums on the curve to rise. Treasury borrowing costs have climbed, and a divided Congress has bickered over next year's spending bills while using stopgap measures to avert a shutdown of government operations. In the background, the Fed is reducing its bond holdings.
U.S. Deficit, Pegged at $1.7 Trillion, Effectively Doubled in 2023
The Treasury Department said on Friday that the federal budget deficit climbed to $1.7 trillion in the 12-month period ending last month. The deficit rose roughly $320 billion from the previous period and is equal to 6.3 percent of U.S. gross domestic product (GDP). Biden administration officials attributed to spike in the deficit to a steep drop in federal revenue, which rose sharply during rapid economic rebound from the COVID-19 pandemic. Federal receipts dropped by 9.3 percent from fiscal 2022, almost entirely due to a $456 billion decline in individual income taxes.
But a closer look reveals the financial picture is even worse than the headline numbers suggest. The Treasury recorded the Biden administration’s $300 billion student loan forgiveness program as a cost last year, but it was struck down by the Supreme Court and never took effect, resulting in the Treasury considering it a savings this year. That means the year over year increase effectively doubled from $1 trillion in 2022 to $2 trillion in 2023. The government has also been gradually rolling out billions of dollars in funding for green energy, infrastructure and other Biden administration initiatives that officials say has boosted the economy through choppy waters.
COVID Update - The New COVID Vaccine Booster Appears Harder to Find. Here's Why.
Americans eager to get jabbed with the updated COVID-19 vaccine in September were disappointed when they began looking for doses. Some pharmacies weren't posting enough appointments, others didn’t have enough vaccines. Most hospitals and clinics hadn’t gotten their shipments, yet. Patients who had been through the motions with previous rollouts swiftly realized they were going to have a harder time finding shots this time around.
Now that the emergency phase has ended, new actors have stepped into the rollout. No one expected a perfectly smooth transition, but problems seem to persist more than a month after the vaccine’s approval. For manufacturers, it’s mostly business as usual. However, industry experts say problems have arisen in every other stage of the process – with wholesalers and distributors, pharmacies and insurance companies. Representatives at each of these phases said they hope the major kinks have been ironed out. the White House reports more than 7 million Americans vaccinated with the updated jab as of last week.
Nine Republican Candidates Pitch Caucus in Bid for Speakership
House Republicans met last evening at 6:30 p.m. ET for a closed-door candidate forum during which nine candidates are expected to make their pitch to be the next speaker. The conference is scheduled to vote this morning on whom to nominate next. The nine candidates running this time are: Tom Emmer of Minnesota, Mike Johnson of Louisiana, Jack Bergman of Michigan, Byron Donalds of Florida, Kevin Hern of Oklahoma, Dan Meuser of Pennsylvania, Gary Palmer of Alabama, Austin Scott of Georgia and Pete Sessions of Texas.
A nominee must secure 217 votes on the House floor to be elected. The threshold has proven to be difficult, with only 221 Republicans in the House and conservative and moderate factions divided on who should be the leader. Two Republican nominees have already quit. Rep. Steve Scalise, R-La., was nominated first, but withdrew after it became clear he couldn't get enough votes on the House floor. Then Rep. Jim Jordan, R-Ohio, was nominated, but couldn't get enough support in three floor votes. He dropped out after fellow Republicans voted to revoke his nomination Friday.
Global Producers in U.S. Hunt for China Alternatives
Iowa-based Vermeer, a 4,000-employee maker of industrial and farm machinery, opened a plant in China two decades ago—and Jason Andringa, the company’s president and CEO, frequently visited what many considered the world’s premier fast-growing, future-oriented economy. But the mood of Vermeer and many other global producers has turned sour on China. "If we didn’t already have a plant in China, we sure wouldn’t start one now," he said.
Surveys now show U.S. business leaders are eager to cut back their China exposure and are shifting investment to other, friendlier countries. This is a radical shift from the days when offshoring production to China was rewarded by Wall Street and investor calls often highlighted multi-million-dollar expansions in the world’s second-largest economy. Mexico has surpassed China as the top destination for foreign direct investment by U.S. firms, according to the U.S. Bureau of Economic Analysis, while a survey from the U.S.-China Business Council shows a growing number of U.S. firms pulling back on their China investments.
Taiwan's Foxconn Faces China Tax Probe, Seen as Politically Motivated
On Sunday, China's state-backed Global Times tabloid said some of Foxconn's key subsidiaries in China were the subject of tax audits and that China's natural resources department had conducted on-site investigations on land use by Foxconn enterprises in Henan and Hubei provinces and elsewhere. The audits of Foxconn have not been officially announced by any Chinese government department. Foxconn's founder Terry Gou, who stepped down as company chief in 2019, is standing as an independent for president. Gou might split the opposition vote, potentially ensuring a victory for current Vice President Lai Ching-te who is already leading in the polls. Beijing detests Lai, whom it believes is a separatist.
Foxconn, formally called Hon Hai Precision Industry Co Ltd, employs hundreds of thousands of people in China and is a major investor there, regularly hailed by Beijing as an example of the success of Taiwanese investors in the country. however, the company has been pushing to diversify its manufacturing base outside China, and the first source told Reuters they viewed the audit as a "warning" to Foxconn.
When the Markets Tighten and Cash Stops Flowing, What's Next for Manufacturers?
The one-two punch of a slowing economy and tightening credit environment can be especially difficult for small and mid-sized manufacturers that rely on loans and credit lines to fund facilities, equipment, machinery and day-to-day business needs in capital-intensive industries. Manufacturers can experience cash flow shortages for many reasons, even when they’re generating significant revenue.
Manufacturers may not be aware of alternative financing options to gain access to funding, beyond traditional lending, which may be especially beneficial in a downturn. Alternative financing can include private equity funding, venture capital, lines of credit and more. It can also include working capital financing, or the ability for businesses to gain access to funds based on the value of the company’s assets rather than financial performance metrics.
Troubles in Aerospace Supply Chains Are Creating a Run on Older Aircraft
The value of 10-year-old planes has jumped in recent weeks, according to appraisal data from aviation-analytics firm Ishka. The price tag for the Airbus A320-200—the backbone of the world’s short-haul fleet—has risen 10% since August, and has now almost fully recovered from the Covid-19 crisis. Rates to rent the jet were up 6%.
The popularity of trusty clunkers is rising because of issues affecting the newer version of the plane, the A320neo, introduced in 2016. In July, U.S. engine maker Pratt & Whitney, a division of RTX, warned that contaminants had been found in powdered metal used in some of its Geared Turbofan, or GTF, engines, which power roughly 40% of the A320neo fleet. Last month, the company said the issue could affect about 700 engines and require 300 days to repair each one. Hundreds of planes are set to be grounded through 2026. Other popular older models have also rebounded in value, though wide-body jets such as the Airbus A330-300 and the Boeing 777-300ER are still only worth about half what they were at the start of 2020.
Forrester Study: This Year’s Strikes Illustrate Expanding Employee Power
Strikes, walkouts and unions may feel more prevalent this year, demonstrating a growing expression of employee power and voice in the workplace, according to an Oct. 16 report from Forrester. J.P. Gownder, vice president and principal analyst at Forrester, wrote in the company’s blog. “Employee power in all its forms provides you with a valuable signal,” he said. “It tells you that there’s misalignment between management and employees on key issues.”
So far this year, more than 453,000 U.S. workers have participated in 312 strike actions, according to the report. Walgreens pharmacists engaged in a walkout, citing understaffing that put employees and patients at risk, the report noted. Kaiser Permanente workers also held a strike over contract negotiations. In a broader workplace context, this shift in employee power resembles the rise of consumer power in recent decades, according to the report. With connected technology, more options and numerous avenues for communication, employees have better information and expect more from their employers.
Army’s 2025 Budget to Reflect Artillery Revamp
The US Army is grappling with just what mix of artillery capabilities it needs in its future arsenal, and industry is expected to catch a glimpse of that plan by the time the Biden administration delivers its budget request to Congress next year, according to a senior service official.
The Army currently has a mix of towed and wheeled cannons in its portfolio. But with lessons learned from Ukraine and an eye on the Pacific, the service has a number of different modernization efforts underway, including under its Extended Range Cannon Artillery (ERCA) program. That program includes a mix of new munitions, a “supercharged” propellant and integration of a 30-foot, 58-caliber gun tube onto BAE Systems’ Paladin M109A7 self-propelled howitzer. The goal: launch 155-mm rounds out to 70 km, an increase from the current max range of up to 30 km.
Texas Adds Most Manfuacturing Jobs in September
Texas created the most net new manufacturing jobs in September, adding 8,000 workers. Other states with notable employment growth for the month included Missouri (up 7,100), Illinois (up 2,500), Ohio (up 2,500), Arizona (up 1,400) and Alaska (up 1,100). At the same time, Texas (up 35,200) also reported the greatest growth in manufacturing employment over the past 12 months. Other states with significant year-over-year gains included Florida (up 7,700), Kentucky (up 6,900), Missouri (up 6,300) and Washington (up 4,300).
In September, the U.S. unemployment rate remained 3.8%. At 1.6%, Maryland had the lowest unemployment rate nationally, followed closely by North Dakota (1.9%), South Dakota (1.9%), Vermont (1.9%) and New Hampshire (2.0%). At the other end of the spectrum, Nevada had the highest unemployment rate in the country at 5.4%. Other areas with elevated rates included the District of Columbia (5.0%), California (4.7%), Illinois (4.4%) and New Jersey (4.4%).
Oil Prices Ease Amid Diplomatic Push on Israel, Gaza Conflict
Oil prices have paused their ascent following the outbreak of war between Israel and Hamas as a major Israeli ground offensive inside the Gaza Strip has so far failed to materialize. Brent crude dropped more than a dollar during trading on Monday, falling below $91 a barrel at midday off a month-long high of $93.64 reached Friday. West Texas Intermediate crude fell to $86.57 after climbing above $90 a barrel on Friday.
Crude prices had been stepping up since war broke out between Israel and Hamas on October 7, breaking a streak of easing energy prices that had analysts feeling encouraged about the path of inflation. Brent dropped as low as $84 a barrel just before the war, its lowest level since August. But fears of a wider conflict in the Middle East, where most of the world’s oil is extracted, continue to dog investors, who see multiple scenarios now in which energy prices could rise.
Chevron Buys Hess as the Big Get Bigger
Oil and gas producer Chevron Corp. announced Monday that it would purchase Hess Corp. in an all-stock transaction valued at $53 billion, a significant purchase by any measure. However, it's only the second largest deal in October among the oil and gas giants. Earlier this month Exxon Mobil Corp. reported plans to acquire oil and gas exploration company Pioneer for a slightly higher purchase price at $59.5 billion.
Both Exxon Mobil and Chevron lead the 2023 IW U.S. 500, IndustryWeek's annual list of the largest publicly held manufacturing companies in the United States. Exxon Mobil tops the 2023 list with annual revenue of $402 billion in 2022, followed by Chevron, whose revenue came in at $244 billion. Both companies enjoyed double-digit profit margins over the previous year as well. Assuming both deals close in the first half of 2024 as the companies forecast, neither will impact the oil companies' ranking in the 2024 IW U.S. 500 list, which will be based on 2023 revenues.