Member Briefing October 27, 2022
Atlanta Fed’s GDPNow Model Predicts Q3 Growth of 3.1%
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 3.1 percent on October 26, up from 2.9 percent on October 19. After recent releases from the US Census Bureau, the US Department of the Treasury's Bureau of the Fiscal Service, and the National Association of Realtors, the nowcast of third-quarter real government spending growth increased from 2.4 percent to 3.8 percent, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 2.23 percentage points to 2.19 percentage points.
The Conference Board is predicting GDP to be 0.5% in Q3 and may be negative in Q4. The Board cites downside risk of: (1) the Federal Reserve could hike more aggressively than expected, (2) the housing market could see a major correction, and (3) inflation could be even more persistent than forecasted. All three of risks could result in a longer and deeper contraction in 2023. The Bureau of Economic Analysis will release the initial Third Quarter GDP data today, (October 27th)
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia’s Chaotic Draft Leaves Some Out in Cold, Without Gear - AP
- Why Fears of a Russian ‘False Flag’ Attack Are on the Rise – The Hill
- Putin Oversees Regular Nuclear Drills Amid Escalation Fears - Bloomberg
- Blinken Warns of Consequences If Nuclear Weapon Used in Ukraine - Bloomberg
- Concern Moscow May be Advising Iran on Best Practices to Manage Protests - Reuters
- Ukraine Calls for More Air-Defense Help as Russian Barrages Continue - WSJ
- Can Putin’s ‘Butcher of Syria’ Save Russia from Another Rout? - Politico
- With Moscow Distracted, Xi Jinping Could Turn China’s Gaze To Russia - Forbes
- Ukraine's Defense Minister ‘Optimistic’ About New Tanks, Fighter Jets from Allies - Politico
- Vladimir Putin’s Attempt to Conquer Ukraine Ignores the Lessons of History – The Economist
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Fortune’s 2022 Fastest Growing Companies
Meta’s Facebook, Amazon, and Netflix are three of the best-known brands on the planet and three of the biggest business-growth stories of the past decade. But after a tumultuous year in which soaring inflation upended the best-laid plans across the corporate world, they’re no longer members of the Fortune 100 Fastest-Growing Companies list—ending streaks of seven, five, and four years, respectively.
The resurgent energy sector, meanwhile, placed five companies on the list—more than in the previous six years combined. This year’s group delivered stellar revenue and profit growth, but collectively it underperformed the broader stock market, delivering a 31% average return to shareholders over the past three years, compared to 35% for the S&P 500. Click below or at right to explore the list, now in its 37th year.
Inflation Starts to Drag on Consumers
There are early signs that U.S. consumers, who have been largely resilient in the face of relentless inflation, are beginning to balk at high prices. From Whirlpool Corp. to Procter & Gamble Co., companies are noting that shoppers are feeling the pinch, and in some cases buying less, a trend economists dub demand destruction. That may be a worrisome signal that consumer spending – the powerhouse of the U.S. economy – is losing steam.
A September survey from research firm Datassential Inc. found half of consumers had recently cut back on restaurant meals due to high inflation. It was the No. 1 expenditure respondents opted to trim, followed by apparel and travel. Data out Monday from S&P Global showed a measure of business activity at service providers contracted in October, falling to its second-worst reading since May 2020.
US COVID - COVID Symptoms Aren’t What They Used to be. Here’s How They’ve Changed Over Time, and What They Look Like Now
Losing the ability to taste and smell is no longer common among COVID patients, according to a new study that highlights the virus’s ever-changing nature. Sore throat, runny nose, nasal congestion, persistent cough, and headache are now the most common symptoms of COVID among the fully vaccinated, the Zoe Health Study found. The study, run by scientists at Harvard and Stanford universities, is based on data submitted by U.S. and U.K. participants logging in their symptoms via an app for research purposes.
The new symptom list stands in contrast with classic, more severe COVID-19 symptoms such as persistent cough, loss of smell, fever, and shortness of breath that were common at the pandemic’s outset. Such symptoms now rank as No. 5, 6, 8, and 29, respectively, according to the study.
NY–17 Cook Report Moves Maloney/Lawler Race from Leans Democrat to Toss Up
When Republicans' top Super PAC announced an ad buy against Democratic Rep. Sean Patrick Maloney (NY-17) in April, many assumed it was a gambit to troll or distract the DCCC chair. But two weeks out from Election Day, Maloney finds himself in deep danger, simultaneously fighting for his political life in his Hudson Valley seat and desperately trying to prevent Democrats from being swept out of the House majority.
Both parties' internal polls show Maloney locked in a tight race against GOP Assemblyman Mike Lawler in the 17th CD, which is roughly three-quarters new to Maloney following redistricting. Republicans have lampooned Maloney over revelations he hosted posh DCCC fundraisers in Paris and Geneva earlier this month, and for hiring his husband's personal trainer as a part-time driver on his congressional payroll.
How Senate Forecasts Have Moved Toward Republicans In The Final Stretch Before Election Day
Democrats have lost their strong lead against Republicans in the battle for control of the Senate over the past month, with the party’s chances at maintaining its slim majority in the upper chamber now at 54 in 100, down from 68 in 100 at the end of September, according to FiveThirtyEight, which calls the race a “dead heat.” Other forecasts show the Senate competition is a toss-up. Sabato’s Crystal Ball at the University of Virginia predicts 49 seats that lean toward, are likely to be won by or solidly in the hands of each party, while Cook Political Report ranks 50 seats as either solidly or likely to be in control of each party.
Several individual Senate competitions have moved closer to GOP victories in recent weeks, as Cook recently shifted contests in Florida (Sen. Marco Rubio (R) v. Rep. Val Demings (D)) and Washington (Sen. Patty Murray (D) v. Tiffany Smiley (R)) to the right, while RealClearPolitics moved the race between Sen. Chuck Schumer (D-NY) and Joe Pinion (R ) from safely to likely in Schumer’s favor and the North Carolina Senate race between Cheri Beasley (D) and Rep. Ted Budd (R) from a toss-up to leaning GOP.
China Signals Easing of Covid-19 Restrictions for Foreign Businesses
In a notice that outlined policies to attract more foreign investment into its manufacturing sector, the government asked local authorities to facilitate multinational companies’ executives, technicians and their families to travel into China. The notice, published Tuesday on the National Development and Reform Commission’s website, also encouraged bringing world-class talent into the country.
China’s Covid-control measures, including keeping its borders mostly closed and a relatively long quarantine at government facilities to enter the country, have slowed business activity in general. The risk of employees and their family members getting locked down in their homes for weeks or facing school closures due to a relatively small number of cases has also dented China’s attractiveness as a work destination for many multinational and diplomatic professionals.
Earnings Update
Microsoft saw its stock tumble 6.7% following a mixed bag of results. Revenue from Intelligent cloud computing, including Microsoft's (MSFT) Azure and other cloud services, was the biggest piece of the company's revenue puzzle, and totaled $20.3B, up 20% from last year's quarter. However, a decline in PC sales and the dollar's strength continued to weigh on profits and growth, while the C-suite said that some rough weather could be coming in the months ahead. – Seeking Alpha
Boeing reported a surprise $3.3 billion third-quarter loss Wednesday as it struggled with swelling costs on several defense programs, including the U.S. presidential jet Air Force One. The performance woes in defense reflects the drag from supply chain problems that have plagued the broader economy, as well as the restrictive nature of the contracts. Boeing’s third quarter revenue rose 4% last year to $15.96 billion, and its more than $3 billion quarterly loss compared with a $132 million loss a year earlier. - CNBC
Ford recorded a net loss of $827 million during the third quarter, weighed down by supply chain problems and an investment in autonomous vehicle unit Argo AI. The company on Wednesday reported adjusted earnings of $1.8 billion for the quarter, down 40% from a year earlier but slightly above its own previously announced expectations. Ford attributed the lower-than-expected results to parts shortages affecting 40,000 to 50,000 vehicles as well as an extra $1 billion in unexpected supplier costs during the quarter. The company reaffirmed its full-year guidance of 2022 adjusted earnings before interest and taxes of between $11.5 billion to $12.5 billion. - CNBC
40% of Older Americans are Pushing Back Retirement Due to Inflation
Inflation is forcing older American workers to delay their retirement, leading to higher benefits costs for employers, stalled career progress for younger workers, and reduced morale and mental health for team members, according to new research from the Nationwide Retirement Institute.
The institute’s 2022 In-Plan Lifetime Income Study showed that 40% of older American workers plan to retire later than they had planned due to high inflation. Before inflation began to rise, the average expected age for retirement plan participants older than 45 was 65.4, according to the study. Inflation has pushed that number sharply higher to 68.3. Edelman Data and Intelligence conducted the survey on behalf of Nationwide this summer.
Executives are Feeling the Strain of Leading in the “New Normal”
A new Future Forum consortium study shows that executives’ work experience scores have worsened significantly over the past year as leaders struggle to adapt to new employee expectations and adjust their management strategies for the “new normal.” Executives’ overall satisfaction with work is down 15% over the last year. Executives are struggling — reporting record low experience scores, including 40% more work-related stress and anxiety and 20% worse work-life balance over the last year.
While experience scores dropped for executives, scores are rising for other groups since the broad adoption of flexible work. In fact, remote and hybrid workers are 52% more likely to say their company culture has improved over the last two years compared to fully in-person workers — with flexible work policies cited as the #1 reason for that change. Still, 60% of executives say they’re designing their companies’ policies with little to no direct input from employees — and executives themselves are much more likely than their employees to want to spend most of their time in the physical office.
Housing Slowdown: New Home Sales Fell 10.9% in September
New home sales fell in September amid rising mortgage rates that have pushed some buyers away from the housing market. Sales of newly constructed homes dropped 10.9% in September from August and were down 17.6% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau.
Some 603,000 new homes were sold last month, at a seasonally adjusted annualized rate, down from a revised 677,000 in August. A year ago, 732,000 newly constructed homes were sold. Meanwhile, the median price for a new home rose to $470,600, up 13.9% from a year ago. The price also increased from the $436,800 median price in August.
Housing Market Activity is Crashing—and it Threatens to Push the U.S. Into Recession Just Like it Did in 1981 and 2008
The go-to line this year from analysts and economists alike is that “the Fed will push until something breaks.” Increasingly, it’s looking like that “something” might be the weakening U.S. housing market. It’s not just bubbly markets like Las Vegas and Boise that are feeling the pain: This housing downturn is picking up steam nationwide. In fact, as of last week, mortgage purchase applications are down 38% on a year-over-year basis.
This "crash" in housing activity—or as Fed Chair Jerome Powell calls it a "difficult correction"—didn't appear out of thin air. It's by design. There's nothing unusual about a housing downturn helping to trigger a recession. Look no further than economist Edward Leamer’s 2007 paper titled “Housing Is the Business Cycle.” Leamer found that 80% of post–World War II recessions came after a “substantial” housing slowdown.
Empire Center Makes State Exam Results Publicly Accessible
After successfully petitioning for the release of statewide ELA and math exam data for students in grades 3-8, the Empire Center has published the results. The data is searchable by school district, individual school, grade level and subject area.
Historically, the New York State Education Department (NYSED) releases the results publicly in August or early September. This year, however, NYSED delayed release until prompted by an Empire Center Freedom of Information Law (FOIL) request for the data — and a subsequent legal appeal of the agency’s initial decision to release the results by next January.
Read more and link to the data at the Empire Center
MTA to Spend $1.78B on 640 'Smart' Subway Cars
The MTA board will vote this week on whether to spend $1.78 billion purchasing 640 brand-new train cars to replace its aging rolling stock. The brand new R211 cars, produced by Japanese multinational Kawasaki, would come on top of 535 cars previously purchased from the same company for $1.4 billion, whose arrival in the Big Apple has been delayed by over a year owing to the COVID-19 pandemic, supply chain issues, and labor shortages. Many Council member including Koshii Maxelum in Poughkeepsie manufacture key components of the cars.
If approved, the MTA would execute an option from its original 2018 contract to purchase more conditioned on good performance, although no R211s presently operate in passenger service and only a few have been delivered for testing. Further options could bring the number of R211s in the system to over 1,600 should they be executed. The contract is financed by the federal government, and could ultimately be worth about $4 billion.