Member Briefing October 3, 2023
Mfg ISM: Manufacturing Sector Contracted in September for the 11th Consecutive Month
Economic activity has contracted now for 11 consecutive months following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®. "The Manufacturing PMI® registered 49 percent in September, 1.4 percentage points higher than the 47.6 percent recorded in August.
- The New Orders Index remained in contraction territory at 49.2 percent, 2.4 percentage points higher than the figure of 46.8 percent recorded in August.
- The Production Index reading of 52.5 percent is a 2.5-percentage point increase compared to August's figure of 50 percent.
- The Prices Index registered 43.8 percent, down 4.6 percentage points compared to the reading of 48.4 percent in August.
- The Backlog of Orders Index registered 42.4 percent, 1.7 percentage points lower than the August reading of 44.1 percent.
- The Employment Index registered 51.2 percent, up 2.7 percentage points from the 48.5 percent reported in August.
- "The Supplier Deliveries Index figure of 46.4 percent is 2.2 percentage points lower than the 48.6 percent recorded in August.
- "The Inventories Index increased by 1.8 percentage points to 45.8 percent; the August reading was 44 percent.
- The New Export Orders Index reading of 47.4 percent is 0.9 percentage point higher than August's figure of 46.5 percent.
- The Imports Index remained in contraction territory, registering 48.2 percent, 0.2 percentage point higher than the 48 percent reported in August."
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Pro-Russian Politician Wins Slovakia’s Parliamentary Election - CNN
- EU ministers meet in Kyiv to show support - Reuters
- Leaked U.S. Strategy on Ukraine Sees Corruption as the Real Threat - Politico
- U.S. to Send More Aid to Ukraine ‘Soon’ Amid Funding Concerns, WH says - Politico
- Biden Vows Fix After US Drops Ukraine Aid to Avert Shutdown - Bloomberg
- How Ukraine Tricks Russia Into Wasting Ammunition - WSJ
- Prigozhin's Son 'takes Over Command of Wagner' - Telegraph
- Putin’s 5 Catastrophic Miscalculations – The Hill
- Ukrainian's Russian Tank Was Broken, So He Called a Russian Help Line - Forbes
- 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
Preliminary Data Show Trade Deficit Shrank in August
The U.S. goods trade deficit declined from $90.92 billion in July to $84.27 billion in August. The reduced trade deficit resulted from stronger goods exports (up from $165.29 billion to $168.85 billion) corresponding with decreased goods imports (down from $256.21 billion to $253.12 billion). Final data, which will include the service-sector trade surplus, will be released Oct. 5.
The increase in goods exports was led by strength in industrial supplies (up $2.62 billion), consumer goods (up $1.05 billion) and capital goods (up $1.03 billion). Meanwhile, sizable reductions in goods imports occurred for capital goods (down $2.21 billion), consumer goods (down $2.22 billion) and automotive vehicles (down $578 million).
Read more at the Census Department
Personal Income and Spending Rose in August, Savings Dropped
Personal income increased 0.4% in August, up from 0.2% and the best monthly reading since March. Wages and salaries rose 0.5% for the month, including for manufacturers. Over the past 12 months, total wages and salaries have increased 5.7%, with manufacturing wages and salaries rising 5.0% year-over-year. Real personal disposable income edged down 0.2% in August for the second straight month, but with 3.7% growth over the past 12 months, when adjusted for chained 2017 dollars.
At the same time, real personal spending edged up 0.1% in August, easing from 0.6% in July, with 2.3% growth year-over-year. The personal saving rate dropped from 4.1% in July to 3.9% in August, the lowest since December. As such, Americans continue to dip into their savings to finance their purchases.
Read more at Bureau of Economic Analysis
COVID Update - ‘Eris’ Increases as New COVID-19 Hospitalizations Decline
New COVID-19 hospital admissions declined for the second week in a row, according to data from the Centers for Disease Control and Prevention. The week ending Sept. 23 saw over 19,000 new admissions – a 3% decrease from the week prior. The top COVID-19 strain in the U.S., however, is increasing, according to CDC estimates. EG.5 was responsible for close to 30% of new infections over the past two weeks – up from 26% earlier in September.
Eris is also the most prominent strain circulating globally, according to the World Health Organization. The organization recently updated its risk evaluation for the variant, finding that the public health risk posed by EG.5 is considered “low” at the global level. “While concurrent increases in the proportion of EG.5 and COVID-19 hospitalizations have been observed in some countries, no direct associations have been made between these hospitalizations and EG.5, and current hospitalizations are lower when compared to previous waves,” WHO said in the updated risk assessment. But it added that “due to its growth advantage and immune escape characteristics, EG.5 has caused a rise in case incidence and has become the most prevalent variant globally.”
After More Than 3 years, Student Loan Payments are Back
Millions of Americans will start making payments again on their federal student loans, after a pandemic-era pause for over three years ended on Sunday, fanning concerns of the spillover effects on the U.S. economy. More than 40M people together owe over $1.6T in federal student loan debt. The resumption's impact on households and the economy remains uncertain, on account of the unprecedented long break. It could lower consumer spending by $9B per month, according to Oxford Economics, in turn reducing 2023 GDP growth to 1.7%, and resulting in a 0.3% decline in 2024.
"To our knowledge, there has never been a circumstance in which an entire lending market was turned off and turned back on again," said Jefferies analyst John Hecht. Discretionary spending is widely expected to take a major hit. BTIG said retailers and restaurateurs will be affected, while UBS said soft goods sales will likely decline. While noting the risks to consumer spending, Investing Group Leader Fear & Greed Trader pointed out that monthly payments on all types of consumer debt - including student loans - as a percent of income is very low. Dane Bowler said the resumption is not a dire situation, as the interest and principal burden is hitting consumers at a time when their balance sheets look excellent.
The UAW Strike Has Spread to New York
The United Auto Workers strike against Ford, General Motors and Stellantis is now entering its third week. While the companies’ plants are concentrated in Michigan, Indiana and Ohio, the strike has also expanded to New York. New York state’s auto parts manufacturing industry is the sixth-largest in the country, employing 9,200 employees in 2022. The UAW is taking a novel approach to their nationwide strike – a stand up strike. Rather than asking workers at every unionized shop to go on strike all at once, the union is calling on workers at select shops to walk off the job, while others continue to work.
President Shawn Fain called on an additional 38 GM and Stellantis facilities across 20 states to join the strike on September 22nd. One of those facilities was a parts distribution center in Rockland County. On Wednesday, New York’s. Sen. Chuck Schumer also joined the picket line outside the Rockland County plant and vocalized his support for the strike on the Senate floor. Western New York is home to 3,000 UAW members. Ford has a stamping plant in Hamburg, while GM has an engine plant in Tonawanda and a components plant in Lockport. The plants have not gone on strike yet, but their workers could walk off the job if called upon by the union in any of the next few waves.
GM Furloughs Another 160 Workers Due to UAW Strike, Costs Mount
General Motors said Monday it was indefinitely laying off about 160 workers at plants in Indiana and Ohio because of the impact on some of the facilities of the United Auto Workers strike that was entering its 18th day. On Friday, the UAW said it would strike at GM's Lansing Delta Township assembly plant that makes the Buick Enclave and Chevrolet Traverse SUVs after previously striking at GM's Missouri assembly plant and 18 parts distribution centers.
JPMorgan said in a research note Monday it estimated the strike has cost GM $191 million and Ford $145 million but said there was some cause for optimism about a deal "including that the two sides being reportedly close on pay and benefits." Anderson Economic Group estimated total losses from the first two weeks of the strike at $3.9 billion, including $325 million in wages, $1.12 billion in losses for the Detroit Three, $1.29 billion for suppliers and $1.2 billion for dealer and customer losses.
Global Steel Output Slide Continues
Steel production fell by almost -4.0% worldwide from July to August, totaling 152.6 million metric tons across the 63 countries covered by the World Steel Assn.’s monthly summary. Although an output decrease is typical for August, the current result is 2.2% higher than the August 2022 total. Even so, it represents the third consecutive month-over-month decline and a steady decrease in monthly output through Q2 and Q3 of this year, amid weak demand from manufacturing and construction sectors and steel producers fighting to establish price stability.
Through eight months of output for 2023, global steel production totals 1.26 billion metric tons, virtually even (+0.2%) with the January-August 2022 figure. The current rate of production is trailing the pace forecast for 2023 demand in World Steel’s April mid-range outlook: It projected 2023 steel demand rising 2.3% to 1.82 billion metric tons, and then improving further by 1.7% to 1.85 billion metric tons for 2024. Instead, falling industrial demand and weak construction activity, and the expectation of economic recession, appear to be directing steelmakers production plans. China’s August total of 86.4 million metric tons represents a -5.1% drop from the July result. It is still 3.2% higher than last August’s total, and brings the YTD result to 712.9 million metric tons, a 2.6% increase.
Read more at American Machinist
China's Factory Activity Returns to Expansion, Economy Stabilizes
China's factory activity expanded for the first time in six months in September, an official survey showed on Saturday, adding to a run of indicators suggesting the world's second-largest economy has begun to bottom out. The purchasing managers' index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, edging above the 50-point level demarcating contraction in activity from expansion. The reading beat a forecast of 50.0.
The PMI, the first official statistics for September, adds to signs of stabilisation in the economy, which had sagged after an initial burst of momentum early in the year when China's ultra-restrictive COVID-19 policies were lifted. Preliminary signs of improvement had emerged in August, with factory output and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July's 6.7% decline.
Nobel Prize Goes to Scientists Behind mRNA Covid Vaccines
The Nobel Prize in Physiology or Medicine has been awarded to a pair of scientists who developed the technology that led to the mRNA Covid vaccines. Professors Katalin Kariko and Drew Weissman will share the prize. The technology was experimental before the pandemic but has now been given to millions of people around the world to protect them against serious Covid-19. The same mRNA technology is now being researched for other diseases, including cancer. The Nobel Prize committee said: "The laureates contributed to the unprecedented rate of vaccine development during one of the greatest threats to human health in modern times."
Professor Kariko and Professor Weissman met in the early 1990s when they were working at the University of Pennsylvania, in the United States, when their interest in mRNA was seen as a scientific backwater. The big idea behind the technology is that you can rapidly develop a vaccine against almost anything - as long as you know the right genetic instructions to use. This makes it far faster and more flexible than traditional approaches to vaccine development.
Play Airlines Carries 100,000 Passengers at Stewart
In about a year-and-a-half of daily service between New York Stewart International Airport near Newburgh and Iceland, Play Airlines has carried 100,000 passengers between the two cities, and that was with a one-month service suspension in the dead of the winter. Play connects to several mainland European cities from its Reykjavik hub. Port Authority airline attraction manager Alex Minton believes the Play popularity will continue to grow.
“Since the start of our daily international service, we have seen over 100,000 new international passengers at the airport, which is not as significant perhaps as when we had Norwegian Airlines serving the airport because of the scope of their service, but it certainly our highest number since they left the airport,” he said.
West Coast Dockworkers Union Files for Bankruptcy to Weather Port Lawsuit
The labor union for West Coast dockworkers filed for bankruptcy to fend off a judgment holding it liable for what a federal jury found to be illegal slowdowns and work stoppages at the Port of Portland in Oregon. The International Longshore and Warehouse Union filed for chapter 11 protection in a San Francisco court to halt litigation brought by a former terminal operator of the Port of Portland that threatened to deplete the labor union’s cash reserves.
The bankruptcy filing puts ICTSI’s lawsuit against the union on hold and opens a path for it to limit its liability and reorganize its affairs. The ILWU said it filed for chapter 11 because it couldn’t afford the legal fees to continue fighting the case and because any damages award would likely exceed what it can pay. The union was held liable in 2019 to ICTSI for engaging in unfair labor practices aimed at securing work handling refrigerated shipping containers, referred to in the maritime industry as reefer work. Litigation has dragged on over the amount of damages the union should pay.
Warmer & Drier - NOAA releases 2023-2024 New York Winter Predictions
NOAA’s Climate Prediction Center has released its winter outlook, and based on this year’s El Niño, the northern part of the country is predicted to bring warmer and drier weather to the area, while places in the southern part of the country will be colder and wetter. El Niño is a weather pattern that has to do with the weakening of the trade winds over the Pacific Ocean, which leads to warm ocean waters in the eastern tropical Pacific Ocean. The warmer ocean water then increases the potential for rainfall in areas like Southern California through Texas and even into the southeastern U.S. In a typical El Niño winter, the Polar jet stream sets up slightly further north, which makes for warmer-than-normal temperatures in the northwestern part of the country.
How predictable is El Niño? Not very. In 2015-2016, it was the warmest winter on record for the mainland U.S., but also brought about a snowstorm that slammed the East Coast with three feet of snow in some places at the end of January. The El Niño of 2009-2010 brought multiple blizzards to the northeast. So if the past is any indication, we could be looking at a very wet and snowy winter season.