Member Briefing October 30,2023
The Fed's Key Inflation Rate Firms Up As Services Prices Jump
The Federal Reserve's primary inflation rate showed that core price pressures firmed up in September as consumer spending surged. Hot prices for services were only partly offset by falling goods prices. The September inflation and spending data follows Thursday's report that the U.S. economy grew at a 4.9% annualized rate last quarter, up from Q2's 2.1% pace. Growth was fueled by a 4% rise in personal consumption expenditures, or PCE. But fixed investment grew just 0.8%, as equipment purchases fell 3.8%
The personal consumption expenditures, or PCE, price index rose 0.4% in September, while the annual inflation rate held at 3.4% for a third-straight month. Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. Core prices rose 0.3% in September, matching estimates, even as core goods prices fell 0.5%. The core 12-month inflation rate eased to 3.7% from 3.8% in August. Personal income rose 0.3% on the month while personal consumption expenditures surged 0.7% in September. Consumers paid for their spending spree partly by saving less. Saving as a share of disposable income fell to 3.4%, the lowest since December, and less than half the level that prevailed before the pandemic.
Read more at Investor’s Business Daily
War in Israel Headlines
- Israel and Hamas: The Latest News – The Guardian
- Israeli Ground Operation Pushes Deeper Into Gaza - WSJ
- War in Gaza is 'Going to be Long,' Israeli Leader Netanyahu Says as Fighting Enters New Stage - CNN
- Gaza Residents Break Into U.N. Warehouse for Supplies as Israeli Barrage Continues - NPR
- US Asking Israel 'Hard Questions' on Gaza Military Assault, White House Says - Reuters
- Netanyahu and His Generals are Dangerously Divided – The Economist
- What Palestinians Really Think of Hamas – Foreign Affairs
- Americans Stuck in Gaza. ‘Are We U.S. Citizens or Not?’ - WSJ
- US Blames Hamas for Not Letting American Citizens Out of Gaza – The Hill
- Musk Says Starlink Will Support Connectivity to Aid Organizations in Gaza - Politico
- Map – Tracking Hamas’ Attack on Israel – Live Universal Awareness Map
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- A New Hope for Ukraine Aid in Washington - NBC
- ‘Everything is Destroyed’: Civilians Trickle Out of Avdiivka as Russian Assault Leaves Ukrainian Town in Ruins - CNN
- Pentagon ‘Beginning to Pivot’ to Rebuilding Ukraine’s Industrial Base: LaPlante – Breaking Defense
- WSJ Reporter Detained in Russia Evan Gershkovich Spends 32nd Birthday in Jail - WSJ
- Belarus' Lukashenko Says Ukraine-Russia War at Stalemate, Urges Talks – Reuters
- Zelensky's Approval Ratings Dip Amid Russia-Ukraine War, Says Poll; Hate For Putin Backfiring? - WSJ
- Ukraine Needs More Than Just Weapons to Win. That’s Where I Come In - Politico
- 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
U.S. Economy’s Summer Surge May Not Last
The economy expanded at a 4.9% annual pace in the third quarter—more than double the second quarter—the Commerce Department reported Thursday. Overall gross domestic product, reported as a seasonally- and inflation-adjusted rate, and consumer spending both recorded the fastest pace since late 2021. The acceleration won’t change the Federal Reserve’s plans to hold rates steady at their meeting next week. The bulk of this growth came from private inventory investment, federal government spending, and consumer spending—the last of which grew 4 percent over the period.
But there are warning signs underlying the eye-popping numbers. Americans saved less and their incomes, adjusted for inflation, fell over the summer. That could mean the pace of spending will ease in the coming months. Business investment also stalled. Meanwhile, rising long-term interest rates, wars in Ukraine and the Middle East and the possibility of a partial government shutdown could cause economic cracks to emerge. Many forecasters still predict a slowdown as Americans contend with economic hurdles. The yield on the U.S. 10-year Treasury note touched 5% this week for the first time in 16 years. That influences borrowing costs for mortgages, credit cards, auto purchases and business loans—and could slow the surprisingly resilient economy.
International Economic Outlook October 2023 – ‘Firm Footing’
Prospects for global growth have improved slightly this month as the U.S. economy remains on firm footing and China's economy outperformed in Q3. We now forecast the global economy to grow 2.8% this year, although the upward revision is entirely driven by revisions to our U.S. and China GDP forecasts. While we revised up both of these forecasts, we have taken down our Canada growth outlook and maintain our pessimistic view on the United Kingdom and Eurozone economies.
As far as the United States, we revised our 2023 annual growth forecast higher this month as indicators—especially the labor market—continue to suggest a “soft landing” is possible. Q3 GDP data were better than expected in China, and incorporating the latest growth and activity data, we now believe China's economy can grow 5.2% this year, up from a prior forecast of 4.8%. At the same time, the growth outlook across Europe remains bleak and is possibly getting gloomier. As of now, we maintain our view that the United Kingdom will slip into recession, and the Eurozone may not be far behind.
COVID Update - 2% of kids and 7% of Adults Have Gotten the New COVID Shots
A month after federal officials recommended new versions of COVID-19 vaccines, 7% of U.S. adults and 2% of children have gotten a shot. One expert called the rates “abysmal.” The numbers, presented Thursday at a meeting held by the Centers for Disease Control and Prevention, come from a national survey of thousands of Americans, conducted two weeks ago. The data also indicated that nearly 40% of adults said they probably or definitely will not get the shot. A similar percentage of parents said they did not plan to vaccinate their children.
Cases remain low compared with the pandemic’s early months. Even so, health officials say about 18,000 hospitalization and 1,200 deaths are still being reported each week. One expert at the meeting, Dr. Camille Kotton of Harvard Medical School, called the numbers “abysmal” and said part of the problem may be patient confusion. She urged stepped-up public education efforts.
NYS COVID Update
The Governor updated COVID data for the week ending October 27th.
Deaths:
- Weekly: 87
- Total Reported to CDC: 80,790
Hospitalizations:
- Average Daily Patients in Hospital statewide: 1,308
- Average Daily Patients in ICU Statewide: No Data
7 Day Average Cases per 100K population
- 7.8 positive cases per 100,00 population, Statewide
- 8.4 positive cases per 100,00 population, Mid-Hudson
Useful Websites:
House Republicans Pass First Government Funding Bill Under New Speaker
House Republicans on Thursday passed a sprawling partisan energy plan, the first funding bill approved on the floor since the lower chamber ousted its Speaker more than three weeks ago. The bill is one of 12 annual funding bills House Republicans have crafted over the past several months. The House, which had already passed four partisan funding bills prior to October, now aims to pass the remaining seven funding bills in the coming weeks, as Republicans seek to strengthen their hand in eventual spending talks with the Democratic-led Senate.
The bill cuts more than $5 billion in spending that was passed as part of Democrats’ signature climate, tax and health care bill — which was approved without GOP support last year. The White House has threatened to veto it. The bill would fund the Energy Department, providing about 8 percent more than last year for the department’s nuclear weapons agency. The measure would also cut the department’s Energy Efficiency and Renewable Energy Office by about $466 million, or 13 percent compared with what it was given in last year’s appropriations bill, drawing more criticism from Democrats.
Ford Misses Wall Street’s Q3 Expectations, Pulls Guidance Due to UAW Strike, Pending Deal
United Auto Workers President Shawn Fain declared "a major victory" this week when union members reached a tentative agreement with Ford Motor that lifts most employees' pay past $40 an hour. The tentative deal is indeed a huge win for autoworkers, organized labor experts say. The del, announced Wednesday, includes a 25% wage increase across a four-and-a-half-year contract with restored cost-of-living adjustments and the elimination of a two-tiered wage system at two of Ford's plants. The proposed deal also shrinks the timeframe for when new employees are eligible to start earning top wages. Those specifics still need approval from the UAW's national council and its general membership.
The UAW didn't get 40% and the union couldn't get Ford to axe the two-tier system companywide, but "they won on their three main demands," said Steven Greenhouse, a senior fellow at The Century Foundation who studies labor organizing and workplace issues. A 25% wage increase combined with cost-of-lliving adjustments effectively gives UAW members at Ford a 33% raise. "And by any measure, a 30% raise is a whole lot," Greenhouse said.
UAW Reaches Tentative Agreement With Stellantis, Expands Strike at GM
The UAW and Stellantis reached a tentative agreement Saturday on a new contract that would end the 44-day strike against the automaker. A deal with General Motors, meanwhile, remained elusive, leaving the automaker as the only remaining member of the Detroit Three without a tentative union labor agreement as of Saturday night. The union opted to expand its strike against GM late Saturday to include the company's Spring Hill Assembly/Global Propulsion Systems manufacturing facility in Tennessee. In response, GM released a statement saying, “We are disappointed by the UAW’s action in light of the progress we have made. We have continued to bargain in good faith with the UAW, and our goal remains to reach an agreement as quickly as possible.”
The union release said the Stellantis agreement reinstates cost-of-living allowances in addition to a three-year wage progression, as well as killing divisive wage tiers in the union. It also said the union gained a right to strike over plant closures as in the Ford agreement as well as a "right to strike over product and investment commitments, a historic first for the union."
Read more at The Detroit Free Press
Ford Pauses a $12 Billion EV Investment, After Saying Electric Vehicles are Too Expensive
Ford Motor said Thursday that many customers in North America are no longer willing to pay a premium for an electric vehicle over an internal-combustion or hybrid alternative. As a result, it’s postponing about $12 billion in planned spending on new EV manufacturing capacity. Customers’ reluctance to pay extra for EVs has complicated Ford’s ambitious and expensive plans to sharply increase production of those vehicles. While Ford’s – and the industry’s – sales of EVs are growing, they aren’t growing at the pace Ford had expected.
“We’re not moving away from our second generation [EV] products,” CFO John Lawler said in a media briefing Thursday. “We are, though, looking at the pace of capacity that we’re putting in place. We are going to push out some of that investment.” Lawler said that Ford will postpone about $12 billion in planned spending on manufacturing capacity for EVs, including a planned second battery plant at a new campus in Kentucky. But, he noted, construction of Blue Oval City – Ford’s new EV manufacturing campus in Tennessee – will continue as originally planned.
Learn more at Business Insider
Package-Delivery Giant UPS Cuts Sales Outlook
United Parcel Service (UPS) cut its sales outlook after revenue slipped in the third quarter because of a slowdown in global demand for shipping. Chief Executive Carol Tomé said macroeconomic factors weighed on demand for UPS’s services in the quarter. Shipping between China and the U.S. hasn't improved as fast as UPS executives had anticipated, and online retail sales have been subdued. Average U.S. daily package volume for UPS fell 11.5% to 17.3 million.
“We’ve seen, clearly a shift from goods to services,” said Tomé, noting that people are returning to work, taking vacations, going to restaurants and amusement parks. “It’s not that the consumer is not healthy. They’re spending their dollars differently." UPS's shipping volumes were hurt earlier this year as the company negotiated a new contract with the International Brotherhood of Teamsters and customers shifted their business amid concerns about a prospective work stoppage. During labor talks and even after a deal was reached, customers diverted an average of 1.5 million packages a day – a steeper decline than it previously had forecast – to competitors, UPS executives said.
China Rushes to Swap Western Tech With Domestic Options as U.S. Cracks Down
China has stepped up spending to replace Western-made technology with domestic alternatives as Washington tightens curbs on high-tech exports to its rival, according to government tenders, research documents and four people familiar with the matter. Reuters is reporting for the first time details of tenders from the government, military and state-linked entities, which show an acceleration in domestic substitution since last year.
China has spent heavily on replacing computer equipment, and the telecom and financial sectors are probably the next target, said two people familiar with the industries. State-backed researchers also identified digital payments as particularly vulnerable to possible Western hacking, according to a review of their work, making a push to indigenize such technology likely. The number of tenders from state-owned enterprises (SOEs), government and military bodies to nationalize equipment doubled to 235 from 119 in the 12 months after September 2022, according to a finance ministry database seen by Reuters.
Trucking's Annual Congestion Costs Top $94.6 Billion
Traffic congestion on U.S. highways added $94.6 billion in costs to the trucking industry in 2021 according to the latest Cost of Congestion study published by the American Transportation Research Institute (ATRI). This is the highest level yet recorded through this ongoing research initiative. ATRI utilized a variety of data sources including its unique truck GPS database to calculate trucking delay impacts from 2017 through 2021 on major U.S. roadways.
This level of delay equates to more than 460,000 commercial truck drivers sitting idle for one work year, and the 2021 figure represents a 27% increase from the report’s baseline year of 2016 – an increase that is twice the rate of inflation. In addition to the national findings, ATRI’s analysis also documented state and metropolitan delays and related cost impacts. he top 10 states each experienced costs of more than $3 billion, led by California ($9.00B), Texas ($7.26B) and Florida ($7.16B). Combined, these 10 states ultimately account for more than half (53%) of trucking’s congestion costs nationwide. Additionally, the New York City metropolitan area ranked highest for cities, with costs approaching $5.5 billion annually.
Read more at Material Handling & Logistics
Farmers, Business Leaders Push Back on New York Packaging Bill
Lawmakers held a joint legislative hearing in Albany last week to examine the Packaging and Recycling Infrastructure Act, which would change how the state manages plastic waste. The bill proposes to establish environmental standards for packaging and mandate companies with a net income of $1 million or more reduce their packaging by 10% of weight within three years, 20% in five years, 30% within eight years, 40% after a decade and by 50% in 12 years. The legislation, amended at the end of session, would create create an Extended Producer Responsibility system and charge large companies that use single-use plastic products to sell packaged goods a fee.
Craig Cookson, senior director of Plastics Sustainability at the American Chemistry Council agrees plastic waste should be reduced, but says the current proposal is too excessive. "We need to make sure we account for the role that plastics and other materials play in reducing our greenhouse gas emissions and conserving resources," he said Tuesday. Producers and business leaders told lawmakers they want to want to work with them to strike a balance in restrictions and new technology to advance recycling of plastics.
ACT Reports Test Scores at 30 Year Low
High school students' scores on the ACT college admissions test have dropped to their lowest in more than three decades, showing a lack of student preparedness for college-level coursework, according to the nonprofit organization that administers the test. Scores have been falling for six consecutive years, but the trend accelerated during the COVID-19 pandemic. Students in the class of 2023 whose scores were reported Wednesday were in their first year of high school when the virus reached the U.S.
The average ACT composite score for U.S. students was 19.5 out of 36. Last year, the average score was 19.8. The average scores in reading, science and math all were below benchmarks. The ACT says students must reach to have a high probability of success in first-year college courses. The average score in English was just above the benchmark but still declined compared to last year. Many universities have made standardized admissions tests optional amid criticism that they favor the wealthy and put low-income students at a disadvantage. Some including the University of California system do not consider ACT or SAT scores even if submitted.
Southwest Airlines Ups Boeing 737 MAX Order With 108 More Planes
Southwest Airlines has placed an order for a further 108 Boeing 737 MAX 7s. The move forms part of the low-cost carrier's fleet modernization and expansion strategy and its total 737 MAX order at over 500 aircraft. Following several challenging years since the 737 MAX's grounding in 2019, Boeing will undoubtedly be delighted with the order, which showcases the increased confidence in the aircraft from airlines worldwide.
Deliveries of Southwest Airlines' first 737 MAX 7s are expected to begin in 2024, with the aircraft poised to replace some of the carrier's aging 737-700s, which have an average age of 18.4 years old. The modern, fuel-efficient 737 MAX aircraft provides Southwest Airlines with many operational and financial benefits compared to the older 737-700s and 737-800s. Each of the airline's 737 MAX 7s will carry up to 172 passengers in an all-economy configuration.
RTX, Rafael to Build Missile Facility in Arkansas
U.S. defense contractor RTX Corp (RTX.N) and Israel's Rafael Advanced Defense Systems will build a missile manufacturing facility in East Camden, Arkansas, the companies said on Thursday. The facility will produce Tamir missiles for the Iron Dome weapon system and its U.S. variant, SkyHunter. The joint venture plans to break ground on the new facility before the end of the year and aims to begin missile production in 2025.
Once operational, the facility will produce missiles for the U.S. Marine Corps and other allied partners. Raytheon and Rafael have teamed for over a decade on the Iron Dome, which has more than 5,000 operational intercepts.