Member Briefing September 13, 2023
August CPI Expected to Jump Ending Downward Trend
The Consumer Price Index report for August 2023 is forecast to show that after a summer of better news on inflation, consumer prices in the United States are rising at half the pace they were a year ago—even with a jump in prices at the gas pump. Yet with the economy remaining stronger than most had expected, investors and the Federal Reserve will likely have to wait a while before inflation returns to acceptable long-term levels. For the August report, the CPI is expected to show a 3.6% increase in inflation from year-ago levels, Meanwhile, core CPI, which excludes volatile food and energy costs, is expected to show an annual increase of 4.3%, down from 4.7% in July.
With the August report, economists are predicting a wide gap between the overall increase and the core reading, largely because of higher gas prices. Economists at Bank of America expect a 5.9% jump in energy prices to fuel a 0.6% overall increase. They point to data from AAA showing retail gasoline prices jumping by 6.6% month over month in August. This increase reflects a rise in crude-oil prices driven by supply concerns. Core CPI should rise 0.2% from July, Bank of America predicts.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Kim Jong Un in Russia Amid US Warnings Not to Sell Arms - Reuters
- West Goes Easy on Russia to Save the G20 - Politico
- Ukraine Could Get Long-Rrange Missiles Armed with US Cluster Bombs – Reuters
- WSJ Publisher Urges U.N. Body to Declare Evan Gershkovich Arbitrarily Detained - WSJ
- Ukrainian Troops Ejected Russians From Oil Platforms Near Snake Island – Forbes
- Swedish Government to Increase Defense Spending Amid NATO Bid - Euronews
- U.S. Military Exercises in Russia's Backyard Cause Alarm at the Kremlin - WSJ
- Macron’s slow but bold U-turn on Ukraine - Politico
- Video Appears to Show Ukraine Using a 'Shark' Drone to Pinpoint 5 Russian 'Buk' Missile Systems, Then Destroying Them With HIMARS - Insider
- 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
Small Business Optimism Falls Back in August
After three straight months of improvement, the NFIB Small Business Optimism Index slipped to 91.3 in August. Dimmer sales prospects and a weaker outlook for business conditions seemed to drive August’s dip, solidifying the index’s 20-month streak below its longer-term historical average. Although this outturn may seem bleak, August’s survey was not all bad news. Small business owners echoed recent trends in national data which reveal that the labor market is finding better balance.
Despite the drop in sentiment, small businesses seem to still be investing. Reported capital outlays ticked up slightly in August with 56% of small businesses making capital expenditures over the last six months. Although expectations for future capital expenditures dipped slightly, they remained elevated above the most recent low in April and on par with the level one year ago. The NFIB survey echoed recent trends in broader labor data that suggest the labor market is finding better balance. In August, 40% of small business owners reported job openings that were hard to fill, the lowest reading since February 2021.
A Slowdown in Global Trade is Hurting Some Economies More than Others
Global goods trade declined in the first three months of the year from the previous quarter, according to the World Trade Organization, extending a downturn that started last year and that economists expect to continue this year. The trade slump reflects a slew of temporary factors including rising interest rates and living costs, and a snapback in business inventories as global goods shortages ease. But it also results from longer-term changes such as a slowdown in China’s growth rate, more protectionist industrial policies in the West, and the increasing recourse to economic measures, from technology embargoes to outbound investment screening, as tools of geopolitical competition.
Flagging global commerce is hitting industry everywhere, from smartphone and machinery makers to shipping companies, entrenching a manufacturing recession that has set in across swaths of the global economy. It contrasts sharply with decades of expanding world trade. That is particularly painful for countries where industry forms an outsize part of the economy. Manufacturing accounts for nearly a third of economic output in China compared with 18% for Germany and 11% for the U.S., according to the World Bank.
COVID Update – CDC’s Big COVID Dilemma: Whether to Recommend the New Boosters for All Ages
Despite broad recommendations for the updated COVID booster shot released last fall, only 17% of the U.S. population got it — and about 43% of those over 65. How many will get the vaccine this season is uncertain, as is the benefit of the shot. A study of the new Moderna vaccine showed that while it increased antibodies to various COVID strains, it provided roughly the same protection against them as last year’s booster shot, which was given again to the control group.
the vaccine is arguably most relevant for healthy people who come in frequent contact with vulnerable individuals. With that in mind, England has announced the new booster would be offered only to people who are 65 or older, in nursing homes, or immunologically vulnerable — or who work or live with members of those groups. “Any efforts to promote the new boosters should focus squarely on those at high risk,” said Norman Hearst, a family physician in San Francisco. While recommending the vaccine for older patients, he said he wouldn’t advise a booster for young males because of the rare risk of myocarditis and the negligible benefit. “The question is all the other people in between.”
UAW Strike Against Big Three Automakers Is Looking More Likely
The reality of a strike by the United Auto Workers against Detroit's Big Three automakers is looking more and more likely as we inch closer to Thursday night. With 97% of the union voting in favor of a strike against the automakers, a strike starting at midnight on Friday could happen, and it could drag on for weeks. The current agreement between the union and with Ford, Stellantis, and General Motors is 11:59 p.m. on Thursday, Sept. 14 and UAW President Shawn Fain has been adamant that, without a deal in place, the union will strike.
The UAW is seeking a new deal for the first time since 2019 and is asking for a 46% wage increase, a 32-hour workweek, and more for members. In response to the list of demands from the union, Detroit's Big Three have offered their own proposals: So far, GM has offered 10%, Stellantis, offered 14.5%, while Ford proposed a 9% wage increase and a 6% lump sum added after. Fain has called the offers "shameful and insulting" and "deeply inadequate."
Wall Street Sees Potential UAW Strikes as Manageable, With Upsides
Many on Wall Street view potential strikes by United Auto Workers against the Detroit automakers as largely manageable – even seeing investment opportunities. Some believe potential strikes are already factored into the stocks, while others estimate General Motors, Ford Motor and Stellantis can handle such work stoppages and expected labor cost increases. The companies and the union are bargaining contracts for 146,000 union members ahead of an 11:59 p.m. ET Thursday deadline.
What “matters most” is the duration of a potential strike, Jefferies analyst Philippe Houchois said. In an investor note Monday, he estimates each week of a strike could account for 4% to 5% of adjusted earnings at Ford; 3% to 4% at GM; and 1.5% to 2% at Stellantis. Simultaneous national strikes against the Detroit automakers, which the UAW has alluded to doing, would be unprecedented. It could have a ripple effect on the automotive supply chain, U.S. economy and domestic manufacturing. It also would likely tally into billions in losses for the companies in production, sales and other earnings.
U.S. Incomes Fall For Third Straight Year
Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019. The figures add to the picture of the economic challenges facing households since Covid-19 hit in early 2020. Inflation hit a four decade high last summer as the pandemic upended supply chains and the Ukraine war drove up energy prices.
This year could be different. Earnings and inflation trends have improved as a strong labor market and cooling price increases boosted household purchasing power. Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to data from the Atlanta Fed Wage Tracker and the Labor Department. Household incomes have also risen as more sidelined workers found jobs.
Poverty Rate Increases for First Time Since 2010
Some 12.4% of children were in poverty last year, up from 5.2% the year before and roughly comparable to where it was prior to the pandemic in 2019, based on a broader alternative measure developed by the Census Bureau. It was the largest jump in child poverty since the Supplemental Poverty Measure began in 2009. The measure takes into account certain non-cash government assistance, tax credits and needed expenses – addressing a major flaw in the official poverty rate, economists say.
Overall, the supplemental poverty rate was 12.4% for 2022, up from 7.8% a year earlier and higher than it was prior to the pandemic. It’s the first increase in the rate since 2010. White House aspirations of permanently enlarging the social safety net were instead overtaken by rising inflation fears, labor shortages and fears of debt and deficits. In a blog post published ahead of the new Census numbers, the Council of Economic Advisers acknowledged that the shrinking Covid safety net would drive the benchmark supplemental poverty rate, “significantly higher than in 2021.” But it argued the administration had succeeded in laying the foundation for a stronger-than-expected economic recovery.
Siena Poll: New Yorkers Want it Easier For Migrants to Work
By 59-33%, New Yorkers support making it easier for migrants currently in New York to be granted work authorizations regardless of their current immigration status according to a new survey of New York residents released today from the Siena College Research Institute (SCRI). By more than two-to-one, 60-28%, residents support a comprehensive immigration reform bill that provides a pathway to citizenship for all undocumented immigrants in the United States, and by 50-41%.
“Over 40% of all New Yorkers believe that immigrants take more than they offer society. About a third believe current migrants are dangerous, perhaps even criminal, only want hand-outs and are a source of illegal drugs. But in each of these cases more New Yorkers disagree with, rather than hold, these judgments,” said Don Levy, SCRI’s Director. Eleven percent of the New Yorkers in this survey say that they were born in another country. While 16% say that the first member of their family that came to this country did so prior to 1840, 31% trace their family’s arrival to the period of American growth from 1840 through World War I and another 35% say their family arrived during the Depression, World War II or through the Reagan years. Only 10% say that they started their American journey from 1990 through the present.
Read more at The Siena College Research Institute
Container Shipping Demand has Stagnated
July was the latest month without a noticeable decline in the overall container market, and the downturn can therefore be said to be over for good, writes Sea-intelligence. The firm refers to the latest figures from Container Trade Statistics that, however, also show a more discouraging trend. ”The past few months, it was possible to interpret the global demand developments as being positive. In essence, the leap up to a baseline around zero percent growth certainly reflected a marked improvement, compared to the sharp dip over the new year 2022/2023,” the analytical company writes.
”But with July being the 5th month of essentially zero growth, this perspective is beginning to lose its credibility. It now means that, yes, the drop is behind us, but there is also no real growth in the market – at least when comparing year- on-year to 2022. The demand picture is clearly starting to show a market that has stagnated at a level broadly similar to pre-pandemic levels,” writes Sea-intelligence.
Apple's iPhone 15 Launch Clouded by China Problems
Apple revealed during its "Wonderlust" event on Tuesday that the iPhone 15 will arrive on Sept. 22, next Friday. The new flagship phone will start at $799 in the US, while the iPhone 15 Plus with the larger display and bigger battery will cost $899. Apple also revealed the iPhone 15 Pro, starting at $999, and iPhone 15 Pro Max with a price tag of $1,199. Tuesday's event unveiled the iPhone 15 with the phone's newest upgrades, such as a brighter screen, new camera system and the long-awaited addition of a USB-C port. As for the iPhone 15 Pro, it will have a new A17 Pro chip and a titanium chassis that makes it the lightest Pro model ever.
The announcement came as questions about market access in China and competition hang over the world's most valuable listed company. The iPhone made up more than half of Apple's $394.3 billion in sales last year, but it faces new challenges with selling in China, the firm's third-largest market. The Chinese government has expanded some restrictions on using iPhones. Preorders for the iPhone 15, iPhone 15 Pro and iPhone 15 Pro Max will start on Friday. Apple also unveiled its latest updates to its wearable lineup, the Apple Watch Series 9 and Apple Watch Ultra 2. Both are getting brighter screens and new gesture features.
Unemployment, Wages Are on the Rise in the UK
The rate of unemployment in the UK rose to 4.3% between May and July, having already risen to 4.2% a month prior, according to official statistics. The Office for National Statistics (ONS), which released the figures on Tuesday, said the increase in unemployment was largely driven by people unemployed for up to 12 months. The 4.3% unemployment rate is 0.3% higher than before the COVID-19 pandemic.
On a more positive note, UK wages continue to increase when looking at several metrics, according to the ONS. Pay excluding bonuses was up 7.8% between May and July 2023 compared to the same time last year. When bonuses are factored in, the figure jumps to 8.5%. The UK's median monthly wages have increased by 6.7% compared to last year, putting the median monthly salary at £2,260 (€2,630). Monthly salaries are now 21.4% higher than they were in February 2020, the statistics show.
Legal Challenge Awaits Biden's Alaska Lease Cancellation
An Alaska corporation is already teeing up a legal battle over the Biden administration's decision to cancel oil and gas leases in a massive wildlife refuge. "A willingness to circumvent laws passed by Congress has consequences reaching far beyond ANWR’s boundaries, and will impact future development across this country," the authority said in a statement last week. "AIDEA will aggressively defend our lease rights and oppose this unlawful action."
The Interior Department announced plans last week to revoke seven leases held by the Alaska Industrial Development and Export Authority (AIDEA) that were sold in the final days of the Trump administration. The state corporation has vowed to pursue legal action against the federal government for the cancellation of the leases spanning 365,000 acres in the coastal plain of the Arctic National Wildlife Refuge, also known as ANWR. Legal observers said the decision to cancel the leases — based on what the administration called an inadequate National Environmental Policy Act review process — appears to fall within the Interior Department's well-established power.