Member Briefing September 15, 2022

September 15, 2022

Posted By: Harold King in Daily Briefing,

PPI = 8.7 Better, But Not Great

The producer price index, a gauge of prices received at the wholesale level, declined 0.1%, according to a Bureau of Labor Statistics report Wednesday. Excluding food, energy and trade services, core PPI increased 0.2%. Economists surveyed by Dow Jones had been expecting headline PPI to decline 0.1% and core to rise 0.3%.

On a year-over-year basis, headline PPI increased 8.7%, a substantial pullback from the 9.8% increase in July and the lowest annual rise since August 2021. Core PPI increased 5.6% from a year ago, matching the lowest rate since June 2021. As has been the case over the summer, the drop in prices came largely from a decline in energy. The index for final demand energy slid 6% in August, which saw a 12.7% slide in the gasoline index. That helped feed through to consumer prices, which fell sharply after briefly surpassing $5 a gallon at the pump earlier in the summer.

War in Ukraine Headlines

Tentative Labor Agreement to Avert National Rail Strike Announced

The last-minute deal averts a strike that could have disrupted the flow of key goods and commodities around the country. About 40% of the nation’s long-distance trade is moved by rail. If the unions gone on strike, more than 7,000 trains would have been idled, costing up to an estimated $2 billion per day. The White House had been in talks with railroad workers’ unions and companies for several months, but negotiations were hung up over unpaid sick time.

“The tentative agreement reached tonight is an important win for our economy and the American people,” Biden said in a statement. “It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years.”

Sanders Blocks Proposal to Force Rail Unions to Accept Labor Deal

Sen. Bernie Sanders (I-Vt.) on Wednesday blocked a Republican request to force railroad workers and companies to accept the recommendations of a nonpartisan panel to avoid a strike that would impact millions of Americans. He argued that railroad companies are making huge profits and should start treating their workers more fairly.

GOP senators, however, say their resolution would avoid a “disastrous” rail strike, which could freeze rail travel and freight shipment around the country. Senate Minority Leader Mitch McConnell (R-Ky.) accused Democrats of putting the economy at risk after Sanders blocked the resolution. “Senate Democrats just blocked our bill that would have given railway workers a big raise and prevented a crippling strike and supply chain crisis. If a strike occurs and paralyzes food, fertilizer and energy shipments nationwide, it will be because Democrats blocked this bill,” he tweeted.

NFIB: Inflation Eases For Some Small Businesses But Remains A Serious Problem

The NFIB Small Business Optimism Index rose 1.9 points in August to 91.8, marking the eighth consecutive month below the 48-year average of 98. Twenty-nine percent of owners reported that inflation was their single most important problem in operating their business, a decrease of eight points from July’s highest reading since the fourth quarter of 1979.

Key findings include:

Small business owners expecting better business conditions over the next six months improved 10 points from July to a net negative 42%, the highest level since February 2022, but a dismal outlook.
The net percent of owners raising average selling prices decreased three points to a net 53% (seasonally adjusted), still a very inflationary outcome.
Thirty-two percent of owners reported that supply chain disruptions have had a significant impact on their business. Another 33% report a moderate impact and 23% report a mild impact. Only 11% report no impact from recent supply chain disruptions.
The Uncertainty Index increased seven points to 74.

US COVID – Johns Hopkins Slows Frequency of Covid-19 Data Publication

Johns Hopkins University is scaling back its comprehensive efforts to track the course of the Covid-19 pandemic. The data dashboard the university introduced in January 2020 has notched more than 800 million page views as government officials, researchers and this publication have scanned for context on cases, deaths and other metrics. But the dashboard has been increasingly hampered by a reduction in data reporting in the U.S. and beyond, according to university officials who run the project.

Starting Sep. 21, the platform will only update global case, death and vaccine data daily rather than every hour, project officials said. It will cease reporting testing numbers, which have become less reliable as people shift to at-home tests that health authorities generally don’t track. The Johns Hopkins platform will also start pulling vaccination-related data from other sources, such as the Centers for Disease Control and Prevention, rather than trying to collect it directly from local health agencies, its operators said.

End of the COVID-19 Pandemic is in Sight – WHO Chief

The world has never been in a better position to end the COVID-19 pandemic, the head of the World Health Organization said on Wednesday, urging nations to keep up their efforts against the virus that has killed over six million people.

“We are not there yet. But the end is in sight,” WHO Director-General Tedros Adhanom Ghebreyesus told reporters at a virtual press conference. The comment was the most optimistic from the UN agency since it declared COVID-19 an international emergency and started describing the virus as a pandemic in March 2020.

Government Contractor Vaccine Mandate Ends

Following a bit of confusion caused by a recent court decision, the government has decided to officially call to an end the COVID-19 vaccine mandate that it had imposed last year on federal contractors and subcontractors. The Biden administration issued the order on Aug. 30 following a decision handed down four days earlier by the Eleventh Circuit U.S. Court of Appeals, which ended a nationwide injunction against implementation of the vaccine order, thus throwing the matter into a state of confusion regarding whether the dormant mandate would still be enforced.

The executive order requiring federal contractors make sure their employees were vaccinated was announced in September 2021 and was considered to be part of a broader campaign launched by the Biden administration to ensure that as many Americans as possible were injected with the anti-Coronavirus vaccine. Other orders also imposed the vaccine requirement on the military and governments workers.

The State of the (European) Union

How will Europe get through winter without the Russian gas it has previously relied on? On Wednesday Ursula von der Leyen, the European Commission’s president, proposed to raise €140bn ($140bn) through windfall taxes on energy companies to ease the burden of rising prices on households and businesses. During her annual “state of the union” address to the European Parliament Mrs. von der Leyen said that it was “wrong” for companies to make record profits as a result of the war in Ukraine.

The bloc is also discussing energy price caps and mandatory limits on electricity demand. Mrs. von der Leyen called energy markets unfit for purpose as they allowed the high price of gas to drive up electricity costs. Energy ministers from the EU’s 27 member states will thrash out the details at a meeting on September 30th. The priority will be for Europe to present a united front, even as it faces recession.

Read the address at the EU

U.S. Banks Lost a Record $370 Billion in Deposits Last Quarter

Deposits at U.S. banks fell by a record $370 billion in the second quarter, the first decline since 2018. Deposits fell to $19.563 trillion as of June 30, down from $19.932 trillion in March, according to the Federal Deposit Insurance Corp. The outflow in the quarter isn’t a problem for banks, which are sitting on more deposits than they want. Deposits in the banking system usually stay relatively stable, but swelled by some $5 trillion in the past two years due to pandemic stimulus.

When the Fed started increasing its benchmark rate this year, banks expected—and wanted—some customers to move their money to places offering higher interest payments, such as government bonds. As recently as April, many analysts scoffed at the idea bank deposits could decline this year. But the Fed’s pace of rate increases has been faster than expected, and the effect on deposits is more pronounced.

4 Ways CEOs Should Respond to High Inflation

Yesterday’s unhappy inflation report sealed the deal: “brief and shallow” has been displaced by “higher and longer”—higher inflation and interest rates for a longer period of time. Investors and business leaders better get used to it. “It may take years to reduce inflation to the Fed’s target level,” says a paper out soon from McKinsey “Companies need to draw on the proven playbook for success in a world of slower growth, higher inflation, and more expensive capital.” What does that playbook look like? The consulting firm offers four pieces of advice:

Don’t pull back on growth projects. “Our research shows that growth-oriented leaders react decisively to shorter-term disruptions that can be turned into opportunities.”
Build talent smartly. “Employers tend to overrate ‘transactional’ factors such as pay and development and underrate the ‘relational’ elements—a feeling of being valued by managers and the organization, the companionship of trusting teammates, a sense of belonging, a flexible work schedule—that employees say matter most.”
Stay the course on sustainability. “In an economically constrained environment, a through-cycle view on sustainability can be a lever for companies to build resilience, reduce costs, and create value.”
Rebuild your supply chain for resilience and efficiency. “We’ve found that a careful assessment of supply chain vulnerabilities can reveal opportunities to lower spending with high-risk suppliers by 40 percent or more.”

Mortgage Demand from Homebuyers Falls 29% Since Last Year, as Interest Rates Surge Past 6%

Mortgage demand appears to have nowhere to go but down, as interest rates go up. Application volume dropped 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the observance of Labor Day. Since last year, homebuyers’ demand for mortgages has fallen by nearly a third.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.01% from 5.94%, with points decreasing to 0.76 from 0.79 (including the origination fee) for loans with a 20% down payment.

Battery Recycling Race Heats Up After Inflation Reduction Act

The world’s biggest auto makers are betting that recycled material from old batteries will help supply the metal they need to build electric cars. The latest wager is on a startup that says it can take advantage of the Inflation Reduction Act.

Jaguar Land Rover and South Korean battery giant SK Innovation Co. 096770 -1.82%▼ are among the investors putting more than $300 million into Ascend Elements, a startup that aims to serve an emerging center of battery production in the Southeastern U.S. The company says it has an efficient way to turn used lithium-ion batteries into new components. Other investors include Fifth Wall, a venture investor with a clean-energy focus.

Cuomo Files Ethics Complaint Against AG

On Tuesday, former governor Andrew Cuomo filed a 48-page complaint against Attorney General Tish James with the Attorney Grievance Committee, which has the power to disbar New York lawyers. The complaint is an amalgamation of the points Cuomo and his team have argued since he voluntarily resigned amid sexual harassment allegations in August 2021: that James’ report was politically motivated and inflated the allegations made against him. It also targets the two investigators James tapped to handle the probe, Joon Kim and Anne Clark.

“James issued a Report, with the assistance of her hand-picked investigators Mr. Kim and Ms. Clark, that was grossly misleading, and purposefully omitted critical information that was inconsistent with credible allegations of sexual harassment,” Cuomo’s complaint reads.

Smaller Detroit Auto Show Kicks Off Ahead of Biden EV Address

A revived Detroit Auto Show kicked off in earnest Wednesday with presentations by GM and Stellantis brands ahead of an address by President Joe Biden expected to highlight electric vehicle investments.

Chevrolet Vice President Steve Majoros spotlighted the General Motors brand’s electric versions of top-selling trucks. These include the massive Silverado pickup truck — typically the nation’s second most popular vehicle after the Ford F-series — and the Equinox, unveiled last Thursday with a starting price of $30,000, an affordable level in a pricey space.

Amazon Warehouse Workers in Albany Will Vote on Unionization in October

While Amazon pursues legal challenges to the historic Staten Island union win, federal labor officials on Wednesday approved the election at the warehouse known as ALB1. In mid-October, 400 workers there will vote on whether to join the upstart Amazon Labor Union, the same independent group that unionized more than 8,000 at the massive Staten Island warehouse. It’s run by current and former Amazon workers, and led by a man whom Amazon fired after he led a pandemic-era walkout.

Amazon, meanwhile, continues to question whether union organizers gathered enough “legitimate signatures” to warrant the election. Rules require organizers to submit signatures from 30% of the workers they seek to represent. Federal labor officials had assessed this before ruling to schedule a vote.