Member Briefing September 16, 2024
Why 96% of Boeing’s Machinists Voted to Go on Strike
Along the picket line outside Seattle on Friday, company veterans expressed anger and bitterness about union concessions over the past 16 years that have eroded retirement and health benefits. Recent hires in their 20s are crunching the numbers, eyeing the ever-increasing cost of living and the company’s stagnant starting wages. The array of competing demands presents a challenge for union leaders and Boeing BA -3.69%decrease; red down pointing triangle executives as they try to figure out how to end a walkout that has halted production of the 737 and other jets and threatens to sink the plane maker into an even deeper production crisis. Talks are scheduled to resume early next week with a federal mediator.
Union members Friday said the overwhelming vote was a strategic show of force, intended to extract a better offer from the company. Most said their anger was directed at the company—not at the union leaders who crafted the failed deal. And most said they expected the strike to last weeks, not months.
August Inflation: Probably Means 25 bps Rate Cut this Week
Another month of tepid food inflation and falling energy prices kept headline inflation in check. Excluding food and energy, the deflation in core goods remained in effect, led by a 1.0% drop in prices for used autos. A larger-than-expected drop in prices for core goods was more than offset by faster-than-expected services inflation. A bounce back in travel-services prices such as lodging away from home and airfares ended a run of unusually soft readings for these categories. Primary shelter inflation also came in high relative to our expectations and at odds with leading indicators from private sector data sources. Overall, we see the lingering split between goods and services inflation as a sign that the unwinding of pandemic-era effects on prices is taking somewhat longer, rather than as an indication disinflation is running out of steam.
On balance, today's data suggest that a 25 bps rate cut is more likely than 50 bps next week, but starting with a 25 bps move does not rule out a pickup in the pace of policy easing at future meetings. The ongoing deterioration in the labor market has become an increasing focus for the FOMC, and inflation is slowly but surely returning to 2% on trend. The core CPI has increased at a 2.1% annualized pace over the past three months, a slow enough pace that 50 bps rate cuts at future meetings remain squarely on the table if the labor market data spur faster action. Regardless, all signs point to additional rate cuts beyond next week in our view.
NFIB: Small Business Optimism Dips in August
The NFIB Small Business Optimism Index fell by 2.5 points in August to 91.2, erasing all of July’s gain. This is the 32nd consecutive month below the 50-year average of 98. The Uncertainty Index rose to 92, its highest level since October 2020. Inflation remains the top issue among small business owners. “The mood on Main Street worsened in August, despite last month’s gains,” said NFIB Chief Economist Bill Dunkelberg. “Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen.”
Key findings include:
- The frequency of reports of positive profit trends was a net negative 37% (seasonally adjusted), seven points worse than in July and the lowest since March 2010.
- Twenty-four percent of owners reported inflation as their single most important problem in operating their business, down one point from July.
- The net percent of owners expecting higher real sales volumes fell nine points in August to a net negative 18% (seasonally adjusted). Real sales volume expectations were the largest contributor to the decline in the Optimism Index along with earning trends and expected business conditions.
- A seasonally adjusted net 20% plan to raise compensation in the next three months, up two points from July.
- The net percent of owners raising average selling prices fell two points from July to a net 20% seasonally adjusted.
Global Headlines
Middle East
- Israel And Hamas: The Latest News – The Guardian
- Israel and the Coming Long War – Foreign Affairs
- Netanyahu Vows ‘Heavy Price’ For Houthis After Missile Hits Central Israel - Politico
- US Aircraft Carrier in the Middle East Is Heading Home – Military News
- UN Staff Member Among 10 Killed During Israel Military Operation In West Bank - CNN
- Israel Orders Thousands Of Palestinians To Flee Northern Gaza Areas - Reuters
- Israeli Military Says 3 Hostages Were ‘Most Likely’ Killed In November Strike - CNN
- Interactive Map- Israel’s Operation In Gaza – Institute For The Study Of War
- Map – Tracking Hamas’ Attack On Israel – Live Universal Awareness Map
Ukraine
- Ukraine And Russia: The Latest News – The Guardian
- Russia Faces Stagflation Threat As Growth Slows – France 24
- Russia Expels Six UK Diplomats As Tensions Rise Over Ukraine Missiles - Reuters
- Trump’s Statements On Ukraine Are ‘Election Messages,’ Zelenskyy Says - Politico
- IMF Plan To Visit Russia To Assess Economy Prompts Dismay Across Europe – The Guardian
- Russia Produces Kamikaze Drone With Chinese Engine - Reuters
- Peace Plan Should Not Be Imposed On Ukraine From The Outside, US’s Sullivan Says - Politico
- Putin's Options For Ukraine Missiles Response Include Nuclear Test, Experts Say - Reuters
- 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
Other Headlines
- U.S. Forces Try to Regroup as al Qaeda, Islamic State Sow Terror in West Africa - WSJ
- European Central Bank Cuts Interest Rates Again As Inflation Slows - Euronews
- Venezuela Arrests Spain, U.S. And Czech Nationals For 'Destabilization' - Reuters
- ‘We’re Flooded With Trash’: Pollution Crisis As 500,000 Migrants A Year Attempt Perilous Darién Gap Crossing - Guardian
- Gloomy Summer Signals Worsening Picture for China’s Economy - WSJ
- Ecuador To Implement Nationwide Blackout Overnight On Wednesday - Reuters
- Foreign Investment Pours Into Japan – Nikkei Asia
- Iran’s president to attend BRICS summit in Russia - Politico
- China's 7-0 Soccer Humiliation Against Japan Reflects Deep Problem – Nikkei Asia
Policy and Politics
The Clock Is Ticking On A Continuing Resolution
This week, lawmakers returned to Capitol Hill only to face a critical deadline. Congress has until September 30th to agree on a continuing resolution that will keep the government funded through March of next year. However, after attaching legislation that would require voters to show proof of citizenship, House Speaker Mike Johnson (R-LA) delayed a vote on a temporary spending bill in an attempt to build consensus within his party. FOX News Senior Congressional Correspondent Chad Pergram explains the math needed to avoid a government shutdown ahead of Election Day.
Muddying the waters, former President Trump is urging Republicans to vote against any short-term funding bill that does not secure “absolute assurances on Election Security.” Privately, however, others are concluding that a bipartisan stopgap is inevitable, so it would be in the best interest to get it over with sooner rather than later. “Bring a clean CR for 3 months and move on,” one moderate House Republican told The Hill.
NAM: Congress Must Act On Taxes Now
Congress must protect small, family-owned and pass-through manufacturers from devastating tax increases scheduled for the end of 2025, the NAM told the Senate Finance Committee this week as part of its ongoing “Manufacturing Wins” campaign. “In November 2023 … Chairman [Ron] Wyden said that ‘Americans deserve a tax system that can be both fair and encourage success.’ Manufacturers agree,” NAM Vice President of Domestic Policy Charles Crain told legislators ahead of a Thursday hearing on 2025 tax policy.
“[S]mall manufacturers experienced extraordinary growth as a result of the Tax Cuts and Jobs Act’s reforms that make the tax system more fair for pass-through businesses, by enacting a 20% pass-through deduction and reducing individual income tax rates,” Crain said. But, he continued, this growth is in jeopardy—because the pass-through deduction, along with several other pro-manufacturing provisions, is scheduled to expire at the end of 2025. “To protect pass-through manufacturers from devastating tax increases, Congress should make permanent the [pass-through] deduction and prevent the individual income rates from increasing at the end of 2025,” Crain continued. “Similarly, Congress should protect family-owned pass-throughs from scheduled changes to the estate tax that could require liquidation of business-critical assets when a business owner dies.”
Pentagon Chief Says A Six-Month Temporary Budget Bill Will Have Devastating Effects On The Military
Passage of a six-month temporary spending bill would have widespread and devastating effects on the Defense Department, Pentagon chief Lloyd Austin said in a letter to key members of Congress last week. Austin said that passing a continuing resolution that caps spending at 2024 levels, rather than taking action on the proposed 2025 budget will hurt thousands of defense programs, and damage military recruiting just as it is beginning to recover after the COVID-19 pandemic.
Republican House Speaker Mike Johnson has teed up a vote on a bill that would keep the federal government funded for six more months. The measure aims to garner support from his more conservative GOP members by also requiring states to obtain proof of citizenship, such as a birth certificate or passport, when registering a person to vote. Under a continuing resolution, new projects or programs can’t be started. Austin said that passing the temporary bill would stall more than $4.3 billion in research and development projects and delay 135 new military housing and construction projects totaling nearly $10 billion.
Health and Wellness
Did COVID Lockdowns Accelerate Brain Ageing Among Teens?
According to University of Washington researchers, the coronavirus lockdowns — including school closures, postponed sports, and stay-at-home drills — accelerated adolescent brain ageing by as much as four years. A new study, published in Proceedings of the National Academy of Sciences, adds to evidence that the social restrictions had a disproportionate impact on them.
Both boys’ and girls’ MRI scans revealed evidence of early brain ageing, but following lockdowns, girls’ brains appeared 4.2 years older on average than expected, compared to 1.4 years older for boys. The findings have sparked worries about how they can impact teenagers’ mental health and learning ability. The researchers claim that language understanding, facial expression interpretation, and emotion processing are among the many impacted areas that support social cognition and are essential for effective communication.
NYS COVID Update
The Governor updated COVID data for the week ending August 23rd.
Deaths:
- Weekly: 46
- Total Reported to CDC: 83,980
Hospitalizations:
- Average Daily Patients in Hospital statewide: 1,048
- Patients in ICU Beds: 109
7 Day Average Cases per 100K population
- 8.4 positive cases per 100,00 population, Statewide
- 9.8 positive cases per 100,00 population, Mid-Hudson
Useful Websites:
Election 2024
Trump Campaign Says Former President Is ‘Safe Following Gunshots In His Vicinity’ – The Hill
FBI Investigating Attempted Assassination Of Trump In Florida - Reuters
Trump Says He Will Not Debate Harris Again – Politico
U.S. Presidential Election: How China And Tariffs Showed Up On The Debate Stage – Nikkei Asia
Harris Is Still Struggling to Blunt Trump’s Edge on the Economy - WSJ
Real Clear Politics Latest General Election Polls – Real Clear Politics
Real Clear Politics Electoral Map
Latest Polls - FiveThirtyEight
Industry News
Potential Port Strike Has Retailers, Manufacturers Scrambling
Retailers and manufacturers are seeking to mitigate a potentially multibillion-dollar hit if members of the International Longshoremen’s Association go on strike beginning Oct. 1 at 13 of the nation’s major East Coast and Gulf Coast ports. The contract between the ILA and the United States Maritime Alliance, which negotiates on behalf of management of the ports, terminals and shipping lines, is due to expire at midnight on Sept. 30. The contract covers 25,000 workers and ports stretching from Boston to Houston, the ILA said.
Billions of dollars worth of imported goods, from cars and light trucks to electronics to food, clothing, jewelry and agricultural products come into the U.S. through East Coast and Gulf Coast ports. “Any disruption resulting from the United States Maritime Alliance and the International Longshoremen’s Association negotiations would deal an immediate blow to the manufacturing supply chain,” Christopher Netram, NAM’s managing vice president of policy, recently told CNBC. “A work stoppage at East Coast and Gulf Coast ports would upend logistics for U.S. businesses and hinder the movement of goods upon which millions of Americans depend. Costs will rise and manufacturing jobs will be lost if parts and supplies don’t arrive on time.”
China’s Economic Activity Falters As Challenges Mount
China’s industrial output and retail sales faltered in August as the economy lost momentum, adding to expectations Beijing will step up stimulus efforts in the final months of the year. Industrial output grew at the slowest pace since March while retail sales, a gauge of consumption, had their second-slowest month of the year, data from the National Bureau of Statistics showed, despite August being the summer holiday month.
Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March, data from the National Bureau of Statistics (NBS) showed on Saturday. Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government's official target of around 5%.
Nippon Steel Finds Unlikely Ally in Pittsburgh Workers
Former President Donald Trump and Vice President Kamala Harris have found agreement on one issue: opposing the $14.1 billion sale of U.S. Steel, one of America’s most storied corporations, to Nippon Steel of Japan. But outside Pittsburgh, in Monongahela River valley towns where steel is still made, some workers and officials say the rhetoric is disconnected from what is happening on the ground.
President Biden, who has been expected to block the deal, now appears to be delaying that decision, according to a person familiar with the matter. Biden believes it is “vital that U.S. Steel is to remain an American steel company” and awaits a national-security review, a White House spokeswoman said Friday. U.S. Steel Chief Executive Dave Burritt recently escalated the stakes, threatening to close the company’s Mon Valley Works—three Pittsburgh-area plants employing more than 3,000 workers—if the sale collapses. Burritt added U.S. Steel’s corporate offices would likely relocate near a mill in Arkansas if Mon Valley closes. This raises a once-unthinkable possibility: For the first time in more than a century, U.S. Steel would no longer have a presence in Pittsburgh.
GM And Hyundai Agree To Explore Collaboration On Vehicles And Manufacturing To Reduce Capital Spending
General Motors and Hyundai Motor have entered into an agreement to explore “future collaboration across key strategic areas” in an effort to reduce capital spending and increase efficiencies, the companies announced last week. The automakers’ potential areas of interest include co-development and production of passenger and commercial vehicles, internal combustion engines, and clean-energy, electric and hydrogen technologies, they said in a joint press release.
The agreement, a nonbinding memorandum of understanding, comes as the automotive industry has renewed its focus on capital efficiency following years of aggressive spending to develop electric, autonomous and software-defined vehicles that have yet to manifest into profitable businesses. The automakers also said they will “review opportunities for combined sourcing in areas such as battery raw materials, steel and other areas.”
Here’s How China Sells Evs For Under $20k
China has been able to produce lower-cost EVs due to a combination of intense domestic competition, subsidies, a low-paid labor force and a comprehensive supply chain. An investigation by the EU Commission, which is the EU’s executive branch, found that Chinese EV brands were given preferential financing, direct grants, cheap land and below-market rates for raw materials essential for batteries and tax breaks.
Another reason Tesla and Chinese brands can make increasingly affordable EVs is because of China’s hardworking and low-paid labor force. In the central Chinese province of Hunan, Changsha city, a steady trickle of people go through the gates to the BYD recruitment center. If they get hired, and many do, they can stay in the company’s dorm and start work the next day. “I can earn about 7,000 yuan ($990) a month,” a BYD car assembly worker who only gave his surname Wu, said. That means he works at least 67 hours per week with almost no rest during weekends. Wu earns, at best, about $3.60 per hour versus an average of 43 hours a week and $28 an hour for auto factory workers in the U.S. last year. Perhaps China’s biggest edge is its comprehensive supply chain, or vertical integration. “Vertical integration means you are your own supplier of the critical ingredients that go into the electric vehicle cake,” Russo said. Ingredients like batteries.
Startup Aims To Regenerate Damaged Tissues With The Help Of AI And Lasers
Many diseases are caused or made more severe by the destruction of healthy cells in the body, making it harder or even impossible for it to perform certain functions. Parkinson’s disease, for example, occurs when neurons that produce dopamine start to break down and die, and Type 1 diabetes is caused by an autoimmune reaction that destroys the cells that produce insulin. Since the 2010s, researchers have explored the possibility of treating these diseases with induced pluripotent stem cells (or iPSCs). These cells are made by reprogramming blood or skin cells until they start behaving like stem cells in embryos, meaning they can then be programmed to turn into basically any type of cell.
Cellino, a biotech startup founded in 2017, is developing self-contained units called cassettes that can grow personalized cell treatments for patients on site at their hospital. (Alex Morgan, a partner at Khosla Ventures who has invested in Cellino, likens each unit to a “Nespresso pod.) The potential for the technology, called Nebula, is huge: cofounder and CEO Nabiha Saklayen told Forbes that it could reduce manufacturing costs for iPSCs by at least 10 times. Now, the federal government’s Advanced Research Projects Agency for Health (ARPA-H) has given Cellino a $25 million grant, adding to its $96 million in venture capital funding.
UAW Warns Of National Strike Possibility Over Stellantis Commitments In Belvidere
The UAW says union locals representing tens of thousands of workers are prepared to file grievances over Stellantis' failure to keep its product commitments in Belvidere, Illinois, and is threatening the possibility of a national strike against the owner of Jeep, Ram, Chrysler, Dodge and Fiat. The grievance states that the company has informed the union "it will not launch the Belvidere Consolidated Mopar Mega Hub in 2024, it will not begin stamping operations for the Belvidere Mega Hub in 2025 and it will not begin production of a midsize truck in Belvidere in 2027," according to a news release.
That, the union said, would equate to a violation of last year's collective bargaining agreement between the union and the company. The UAW struck Stellantis as well as Ford Motor Co. and General Motors during contract talks last year. The union noted that it won the right to strike over product and investment commitments as well as a deal to reopen the idled Belvidere Assembly Plant in its agreement with Stellantis. The status of Belvidere had been a major issue during the talks, and an agreement to restart the plant was seen as a major union victory.
Read more at The Detroit Free Press
Siemens is Building its First Electric Bullet Train Factory in New York
Siemens plans to add a U.S. rail manufacturing facility in central New York to make bullet trains for Brightline West’s railway connecting Las Vegas to Los Angeles, calling it the country’s first such factory dedicated to producing high-speed trains. The company said last week it’s investing $60 million in the Horseheads, New York plant which is expected to employ about 300 people when it opens in 2026. It will be used to assemble American Pioneer 220 electric trains, a vehicle based on a model Siemens already builds in Europe, that’s capable of running at up to 220 miles per hour. Deliveries are likely to start in 2027.
Alstom, a rival European manufacturer, makes trains in New York for Amtrak’s Acela line, currently the fastest passenger railway in the U.S., though that model is more similar to the version Siemens supplies to Brightline’s Florida system, which operates between Miami and Orlando at speeds of up to 125 mph, according to Buncher. Alstom disputes that Siemens new plant will be the first to make high-speed trains in the U.S. as the model it produces in Hornell, New York, is capable of traveling at up to 186 mph.
Logistics Merger - DSV Confirms Takeover Of Germany's DB Schenker
Denmark's DSV has agreed to buy Schenker, the logistics arm of German state rail operator Deutsche Bahn, for 14.3 billion euros ($15.85 billion) in a deal that would make it the world's biggest logistics company. The acquisition will be the biggest by a Danish company and, according to DSV, propel it above DHL Logistics and Swiss group Kuehne und Nagel (KNIN.S), opens new tab in both volume and revenue, but will still only give the group between 6% and 7% of a highly fragmented global logistics market.
DSV, which started as a small enterprise of 10 truckers in 1976, has grown through a string of acquisitions - sometimes taking over companies larger than itself. Deutsche Bahn put Schenker up for sale last year to concentrate on its core railway business in Germany and reduce its debt. The all-cash transaction will be financed through a combination of an equity raising of 4-5 billion euros and debt financing, DSV said. The combined group will have revenue of 293 billion Danish crowns ($43.52 billion) based on 2023 results, with a workforce of about 147,000 across more than 90 countries.