Member Briefing September 28, 2023

Posted By: Harold King Daily Briefing,

U.S. Durable-Goods Orders Climb on Higher Military Spending

Orders for long-lasting or durable goods rose in August, but the increase stemmed from higher defense spending as the U.S. sought to replenish military hardware sent to Ukraine. The Commerce Department said on Wednesday that orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose a stronger-than-expected 0.2% last month. Data for July was revised lower to show orders for these goods decreasing 5.6% instead of 5.2% as previously reported.

Durable-goods orders minus defense actually fell 0.7% last month, the government said. In a more positive sign, so-called core orders jumped 0.9%. That figure omits defense and transportation and is a proxy for broader business investment. Orders for commercial planes sank 16% in August. Boeing BA was a big drag again on the headline number. Yet overall business investment remains weak and conditions aren’t expected to improve much any time soon. Companies have curtailed investment since last year in response to rising interest rates and higher odds of recession.

Read more at US News

War in Ukraine Headlines

The Memory-Chip Slump

While chipmakers like Nvidia profit from the artificial-intelligence boom, producers of less fancy semiconductors are suffering from a bust. Micron, an American memory-chip company, is expected to announce its fourth consecutive quarterly operating loss on Wednesday. (see below) Demand has weakened as consumers have cut back on purchases of smartphones and other electronics. A pandemic-era shortage has been replaced by a supply glut; many companies that use chips in their products have built up stockpiles. Kioxia and Western Digital, rival chipmakers, are talking about a merger.

In May China added to Micron’s woes by banning operators of certain infrastructure from using its chips. Micron makes 11% of its revenue from mainland Chinese customers. Half of that is now at risk, it says. The chipmaker is beginning to shift its focus towards India. This week it broke ground on a $2.75bn factory in the country. Micron also plans a $100 billion plant in Clay New York outside of Syracuse.

Read more at Forbes

Americans Finally Start to Feel the Sting From the Fed’s Rate Hikes

Consumers in the market for loans to buy homes and cars are discovering that, because of the Federal Reserve’s rate increases, their money gets them a lot less than it would have a few years ago. Meanwhile, those with credit cards and other loans that carry rates pegged to broader benchmarks are finding they have gotten much more expensive. Borrowers shopping for mortgages or auto loans are experiencing sticker shock. New 30-year fixed-rate mortgages today carry rates around 7%, up from 3% two years ago. That increase can mean a home buyer has to pay hundreds of dollars more a month compared with two years ago. Rates on car loans have also shot higher.

Buying a home or car right now is “completely unaffordable for the typical American household because you’re mixing the higher borrowing costs with the high prices,” said Mark Zandi, chief economist at Moody’s Analytics. He estimates that the typical American household would need to use 42 weeks of income to buy a new car, as of August, up from 33 weeks three years ago. The National Association of Realtors calculates that the typical American family can’t afford to buy a median-priced home.

Read More at The WSJ

COVID Update - Just 23% of U.S. Adults 'Definitely' Plan to Get New Shot

Just 23% of American adults say they 'definitely' will get the new COVID-19 vaccine, while another 23% say they will 'probably' get it, according to a new poll, which also finds interest in the shot falls along partisan lines. More people plan to get seasonal flu shots and the new vaccine to help prevent severe symptoms for respiratory syncytial virus or RSV. The poll -- by the nonprofit organization KFF -- breaks down what Americans are thinking about vaccination and their trust in public health agencies.

Fewer than half of Americans (46%) say they will "definitely" or "probably" get the new COVID shot -- that's higher than the percentage who have received previous boosters, though still lower than those who got the initial vaccines in 2020. About 37% of people who previously received a COVID vaccine say they "probably" or "definitely" won’t get the new shot. Interest is highest among those 65 and older (64%) and among Democrats (70%). About 24% of Republicans plan to get the shot.

Read more at US News

The House and Senate Take Modest Steps on Spending, But Government Shutdown Looks Increasingly Likely. 

Clearer pictures have emerged on how the House and Senate will move stopgap spending measures to keep the government open past this week. But the approaches diverge significantly, and a weekend shutdown grows ever more likely. The House: McCarthy told reporters late Tuesday he would put a continuing resolution on the floor "probably on Friday" that would include additional border security measures. However, with a bloc of conservatives reiterating their opposition to any sort of CR, it's unclear whether this approach would have the votes to pass.

Meanwhile, the Senate easily cleared a first procedural test on their bipartisan CR on Tuesday evening by a 77-19 vote. Sen. Rand Paul (R-Ky.) has reiterated he'll slow consideration of the measure thanks to the inclusion of more aid for Ukraine, so floor action is all but certain to drag into the weekend. Regarding the Senate Bill McCarthy summed up the feelings of many within the House GOP toward it and its billions in Ukraine aid: "If they want to put a focus on Ukraine and not focus on the southern border, I think their priorities are backwards."

Read more at Politico

Why UAW Strike Puts GM Most at Risk — and Toyota in Position to Win

The UAW's strike against the Detroit car companies could position Japanese automakers to capture more U.S. market share as the strike — combined with high interest rates — puts affordability for domestic new vehicles out of reach for many consumers, economists say.  So far, the targeted strike is limited enough in its scope to not have a big impact on Detroit carmakers' sales. But if the strike expands to more plants and persists into the fall, the supply of new vehicles — already tight — will shrink even more. If demand for cars remains steady, then it means "increasing prices in both the new market and the used market," Smoke said during a news media briefing.

Japanese brands are in the best position to benefit from the strike's fallout, especially Toyota, because its supply problems have resolved and it is now increasing vehicle production. Also, the Asian automakers' lineups tend to be lower-priced sedans and smaller SUVs compared with the Detroit Three's higher-priced big pickups and SUVs, making not only availability, but affordability attractive to consumers.

Read more at The Detroit Free Press

China Industrial Profits Jump Sharply as Economy Stabilizes

China's industrial profits increased in August for the first time in a year, signaling the economy continues to be on the recovery path amid a raft of supportive policy measures. Data from the National Bureau of Statistics showed on Wednesday that industrial enterprises with annual revenue of at least 20 million yuan ($2.7 million) each saw their total profits jump 17.2 percent year-on-year in August after a 6.7 percent decline in July.

For the January-August period, industrial firms' profits fell 11.7 percent year-on-year to 4.66 trillion yuan, narrowing from the 15.5 percent drop in the first seven months, the bureau said. Among the 41 major industrial sectors surveyed, 30 saw improvements such as accelerated growth, narrowed profit declines or year-on-year growth in their profits during the first eight months.  Wei Ning, a statistician at the NBS, attributed the improvement in industrial profits to the steady rebound in industrial production and improved corporate profitability with a series of stimulus measures taking effect gradually.

Read more at Bloomberg

Biden DOE Pledges $72M Towards Wind, Water Energy Technologies

The U.S. Department of Energy announced September 21 that it would be investing $72 million to improve the domestic manufacturing process of wind and water energy technologies.$27 million of funding will come from the Bipartisan Infrastructure law. That money will go towards financing 15 offshore and land-based wind energy projects. The other $45 million will fund an additional 14 projects focused on domestically manufacturing these types of technologies at a quicker pace for less money.

GE Research in Niskayuna, New York is expected to receive the most funding amongst qualifying projects at $14.9 million. The initiative will focus on the manufacturing practices of large-scale machinery that can be used to 3D print enormous pieces of hydropower equipment, reducing production costs by 20% and lead times by up to four months.

Read more at Supply Chain Brain

Amazon to Hire 250,000 Logistics Workers for Holidays, Boost Hourly Wages Inc. plans to hire 250,000 logistics workers, suggesting the online retailer is bullish about what’s otherwise expected to be a humdrum holiday shopping season. Amazon’s announcement stood out since overall holiday hiring is expected to be the lowest since 2008, according to Challenger, Gray & Christmas, which estimates retail employers will add 410,000 jobs in the fourth quarter. That’s in part because Amazon continues to benefit from consumers’ shift online. U.S. e-commerce sales are expected to surge 9.3% this year to $1.14 trillion, faster than overall retail spending growth, according to Insider Intelligence.

The recruits will include full-time, part-time and seasonal workers at hourly rates ranging from $17 to $28 per hour depending on location, the company said September 19 in a blog post. Some new hires will be eligible for bonuses ranging from $1,000 to $3,000. Amazon also said it will boost average pay for logistics personnel to about $20.50 an hour as it seeks to recruit and retain workers amid a labor shortage.

Read more at Bloomberg

Deloitte Report Details Importance of Energy Storage to U.S. Power Grid

A new report from Deloitte, “Elevating the role of energy storage on the electric grid,” provides a comprehensive framework to help the power sector navigate renewable energy integration, grid flexibility and reliability, and electrification and decentralization support. The Deloitte report focuses on how energy storage can help achieve a clean, flexible, reliable and resilient power grid. Among the takeaways:

  • Renewable energy integration strategies include co-locating storage to minimize curtailment, developing hybrid renewable energy storage systems to maximize renewable energy penetration, and utilizing advanced forecasting to optimize renewable energy utilization.
  • Grid optimization enhancements include replacing natural gas-fired peaker plants with energy storage for peak demand management, integrating behind-the-meter (BTM) storage with demand response programs while providing ancillary services, and creating storage-centric transmission infrastructures to reduce congestion and bolster resilience.
  • Electrification and decentralization support includes integrating storage with electric vehicle (EV) charging infrastructure for transportation electrification, developing power and heat storage solutions for industrial electrification, integrating energy storage in microgrids while consciously leveraging community-based solutions.

Read more at Power Magazine

An Ambitious Pentagon Program to Bring in Large Numbers of Drones is Flying Straight Into a Supply-Chain Wall

Mass production of large and small drones is crucial to the Pentagon’s plan to build big stocks of weapons and ammunition to deter China, which the Defense Department describes as the U.S.’s prime strategic competitor. The Pentagon has proposed two marquee drone concepts. The Replicator program championed by Deputy Defense Secretary Kathleen Hicks would produce a huge fleet of air-, land- and sea-based drones that could be deployed by the thousands. These would swarm to ensure some evade defenses to reach their target or relay information, and be cheap enough to use just once.

But the Pentagon’s goal must contend with booming demand in the commercial aerospace market that has left a shortage of skilled labor, raw materials and parts such as advanced electronics and fasteners. The Pentagon wants to buy thousands of cheap drones in as little as 18 months, and as many as 2,000 larger uncrewed jets. By contrast, one of its primary drone suppliers, Shield AI, produced 38 of the aircraft last year.

Read more at The WSJ

NASA Astronaut Returns to Earth After Record-Setting Year in Space 

After 371 days in space, Frank Rubio is finally home. Rubio was supposed to return to Earth in March, but a micrometeorite poked a hole in his Russian-made return ship, making it unsafe to travel in, according to NASA. He was forced to stay on the International Space Station an extra six months, which he called an emotional roller coaster, until a backup vessel could whisk him back to land.

Rubio earlier this month broke the record for the longest spaceflight by an American. The astronaut Mark Vande Hei last year had set the previous record of 355 days, according to NASA. This was Rubio’s first spaceflight. A former U.S. Army surgeon and helicopter pilot, he joined NASA as part of the agency’s 2017 astronaut candidate class, according to his biography on the agency’s website. He is from Miami.

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The Clorox Co. Cleans Up After Cyberattack Mess

The days of manufacturers quietly cleaning up from the damage of successful cyberattacks and their financial ramifications are over, and shareholders are paying attention. Clorox on August 14 disclosed via an SEC filing that the company had “identified unauthorized activity on some of its Information Technology (IT) systems” that was “expected to continue to cause disruption to parts of the Company’s business operations.” Then, on September 18, Clorox filed another SEC report stating it believed the hack was contained but resulting in slower production rates and “an elevated level of consumer product availability issues.” News of the filing spread widely throughout the press and Clorox’s stock price dropped roughly 2% between market close on September 18 and market open the following day.

It’s a textbook example for why no company wants to advertise a cybersecurity breach and also suggests why manufacturers are so likely to pay ransomware bounties and eliminate the problem. But Clorox’s disclosures are in keeping with new SEC rules that require disclosure of material cybersecurity incidents within four days of the incident. “They’re one of the first companies to have to do this, and it’s definitely uncharted territory, which is why Clorox's string of updates and bulletins are drawing attention. Business leaders are watching and wanting to know how this is going to play out because they don't want to find themselves in a potentially similar state of confusion in the future,” Lever adds.

Read more at IndustryWeek