Member Briefing September 7, 2023
U.S. Factory Orders Plunge in July Ending Four Months of Gains
After reporting a sharp increase in new orders for U.S. manufactured goods, the Commerce Department released a report on Tuesday showing a significant pullback in factory orders in the month of July. The Commerce Department said factory orders tumbled by 2.1 percent in July after surging by 2.3 percent in June. Economists had expected factory orders to plunge by 2.6 percent. The sharp pullback in factory orders came as durable goods orders plummeted by 5.2 percent in July after soaring by 4.3 percent in June. Orders for transportation equipment led the way lower, diving by 14.3 percent. Meanwhile, the report said orders for non-durable goods jumped by 1.1 percent in July after climbing by 0.4 percent in the previous month.
The Commerce Department also said shipments of manufactured goods rose by 0.5 percent in July after inching up by 0.2 percent in June. Inventories of manufactured goods also crept up 0.1 percent in July following two consecutive monthly decreases. With inventories and shipments both increasing, the inventories-to-shipments ratio was unchanged from the previous month at 1.48.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- NATO’s Romania Slams Russia for ‘Serious Violation’ Over Drone – Politico
- Ukraine's Secret Boat Raids Are Exposing Cracks in Russia's Southern Front – WSJ
- Russian Missile Attack Kills 16 at Market Center in Eastern Ukraine – The Hill
- Blinken Visits Ukraine in Show of Support - Reuters
- Germany Ships First Batch of New Gepard Ammo to Ukraine – Defense News
- EU Enlargement Can Combat Putin’s Influence, France says - Politico
- Ukraine’s Forces Try to Punch 2nd Hole in Russian Lines – NYT
- Video: How Russia’s Blockade of Black Sea Ports Is Hitting Ukraine’s Economy - WSJ
- EU Court Upholds Sanctions Against 7 Russians – 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. Trade Deficit Widens in July
The U.S. trade deficit widened after upward revisions to past data leave the balance narrower in recent months. Trade flows continue to normalize, and the early read on Q3 GDP is that net exports will provide a modest boost to headline growth. Despite the overall narrowing, the trade balance is now about 37% smaller than at its widest point in March 2022. That said, even as flows are normalizing the deficit remains wider than it was pre-pandemic.
Imports rose by $5.2 billion, led higher by a rebound in consumer goods specifically. Capital goods were also higher, up 3.2% and autos remained a bright spot for the fourth consecutive month (+1.9%) as the sector continues to unwind from a knotted supply chain. But there are indications of weakness. Industrial supplies have now fallen in 11 of the past 13 months, and on a year-to-date basis, industrial imports are running about $89 billion below their run rate last year. Exports rose by a still-strong but more muted $3.9 billion during the month, though growth here was concentrated in autos. Exports of industrial supplies also bounced after three consecutive months of decline, though here too industrial exports are more than $60 billion lower than their year-to-date 2022 pace through July.
GM Exec Says UAW Demands 'Would Threaten...Manufacturing Momentum'
General Motors’ global head of manufacturing, Gerald Johnson, said in a video statement released on Tuesday the demands received from the United Auto Workers union have “significant costs attached that would threaten our ability to maintain our manufacturing momentum.” Johnson appeared in the video with GM President Mark Reuss. Both executives reiterated they want to reach a "fair" agreement without a strike. The executives did not detail GM's economic proposals to the UAW.
In a speech to a Labor Day parade crowd in Detroit on Monday, Shawn Fain, who won the UAW’s presidency this spring said that if the companies don’t come up with a fair contract, “come Sept. 14, we’re going to take action to get it by any means necessary.” Fain has characterized the contract talks with Detroit automakers as a form of war between billionaires and ordinary middle-class workers. Last month, in an act of showmanship during a Facebook Live event, Fain condemned a contract proposal from Stellantis as “trash” — and tossed a copy of it into a wastebasket, “where it belongs,” he said.
COVID Update – Moderna Says Updated COVID Vaccine is Effective Against Newer Variant
Moderna on Wednesday said clinical trial data showed its updated COVID-19 vaccine will likely be effective against the highly-mutated BA.2.86 subvariant of the coronavirus that has raised fears of a resurgence of infections. The company said its shot generated an 8.7-fold increase in neutralizing antibodies in humans against BA.2.86, which is being tracked by the World Health Organization (WHO) and the U.S. Centers for Disease Control and Prevention (CDC).
The CDC has previously indicated that BA.2.86 may be more capable of causing infection in people who previously had COVID or were vaccinated with previous shots. The Omicron offshoot carries more than 35 mutations in key portions of the virus compared with XBB.1.5, the dominant variant through most of 2023 and the target of the updated shots. Moderna said it had shared the new finding on its vaccine with regulators and submitted it for peer review publication. The retooled shot has yet to be approved by the U.S. Food and Drug Administration, but is expected to be available later this month or in early October.
Mfg Day is October 6th – Host an Event!
Celebrated nationally on the first Friday in October, MFG Day is manufacturing’s biggest annual opportunity to inspire the next generation, positively shift perceptions about our industry, and build the foundation for the manufacturing workforce of the future. By hosting an MFG Day event, you will not only join thousands of other hosts in showcasing modern manufacturing careers and technologies, but you’ll also be highlighting the benefits that manufacturing offers your community and nation.
MFG Day is an initiative of the Manufacturing Institute. The MI builds, diversifies and strengthens the modern manufacturing workforce, with the goal of furthering individual opportunity, community prosperity and a more competitive manufacturing industry. MI has a plenty of tools to help you get started and host an event. The Council of Industry can also help by connecting you to schools in your area.
ISM: US Service Sector Easily Tops Expectations Raising Chance of Fed Rate Hike
The ISM Service Index rose in August to 54.5, expanding at the fastest pace since the 55.1 reading in February. Gains were broadly based; new orders, employment, prices, and production ALL expanded at a faster pace in August. This is in stark contrast to what is happening in the factory sector. Last week we learned the Manufacturing ISM came in below 50 yet again, bringing the total number of months in contraction territory to ten, a run never before seen outside a recession. An argument could be made that manufacturing has been in recession most of this year, particularly in some harder hit sectors.
Yet the Services ISM spent just one single month in contraction with a 49.2 headline print in December 2022 before rebounding back into expansion and remaining there every month thus far in 2023. The prices paid index rose for the second consecutive month, consistent with an expansion in prices in August as 12 of 18 industries reported an increase in prices paid. These data come as we see signs of inflation progress elsewhere. Select industry comments from purchasing managers referenced still-high material, commodity and supply costs, which are likely keeping pressure on prices.
Biden Administration Cancels Oil Leases, Proposes Ban on Drilling in National Petroleum Reserve in Alaska
The Biden administration on Wednesday confirmed it will cancel seven controversial oil and gas leases in an Alaskan wildlife refuge issued at the very end of the Trump administration. The administration had previously announced in June of 2021 that it would review the leases, which give the Alaska Industrial Development and Export Authority the rights to drill in the Arctic National Wildlife Refuge.
The administration on Wednesday additionally proposed a rule to protect about 13 million acres in another part of Alaska, known as the National Petroleum Reserve — Alaska (NPR-A). It said in a press release that the proposed rule would provide “maximum protection” for “Special Areas” there, including places known as grizzly and polar bear, caribou and migratory bird habitat. “The proposal would prohibit any new leasing in 10.6 million acres, which is more than 40 percent of the reserve,” Interior Secretary Deb Haaland said on a call with reporters.
IRS Slows Refund Payments for Pandemic-Era Tax Break
The Internal Revenue Service has slowed the payment of tax refunds to employers under a pandemic-era program, as the agency struggles to combat what it says are fraudulent and overstated claims for the employee-retention tax credit. “We remain deeply concerned about small businesses being scammed and dubious Employee Retention Credit claims being submitted amid aggressive marketing to the business community,” the IRS said Tuesday. “The IRS has slowed our processing of these claims to guard against fraudulent or incorrect submissions as we work to enhance our procedures and controls to best protect small-business owners and taxpayer dollars.”
The announcement marks the government’s biggest step to rein in the cottage industry of employee-retention tax-credit advisers that has emerged in the past few years. The IRS is likely facing years of disputes and litigation because it is expected to try to claw back some refunds it has issued.
Officials: Rising Cost of Living Drives Up Child Labor
Global progress toward ending child labor stalled for the first time in two decades during the pandemic, and rising food and energy prices worldwide are exacerbating the issue, driving up child labor in low, middle and high-income countries, the International Labor Organization reports. "Many families out of desperation need to resort to really impossible choices and negative coping strategies that are affecting children now and in the long-term," says UNICEF director of social policy and social protection Natalia Winder-Rossi.
Data compiled by the UN in early 2020 found that some 160 million children were being subjected to child labor, and that global progress to end it had stalled for the first time in 20 years. Mr. Houngbo, the former prime minister of Togo, said early data suggested the trend was continuing. He said a squeeze on living costs - driven in part by rising food and energy prices caused by the war in Ukraine - had for some families "made the difference between having one meal a day or not". In some cases this had led to the "worst form of child labour", where parents were pushing their children into sex work to help support their families.
Dancing Pods, Dodging Forklifts: How Companies Are Using AI to Make Work Safer
At Amazon’s EWR9 fulfillment center in Carteret, N.J., a warehouse near the New Jersey Turnpike, the workers don’t walk to and from shelves. The shelves come to workers. About 45,000 pods—the name given to the four-sided shelving units—are shuffled around the 1.3-million-square-foot facility on self-driving units that hoist and carry them to workers in a kind of choreographed waltz. Those workers either fill the pods with arriving goods or empty them to build packages for shoppers.
Amazon calls the approach of moving the shelves a “goods-to-person” strategy. The design, which uses artificial intelligence and sensors, is meant to promote a mix of efficiency, ergonomics and safety, with the thinking that it is ultimately better to have shelving units, rather than employees, scurrying around its cavernous facilities. Globally, Amazon has about 750,000 autonomous robots to move around its shelving pods. Though most operate in specialized zones, its newest design is intended to mingle with workers and move around them as though navigating a cocktail party, said Tye Brady, chief technologist at Amazon Robotics.
Saudi Arabia, Russia Extend Voluntary Oil Cuts to Year-End, Markets Jump
Saudi Arabia and Russia on Tuesday said they would extend voluntary oil cuts to the end of the year, despite a rally in the oil market and analyst expectations of tight supply in the fourth quarter. Oil prices rose sharply following the news, with Brent rising above $90 a barrel for the first time since November, despite steady increases in Iranian and Venezuelan oil exports as the market believes the United States is not enforcing sanctions as stringently as in previous years.
Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day (bpd) for another three months until the end of December 2023, state news agency SPA said on Tuesday, citing an energy ministry official. Russia extended its voluntary decision to reduce its oil exports by 300,000 bpd to the end of this year, Deputy Prime Minister Alexander Novak said in a statement on Tuesday. Russia joining Saudi Arabia in extending the voluntary curbs allows the Kremlin to collect more revenues amid its war in Ukraine and despite European Union attempts to limit Moscow's income with a cap on Russian oil prices. Most Russian oil is trading above the price cap.
Tyson Foods Ramped up Poultry Processing During the Chicken Sandwich Craze, Now it’s Shutting Factories Down
There’s a question at the end of every day that many of us have to answer that is somehow both practical and existential: What are we having for dinner? The answer usually includes some form of protein, which is referred to in the food industry as “the center of the plate.” Exactly what kind of protein is at the center of that plate changes with dietary trends. Recent reporting by the Wall Street Journal found that Tyson Foods, one of the nation’s leading poultry producers, is closing down some processing plants, in part because the company seemingly overestimated Americans’ zeal for chicken.
Turns out, protein fads are influenced by everything from price to habit to TikTok. “Just after the height of the pandemic, we sort of saw a chicken sandwich war,” said Jennifer Bartashus, a senior equity analyst with Bloomberg Intelligence. “And we saw chicken sandwiches at every fast-food restaurant imaginable.” The hot protein of the moment? “People put cream cheese in everything now,” she said.
U.S. Nears Recall of 52 Million Air Bag Inflators that Can Explode, Hurl Shrapnel
The U.S. government is taking a big step toward forcing a defiant Tennessee company to recall 52 million air bag inflators that could explode, hurl shrapnel and injure or kill people. The National Highway Traffic Safety Administration on Tuesday said it has made an initial decision that the inflators made by ARC Automotive Inc., and under license by another company, are defective. The agency scheduled a public hearing for Oct. 5, a required step before deciding to seek a court-ordered recall.
NHTSA wants ARC to recall inflators in driver and passenger front air bags from at least a dozen automakers. Neither ARC nor the auto industry has released a full list of vehicle models with the kind of air bag inflators that have exploded. But at least 25 million of the 284 million vehicles on U.S. roads are believed to contain them. Initially NHTSA said that an estimated 67 million inflators should be recalled, but it revised the number to 52 million due to manufacturer responses in its investigation that over-counted the number, the agency said in documents issued Tuesday.