Member BriefingJanuary 23, 2023
Companies’ Capital Spending Forecast to Slow in 2023 Amid Recession Fears
Companies are expected to tap the brakes on capital investments this year as they assess the risk of a downturn and contend with higher financing costs. This would be a shift from the past two years when companies after the initial shock of the pandemic took advantage of large cash piles and low interest rates to spend heavily on distribution centers, technology upgrades and other big-ticket items.
After two years of spending heavily, some companies want to take a pause to digest the investments they’ve made, advisers said. “Let’s take stock of what we’ve done, based on what we’ve spent,” said Hardik Sheth, a partner and associate director at Boston Consulting Group. Companies are grappling with ongoing uncertainty surrounding the future pace of interest-rate hikes and inflation, as well as geopolitical risks, including those stemming from Russia’s war on Ukraine. “I think there’s a legitimate concern regarding the concentration of risks that are not manageable at the individual company level,” said Andrea Guerzoni, global vice chair of strategy and transactions at EY.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine’s Winter Could Turn Against Russian Troops - WSJ
- Milley: Russia Has 'Significantly Well Over' 100,000 Casualties in Ukraine- Insider
- Allies Offer More Weapons to Ukraine, But no Decisions Made on Tanks – Reuters
- Top U.S. Officials Don't Want to Give Ukraine Tanks - NBC
- Why Germany is Struggling to Stomach the Idea of Sending Tanks to Ukraine - CNN
- US Navy SEAL Deserter Killed During Intense Ukraine Battle – Rolling Stone
- U.S. Officials Advise Ukraine to Wait on Offensive, Official Says - Reuters
- US to Name Wagner Mercenary Group in Russia Criminal Organization - BBC
- Hundreds of Sunflowers in NYC Highlight the War in Ukraine, Refugees – USA Today
- Wagner Chief Writes to White House Over New Sanctions – Reuters
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Existing-Home Sales Receded 1.5% in December
Existing-home sales retreated for the eleventh consecutive month in December, according to the National Association of Realtors. Three of the four major U.S. regions recorded month-over-month drops, while sales in the West were unchanged. All regions experienced year-over-year declines. Total existing-home sales, decreased 1.5% from November to a seasonally adjusted annual rate of 4.02 million in December. Year-over-year, sales sagged 34.0% (down from 6.09 million in December 2021).
Total housing inventory registered at the end of December was 970,000 units, which was down 13.4% from November but up 10.2% from one year ago (880,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, down from 3.3 months in November but up from 1.7 months in December 2021. The median existing-home price for all housing types in December was $366,900, an increase of 2.3% from December 2021 ($358,800), as prices rose in all regions. This marks 130 consecutive months of year-over-year increases, the longest-running streak on record.
Fed Sets Course for Milder Interest-Rate Rise in February
Federal Reserve officials are preparing to slow interest-rate increases for the second straight meeting and debate how much higher to raise them after gaining more confidence inflation will ease further this year. They could begin deliberating at the Jan. 31-Feb. 1 gathering how much more softening in labor demand, spending and inflation they would need to see before pausing rate rises this spring.
In recent public statements and interviews, Fed officials have said slowing the pace of rate increases to a more traditional quarter percentage point would give them more time to assess the impact of their increases so far as they determine where to stop. Officials called attention to how it takes time for the full effect of higher rates to cool economic activity when they stepped down to a half-point rate rise in December, following four consecutive increases of 0.75 point.
U.S. COVID – Hospitalizations and Cased Decline
The US CDC is reporting:
- 5 million cumulative cases
- 1 million deaths
- 414,721 cases week of January 11 (down from previous week)
- 3,907 deaths week of January 11 (up from previous week)
- 4% decrease in new hospital admissions
- 9% decrease in current hospitalizations
The Omicron sublineages XBB.1.5 (43%), BQ.1.1 (29%), and BQ.1 (16%) account for a majority of all new sequenced specimens, with various other Omicron subvariants accounting for the remainder of cases.
NYS COVID Update
The Governor updated COVID data through January 20.
- Daily: 34
- Total Reported to CDC: 77,564
- Patients Currently in Hospital statewide: 3,260
- Patients Currently in ICU Statewide: 354
7 Day Average Positivity Rate - Cases per 100K population
- Statewide 6.67% - 18.16 positive cases per 100,00 population
- Mid-Hudson: 7.18% - 23.07 positive cases per 100,00 population
UN Chief Calls Out Pandemic Prep Failures as Cases Rise, Novartis CEO Sees COVID “Endemic”
U.N. Secretary-General Antonio Guterres warned the world’s failure to prepare for future pandemics is “straining credulity.” Speaking at WEF on Wednesday, Guterres said, “Somehow — after all we have endured — we have not learned the global public health lessons of the pandemic. We are nowhere near ready for pandemics to come.”
At the World Economic Forum in Davos, Switzerland Vas Narasimhan, CEO of Novartis said “I think what we’re going to settle into is more of an endemic environment with respect to coronaviruses and the Covid virus specifically. That will mean we will have sporadic outbreaks, we will have populations at risk that need to continue to be vaccinated but I would expect as it has been the case with other coronaviruses over the last centuries that the human populations will adapt and will come to a kind of resolution with this virus.” Narasimhan made clear that world leaders must learn from the coronavirus crisis to be in a better place for future pandemics. “I think what is really important now is we turn our attention to pandemic preparedness for the future,” Narasimhan said.
Biden to meet with McCarthy over avoiding debt ceiling ‘calamity’
President Joe Biden said Friday that he would speak with House Speaker Kevin McCarthy about the debt ceiling, warning that failing to raise the nation’s borrowing limit would be a catastrophic mistake. Biden did not say when he planned to meet with McCarthy, and White House press secretary Karine Jean-Pierre said earlier in the day that while Biden looked forward to meeting with him “about a range of issues,” a date had not yet been set.
McCarthy tweeted shortly afterward that he would accept a request to meet “and discuss a responsible debt ceiling increase to address irresponsible government spending.” The development came a day after Treasury Secretary Janet Yellen said that the U.S. had reached its debt limit and would need to use special measures to avoid a default. Yellen has projected that Congress has until at least June to pass a debt ceiling increase.
Zients to Replace Klain as White House Chief of Staff
Jeff Zients, the former White House coronavirus response coordinator, is expected to replace Ron Klain as White House chief of staff, two sources familiar with the plans told The Hill. Zients left his role as Biden’s first COVID-19 czar in April 2022 after advising the pandemic response effort and was replaced by Ashish Jha. He returned this fall ahead of the midterm elections to assist Klain with preparations for staff turnover as well as other projects. Prior to government, Zients was a management consultant for Mercer Management Consulting.
Klain will likely leave following President Biden’s State of the Union address on Feb. 7, The New York Times first reported. Klain, who has been in the role for longer than any other Democratic president’s chief of staff, is expected to remain in his current role for some time to help his successor acclimate.
DiNapoli: State Tax Receipts Exceed Latest Projections by $7.7 Billion
State tax receipts totaled $79.8 billion through the third quarter of State Fiscal Year (SFY) 2022-23, exceeding the latest projections from the Division of the Budget’s (DOB) Mid-Year Update to the State Financial Plan by nearly $7.7 billion, according to the monthly State Cash Report released by State Comptroller Thomas P. DiNapoli. All Funds spending through December totaled $149.3 billion, which was $7.8 billion, or 5.5%, higher than last year for the same period. All Funds spending through December was $120 million lower than DOB’s latest projection primarily due to lower than anticipated capital projects spending.
Personal income tax (PIT) receipts totaled $42.1 billion and were $8.1 billion above the latest financial plan projections through Dec. 31. However, PIT receipts were $6.9 billion lower than the same period in SFY 2021-22. Business taxes totaled $19.3 billion, $1 billion or 5.5% higher than the prior fiscal year, but $761.1 million below DOB’s latest financial plan projections. PTET collections in Dec. 2022 were $443 million lower than those received in Dec. 2021.
Senators Pursue Deal on Border Security and Path to Citizenship for Dreamers
A bipartisan group of senators is pushing ahead in the new Congress with efforts to reach an agreement on border security and immigration policy, after talks ran out of time last year.The lawmakers recently visited the southern border in Arizona and Texas, in the face of sharp political divides over how to handle a record number of illegal crossings that have strained border staff and facilities. The lawmakers say they see an opening for compromise on an issue that has vexed Capitol Hill for decades.
While senators have scored a string of bipartisan agreements related to guns, presidential election results, same-sex marriage and infrastructure, those laws were all passed with Democratic majorities in the House and Senate. Now, Republicans control the House, where GOP lawmakers are expected to be skeptical of any Senate legislation that goes beyond border security.
GM to Invest $918M at 4 Plants for V-8 Engines, EV Components, Rochester NY Among Them
General Motors on Friday said it will invest $918 million at four manufacturing plants in Michigan, Ohio and New York for production of V-8 engines and electric vehicle parts. The majority of the investment is related to GM's sixth-generation small-block V-8. Of the total, $64 million will be used for upgrades for EV castings and components at two of the plants, in Rochester, N.Y., and Defiance, Ohio.
GM plans to spend $579 million on renovations to Flint Engine Operations in Michigan for production of the new engines and $216 million at Bay City Global Propulsion Systems in Michigan for camshafts, connecting rods and block-and-head machining that will be used in future V-8 engine production in Flint. The Rochester plant will get $68 million for production of intake manifolds and fuel rails for future V-8 engine production in Flint and for production of battery pack cooling lines for EVs.
Jobless Claims Drop to 190,000 as Labor Market Remains Tight
The number of first-time claims for unemployment insurance fell unexpectedly to 190,000 for the week ending January 14, according to Department of Labor data released Thursday. The latest total is the lowest in 15 weeks and far below economists’ expectations of 214,000, according to consensus estimates on Refinitiv. The steady level of initial claims, which are considered a proxy for layoffs, show that the labor market remains tight.
The four-week moving average of initial claims, which lessens some of that volatility, was 212,500, down from 214,250 during the last week of December. Through 2019, that four-week moving average hovered at around 218,000, Labor Department data shows.
NYS Economy Added 22,100 Private Sector Jobs in December 2022, Labor Force Decreases
According to preliminary seasonally adjusted figures released today by the New York State Department of Labor, the number of private sector jobs in New York State increased over the month by 22,100, or 0.3%, to 8,105,700 in December 2022. The number of private sector jobs in the U.S. increased by 0.2% in December 2022. The State's private sector jobs (not seasonally adjusted) increased by 271,800, or 3.4%, over the year in December 2022. The Hudson Valley gained 23,400 private sector jobs year on year in December, but lost 2,600 in December. Hudson Valley manufacturers lost 100 jobs in December and 400 year over year. There are 42,100 working in the sector.
New York State's seasonally adjusted unemployment rate held constant at 4.3% in December 2022. At the same time, New York State's labor force (seasonally adjusted) decreased by 5,000. As a result, the labor force participation rate held constant at 60.5% in December 2022.
Read more the report
Striking French Workers Lead 1 Million People in Protest Over Plans to Raise Retirement Age
Strikes disrupted train services, flights, schools and businesses in France last week as more than one million people protested against the government’s plans to raise the retirement age for most workers. Protests in major French cities, including Paris, Marseille, Toulouse, Nantes and Nice, brought many transport services to a standstill. The Eiffel Tower was closed to visitors.
France’s Interior Ministry said more than a million people took to the streets across the country. Eight of the biggest unions took part in the industrial action against pension reforms unveiled by President Emmanuel Macron’s government. The unions have called for another day of action on January 31 against legislation that will require French citizens to work until 64, from 62 currently, to qualify for a full state pension.
NASA Taps Boeing to Develop, Test Low-Emissions Jet
A Boeing-led consortium has drawn a $425-million NASA contract to develop and test a full-scale commercial aircraft, part of the agency’s Sustainable Flight Demonstrator (SFD) program. SFD is a federal project supporting the civil aviation industry's net-zero-carbon emissions (by 2050), as well as the goals set forth in the U.S. Aviation Climate Action Plan.
The development and testing of a full-scale Transonic Truss-Braced Wing (TTBW) demonstrator is intended to inform future aircraft designs and to collect aerodynamic and fuel-efficiency data or insights. The TTBW concept foresees a single-aisle aircraft with thin but elongated wings, with diagonal struts that connect the wings to the fuselage for stability. Boeing will incorporate design elements from current aircraft, according to its announcement
Eliminating Unnecessary Spare-Parts Spending
Unnecessary spending on spare parts stretches maintenance budgets, leading to budgetary depletions before recommended timelines. This increases the quantity of deferred maintenance work due to a lack of funds to purchase required maintenance, repair, and operations (MRO) supplies. It implies that manufacturers get to deal with more frequent equipment breakdowns, inefficient assets, and unsafe facilities.
Among the strategies for eliminating unnecessary spending on spare parts are: developing a spare-parts inventory-management system, performing regular spare-parts audits, Streamlining maintenance programs, and repairing and refurbishing parts where possible.