Member BriefingSeptember 14, 2023

Posted By: Harold King Daily Briefing,

August CPI: Turbulence on Inflation's Descent

The Consumer Price Index rose 0.6% in August, pushing the year-over-year rate of CPI up to 3.7%. Although a significant slice of August's gain can be traced to a surge in gasoline prices, price growth for items excluding food and energy picked up a bit in August, with the core index rising 0.3%. Despite stronger monthly gains in the headline and core CPI in August, the trend in inflation has downshifted since the spring. The core CPI has slowed to 4.4% year-over-year. Excluding housing, core services inflation (i.e., the CPI "super core") rose 0.4% in August, although that pushed the three-month annualized rate up to only 2.2%.

  • Prices at the pump rose 10.6% in August after seasonal adjustment.
  • Disinflation among food prices has also slowed, with prices rising 0.2% again in August.
  • Used vehicles declined 1.2% last month, a bit less than in July and modest compared to the recent decline in auction prices.
  • The 0.3% jump in new vehicle prices—the largest gain since February—also looks strong relative to the recent trend, and alongside higher financing costs and better inventory leads us to look for some softening ahead.
  • After stalling in July, the downward trend in primary shelter resumed. Owner's equivalent rent advanced 0.38%,
  • Travel prices declined again, although August's drop was more modest and led by a 3.0% decline in hotel prices as airfares rebounded 4.9%.
  • Professional and hospital medical services increased +0.6 and +0.8%, respectively.
  • Motor vehicle maintenance and insurance rose +1.1 and +2.4%, respectively.

Read more at Wells Fargo

War in Ukraine Headlines

UAW, Automakers Continue Negotiations as Strike Deadline Approaches

Local 4 has been told that there has been some movement in contract negotiations, but there have not been any confirmed deals with any of the automakers.  Ford CEO Jim Farley said “We put an offer in today that’s our most generous offer in 80 years at the UAW and Ford. Pay increases, elimination of tiers, inflation protection, five weeks of vacation, 17 paid holidays, bigger contributions for retirement. So it’s a significant, significant enhancement. Still optimistic that we’ll get a deal, but there is a limit -- and because we have to protect for future investments and the profitability of the company funds those. We’re America’s largest employer of automobile manufacturing in the U.S. It is very important that Ford gets this right.”

The Associated Press said sources confirmed that UAW leaders are considering targeted strikes at a small number of factories run by each of the Big Three automakers if they can’t reach a contract agreement by the deadline. According to the AP, union leadership discussed smaller-scale strikes at a meeting on Friday, and local union leaders were told about the strategy on Tuesday afternoon.

Read more at 4Detroit

The Space Industry's Looming Workforce Problem

The space industry has a labor problem that could keep it from reaching its full potential. Some analysts predict the space economy will be worth up to $1 trillion by 2030, but that kind of growth takes a trained, robust workforce that the industry is currently struggling to attract. "The need for skilled labor, the competition for skilled labor is the driving conversation within the space industry," Lesley Conn, director of research and digital programming at the Space Foundation, tells Axios.

Blue Origin alone has more than 400 open jobs right now, according to listings on the company's website. SpaceX has dozens of open positions. Companies like these need skilled workers to build satellites, rockets and other key components required to send people and cargo to space. At the same time, legacy aerospace and defense companies as well as NASA are working to attract younger workers. According to the Space Foundation, only 17% of the space agency's workforce is under 35, partially due to the expertise and experience that is highly valued at NASA.

Read more at Axios

COVID Update – CDC Approves New Vaccine – 5 Things to Know

A panel of advisers to the Centers for Disease Control and Prevention backed the broad use of new COVID-19 vaccines, as cases of the respiratory illness rise.The advisers voted 13-1 to recommend the vaccines for people ages 6 months and older. While the benefits appear to be greatest for the oldest and youngest people, the benefits of vaccination exceed the risks for everyone, according to a CDC analysis.

The universal recommendation, as opposed to one that applies to selected groups, could ease the rollout of the vaccine and improve access and equity. The new vaccines target a much more recent variant of the omicron strain called XBB.1.5 that was selected by the FDA in June for use in formulating new vaccines. The idea, akin to how flu vaccines are made, is to match a seasonal vaccine to the virus that is infecting people.

Here are 5 Things to Know About the Vaccine

NAM, KAM Bring Suit Against SEC

On Tuesday, the NAM and the Kentucky Association of Manufacturers filed suit in federal court challenging the SEC’s novel reinterpretation of its Rule 15c2-11. The reinterpretation—on which the SEC has not granted companies the opportunity to comment—would require private firms to release confidential financial information publicly. The Rule requires disclosures to protect investors in publicly traded companies issuing so-called “penny stocks.” But the SEC has broadened the rule’s application to include privately held companies that issue corporate bonds to large institutional investors under an entirely different regulation, called Rule 144A.

Everyday investors can’t purchase corporate bonds issued under Rule 144A, so there is no reason to require public disclosures from these businesses. Expanding Rule 15c2-11 will mean higher borrowing costs and reduced liquidity in both the manufacturing industry and throughout the larger economy, according to a new EY report released by the NAM. The reinterpretation would lead to job losses of more than 100,000 every year, according to the analysis.

Read more at The NAM

GAO: Up to $135 Billion in Unemployment Aid Stolen During Pandemic

A Government Accountability Office report released Tuesday showed fraudsters stole roughly $1 of every $7 of federal COVID-19 unemployment aid between April 2020 and May 2023, an estimated total of between $100 billion and $135 billion of the approximately $900 billion disbursed. The report indicated that the speed with which Congress passed the expanded unemployment payments—and the Trump and Biden administrations’ haste in disbursing it—made the system vulnerable to fraud.

This report, however, marks an increase in the GAO’s estimated UI fraud compared with previous reports. In December 2022, the GAO estimated that at least $60 billion in fraudulent payments “were made to claimants by extrapolating the lower bound of DOL’s 2021 estimated national fraud rate for the regular UI program to total UI spending.” At the time, the GAO concluded that the rate “could be substantially higher” than the $60 billion lower limit.

Read more at The Hill

Biden Officials are Helping Migrants In New York Eligible for Work But “Too Few Have Applied”

The White House on Tuesday stepped up its efforts to beat back criticism that it isn’t doing enough to help New York with an influx of migrants, vowing to aid those eligible find work and planning to meet with business leaders. Facing intense lobbying from fellow Democrats, Biden officials said they will be focused on the “critical mass” of migrants already able to obtain work permits, saying too few have actually applied.

“The home run in this process would be comprehensive immigration reform,” the senior administration official said Tuesday. Until then, “There’s a critical mass that we are confident are eligible to apply for work authorization immediately,” the official said, acknowledging there’s no specific number for New York City. The official shared a telling statistic as one example: Of the 160,000 migrants who have arrived to the country using the CBP One app, a Customs and Border Protection resource, only about 20 percent have applied for work permission.

Read more at Politico New York

Britain’s Struggling Economy – July GDP Falls but Previous Numbers Revised Up

Until recently the prevailing economic mood in Britain had been one of unremitting gloom. The economy was hit hard by the pandemic and experienced a more tepid recovery than its international peers. Britain seemed to be a laggard among the G7 group of rich countries. But the gloom had started to evaporate. The Office for National Statistics, which produces the official data, rewrote recent economic history at the start of this month, revising up the numbers for 2020 and 2021.

Britain’s relative performance now looks more respectable. Lower inflation and faster wage growth have bucked up consumers too, with barometers of their confidence climbing away from record lows. But conditions are still tough. Interest rates have increased at the fastest pace in decades. Surveys of purchasing managers at firms point to weakness ahead. GDP numbers for July, released on Wednesday, showed a 0.5% month-on-month fall in output. That adds to the sense that Britain is not out of the woods yet.

Read more at Reuters

Bigger Box: Smurfit Kappa to Merge With WestRock to Form $20 Billion Paper Powerhouse

Ireland’s Smurfit Kappa agreed to buy U.S. peer WestRock for $11.15 billion, in a deal that would create a global paper and packaging powerhouse. The combined company, to be called Smurfit WestRock, will be led by Tony Smurfit as chief executive and Irial Finan as chairman, the companies said. The two currently hold those roles at Smurfit.

Atlanta-based WestRock makes packaging for everything from medicine to pizza and home-and-garden products. The company, which reported sales of $21.3 billion in 2022, was formed in July 2015 by the merger of MeadWestvaco and RockTenn. A merger could bolster the companies at a time of weakening demand and declining prices for containerboard, the material used to make corrugated shipping boxes and industrial packaging, and a gloomy outlook for the global paper business.

Read more at The WSJ

Machine Tool Order Decline Continues

U.S. machine shops and other manufacturers’ new orders for machine tools are exhibiting the effects of high interest rates, and economic uncertainty in general, according to the latest order summary reported by AMT – the Assn. of Manufacturing Technology. The U.S. Manufacturing Technology Orders report indicates that demand fell to $353.9 million during July 2023, -12.4% from June and -10.5% from the July 2022 report. The July USMTO report brings the year-to-date order total to $2.83 billion, a -12.7% decrease over the seven-month total for 2022.

“Job shops have continued to decrease orders but other industries that have benefited from recent reshoring or government investment have been filling in the gap.” according to AMT president Douglas K. Woods. “Manufacturing technology orders have definitely begun to feel the effects of higher interest rates and economic uncertainty, but the build-up of domestic capacity means that there are more diverse sales opportunities than there have been in decades.” Only two of the report’s regional summaries indicated increases in order values from June to July, in the Southeast (+28.8%) and North Central-West (+20.1%), while each of the other four regions delivered double-digit decreases.

Read more at American Machinist

IEA: OPEC+ Cuts to Tighten Oil Market Sharply in Fourth Quarter

Oil output cuts which Saudi Arabia and Russia have extended to the end of 2023 will mean a substantial market deficit through the fourth quarter, the International Energy Agency (IEA) said on Wednesday, as it largely stuck by its estimates for demand growth this year and next. OPEC and its allies, known as OPEC+, began limiting supplies in 2022 to bolster the market. This month, benchmark Brent crude breached $90 a barrel for the first time this year after OPEC+ leaders Saudi Arabia and Russia extended their combined 1.3 million barrel per day (bpd) cuts until the end of 2023.

"Fom September onwards, the loss of OPEC+ production... will drive a significant supply shortfall through the fourth quarter," it said in its monthly oil report. However, the lack of cuts at the start of next year would shift the balance to a surplus, the agency said, highlighting that stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility in a fragile economic environment.

Read more at Reuters

Pratt Engine Flaw to Idle Hundreds of A320 Planes for Years

RTX Corp. dramatically expanded the scope of required engine checks at its Pratt & Whitney unit, a move that will affect nearly its entire fleet of turbines powering Airbus SE’s latest A320 and ground hundreds of the single-aisle jets for months. About 3,000 Pratt & Whitney geared turbofan engines must be removed over the next three years to check for potentially flawed components made from contaminated metal powder, RTX said Monday. That represents most of the roughly 3,200 GTF engines currently in service on the jets.

RTX said in July that 1,200 GTF engines must be removed and inspected over the next 12 months. That initial assessment came after the company discovered contamination in the powdered metal used to manufacture high-pressure turbine disks could shorten their lifespan. The new plan is to inspect 3,000 engines through 2026 and bring the equipment in for repetitive examinations every 2,800 to 3,800 flights, the company said. That’s a much shorter interval than the typical industry standard. During the shop visits, Pratt plans to replace as many high-pressure turbine disks as possible with new parts that have a full service life, in order to avoid future inspections, RTX Chief Operating Officer Chris Calio told analysts.

Read more at Bloomberg

Ford Blue President: Don't Write Off ICE

“Propulsion isn’t going to be as binary as folks thought. Even two, three years ago, it was going to be either internal combustion or pure BEVs. We think there’s going to be quite a bit in the middle. At least for us. Full hybrids are gonna play a big role, but even things like range extenders. There’s going to be a whole continuum. And from the Ford Blue perspective, we are investing in all of those categories,” said Kumar Galhotra, Ford’s president of the Ford’s combustion engine and hybrid company.

In the Chinese market, the continuum is already in play, Galhotra says. “It’s shocking how many different propulsion systems there are between pure ICE and pure BEV.” The continuum will be necessary to balance compliance with being profitable. Galhotra notes that Ford is No. 3, behind Toyota and Honda, in hybrid sales. As demand for the hybrid Maverick truck in 2023 has outpaced production, Ford recently added a third shift to the Maverick plant in Hermosillo, Mexico. “We are actually building on the third shift, and there’s still not enough vehicles.”

Read more at IndustryWeek