Member Briefing June 30, 2022

June 30, 2022

Posted By: Harold King in Daily Briefing,

Powell Says Fed Must Accept Higher Recession Risk to Combat Inflation

Federal Reserve Chairman Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than about the possibility of raising interest rates too high and pushing the economy into a recession. “Is there a risk we would go too far? Certainly there’s a risk,” Mr. Powell said Wednesday. “The bigger mistake to make—let’s put it that way—would be to fail to restore price stability.”

Mr. Powell said the central bank had to raise rates rapidly, even if that raises the risk of recession, to avoid a worse danger for the economy—of higher inflation becoming entrenched. He said the Fed didn’t have the luxury of moving rates up gradually because of concern that the recent period of high inflation may lead consumers and price-setters to expect elevated prices to persist.

War in Ukraine Headlines

Richmond and Dallas Fed Surveys Show Mfg Weakness

A Tuesday survey from the Federal Reserve Bank of Richmond and a Monday survey from the Federal Reserve Bank of Dallas show more bleak signs for the economy. “Fifth District manufacturing firms reported another decline in activity in June,” according to the Federal Reserve Bank of Richmond index. Firms also reported being less optimistic about their economic future, as the “expectations index,” dropped from -13 to -19 over the last month.

Factory activity in Texas decreased significantly in the last month, according to the survey from the Federal Reserve Bank of Dallas. The production index fell from 18.8 in May to 2.3 this month. The number is the lowest the index has reached since May of 2020. The “new orders index,” which signals demand, decreased in June for the first time in two years, going from 3.2 to -7.3. The “future production index” which is a measure of expectations regarding future manufacturing decreased strongly in the last month, going from 19.9 to just 4.0.

Survey: 70% of Companies Planning Reshoring or Nearshoring Projects

The robotics and automation arm of global conglomerate ABB recently polled 1,610 executives in the U.S. and Europe about their capital spending plans in the wake of the COVID-19 pandemic’s arrival, the resulting supply chain chaos and Russia’s invasion of Ukraine. Of the respondents, 37% said they plan to return production to U.S. shores while a third said they will look to nearshore new operations.

Those new facilities will include more investments in automation than in the past, ABB’s survey shows. More than 40% of business leaders said they will use automation and robotics to make their supply chain more resilient. That will add to an upswing that grew the U.S.’ robot density–defined by the International Federation of Robotics as the number of industrial robots per 10,000 employees—from 176 units in 2015 to 255 in 2020.

U.S. COVID – The Omicron Subvariants BA.4 and BA.5 Have Together Become Dominant in the US

The CDC estimates that as of the week ending Saturday, BA.4 made up 15.7 percent of new cases, and BA.5 was 36.6 percent, accounting for about 52 percent of new cases in the United States, numbers that experts said should rise in the weeks to come. The statistics, released Tuesday morning, are based on modeling and can be revised as more data comes in, which happened in late December, when the agency’s estimates missed the mark.

The seven-day moving average of U.S. COVID-19 cases stood at 101,378 as of June 25, up 2.9% from a week earlier.

U.S. Supply of Effective COVID Antibody Drug Dwindling

Biden administration officials have told Congress that the government’s supply of the Eli Lilly & Co. therapy, the only antibody drug for treating non-hospitalized patients that was found to work against Omicron, could run out if pandemic funding isn’t renewed. The supply could be depleted before fall if the pace of current use holds. The federal government is distributing about 30,000 doses a week of the therapy, according to the Health and Human Services Department.

Should the federal government be unable to procure more doses, Lilly would need to sell the drug to hospitals and states directly for the treatment to remain available. That would provide a first test of whether pandemic-related drugs and vaccines would remain accessible if shifted to the commercial market.

Why Parents are Finding it Difficult to Vaccinate Their Toddlers

A week after COVID-19 vaccines were authorized for kids aged 6 months to 5 years, some parents are still struggling to find shots for their little ones this summer. Health authorities and practitioners cite supply issues, complicated guidelines, lack of demand and administrative challenges for holding off on creating clinics for the youngest age group.

New York State Association of County Health Officials Executive Director Sarah Ravenhall said the majority of county health departments are working with pediatricians to create more vaccination opportunities. “The-age-5-and-under population requires specific expertise so it’s important to move carefully to ensure the most effective vaccination program,” Ravenhall said. “However, each county is unique, not only in the demographics and health status of their communities but also in the availability of pediatric providers. Therefore, each county, along with their pediatric providers, will necessarily identify what works best for their service area.”

BioNTech, Pfizer to Start Testing Universal Vaccine for Coronaviruses

Germany’s BioNTech (22UAy.DE), Pfizer’s (PFE.N) partner in COVID-19 vaccines, said the two companies would start tests on humans of next-generation shots that protect against a wide variety of coronaviruses in the second half of the year.

Their experimental work on shots that go beyond the current approach include T-cell-enhancing shots, designed to primarily protect against severe disease if the virus becomes more dangerous, and pan-coronavirus shots that protect against the broader family of viruses and its mutations. The German biotech firm said its aim was to “provide durable variant protection”

Home Price Increases Slowed in April for the First Time in Months

Home price increases slowed ever so slightly in April, but it is the first potential sign of a cooling in prices. Prices rose 20.4% nationally in April compared with the same month a year ago, according to the S&P CoreLogic Case-Shiller Index. In March, home prices grew 20.6%. The last slight deceleration was in November of last year.

The 10-city composite annual increase was 19.7%, up from 19.5% in March. The 20-city composite posted a 21.2% annual gain, up from 21.1% in the previous month. These price gains for April, but the index is a three-month moving average. The average rate on the 30-year fixed mortgage just crossed the 5% mark in April after rising from around 3% in January. By June it had crossed 6%. Expect the slowdown to continue.

Work From Home Helped Rural Counties, Can the Boom Last?

Small communities have long lagged far behind big cities in job creation and income growth. But since the pandemic, many are seeing an infusion of remote workers drawn by lower costs, laid-back lifestyles and natural beauty—and worn down by crime and other urban challenges. Their presence has helped spur hiring, income gains and home-price growth in rural towns.

The question now is whether these transplants are there to stay. Rural gains are in their early stages and could be vulnerable to a national economic downturn. They also depend on how far the back-to-the-office movement goes. In recent months, office reopenings and waning pandemic disruptions have drawn some workers back to urban life, a trend that is manifested in the rising rental prices of places such as New York City.

EU Agrees New Cars Must be Emissions-Free After 2035

Following 16 hours of negotiations, the European Union has agreed to a framework to eliminate carbon emissions from new cars and vans by 2035, effectively closing the chapter on the internal combustion engine. Many automakers are already in the process of switching over to cleaner fleets, but the industry will now face some pressure to hit the accelerator.

Environment ministers extended a CO2 exemption granted to so-called “niche” manufacturers – or those producing less than 10K vehicles per year – until the end of 2035. Italy, home to Ferrari and Lamborghini, also gave up demands for a five-year delay in the EU’s plan for carmakers to clean up their fleet. Meanwhile, alternative technologies like synthetic fuels and plug-in hybrids may be included in the future if they can achieve the complete elimination of greenhouse gas emissions.

Spain’s 12-Month Inflation Surpasses 10% in June, First Time Since 1985

panish 12-month inflation rose to 10.2% in June, the first time it has surpassed 10% since April 1985, from 8.7% in the previous month, preliminary data from the National Statistics Institute (INE) showed on Wednesday. Core inflation, which strips out volatile food and energy prices, rose to 5.5% year-on-year from 4.9% a month earlier, the highest since August 1993, the INE data showed.

The soaring cost of living in Spain is putting pressure on the government of Prime Minister Pedro Sanchez, which passed on Saturday a second series of measures, worth 9 billion euros ($9.45 billion), to help poor households cope with inflation.

Hackers Target Logistics Firms to disrupt supply chains

Hackers are trying more and more to disrupt global supply chains by attacking logistics, shipping and cargo companies, particularly using phishing and ransomware.

Hackers target logistics firms to disrupt supply chains. Hackers are trying more and more to disrupt global supply chains by attacking logistics, shipping and cargo companies, particularly using phishing and ransomware. “[H]ackers do see the dependency on this supply chain. And then of course a logistics company is a target for them,” says Sami Awad-Hartmann, chief logistics officer at Hellmann Worldwide Logistics, which suffered a phishing attack in December.

US Supply-Chain Jams Take New Life With Rail, Warehouse Squeeze

Public attention has waned two years into the crisis that disrupted global supply chains, giving the impression that everything is back to normal. On the ground, the US’s busiest port complex is still battling bottlenecks across the board. Here’s a look at some of the snarls that are standing in the way of the supply chain’s recovery…

Rail: The Port of Los Angeles has recently enlisted help from the White House to clear a backlog of rail-bound containers that’s tripled since February, taking up space on its docks and causing congestion.
Trucking: More than half of the truck gates at the Port of Los Angeles are still going unused on average due in part to the inconsistent staffing and operation hours at the terminals and distribution centers outside of the port.
Warehousing: The vacancy rate at Southern California facilities is now around 0.3%, with the lack of availability particularly acute in the Inland Empire counties of Riverside and San Bernardino.
Warehousing: The vacancy rate at Southern California facilities is now around 0.3%, with the lack of availability particularly acute in the Inland Empire counties of Riverside and San Bernardino.

Auto Sales Expected to Fall 17% This Year Amid Supply-Chain Woes

Vehicle sales in the US are expected to fall 17.3% this year to the lowest level in a decade as semiconductor shortages and other supply-chain problems continue to hamper production. New-vehicle inventory has risen so far this year but remains at about 25 days worth of stock. Before the Covid-19 pandemic, dealers were carrying on average close to 70 days of supply.

Researcher Cox Automotive lowered its forecast to 14.4 million vehicles, citing production constraints. Despite the lower forecast, Cox believes lower auto sales belie the state of the economy because the job market and consumer demand remain strong. “We don’t think a recession is inevitable,” said Cox Chief Economist Jonathan Smoke. “We still have pent-up demand in retail. There are people who can’t get what they want.”