Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (November 4, 2022)

November 04, 2022

CED POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

November 4, 2022

This week, US businesses and investors grappled with mixed news about the US economy.

The Federal Reserve increased the Federal Funds Rate by another 0.75 percent on Wednesday for the fourth consecutive time. The central bank now says that “in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” This means that the FOMC will approach future meetings with the understanding that it has hiked interest rates significantly already and if some effects of previous rate hikes are still materializing. The Fed also indicated that I may reduce the size of future interest rates hikes.

According to the Job Openings and Labor Turnover Survey (JOLTS) the number of nonfarm job openings rebounded at the end of September after a large decline in the previous month. Two large sectors, accommodation and food services and healthcare and social assistance, drove the increase. Although job openings are not at their peak figures, they are still very high by historical norms.

Two surveys of manufacturers, by the Institute for Supply Management (ISM) and S&P Global, each suggested the US economy is seeing weaking demand and slowing growth. The ISM Purchasing Managers Index (PMI) saw its 29^th month of expansion but at its lowest figure beginning June 2020. ISM noted that the low new orders figure, combined with the low new export orders figure, show easing demand. Much like the ISM index, S&P Global PMI was just above the neutral value of 50 and the lowest figure in the expansion.

For more information on these and other events, please see below:

1. FED APPROVES FOURTH 0.75 POINT RATE RISE

2. JOB OPENINGS REBOUND TO 10.7 MILLION

3. MANUFACTURING FIGURES SUGGEST SLOWING GROWTH

4. TRADE DEFICIT WIDENS

5. INITIAL UNEMPLOYMENT CLAIMS REMAIN AT MODERATE LEVELS

6. VEHICLE SALES CLIMB

7. EPA PROPOSED RULE ON HYDROFLUOROCARBONS

8. CYBERSECURITY SUMMIT AND PERFORMANCE GOALS FOR CRITICAL INFRASTRUCTURE

9. PORT INFRASTRUCTURE GRANTS ANNOUNCED

10. BATTERY PLANT IN KANSAS

11. PILOTS REJECTING CONTRACT OFFERS

12. PUBLISHING MERGER BLOCKED

13. MONKEYPOX UPDATES

1. FED APPROVES FOURTH 0.75 POINT RATE RISE

The Federal Reserve increased the Federal Funds Rate by another 0.75 percent on Wednesday, the fourth consecutive hike of that magnitude. Though the central bank made clear  in past statements that it expected to continue increasing interest rates in future meetings, it added new language on Wednesday stating that “in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” This new sentence means that the FOMC will approach future meetings with the understanding that it has hiked interest rates significantly already and if some effects of previous rate hikes are still materializing, there may be less need for additional 0.75 percent interest rate hikes than previously implied.

According to the minutes of the Fed’s September policy meeting, most Fed officials projected rates would rise to about 4.6 percent in 2023. Fed Chair Jerome Powell said that projections would likely have a higher “terminal rate”—the endpoint of the hiking cycle—if they were issued again in November. The Conference Board’s Economy, Strategy, and Finance Center expects a terminal rate in the 4.75 to 5.00 percent range. In its analysis of Wednesday’s actions, it notes that the Fed’s hikes have already had an effect on the economy, slowing consumption and business investment and contracting residential investment, and predicts that the full impact of the hikes will cause a “broad but shallow contraction.”

2. JOB OPENINGS REBOUND TO 10.7 MILLION

The number of nonfarm job openings increased to 10.7 million by the end of September, according to the Job Openings and Labor Turnover Survey (JOLTS) released Tuesday by the Bureau of Labor Statistics. This was a rebound, partially offsetting a large decline from 11.2 million to 10.3 million in August’s revised figure. Job openings have declined since reaching an all-time high of 11.8 million in March 2022. Two large sectors, accommodation and food services and healthcare and social assistance, drove the increase: the former rose by 215,000 to 1,419,000 and the latter rose by 115,000 to 2,096,000, an all-time high. Job openings are still very high by historical norms. The number of new hires declined from 6.3 million to 6.1 million, while total separations declined from 6.1 million to 5.7 million. Separations include quits (4.1 million) layoffs and discharges (1.3 million) and other separations (0.3 million), with the greatest decline coming in layoffs and discharges, at 1.5 million last month.

3. MANUFACTURING FIGURES SUGGEST SLOWING GROWTH

Two surveys of manufacturers, by the Institute for Supply Management (ISM) and S&P Global, each showed slightly higher overall economic activity in October but suggested weak demand and slowing growth. The ISM Purchasing Managers Index (PMI) recorded 50.2 percent, a decline of 0.7 percent from the previous month and just above the neutral value of 50.0. This was the 29^th month of expansion, but the lowest figure for the expansion beginning June 2020. The new orders component contracted, as in September. The production index, however increased. ISM noted that the low new orders figure, combined with the low new export orders figure, show easing demand. Separately, the S&P Global PMI posted 50.4 in October, down from 52.0 in September. Much like the ISM index, this was just above the neutral value of 50.0 and the lowest figure in the expansion. Similarly, S&P Global also showed declining domestic and foreign demand; however, the production index expanded. One upside of declining demand but increasing production is clearing of orders backlogs; S&P Global’s survey shows the first reduction in backlogs since July 2020.

4. TRADE DEFICIT WIDENS

The US trade deficit in goods and services widened to $73.3 billion in September, up $7.6 billion from the $65.7 billion revised figure for August, according to the Census Bureau. This increase reverses five months of consecutive decreases from the March figure of $106.9 billion, an all-time high. The larger deficit reflects both increased imports and reduced exports. Exports of goods decreased $3.4 billion, led by foods, feeds, and beverages, which fell $2.1 billion. Falling soybean prices resulted in export revenues $1.7 billion lower than August. Falling commodity prices also reduced crude oil exports by $1.0 billion. Exports of services increased $0.9 billion, led by travel. Imports of goods increased $2.8 billion, as capital and consumer goods more than offset declining commodity prices. Though fuel oil imports decreased $0.8 billion, crude oil and other petroleum products decreased $1.05 billion, while capital goods increased $3.3 billion, led by semiconductors ($1.1 billion), civilian aircraft ($0.8 billion), and telecommunications equipment ($0.7 billion.) Consumer goods increased $1.1 billion, led by cell phones and pharmaceuticals. Imports of services increased $1.9 billion, led by travel at $1.6 billion. Much of the broad figure was driven by a $2.5 billion increase in the trade deficit with the European Union on falling energy prices (the US has been exporting large quantities of liquefied natural gas (LNG) to the EU).

5. INITIAL UNEMPLOYMENT CLAIMS REMAIN AT MODERATE LEVELS

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, were 217,000 for the week ending October 29, virtually unchanged from the previous week’s revised level of 218,000. Claims have increased from September’s lowest reading of 190,000 and remain well above the spring lows of 166,000. However, they are moderate by historical standards and below the July highs of 261,000. The Conference Board’s latest economic forecast shows the unemployment rate remaining steady in 2022 but rising to 4.4 percent, well above its current level of 3.5 percent, by the third quarter of next year.

6. VEHICLE SALES CLIMB

Motor vehicle retail sales (cars, light trucks, and heavy trucks) climbed in October to a 15.4 million seasonally adjusted annual rate, up 1.4 million from September, according to data released by the Bureau of Economic Analysis. The increase shows the relative strength of consumption spending, which has continued to grow even as other components of the economy, such as business fixed or residential spending, have slowed or even contracted in the face of rising interest rates. Increased supply may also explain the strength of vehicle sales. BEA data show that September and August had greater domestic auto production than any month since January 2021, perhaps indicating an easing of the auto industry’s ability to procure materials and parts, especially automotive semiconductors.

7. EPA PROPOSED RULE ON HYDROFLUOROCARBONS

In 2020, Congress enacted the AIM Act, authorizing EPA to administer a program to issue production and consumption allowances for 18 hydrofluorocarbons (HFCs), extremely potent greenhouse gases, and to phase down HFC production and consumption over time. HFCs are used in refrigeration, air conditioning, fire suppression, and other industries. EPA operates an allowance allocation and trading program designed to implement the phase down the Act requires. In October 2021, EPA published a Framework Rule for the program, covering allowances for 2022 and 2023.  Now, EPA has proposed a rule that would establish a methodology for issuing production and consumption allowances from 2024-2028, address allowances used to cover imports, and add a “new requirement to report emissions from HFC production facilities.” For 2024-2026, consumption allowances would be based on “an entity’s market share derived from the average of the three highest years” of HFC production between 2011 and 2019, with allocations continuing to decline over time. Overall, the methodology for allocation of allowances is similar to that in effect for 2022-2023, except that there will be no further set-asides for new market entrants. Comments on the proposed rule must be received by December 19.

8. CYBERSECURITY SUMMIT AND PERFORMANCE GOALS FOR CRITICAL INFRASTRUCTURE

This week, the White House convened the Second International Counter Ransomware Initiative (CRI) Summit, with 36 countries and the EU, to develop cooperative actions to fight ransomware globally. The initiative has five working groups: resilience, disruption, counter illicit finance, public-private partnership, and diplomacy. Goals for the upcoming year include greater information-sharing practices both among countries and with the private sector, developing an “investigator’s toolkit” for responding to events, “proactively tackling major cybercriminal actors,” and publishing semiannual reports on ransomware trends and mitigation measures. The Summit also secured commitments to develop and eventually implement international anti-money laundering and combating the financing of terrorism (AML/CFT) standards for cryptocurrency that would crack down on its use in ransomware attacks.

The Cybersecurity and Infrastructure Security Agency (CISA) released its Cybersecurity Performance Goals (CPGs) for critical infrastructure to protect against cyber threats, developed at the direction of a 2021 White House memorandum on cybersecurity following the damaging Colonial Pipeline attack.

The performance goals are voluntary; CISA also stresses that the Goals are not comprehensive but rather a “core set” known to reduce risk for a wide variety of organizations. In remarks to reporters, CISA Director Jen Easterly said the goals “can be thought of as a bit of a quick-start guide.” The CPG checklist, which names key risks and best practices for avoiding them, demonstrates some of the agency’s efforts to design a guide with an accessible format.

Separately, the Treasury Department’s cybersecurity counselor revealed that Treasury had thwarted attempted cyberattacks by a pro-Russian hacker group, Killnet, which had attacked the websites of several US airports in October. In line with recently established procedures, the Treasury shared internet protocol addresses the hackers used with financial services firms to provide “tactical information with the sector in real time with the mind that we are interconnected and face the same threat actors.” CED’s Solutions Brief Securing Cyberspace in an Era of Evolving Threats recommended increased collaboration and information sharing between government and the private sector, as Treasury did here.

9. PORT INFRASTRUCTURE GRANTS ANNOUNCED

The Maritime Administration announced $703 million in grants to port facilities under the Port Infrastructure Development Program; the Infrastructure Investment and Jobs Act will ultimately allocate $2.25 billion to the program. These grants are intended to improve cargo infrastructure, which was strained in the last two years by high demand for goods. Recipients included 41 different projects in 22 states and American Samoa, including both coasts as well as the Great Lakes and inland waterways. Several projects focus on intermodal connections—for example, expanding truck access to the Port of Camden from I-676 or improving rail access to the Port of Detroit.

10. BATTERY PLANT IN KANSAS

Japanese company Panasonic announced it will build a $4 billion plant for electric vehicle batteries in Kansas, with expected production beginning in 2025 and initial production capacity of 30 gigawatt hours of battery production. The company supplies batteries to Tesla. It will receive the benefits of tax credits under the Inflation Reduction Act for battery production in the US.

11. PILOTS REJECTING CONTRACT OFFERS

Amidst both a pilot shortage and rising demand for travel, the board of the Allied Pilots Association voted 15-5 to reject a contract offer by American Airlines that proposed a 19 percent pay increase over the next two years. Also this week, pilots at United rejected a proposed pay rise of 14.5 percent over the next 18 months, and Delta’s pilots authorized a strike, but no strike could occur until the National Mediation Board states that additional mediation efforts would not be productive, leading either to arbitration agreed by both parties or a 30-day “cooling off” period, after which the union could strike. Delta and its pilots, represented like United’s by the Air Line Pilots Association, have been in official mediation since January 2022, after a pause for nearly two years during the pandemic

12. PUBLISHING MERGER BLOCKED

A Federal judge blocked Penguin Random House’s proposed $2.2 billion acquisition of Simon & Schuster after a trial on the issue. The two companies are the largest and fourth-largest publishers, respectively, and the Justice Department strongly opposed the merger on the ground that it would “substantially . . . lessen competition in the market,” particularly from the perspective of authors who would have fewer opportunities to sell their work, resulting in smaller advances and perhaps fewer books published overall. After the judge’s decision, Assistant Attorney General for Antitrust Jonathan Kanter said that it “reaffirms that the antitrust laws protect competition for the acquisition of goods and services from workers.” Penguin Random House said it plans to appeal.

13. MONKEYPOX UPDATES

As of November 1, the US has confirmed a total of 28,442 cases of monkeypox. States with the highest case numbers include California (5,450), New York (4,108), Florida (2,739), Texas (2,720), and Georgia (1,913). Globally, 77,174 cases have been confirmed, with 76,249 cases confirmed in locations that have not historically reported monkeypox. The countries with the highest case numbers include the US (28,377), Brazil (9,183), Spain (7,317), France (4,094), and the UK (3,698). Twenty-three deaths have been reported in locations that have not historically reported monkeypox. On Tuesday, the WHO’s International Health Regulations Emergency Committee reported its third meeting on the monkeypox outbreak. The Committee concluded that the outbreak continues to represent a “public health emergency of international concern,” the WHO’s highest level of alert, designed to trigger coordinated international response and can unlock funding to collaborate on the sharing of vaccines and treatments.