Producer Prices Rise
A measurement of wholesale inflation rose more than expected in August, according to data from the Bureau of Labor Statistics.
What’s going on: The Producer Price Index for final demand goods and services rose a seasonally adjusted 0.7% last month, and 1.6% on a year-over-year basis.
- The increase was the strongest monthly gain since June 2022.
- Core producer prices rose 3.0% year-over-year, an increase from July’s 2.9%.
Final demand goods: Producer prices for final demand goods jumped 2.0% in August, buoyed largely by a 10.5% rise in energy costs.
- Excluding food and energy, producer prices for final demand goods inched up 0.1% last month.
Final demand services: Producer prices for final demand services, meanwhile, increased 0.2%, with transportation and warehousing prices rising 1.4%.
Our take: “Despite the uptick in wholesale inflation in August, the overall trend remained encouraging,” said NAM Chief Economist Chad Moutray. “The data continue to reflect moderation in pricing pressures year to date, particularly as core producer prices continued to moderate. The deceleration in producer prices will likely take some pressure off the Federal Reserve, even as it remains concerned about lingering inflationary pressures overall.”
Chevron Now Majority Stakeholder in Hydrogen Project
Chevron Corp. has bought a majority stake in a federal government–supported “green” hydrogen project in Utah that, once completed, will “produce massive volumes” of the renewable energy source, according to E&E News’ ENERGYWIRE (subscription).
What’s going on: Chevron said on Tuesday that it had completed a deal with fuel-storage developer Magnum Development LLC to take over full ownership of the Utah salt caverns where green hydrogen production and storage is set to take place.
- This purchase gives the energy giant “a majority interest in the joint venture that is developing the [Advanced Clean Energy Storage] project.”
- ACES—in which Mitsubishi Power Americas Inc. and private-equity firm Haddington Ventures LLC are also partners—won a $504 million loan guarantee from the Department of Energy in 2022.
- The project is part of a larger effort by Chevron to develop emerging energy technologies through 2028.
Why it’s important: “We seek to leverage the unique strengths of each partner to develop a large-scale, hydrogen platform that provides affordable, reliable, ever-cleaner energy and helps our customers achieve their lower carbon goals,” Chevron New Energies Vice President Austin Knight said in a statement.
- The plan is to make the hydrogen in the salt caverns in Delta, Utah, “for use at a nearby power plant” looking to diversify its energy mix—and aiming to run entirely on hydrogen by 2045.
Another effort: In partnership with ExxonMobil Corp. and Shell PLC, Chevron is also part of a Texas industry group asking for $1.25 billion in 2021 Bipartisan Infrastructure Law funds to construct hydrogen “hubs,” large-scale demonstrations of hydrogen production, transportation, usage and storage.
A model project: “Currently under construction, the ACES project could become one of the western U.S.’s most important demonstrations of what a low-carbon hydrogen industry might look like,” ENERGYWIRE reports.
The NAM’s take: “Manufacturers view clean energy solutions, such as hydrogen, as an important part of our country’s energy present and future—and the industry is used to leading the charge in developing and scaling hydrogen projects for widespread use,” said NAM Vice President of Domestic Economic Policy Brandon Farris.
- “The NAM is committed to ensuring that the hydrogen tax credit and other incentives help build the appropriate market conditions for hydrogen projects to succeed.”
Manufacturer Optimism Declines
Manufacturers are the least optimistic they’ve been about the economy and their businesses since 2020, according to the NAM’s Q3 2023 Manufacturers’ Outlook Survey, released yesterday.
Notable: Here are some of the key findings from the latest survey, which was conducted last month:
- Just 65.1% of manufacturers feel positive about their company’s future, a decline from the previous quarter (67.0%).
- Some 69.1% of small manufacturers and 63.2% of all respondents would increase hiring or employee compensation if their regulatory burdens decreased.
- More than 70% of manufacturers would buy additional capital equipment if those same burdens were lightened.
- The top challenges facing manufacturers—whose concern about an unfavorable business climate was at its highest since 2017 in this survey—are retaining a high-quality workforce (72.1%), a weakened domestic economy (60.7%), rising health care/insurance costs (45.5%) and supply chain issues (37.8%).
The NAM says: “[T]his survey makes clear that unbalanced federal regulations are harming families and communities,” said NAM President and CEO Jay Timmons.
- “Congress and the administration can help correct this trend by restoring sensible regulations, enacting further permitting reforms, taking action to keep our tax code competitive … and [moving to] build on the progress we achieved with tax reform, the Bipartisan Infrastructure Law, the CHIPS and Science Act and more.”
U.S. Incomes Fell in 2022
The average household income in the U.S. fell for the third year in a row in 2022, according to The Wall Street Journal (subscription).
What’s going on: “Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019.”
- Inflation reached a 40-year high last summer “as the pandemic upended supply chains and the Ukraine war drove up energy prices.”
By region and race: Median incomes dropped by 3% to 5% in the Northeast, West and Midwest, but were unchanged in the South.
- “White households saw median income decline by 3.6% in 2022 from the prior year to $81,100, while incomes in Black, Asian and Hispanic households were essentially unchanged.”
Earnings: Wages and salaries “showed a mixed picture,” with average earnings in 2022 declining 2.2% from 2021.
- Among full-time, year-round workers, average earnings decreased more moderately, by 1.3%.
- The 2022 poverty rate was similar to the 2021 rate.
A turning tide? In recent months, however, inflation has improved following benchmark interest-rate hikes, giving a boost to Americans’ purchasing power.
- “Shifting into the present and into the future, the prospects are better for wages to make up for some of the ground lost during the last couple of years,” one source told the Journal.
- Beginning at the end of 2022, wage growth outstripped inflation, and in July inflation-adjusted pay increased 3%.
ANWR Lease Holder Will Fight Cancelation
The owner of seven oil-and-gas leases that were recently canceled by the Biden administration is readying for a legal fight, according to POLITICO’s ENERGYWIRE (subscription).
What’s going on: The Alaska Industrial Development and Export Authority—which bought the leases from the federal government in 2021—“has vowed to pursue legal action against the federal government for the cancellation of the leases spanning 365,000 acres in the coastal plain of the Arctic National Wildlife Refuge.”
- Last week, the Interior Department announced that it would nullify the leases “based on what the administration called an inadequate National Environmental Policy Act review process.”
- “A willingness to circumvent laws passed by Congress has consequences reaching far beyond ANWR’s boundaries, and will impact future development across this country,” the economic development organization responded in a statement.
Required by law: While canceling the leases appears to fall under Interior’s purview, the agency is obligated by the 2017 tax law to offer two lease sales in ANWR, according to former Interior Secretary David Bernhardt, ENERGYWIRE reports.
Why it’s important: ANWR is estimated to hold more than 10 billion barrels of technically recoverable oil. Drilling for it would create more than 100,000 jobs while generating hundreds of billions of dollars in new government revenue, according to data from the House Committee on Natural Resources cited in USA Today.
Our take: “The administration should be taking actions that strengthen energy security, not weaken it,” said NAM Vice President of Domestic Economic Policy Brandon Farris.
- “The cancellation of the ANWR leases based on the NEPA review process underscores our need to continue to reform our broken permitting system. The NAM continues to push Congress and the administration to develop policies that cut through red tape to develop all energy projects, including renewables, nuclear, oil and gas, hydrogen and more.”
Tech Firms Squeeze More Out of AI Chips
Looking to make the most of the AI computer chips they have, technology companies are increasingly “turning to software that can squeeze more performance out of available chips and help reduce costs,” The Wall Street Journal (subscription) reports.
What’s going on: While larger firms are using hard-to-get graphics processing units to build multiple different AI models that “do things such as detect cybersecurity threats and help improve network performance,” other businesses are using central processing units to do similar tasks.
- CPUs aren’t as powerful as GPUs, but they are easier to find.
- And when “tuned with open-source software tools to get more performance out of them,” CPUs can help businesses meet their processing needs.
Boosting performance: As GPU demand continues to outpace supply, companies are using third-party software to squeeze additional performance from existing GPUs, too.
- One Israeli start-up installs optimization software on client GPUs to “automatically put idle computing power to use to gain better processing efficiency,” according to The Wall Street Journal.
- A Seattle-based startup “is betting that most businesses won’t want to deal with owning and managing an array of AI hardware … so it rents out access to processing power from cloud providers that it speeds up on customers’ behalf.”
Renting the cloud: Indeed, cloud-company giants can offer access to much-needed processing power “by renting it out as they do with computer services,” one source told the Journal.
Factory Orders Declined, Shipments Rose in July
Factory orders for manufactured products declined 2.1% in July, after having risen for four consecutive months, while factory shipments increased 0.5%, according to U.S. Census Bureau data.
Orders: Durable goods orders fell 5.2% in July, mostly due to declines in orders of aircraft and aircraft parts.
- However … excluding transportation equipment, factory orders increased 0.8% in July, with durable goods up 0.5%.
- Nondurable goods orders rose 1.1% in the same period.
A spending proxy rises: New orders for core capital goods—nondefense capital goods excluding aircraft, a proxy for capital spending in the U.S. economy—inched up 0.1% in July to $73.60 billion, just shy of the record high of $73.87 billion in May.
- Year-over-year, core capital goods orders have increased 0.8%.
The long view: Orders for new manufactured goods have decreased 0.7% in the past year, with factory orders excluding transportation declining 2.5% year-over-year.
Shipments: July marked the third consecutive month of increases for factory shipments.
- But in the past 12 months, total factory shipments have declined 0.6%, or 2.3% year-over-year excluding transportation equipment.
- Core capital goods shipments fell 0.3% in July, pulling back for the second month in a row from May’s record high of $74.05 billion.
In related news: Economic activity in the U.S. services sector continued to grow last month, with the ISM® Services PMI recording its eighth straight month of growth, the strongest pace since February, according to Markets Insider.
Employee Overtime Rule Would Cost Manufacturers
An overtime pay rule proposed last week by the Biden administration could cost employers—including manufacturers—up to $664 million over a decade, according to Inc. magazine.
What’s going on: A draft regulation set forth last week by the Labor Department “would require employers to provide overtime pay to salaried workers who earn less than $1,059 per week, or around $55,000 per year. The current overtime threshold is $35,568. The Labor Department is responsible for setting the threshold that requires employers to pay out overtime.”
- In compliance with the Fair Labor Standards Act, many companies already pay overtime to hourly employees who work more than 40 hours a week. While the FLSA doesn’t apply to salaried workers, the new requirement would.
Why it’s problematic: If the rule goes into effect, its cost to employers could be as high as “$664 million (with a 7 percent discount rate) over a 10-year period,” according to the Labor Department—and that’s a price manufacturers can ill afford, according to the NAM.
- “Manufacturers have spent the past several years adapting operations and personnel management resources to meet the evolving needs of their workforce in a post-pandemic environment, including through improved wages and benefits and productive workplace accommodations,” said NAM Managing Vice President of Policy Chris Netram.
- “The … proposed rule would inject new regulatory burdens and compliance costs to an industry already reeling from workforce shortages and an onslaught of other unbalanced regulations.”
What’s next: Once published in the Federal Register, the draft regulation will be subject to a 60-day public comment period.
PALIoT Takes on Supply Chain Challenges
Supply chain problems, PALIoT Solutions is coming for you.
This fall, the New-York-state-based startup, whose name derives from a combination of “pallet” and “IoT,” will begin production of its smart shipping pallets. According to company leaders, these products will do nothing less than revolutionize the way food and goods are transported.
From vision to reality: PALIoT cofounders Paul Barry and Richard MacDonald envisioned pallets “whose positive impact on the environment keeps increasing as more of them are manufactured and deployed,” according to the firm’s website.
- To accomplish this feat, the pallets had to be both far lighter and more durable than typical pallets, which are made of wood and nails.
- After significant research and development, Barry and MacDonald came up with the solution: a polyurea-coated, engineered-plywood pallet that was 20 pounds lighter than its traditional peers and contained a proprietary sensor capable of instant communication with the cloud, making inventory tracking a cinch.
The “secret sauce”: “The ‘secret sauce’ is essentially a smart mesh network,” said Barry, who hails from Ireland and has an electrical engineering and investment banking background. “The PALIoT pallets in a shipment will all talk to each other, say, ‘Hey, I’m here.’ And [after shipping,] because they know they’ve been on a truck, they know they have to report all that valuable inventory and environmental data back to the cloud.”
- PALIoT, which will rent its pallets to customers using a per-pallet, pooling model (with an optional subscription service), acquired exclusive global use of the mist® Mesh Networking protocol. This ensures that communication is highly secure and battery sensitive at all times.
- The company estimates it will initially produce between 650,000 and 700,000 pallets a year in the first phase of the launch.
Read the full story here.
West Coast Dockworkers Ratify Contract
Late last week, West Coast dockworkers voted to ratify a long-term employment contract that was agreed upon earlier this summer, The Wall Street Journal (subscription) reports.
What’s going on: Approximately 75% of International Longshore and Warehouse Union members voted in favor of the six-year labor contract with the Pacific Maritime Association.
- This ratification vote formalizes the tentative agreement reached in June, which was preceded by several brief work stoppages, and is the culmination of negotiations that began in May 2022.
- “The ILWU represents about 22,000 workers at 29 ports from California to Washington state.”
Why it’s important: These negotiations, which ultimately took 14 months to resolve, were at times tumultuous, and the resulting supply chain disruptions led to a significant loss of West Coast cargo business to the East and Gulf coasts.
- Together the ports of Los Angeles and Long Beach constitute the busiest ocean trade gateway in the U.S., handling almost 40% of U.S. imports from Asia, according to the Los Angeles Times.
- The NAM consistently advocated for a resolution to these talks and commissioned an economic impact study in 2022 that found even a 15-day shuttering of these two West Coast ports would cost the U.S. economy nearly half a billion dollars a day and 41,000 jobs.
The NAM says: “Ratification of this six-year contract provides manufacturers with the supply chain reliability they need for operational planning and stability,” said NAM Director of Infrastructure and Labor Policy Ben Siegrist.
- “NAM members have overcome countless shipping challenges over the past few years and were at the forefront of calling for this resolution. We are pleased the contract has been ratified.”