Input Stories

The Federal Reserve on Wednesday raised interest rates to their highest level in more than two decades, according to NBC News.

What’s going on: The central bank increased the target range for the federal funds rate by 25 basis points to 5.25% to 5.5%, the highest level since 2001.

Why it’s important: “Though consumer prices have declined for 12 straight months, in June, consumer prices increased 3% year on year. Even though that’s the lowest the annual inflation rate has been in more than two years, it’s still too high for the Fed, which is looking to wrestle increases down to about 2%.”

• “Supercore” inflation, which excludes shelter, gas and food costs, has remained at the 4% annual rate—far too high for the Fed’s liking—for more than two years.
• The bank’s aim in raising interest rates is to make borrowing and investing costlier, reducing demand for labor, goods and services in the economy.

Recession revision: “After Wednesday’s interest rate announcement, [Federal Reserve Chairman Jerome Powell] affirmed the central bank no longer expects a recession to occur as a result of the increases, adding that it could bump up the key interest rate even further.”

The challenge: U.S. workers are relying on the Fed to “balanc[e] unemployment and inflation. … The Fed believes it can slow the economy to reduce inflation without causing people to lose their jobs en masse.”

The Biden administration is hoping offshore wind farms will provide enough power for 10 million homes by the end of this decade—but energy companies are having trouble financing the projects, according to POLITICO.

What’s going on: “Up and down the Northeast—the center of the burgeoning [wind power] industry … energy companies have struggled to finance their projects, going hat in hand to governors and utility regulators asking for more money so they can start building the turbines they have already promised to deliver.”

• Many consumers concerned about already increasing energy costs are wary of more taxpayer funds going to such projects—but without additional government funds, many current wind projects may not get built at all.

The big picture: “Offshore wind takes a combination of state and federal green lights to work. … Federal, state and local permits all have to be secured to make the projects a reality, which gives opponents numerous chances to stall or kill projects.”

• Thus far, federal regulators have approved just three offshore wind projects nationally—underlining the dire need for permitting reform, which the NAM has long called for.
• Meanwhile, “Only seven offshore wind turbines are producing power and just two of the larger projects are truly under construction,” according to POLITICO.

States struggle: Wind-power projects in New Jersey and Massachusetts are facing financial hurdles, with the costs for one project increasing 30% since approval two years ago.

• Geopolitics and the larger economy have weighed on U.S. wind power, too. “Inflation is up—the cost of steel has soared since the pandemic—interest rates are higher and the labor market is tighter. Paradoxically, the war in Ukraine made clear how important domestic energy is while at the same time driving up the costs to produce it.”

The NAM says: “Manufacturers depend on access to reliable and affordable energy, which is why the NAM strongly supports reforms that would foster transparent, streamlined and timely federal regulatory processes,” said NAM Vice President of Domestic Economic Policy Brandon Farris.

• “Our antiquated permitting system is driving up construction costs and has the potential to reduce energy security. The NAM will continue to fight for common-sense permitting reforms that expedite the development of many energy projects, including renewables.”

The International Monetary Fund raised its growth forecast for the international economy on Tuesday despite slowing activity in China, according to CNBC.

What’s going on: “In the latest update to its World Economic Outlook, the IMF raised its 2023 global growth prediction by 0.2 percentage points to 3%, up from 2.8% at its April assessment. The IMF kept [its] 2024 growth forecast unchanged at 3%.”

• The IMF expects inflation to improve, too, and sees core inflation “declining more slowly to 6% this year, from 6.5% last year.”
• IMF Chief Economist Pierre-Olivier Gourinchas wrote in a blog post Tuesday that “the signs of progress are undeniable.”

However … Global economic challenges remain on the horizon, the IMF cautioned, citing a less-than-robust Chinese economic recovery from the pandemic, weakness in China’s real-estate market and an expected contraction of Germany’s economy.

• In Germany, manufacturing output declined in Q1 2023.
• Across nations that use the euro, “[d]ata released Monday showed business activity shrinking at a faster pace than expected.”

Our take: “While there continue to be significant challenges in the manufacturing sector globally, it is encouraging to see signs of resilience—not just in the U.S. economy, but in other markets as well,” said NAM Chief Economist Chad Moutray.

United Parcel Service Inc. and the International Brotherhood of Teamsters came to a tentative agreement on a five-year labor contract yesterday, according to NBC News.

What’s going on: “Union leaders announced the deal midday Tuesday, hours after resuming negotiations following a breakdown in talks on July 5. The handshake agreement must still be approved by rank-and-file union members at UPS to take effect.”

• The current contract between the parties was set to expire on July 31. Earlier this year, the Teamsters overwhelmingly voted to strike beginning as soon as 12:01 a.m. Aug. 1 if no agreement had been reached.
• The tentative agreement—said to be worth about $30 billion in total—averts the possibility of a strike, which could have further snarled manufacturing supply chains and significantly affected domestic shipping services.
• The contract covers 340,000 UPS workers.

What they’re saying: “The deal, [UPS CEO Carol Tome] said, ‘continues to reward UPS’s full- and part-time employees with industry-leading pay and benefits while retaining the flexibility we need to stay competitive, serve our customers and keep our business strong.’” She called it a “win-win-win.”

• Teamsters President Sean O’Brien said in a statement that the deal “sets a new standard in the labor movement and raises the bar for all workers.”

Why it’s important: “A work stoppage by UPS drivers would have been the largest single-employer strike in U.S. history. A recent forecast by the Anderson Economic Group estimated that a 10-day walkout would cost the U.S. economy some $7 billion, with workers racking up $1.1 billion in lost wages and UPS seeing $816 million in losses.”

Our take: “Manufacturers applaud today’s agreement between @UPS and @Teamsters and thank both parties for working quickly to reach a resolution that provides our industry with the supply chain certainty we need to keep the U.S. economy strong,” the NAM tweeted yesterday following news of the deal.

Following years of regulatory disputes, the incandescent lightbulb will be almost completely phased out starting this month, according to E&E News’ ENERGYWIRE (subscription).

What’s going on: “Along with prohibiting the manufacture, import and retail sales of most incandescent bulbs, [Department of Energy] rules finalized last year authorize DOE to slap penalties of $542 on companies per each violation. That could mean millions of dollars in fines for large incandescent orders.”

• DOE says the move will cut greenhouse gas emissions and lower consumers’ utility bills.
• While there is not an explicit ban on incandescent bulbs, most of them are unable to meet the efficiency requirements that were set by Congress in 2007 and will now go into full enforcement.

What it could mean: “Industry representatives say the sweep of regulations on various appliances will spike upfront costs for consumers in the market for appliances,” ENERGYWIRE reports. “Republican lawmakers on Capitol Hill argue the Biden administration is waging a back-door campaign to ban gas stoves and other appliances.”
 

Sales of new single-family homes dropped 2.5% in June after increasing for three consecutive months, according to U.S. Census Bureau data.

What’s going on: New construction sales fell to a seasonally adjusted 697,000 units last month from a revised May rate of 715,000 units.

• The median sales price of new homes in June was $415,400, down from $416,300 in May.
• Purchases of new homes declined in Midwest and West, but continued to grow in the Northeast and South.

Still higher than 2022: However, June’s sales rate is 23.8% above last June’s estimated rate of 563,000 units.

Supply: June also saw a new-home supply of 7.4 months, up from May’s 7.2 months.

The NAM’s take: “The housing market continued to be challenged by affordability issues and an uncertain economic outlook,” NAM Chief Economist Chad Moutray said. “Still, with inventories low, tremendous demand and need exist for more housing.”

The Department of Energy released a draft proposal late last week that would impose stricter efficiency standards on water heaters—and increase costs for manufacturers, E&E News’ ENERGYWIRE (subscription) and The Washington Examiner report.

What’s going on: On Friday night, the DOE released a 425-page plan “to mandate energy efficiency levels for new consumer water heaters, which the department defines as appliances in homes and small businesses that use ‘oil, gas or electricity to heat potable water for use outside the heater upon demand,’” according to ENERGYWIRE.

• The Biden administration says the move—which would go into effect in 2029 if approved in its current iteration—would cut carbon dioxide emissions and reduce energy use by residential water heaters, saving consumers money.
• The draft rule arrives just months after the DOE released a proposal to phase out approximately half of the gas-powered stoves on the market. The House recently approved two measures to stop “gas stove rulemaking from DOE and the Consumer Product Safety Commission,” according to ENERGYWIRE.

What it would mean: The water heater rule would force manufacturers to use heat pump technology to produce electric water heaters and condensing technology to make gas-fired water heaters—and it would spike production costs in the process, according to the Examiner.

• “The [DOE] draft outlines the potential effect on manufacturers, estimating the implementation of the updated standards could result in ‘a loss of $207.3 million to a gain of $165.5 million’ through the year 2056. The DOE estimates conversion costs would be $228.1 million,” the Examiner reports.

The NAM says: “These proposed regulations add costs to manufacturers and consumers and remove market options,” said NAM Vice President of Domestic Economic Policy Brandon Farris.

• “Manufacturers believe that regulations should allow manufacturers in America to compete in a global market—while protecting consumers. The targets proposed by the DOE fail to accomplish that goal.”

Manufacturing activity in July has contracted for the eighth time in nine months, though the pace of decline has slowed markedly. The S&P Global Flash U.S. Manufacturing PMI rose to 49.0 in July from June’s 46.3.

The details: Output increased to 50.2 in July, from 46.9 in June. New orders rose to 48.5 from 42.9.

• Export demand saw significant progress (up to 48.7 from 44.9).
• Hiring increased to 52.8 from 52.3
• Future output picked up speed, increasing to 69.8 from 63.6.

However … The S&P Global Flash U.S. Services Business Activity Index dipped to a five-month low of 52.4, down from June’s 54.4, indicating a decline in business activity among service providers.

Across the pond: Manufacturing activity continues to decline in Europe, particularly in Germany, according to the S&P’s HCOB Flash Eurozone Manufacturing PMI.

• The headline Eurozone index fell to 42.7 in July from June’s 43.4, signaling a post-COVID-19 low.

Industrial production declined 0.5% in June for the second month in a row, the Federal Reserve reported today, according to Bloomberg (subscription).

What’s going on: “The June index of production at factories, mines and utilities decreased 0.5% for a second [consecutive] month, Federal Reserve data showed Tuesday. Manufacturing output declined 0.3% in June, the most in three months.”

• The central bank’s index of manufacturing output has dipped 0.3% from June 2022, with production hamstrung “by lackluster export markets, efforts to work down inventories and more limited consumer spending on merchandise.”

The details: Consumer goods output declined 1.3% in June, the biggest drop in more than two years and a reflection of decreased production across a wide swath of categories, including automotive vehicles, apparel and appliances.

• Materials output also declined, while production of business equipment was flat.

Some good news: “[M]anufacturing may benefit some in coming months as retailers get inventories more in line with sales and the pace of goods inflation slows. Separate data on Tuesday showed retail sales rose by less than forecast, while an underlying measure of household spending pointed to a more resilient consumer at the end of the second quarter.”

Manufacturing is booming in Ohio, as payrolls swell and economic output in the sector breaks records—but continued success could be in jeopardy if Washington continues its current regulatory onslaught, Ohio Manufacturers’ Association President Ryan Augsburger writes in a recent Cleveland Plain Dealer (subscription) op-ed.

What’s going on: “The latest survey conducted by the National Association of Manufacturers (NAM) finds that U.S. manufacturers’ concerns over federal regulations have reached a six-year high as nearly 100 new major regulations—from 30 federal agencies and offices—threaten jobs and investment,” Augsburger notes.

• In the next year, the Biden administration plans to issue even more regulations—approximately 3,200, including about 280 “major rules” and 1,326 “significant rules.”
• Meanwhile, “More than 63% of manufacturers are spending more than 2,000 hours per year complying with federal regulations, diverting resources that would otherwise go towards employee compensation, new hires and additional investment in U.S. facilities,” Augsburger writes, citing the NAM’s Q2 2023 Manufacturers’ Outlook Survey.

Why it’s important: All these rules will cost manufacturers dearly, according to Augsburger, who highlights a few particularly burdensome regulations, including:

• The Environmental Protection Agency’s proposed particulate matter rule, which is expected to cost “up to $197.4 billion in U.S. economic activity and endanger as many as 973,900 current U.S. jobs”;
• The Securities and Exchange Commission’s proposed climate-disclosure requirement, which the NAM recently advocated against in testimony before the House; and
• The Federal Trade Commission’s proposal to ban noncompete agreements, which 70% of manufacturers use to safeguard their intellectual property.

What can be done: The NAM and the Ohio Manufacturers’ Association have been in contact with the White House to coordinate the designation of a senior adviser, who will work to ensure that the regulations put forth align with President Biden’s promise to promote manufacturing. 

The final say: “Time and again, we’ve seen regulatory uncertainty and over-regulation stymie new hiring and kill manufacturing jobs. When the U.S. does not manufacture, investment shifts to other countries that do not share our commitment to environmental stewardship and worker safety,” Augsburger said.​​