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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.​​

U.S. wages are now growing faster than inflation for the first time in two years, helping workers but muddling Federal Reserve attempts to lower price increases, according to The Wall Street Journal (subscription).

What’s going on: “Inflation-adjusted average hourly wages rose 1.2% in June from a year earlier, according to the Labor Department. That marked the second straight month of seasonally adjusted gains after two years when workers’ historically elevated raises were erased by price increases.”

• In manufacturing, wages are up 5.6% over a year ago, according to NAM Chief Economist Chad Moutray.

More to enjoy: “In addition to enjoying solid wage growth, Americans are taking comfort in slower price increases for everyday items—such as gasoline and groceries—that have the biggest influence on their perception of inflation.”

• However … Adjusted for inflation, pay growth “remains below the trend in the five years before the pandemic,” one source told the Journal.

Why it’s important: If wages continue to surpass cost increases, they could encourage more spending, which could help the economy avoid a recession.

• In recent months, Journal-polled economists have been less confident that there will be a recession in the next 12 months. However, Americans in general continue to expect a recession, according to the article.

The Fed’s role: The Federal Reserve has increased the benchmark interest rate 10 times in the past 16 months and has indicated it will raise it again later this month.

• “‘It’s great to see wage increases, particularly for people at the lower end of the income spectrum,’ [Federal Reserve Chairman Jerome] Powell said [in June]. ‘But we want that as part of the process of getting inflation back down to 2%, which benefits everyone.’”

The last word: “With manufacturers continuing to cite workforce challenges, even in a cooling labor market, wage growth remains significant,” Moutray said. “The average manufacturer pays $26.41 [an hour] nationally for production and nonsupervisory workers, up 5.6% from one year ago, a very solid rate. Relief on growth in consumer inflation will allow those employees to realize the purchasing power of those dollars more fully.”

Further resources: For more workforce solutions and insights, check out the resources of the Manufacturing Institute, the NAM’s 501(c)3 nonprofit workforce development and education affiliate.
 

The NAM met with North American trade ministers last week in Cancun, Mexico, where it urged them to take up key trade priorities for manufacturers.

What happened: The NAM led a delegation from the American business community, which participated in a roundtable discussion ahead of the third United States–Mexico–Canada Agreement “Free Trade Commission” on July 7 in Cancun.

• Attendees at the roundtable event included NAM President and CEO Jay Timmons, U.S. Trade Representative Katherine Tai, Canadian Minister of Small Business, Export Promotion and International Trade Mary Ng, Mexican Secretary of the Economy Raquel Buenrostro and business executives from the three countries, including Rockwell Automation Chairman and CEO Blake Moret.

Shared values: The NAM underscored the importance of an investment climate underpinned by core democratic principles, such as transparency and the rule of law.

• “We believe in democracy,” Timmons said. “However imperfect, this system fosters free enterprise, competitiveness, individual liberty and equal opportunity. These values make manufacturing strong in our countries.”
• He added that each year North American manufacturers contribute $3 trillion to the U.S., Canadian and Mexican economies.

What must be done: Though the USMCA already creates advantages for North American manufacturers, the agreement’s full potential can only be realized if the three countries work together to address certain key challenges, Timmons told the attendees. Some of the main hurdles include:

• Mexico’s power-generation policies, which have long favored Mexican state-owned energy companies and led to higher bills for manufacturers that must use existing energy-supply contracts;
• Permitting delays for U.S. projects in Mexico that undercut American firms and reduce energy supply to North American manufacturers and consumers;
• Mexico’s expanded food-labeling requirements and bans on the sale of some U.S. foods and nonalcoholic beverages to minors, which unjustly restrict U.S. exports;

Read the full story here.

The explosive growth of artificial intelligence is leading semiconductor makers to move quickly to create “designs that stack chips together like high-tech Lego pieces,” according to The Wall Street Journal (subscription).

What’s going on: “‘Chiplets’ can be an easier way to design more-powerful chips, according to industry executives who call the technology one of the most significant advances since the dawn of the integrated circuit more than 60 years ago.”

• The technology has the potential to deliver more powerful, cost-effective semiconductors, sources told the Journal.
• Last year, some of the world’s largest technology companies, including Qualcomm and Intel—which recently announced products containing chiplets—formed a coalition to craft chiplet-designing standards.

How it works: “A typical consumer device such as a smartphone contains many types of chip[s] for functions including data processing, graphics processing, memory, telecommunications and power control.”

• “The chips are delicately tethered to minuscule wires and ensconced in a protective plastic casing, forming a package that can be fixed to a circuit board.”
• “With the new chiplet packaging, engineers have found ways to bolt together pre-existing chips, the equivalent of using a few Lego pieces to build a toy car.”

The caveats: Chiplet manufacturing is not cheap, however, and the technology requires its own performance-verification process.

• What’s more, chiplets “aren’t suited to every function,” and lend themselves better to high-end desktop computers than mass-marketed cell phones.

China’s role: It is estimated that China controls 38% of the semiconductor assembly, testing and packaging market, a fact that “poses two potential risks for the U.S. While many American companies have been working with factories in China to handle these specialist chip-making roles, the supply chains could be tangled by a geopolitical crisis or another pandemic.”

• “In addition, the U.S. has imposed export controls on advanced semiconductor technology and could seek to expand controls in the future.”​​​​​​​