News

The U.S. Court of Appeals for the D.C. Circuit should overturn a lower court’s ruling that the Securities and Exchange Commission lacks the authority to regulate proxy advisory firms, the NAM said in a recently filed brief.

What’s going on: The Nov. 15 brief asking the appeals court to overturn a February ruling by the D.C. District Court is the latest in a years-long campaign by the NAM to ensure reasonable regulation of proxy firms. These powerful, unregulated entities often dictate how shareholders vote on proxy ballot proposals that come before public companies.

• “Since the passage of the Securities Exchange Act of 1934 in the wake of the Great Depression, the Securities and Exchange Commission has regulated proxy solicitation, so shareholders can confidently vote based on transparent and reliable information,” according to the NAM brief. “Accordingly, since the proxy voting advice industry emerged four decades ago, those firms have been subject to SEC regulation.”
• Institutional Shareholder Services, the largest and most influential proxy firm, “would rather not be regulated at all”—but “[t]he record overwhelmingly establishes that proxy firms ‘solicit’ proxies under any reasonable definition,” subjecting them to SEC oversight as required by the Exchange Act.

Why it’s important: Proxy firms wield enormous influence over both manufacturers and Main Street investors, the NAM said.

• “ISS and its main competitor, Glass Lewis, control 97% of the proxy advice market and together influence nearly 40% of the U.S. shareholder vote,” the NAM told the court in its brief.
• Further, proxy firms operate with undisclosed conflicts of interest, their reports can contain errors and misleading statements and their “robo-voting” services give them the authority to cast investors’ proxy votes with no review or input by the investors themselves.

NAM on the front lines: In July 2020, after years of NAM advocacy, the SEC finalized a rule instituting critical proxy firm reforms. ISS quickly brought a legal challenge, and the NAM intervened in the case to ensure a robust defense of the rule.

• Following the change in presidential administrations in 2021, in separate lawsuits the NAM successfully challenged the Biden SEC’s refusal to enforce the 2020 rule and its rescission of critical portions of the rule.
• After an unfavorable decision from the D.C. district court in the ISS challenge, the Biden SEC declined to pursue an appeal, effectively disclaiming its authority to regulate proxy firms. The NAM took the lead as intervenor-appellant in the case, so manufacturers are now the sole bulwark against proxy firms’ unchecked power. A victory in the D.C. Circuit for the NAM would make the proxy firms subject to the 2020 rule’s important reforms.

Former SEC officials agree: A group of former SEC commissioners and staff authored an amicus brief in support of the NAM’s position.

• The brief chronicles the commission’s 50-year history of affirming that proxy firms are engaged in solicitation. The officials make clear that “stripping the SEC of its long-standing and Congressionally conferred power to regulate the firms” would “seriously harm the investing public by decreasing fairness and honesty in the markets—exactly the opposite of what Congress was trying to accomplish in the Exchange Act.”

What’s next: ISS’s response to the NAM’s brief is due in the coming weeks, and the court likely will schedule oral argument for early 2025.

In September, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index recorded a 3.9% annual gain, down from 4.3% in August. Similarly, the 10-City Composite saw an annual increase of 5.2% in September, a decrease from 6.0% the previous month, while the 20-City Composite rose 4.6% year-over-year, down from 5.2% in August. Among the 20 cities, New York again posted the highest annual gain at 7.5%, followed by Cleveland at 7.1% and Chicago at 6.9%. Denver had the lowest annual increase at 0.2%.

On a month-over-month basis, the U.S. National Index dropped 0.1% before seasonal adjustment but increased 0.3% after adjustment. The 20-City and 10-City Composites saw 0.3% and 0.4% decreases pre-adjustment, while posting 0.2% and 0.1% increases post-adjustment, respectively.

While home prices stalled in the third quarter, the slight downtick could be attributed to technical factors, since the seasonally adjusted figures exhibited a 16th consecutive all-time high. The Northeast and Midwest continue to display above-trend price growth, growing 5.7% and 5.4%, respectively, while the South reported its slowest growth in more than a year, rising 2.8%.

Consumer confidence rose in November to 111.7 from 109.6 in October. The improvement in confidence in November was based largely on labor market optimism, including future job availability. Meanwhile, consumers’ expectations about future business conditions were unchanged, and they were slightly less positive about future income

The Present Situation Index, reflecting current business and labor market conditions, increased 4.8 points to 140.9. The Expectations Index, which reflects consumers’ short-term outlook for income, business and labor market conditions, ticked up 0.4 points to 92.3, well above the recession signal threshold of 80. Consumers’ assessments of current business conditions improved, with slightly less consumers saying business conditions were “good” but less views of the current conditions being “bad.” Consumers also felt more positive about future labor market conditions, with less consumers saying jobs were “hard to get.”

On the other hand, consumers’ assessments of future income fell slightly in November, with 19.0% anticipating income growth, down from 19.5% in October. Although elevated prices remain top of mind, inflation expectations decreased from 5.3% to 4.9% in November, and expectations for higher interest rates continued to decline. Buying plans for homes stalled, while purchasing plans for new cars improved slightly. Purchase plans for most big-ticket appliances were down. Concerns about a recession occurring in the next 12 months fell further in November and was at the lowest proportion since the question was first asked in July 2022.

Manufacturing activity in the Fifth District remained sluggish in November. The Fifth Federal Reserve District consists of Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The composite manufacturing index remained at -14 in November. Among its components, shipments decreased from -8 to -12, new orders inched down from -17 to -19, and employment rose from -17 to -10. The vendor lead time index edged down from 6 to 4 in November, and firms continued to report declining backlogs. Companies also grew slightly more pessimistic about local business conditions, with the index remaining solidly in negative territory. The average growth rate of prices paid decreased in November, while the rate of prices received increased modestly.

Expectations for future shipments and new orders both increased further into positive territory, suggesting that firms continue to anticipate improvement in these areas. Expectations for backlogs and the outlook for future local business conditions improved, with both indicators remaining positive. Firms continue to exhibit a more cautious approach to equipment and software spending, as expectations became slightly more negative. Spending on capital expenditures also fell, remaining negative.

In November, Texas factory activity was relatively flat, but most indicators of manufacturing were in negative territory. The production index turned negative again to -0.9, after rising to 14.6 in October. The new orders index pushed further into negative territory to -11.9, indicating continued declines in demand. Meanwhile, the capacity utilization and shipments indexes both turned negative to -4.8 and -5.9, respectively.

Perceptions of business conditions were mixed in November, and the general business activity index held relatively steady at -2.7. Meanwhile, the company outlook index turned positive, improving to 5.8. The outlook uncertainty index, which has been volatile lately, dropped more than 10 points to 5.9 after a significant increase in the previous month.

Labor market indicators suggested some employment growth and steady workweeks in November. The employment index soared 10 points to 4.9, while the hours worked index rose nearly six points to 0.3, both turning positive. About 19% of firms reported hiring, while 14% noted layoffs. Moderate upward pressure on prices and wages persisted, with all indexes roughly aligned with historical averages. The wages and benefits index fell to 18.6. On the other hand, the raw materials prices index spiked more than 12 points to 28.5, while the finished goods prices index inched up to 8.8.

The outlook for future manufacturing activity remained optimistic. The future production index edged up to 44.0, a three-year high. Similarly, the future general business activity index rose slightly to 31.2, also a three-year high.

Existing home sales increased 3.4% in October and 2.9% from October 2023. Housing inventory rose to 1.37 million units, reflecting a 0.7% increase from September and a 19.1% boost from last year. The median existing home price was $407,200, up 4.0% from last year, with all four U.S. regions reporting price increases.

Single-family home sales rose 3.5% from September, with the median price increasing 4.1% from October 2023 to $412,200. Condo and co-op sales grew 2.7% in October but declined 7.3% from the previous year, with the median price up 1.6% from the prior year to $360,300.

Homes were typically on the market for 29 days in October, up from 28 days in September and 23 days in October 2023. First-time buyers made up 27% of sales, up slightly from 26% in September but down from 28% in October 2023. All-cash sales accounted for 27% of transactions in October, down from 30% in September and 29% a year ago. Meanwhile, investors or second-home buyers represented 17% of homes purchased in October, up from 16% in September and 15% a year ago. Distressed sales represented 2% of purchases in October, unchanged from the previous month and last year.

Building permits fell 0.6% in October and 7.7% over the year. Permits for single-family homes rose 0.5% in October but declined 1.8% over the year. Permits for buildings with five or more units fell 3.0% from September and plummeted 20.9% over the year.

In October, housing starts decreased 3.1% over the month and 4.0% over the year. Additionally, starts for single-family homes fell 6.9% from September but just 0.5% from October 2023. Meanwhile, starts for buildings with five or more units increased 9.8% from September but declined 12.6% over the year.

Housing completions decreased 4.4% from September but jumped 16.8% from October 2023. Single-family home completions fell 1.4% from September and 0.2% over the year. Completions for buildings with five or more units dropped 9.0% over the month but soared an incredible 61.4% from October 2023.

The Conference Board Leading Economic Index for the U.S. fell 0.4% to 99.5 in October, following a 0.3% decline in September. Over the past six months (April to October 2024), the LEI has decreased 2.2%, which is slightly worse than the 2.0% decline in the prior six months (October 2023 to April 2024). Weakness in new factory orders continued to be the most significant drag on the index.

In October, manufacturing hours worked fell by the most since December 2023, while unemployment insurance claims rose and building permits declined, partly due to the impact of hurricanes. In addition, the yield curve inversion continued to weigh on the LEI. On the bright side, the LEI stopped signaling an impending recession in October.

Meanwhile, the Coincident Economic Index was unchanged for a second consecutive month at 112.8 but has increased 0.8% over the past six months. On the other hand, the Lagging Economic Index inched down 0.1% in October to 118.7 and has contracted 0.8% over the past six months, which partially reversed the 1.2% growth over the prior six-month period (October 2023 to April 2024).

The S&P Global Flash U.S. Manufacturing PMI rose slightly from 48.5 in October to 48.8 in November, signaling a deterioration in business conditions for the fifth consecutive month but at the slowest rate since July. Although production fell sharply, all other PMI components moved higher. The rate of loss of new orders eased, and employment rose modestly for the first time in four months.

The improvement in sentiment was notable especially in the manufacturing sector, where optimism struck a 31-month high, adding to suggestions that activity may improve further in the coming months. Respondents also often cited a more business friendly incoming administration as beneficial to the outlook, notably in terms of looser regulation and protection measures, the latter particularly helping boost sentiment in manufacturing. On the other hand, suppliers’ delivery times lengthened to the greatest extent in 25 months, often linked to increased purchasing of imported inputs ahead of potential tariffs.

Manufacturing activity fell slightly in the Tenth District in November, while expectations for future activity rose. The Tenth Federal Reserve District encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico. The month-over-month decline in activity was driven primarily by nondurable goods falling modestly, particularly paper and petroleum products, while durable goods activity was flat. All month-over-month indexes were mixed, with half slightly negative and half slightly positive.

Both production and new orders fell slightly, while employment stayed steady. Backlog of orders continues to have the lowest reading at -14. The year-over-year composite index for factory activity fell, as employment, supplier delivery time and raw material inventories all fell further. On the other hand, new orders and capital expenditures improved year-over-year but new orders remained negative. The future composite index increased slightly, driven by high expectations for future production and new orders. Employment and capital expenditures are also expected to grow in the next six months.

This month, survey respondents were asked about employment expectations over the next year. About half of firms (52%) expect to leave employment levels unchanged over the next year, while 37% plan to increase employment and 11% expect to decrease. Firms were also asked if they’ve been raising starting wages for new hires. About a quarter of firms (23%) have raised new hires’ wages for most job categories, while 35% have for only select job categories. About another quarter (24%) have not raised new hires’ wages, while 18% of firms surveyed are not actively hiring.