Ulbrich Economic Update - Number 50 (July 2024)
Download the 16 page Economic Update for the full details of recent economic trends impacting the steel and commodities markets, as well as the associated industries across the globe. Continue for the Executive Summary.
The Americas
CUMULATIVE WAGE GROWTH HAS KEPT UP WITH PRICE INCREASES since January 2020 but just barely. While nominal wages have increased 22.7%, consumer prices have also surged by 21.0%, leaving real wage growth at a meager 1.5% for the entirety of the past 4½ years, an annual (real) pay increase of 0.3%. Other June data included: U.S. payrolls gained 206,000 jobs, but the unemployment rate edged up one-tenth of a point to more than a 2½ year high of 4.1%. Financial markets saw a roughly 72% probability of a rate cut at the Fed's September meeting. Traders are also pricing in a rising chance of a second rate cut in December. U.S. manufacturing contracted for a third straight month as demand remained subdued.
May data showed: Factory orders fell 0.5% but orders rose for transportation equipment and fabricated metal products. Production at U.S. factories increased 0.9%, recouping all the declines in the prior two months. Motor vehicle and parts output rebounded 0.6% after tumbling 1.9% in April. Mining output was up 0.3% and utilities rose 1.6%. Durable goods orders edged up 0.1% after gaining 0.2% in April. Producer prices fell 0.2% amid lower energy costs, another indication that inflation was subsiding. U.S. import prices fell for the first time in five months amid lower prices for energy products. Consumer prices were unchanged as cheaper gasoline and other goods offset higher costs for rental housing. Retail sales edged up 0.1%, suggesting that economic activity remained lackluster in the second quarter. Consumer spending rose 0.2% and monthly inflation was unchanged. Personal income was up 0.5%. Construction spending dropped 0.1% but spending was up 6.4% year-on-year.
Steel Industry Updates
A CARBON PRICING SYSTEM ON IMPORTS IS BEING EXPLORED BY THE U.S. in what would be a policy shift, as it looks to combat Chinese industrial competition and cut emissions. It comes as the EU rolls out its carbon border adjustment mechanism, a tariff aimed at imports such as cement and steel. Stainless steel demand from major end markets is slightly behind last year’s level. Shipments YTD through May totaled 629,000 tons, down 4.9%. Inventories were steady and supply on hand was stable at 3.2 months.
Overseas
EURO ZONE MANUFACTURING ACTIVITY TOOK A TURN FOR THE WORSE IN JUNE as demand fell at a much faster pace despite factories cutting their prices. S&P Global’s PMI fell to 45.8 from May's 47.3 and has been in contraction for two years. The PMI fell for all euro zone countries, except Italy. China's manufacturing activity fell for a second month in June, while services activity slipped to a five-month low, keeping alive calls for further stimulus as the Chinese economy struggles to get back on its feet.
Automotive Trends
TOP U.S. AUTOMAKERS POSTED SLOWER SALES GROWTH FOR THE 2ND QTR as a cyberattack at software systems provider CDK hit operations at many dealerships during the crucial selling period of late June. Cox Automotive estimates overall U.S. new vehicle sales volume in the 2nd Qtr grew 1% to nearly 4.2mn units. EV maker Rivian will get a much-needed cash infusion through a new partnership with Volkswagen as automakers large and small rethink their strategies in a slowing electric vehicle market.
Energy Sector News
SOUTHERN CALIFORNIA EDISON AGREED TO BUY 320 MEGAWATTS OF GEOTHERMAL POWER from a plant Fervo Energy is developing in Utah. The deal with the Edison International unit comes as California regulators require utilities to procure 1,000 megawatts of clean energy by 2026 that will be available more often than conventional wind and solar farms. That has spurred interest in geothermal power, which can run around the clock. Steady Energy is set to start construction of its first heating reactor pilot plant in Finland next year. The pilot plant will serve as a full-scale, operational model of the Finnish-designed small modular reactor.
Medical Insights
HEART DEVICE MAKERS INCLUDING J&J BELIEVE THEY HAVE A SOLUTION to help 50mn people worldwide with atrial fibrillation (AFib), a procedure called pulsed field ablation. PFA applies non-thermal energy to correct faulty electrical signals in the heart. Nexalin Technology has secured a U.S. patent for its non-invasive, frequency-based, deep-brain stimulation device aimed at treating Alzheimer’s and dementia. The device utilizes waveform technology to treat patients in a pain-free and undetectable manner.
Aerospace Developments
SPACEX WAS PICKED BY NASA TO BUILD A SPACECRAFT to guide the International Space Station out of orbit and have it burn up after the lab is retired in 2030. The contract is worth $843mn. Boeing agreed to buy back Spirit AeroSystems for $4.7bn in stock. Airbus moved to take on the supplier's loss-making European activities. NATO’s new €1 billion venture fund is investing in rocket micro-launcher start-up Isar Aerospace as the alliance seeks to harness private sector space capabilities for security needs.
Metals & Commodities
VALE PLANS TO SPEND $3.3BN ON IMPROVEMENTS AT ITS MINING OPERATIONS in Brazil and Canada to boost copper and nickel production capacity over the next four years. Fifty-four companies expressed interest in developing lithium projects in Chile after the government called for proposals for a range of salt flats containing the battery metal. Copper surged to a record high above $11,000/tonne in May on speculative trading. In the month since the record high, copper has fallen 13% to $9,600 per tonne.
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