Ulbrich Economic Update - Number 2 (October 2019)

October 2019 // Economic Update Executive Summary


LAST MONTH'S ECONOMIC DATA supported opposing forecasts for the direction of the U.S. economy. Warnings of a downturn came from the manufacturing and services sectors, as well as news of dwindling business investment and flagging consumer spending. More reassuring signals flashed from the latest employment data, as the unemployment rate fell to a low not seen since 1969.

The housing market improved with gains for new and existing home sales, while mortgage rates continued to edge lower. Factory activity tumbled to a more than 10-year low in September as lingering trade tensions weighed on exports. Durable goods orders climbed, but if Pentagon orders are set aside, bookings sank in an otherwise soft report that added to a picture of a slowing economy.

The trade deficit widened further, driven by a huge increase in consumer goods imports to avoid new tariffs on China taking effect in the final quarter of this year. Imports of cellphones increased by double-digits. The ISM services index activity slowed to a three year low amid rising concerns about tariffs, the latest sign that trade tensions were eroding economic momentum more broadly. The Leading Economic Index was unchanged, but consumer confidence fell by the most in nine months. Retail sales climbed, driven by a jump in spending on vehicles. However, outside of motor vehicles and parts, retail sales in most other categories were flat.


EUROZONE MANUFACTURING ACTIVITY fell to its worst level in seven years in September. The euro drifted toward its lowest levels against the dollar in years as Europe takes the brunt of a global growth slowdown. The WTO slashed its forecast for trade growth for this year and 2020. India’s central bank cut its key lending rate to a nine-year low and slashed the country’s growth forecast, as India struggles with a surprising slump in consumer demand. China’s manufacturing activity rebounded in September due to improving domestic demand, but export orders remained subdued.

Steel Industry Update

THE AMERICAN STEEL INDUSTRY faced further challenges as the GM strike entered its third week, threatening to release additional finished metal into oversupplied spot market already suffering from depressed pricing. Steel imports into the U.S. for the first eight months of 2019 were down 13.6% compared to the same period in 2018. U.S. Steel announced it will acquire a substantial stake in Big River Steel, forging a partnership with a lower-cost rival that has threatened its core business. USS said the impact of falling steel prices through the 2nd Qtr and the larger than expected drop inscrap prices will lower flat-rolled earnings for the second half of this year.

Metals & Commodities Market Update

CHINA DOMINATES RARE EARTH SUPPLIES which has caused the U.S. to find ways to lessen its dependence on China for the materials critical for a wide range of high-tech applications. This is particularly relevant for the U.S. military but equally for consumer electronics, automobiles, battery storage and wind turbines. Nickel posted its strongest quarterly performance since 2010 in the third quarter, rising 34% following rumors of an impending export ban and electric vehicle industry growth expectations. Rio Tinto has scrapped plans for a sale or initial public offering of its Canadian iron ore unit after years of looking to unload it. Depressed iron ore prices have now made such an investment unattractive.

Latest Aerospace Market Developments

THE WTO RULED THE U.S. IS ENTITLED TO LEVY TARIFFS on $7.5 billion of exports from the EU over the bloc’s subsidies to Airbus, potentially opening up a new front in the Trump administration’s global trade fight. The U.S. said it would place new tariffs on European goods on October 18 and the EU vowed to retaliate. Boeing and the U.S. Navy successfully completed the first test flight of the MQ-25 unmanned aerial refueler. Lockheed Martin reported that the U.S. Air Force has cleared initial production for a new Sikorsky combat rescue helicopter.

Automotive Industry Economic Trends

U.S. LIGHT VEHICLE SALES FELL about 12% in September, as the biggest Asian automakers recorded double-digit sales declines and estimates for the Detroit 3 showed double-digit drops as well. Tesla achieved record production and shipments in the 3rdQtr. Volkswagen is preparing for the biggest legal claim of its kind in modern German history as the initial oral hearing of a collective lawsuit against the automaker for emissions test cheating begins in October. Ford will put most of its operations in India into a joint venture headed by the Indian vehicle maker Mahindra & Mahindra.

Medical Update

NEW 3D-PRINTED TITANIUM INTERBODY IMPLANTS for spinal fusion were launched by DePuy Snythes. The implants are 80% porous, enabling them to mimic the natural bone structure and facilitate spinal fusion. They have a nanoscale surface roughness that may lead to an increase in adhesion of osteoblasts compared to conventional titanium materials. Employer-provided health care coverage cost passed $20,000 for a family plan this year. Between 2013 and 2017 average prices increased 17.1%. In particular, small employers and their workers are struggling.

Energy Sector Trends

RENEWABLE ENERGY SOURCES are strongly favored by a large majority of Americans over fossil fuels, particularly solar and wind, according to a new poll. Around half of the respondents also said there should be less emphasis on coal power. Xcel Energy announced a partnership to develop a 240-megawatt solar facility at a steel mill in Pueblo, Colorado. The facility will be located at the EVRAZ Rocky Mountain Steel operation.

October Innovation

OCEAN FLOOR POLYMETALLIC NODULES will be collected by DeepGreen from certain areas of the Pacific where they occur naturally and in high concentrations. The nodules contain high grades of manganese, nickel, cobalt and copper. DeepGreen will process them into battery grade metals, producing no tailings and little or no waste from processing. German urban air mobility (UAM) developer Volocopter unveiled its first electric vertical take-off and landing (eVTOL) aircraft to enter series production. MIT engineers have developed robotic thread that can be steered magnetically through narrow spaces such as the vasculature of the human brain.

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