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May 2022 Economic Update Executive Summary
THE U.S. ECONOMY ADDED 428,000 JOBS IN APRIL FOR THE TWELFTH STRAIGHT MONTH OF GAINS. The jobless rate remained at 3.6%. Factory orders rose 2.2% in March. Orders for motor vehicles and parts rebounded 3.0%, suggesting an improvement in the global supply of semiconductors. Durable goods orders increased by 0.8% with motor vehicle orders accelerating 5.0%. Producer prices rose 1.4% in March and 11.2% on a 12-month basis. Energy prices were the biggest gainer for March, rising 5.7%, while food costs increased 2.4%. The Index of Leading Economic Indicators rose 0.3%. The U.S. trade deficit accelerated 22.3% to a record $109.8bn, with imports also setting an all-time high.
Consumer prices rose 1.2%, driven by an 18.3% surge in gasoline prices that accounted for more than half the increase in the CPI. Retail sales increased 0.5%, boosted by record high gasoline prices. Sales at service stations shot up 8.9%, accounting for the bulk of the increase. Consumer confidence edged down in April, although households planned to buy automobiles and appliances, which should help to underpin consumer spending in the 2nd Qtr. Existing home sales fell 2.7% in March and new home sales plunged 8.6%. By late-April, the average rate on 30-year mortgages hit 5.37%. U.S. GDP shrank at a 1.4% annual rate in the 1st Qtr as supply disruptions weighed on the economy, though solid consumer and business spending suggest growth will resume. Worker productivity fell 7.5% in the 1st Qtr, its steepest pace since 1947, while growth in unit labor costs accelerated.
EUROZONE GDP GREW 0.2% IN THE FIRST THREE MONTHS OF THE YEAR, compared with 0.3% in the previous quarter. France’s economy stagnated, while Italian and Spanish output contracted. Germany posted 0.2% growth. Russia’s aggression in Ukraine is having major repercussions on food security in many countries that rely on exports from Russia or Ukraine. The UN World Food Program warned of a food crisis “beyond anything we’ve seen since World War II”. Chinese factory and service-sector activity worsened dramatically in April, falling to their lowest levels since 2020, as recent lockdowns in dozens of cities shut factories.
Metals & Commodities
GLOBAL PRIMARY ALUMINUM PRICES ARE RETURNING TO FEBRUARY LEVELS on worries over softening demand. LME aluminum averaged $1.31/lb in early May, down 30% from its peak. The Midwest premium remains high, holding at an all-time high of $0.40/lb. Inventories of aluminum, copper, nickel and zinc — four of the main contracts traded on the LME — have plunged by as much as 70% over the past year as traders and big consumers have tapped warehouses for material.
Steel Industry Updates
U.S. STAINLESS MILLS HAVE CUSTOMERS ON ALLOCATION and cold-rolled orders are booked far into the summer. Analysts say that position of strength could soon lead to a base price increase effective for deliveries in the fall. Outokumpo reported record 1st Qtr revenues and profits. Total stainless steel deliveries grew by 6% vs. the previous year. Realized prices for stainless steel continued to increase, and the ferrochrome sales price was also higher. Nucor earned $2.1bn for the 1st Qtr, the most profitable 1st Qtr in the company's history. Average realized selling prices for sheet softened, reflecting increased import volumes and modest destocking.
TOYOTA CUT ITS 2022 OUTLOOK FOR THE U.S. AUTO INDUSTRY'S NEW CAR SALES by 1mn vehicles to 15.5mn, citing the struggles in the supply-chain caused by the pandemic and the conflict in Ukraine. Tesla delivered 310,000 vehicles globally in the 1st Qtr. The EV leader delivered its first Model Ys made at its new plants in Germany and Texas. U.S. retail sales of new vehicles in April could fall 23.8% to 1.1mn units in April from a year ago, according to a report by J.D. Power/LMC Automotive.
BOEING NO LONGER EXPECTS TO DELIVER 141 JETS DUE TO THE WAR IN UKRAINE and international sanctions against Russia. Most of the orders now in question were for Russian and Ukrainian carriers. American Airlines estimates revenue in the June quarter would be up 6-8% from the same period in 2019. United and Delta are also expecting a profit in the 2nd Qtr due to what they said was the strongest travel demand in years. Lockheed Martin 1st Qtr sales fell 8% to $14.96bn and net earnings dropped to $1.73bn from $1.84bn a year earlier as supply chain woes triggered by the COVID-19 pandemic were compounded by inflation pressure.
Energy Sector News
A PROGRAM AIMED AT KEEPING UNECONOMICAL U.S. NUCLEAR PLANTS IN SERVICE, providing a lifeline to an industry that’s seen many early reactor retirements due to competition from cheaper power sources, is expected to be unveiled by the Energy Dept. Westinghouse’s energy systems business as of early April signed nuclear project memoranda of understandings with 19 different companies or government agencies in a dozen countries, including Poland, Romania and the Czech Republic.
MEDICAL DEVICE STOCKS SURGED THE MOST SINCE 2020 AFTER J&J RESULTS WERE POSTED. J&J announced its worldwide medical-devices sales were $6.97 billion, up 6% from a year earlier. Orthopedics was highlighted as particularly strong. A COVID-19 breathalyzer test, with the ability to provide diagnostic results in 3 minutes, won FDA emergency-use authorization.
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