Ulbrich Economic Update - Number 3 (November 2019)

November 2019 // Economic Update Executive Summary

US China Trade War Steel Impact


THE NEWS LAST MONTH OFFERED SOME POSITIVE SIGNS that China and the U.S. may finally be getting closer to a formal trade deal with a tentative agreement on a “phase one” step. The overall U.S. trade deficit widened in the first nine months of 2019, a sign that the administration’s approach to trade has so far done little to make a dent in the imbalance.

Employment numbers in October were not bad, as the job market remains strong even in the face of labor strikes and trade disputes. General Motors and the UAW settled their costly contract dispute, and Ford agreed to a new deal with similar provisions.

The ISM nonmanufacturing index activity reflected growth for the 123rd consecutive month in the non-manufacturing sector and at a faster rate. However, negative data continued to flow from the housing and manufacturing sectors, with factory activity down for the third straight month.

Durable goods orders fell sharply, experiencing its biggest setback since May. Warnings of a downturn flashed again from the Conference Board leading economic indicators report. Consumer confidence wavered again and retail sales declined for the first time in seven months.


BUSINESS ACTIVITY CONTINUED TO SLOW AROUND THE WORLD headed into the fall. IHS Markit said the overall outlook remained subdued, as new work at the businesses surveyed fell to the slowest pace since October 2009. Business activity in the eurozone was close to stagnation, while it declined in Japan. China's 3rd Qtr economic growth slowed to its weakest pace in almost three decades. India’s manufacturing activity continued to weaken; factory orders and production rose at the weakest rates in two years.

Steel Industry Update

AMERICAN STEEL COMPANIES REPORTED LOWER 3RD QTR EARNINGS as realized prices faded and shipments declined, partly due to the UAW strike at GM. U.S. Steel posted its first quarterly loss since 2017. Allegheny Technologies reported lower third quarter revenues and net income including previously announced sales of non-core assets. Steel imports into the U.S. for the first nine months of 2019 were down 13.7% compared to the same period in 2018, but imports continued to capture 20% of the U.S. market.

Metals & Commodities Market Update

INDUSTRIAL METALS' PRICES ARE MOVING IN DIFFERENT DIRECTIONS. Nickel prices wavered after Indonesia decided to resume nickel ore exports after halting shipments to investigate reports of export rule violations. Aluminum prices reached two year highs and copper continued to recover. Iron ore prices collapsed as supply improved and China’s slowdown continued into October. Iron ore futures in China touched a three-week low at the start of November and posted their second consecutive weekly decline, as prospects of tepid steel demand over the winter weighed on prices of the key steelmaking raw material.

Latest Aerospace Market Developments

BOEING SALES, EARNINGS AND AIRPLANE DELIVERIES FELL SHARPLY for the 3rd Qtr as the company continued to struggle with the fallout from the deadly crashes of two 737 MAX jets. Lockheed Martin expects its order backlog to reach a record $140 billion by year-end. The company expects to add $17 billion in orders this year, reflecting the big ramp-up in F-35 production. Blue Origin is partnering with industry giants to land humans back on the surface of the Moon under NASA's Artemis program.

Automotive Industry Economic Trends

U.S. AUTOMAKERS SAW A SALES GAIN IN OCTOBER of about 2.5% following a steep drop the previous month, even as new-vehicle prices hit record highs. U.S. Sen. Schumer proposed a $454 billion plan over 10 years to help shift the U.S. away from gasoline-powered vehicles by offering cash vouchers to help Americans buy cleaner vehicles. Ford, GM and the UAW all said they appreciated Schumer's efforts. Tesla was approved by China's industry ministry to begin production at the $2 billion giga factory it is building in Shanghai, the first fully-foreign-owned car plant in China. Daimler reported higher 3rdQtr earnings and sales.

Medical Update

THE OFFICE OF THE U.S. TRADE REPRESENTATIVE EXEMPTED ANOTHER 18 MEDICAL DEVICES or device components from the 25% tariffs imposed on Chinese goods. Sky Medical Technology won FDA clearance for a device that stimulates calf muscles to prevent venous thrombosis in non-surgical patients at risk for venous thromboembolism. The future of nanotechnology in medicine includes smart pills; ingestible capsules containing sensors, cameras and more are already changing the face of medicine.

Energy Sector Trends

LOS ALAMOS ENGINEERS HAVE SYNTHESIZED MAGNETICALLY-DOPED QUANTUM DOTS that capture the kinetic energy of electrons created by UV light before it’s wasted as heat. This discovery could make it possible to make more efficient solar cells, light detectors, photocathodes and light-driven chemical reactions. The U.S. is poised to become a net energy exporter. Commonwealth Fusion Systems is collaborating with MIT to build a fusion reactor and has planned a fusion experiment dubbed Sparc. They hope to overcome the biggest technical hurdle in the field─positive net energy from fusion.

November Innovation

GOOGLE CLAIMS TO HAVE ACHIEVED "QUANTUM SUPREMACY," which could allow new kinds of computers to do calculations at speeds that are inconceivable with today’s technology. The Silicon Valley giant’s research lab in Santa Barbara reached a milestone that scientists had been working toward since the 1980s: Its quantum computer performed a task that isn’t possible with traditional computers. A quantum machine could one day drive big advances in areas like artificial intelligence and make even the most powerful supercomputers look like toys.

MIT DEVELOPED A MICRONEEDLE PILL THAT COULD REPLACE INSULIN SHOTS. The capsule is swallowed and passes through the stomach whole, then opens in the small intestine to reveal “microneedles” that attach to the intestine surface and deliver drugs to the bloodstream. Tata Steel joined forces with Dutch companies Gasunie, EBN and Port of Amsterdam to complete a feasibility report into an innovate project which could reduce the steelmaker’s CO2 emissions.

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