November 2022 Market Update
The U.S. economy, in the third quarter, expanded for the first time this year, but there are doubts about how much to read into this seemingly good news.
Gross domestic products grew at an annualized rate of 2.6 percent from July through September, according to the Bureau of Economic Analysis. This followed contractions of 1.6 percent and 0.6 percent during the first two quarters of 2022.
“The increase in real GDP reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, that were partly offset by decreases in residential fixed investment and private inventory investment,” the bureau stated. “Imports, which are a subtraction in the calculation of GDP, decreased.”
Although President Joe Biden described the performance as “further evidence that our economic recovery is continuing to power forward,” some analysts cast doubt on that assessment, noting, in particular, the large impact of export increases and import decreases during the most recent quarter.
“The United States is importing fewer goods as demand dries up,” an analysis on CNN.com noted. “If you lift the hood up and examine the numbers, said Andrew Patterson, a senior economist at Vanguard, you’ll see that the American consumer and businesses are actually spending less. That’s a bad sign.”
And the quarterly growth did little to change the minds of pessimists who see a weakening economy and a potential recession looming.
“The irony is, we’re seeing the strongest growth of the year when things are actually slowing,” the chief economist at KPMG told The Washington Post. “There are some real cracks in the foundation. Housing is contracting. The consumer is slowing. GDP is growing, but not for all of the right reasons.”
Even with slowdowns in key sectors and indicators – consumer spending, which accounts for 70 percent of GDP, grew by only 1.4 percent during the third quarter, down from 2 percent in Q2 – the Federal Reserve is expected to apply the economic brakes even more during its Nov. 1-2 meeting. The central bank has already raised interest rates by 3 percent this year, and, with inflation still at a 40-year high, it is expected to implement a 0.75 percent hike for the fourth meeting in a row. If it does so, this would bring the target range for the federal funds rate – which was 0 to 0.25 percent as recently as March – to 3.75 to 4 percent.
Some are skeptical of the Fed’s aggressive approach, however, cautioning that a single-minded focus on slowing price increases could cause job losses and drive the economy into a recession.
“A family’s ‘pocketbook’ needs have little to do with interest rates, and potential job losses brought about by monetary over-tightening will only worsen these matters for the working class,” Sen. Sherrod Brown, D-Ohio, wrote in a letter to Fed Chair Jerome Powell. “Maintaining full employment while reducing inflation is central to protecting the workers who power our economy. … For working Americans who already feel the crush of inflation, job losses will make it much worse. We can’t risk the livelihoods of millions of Americans who can’t afford it.”
In 2021, Fed officials largely dismissed early signs of inflation as being the result of “transitory factors” before changing course in the spring of this year. Brown, in his letter, quoted J.P. Morgan Asset Management’s chief global strategist as saying, “In the long history of Federal Reserve mistakes, one general error stands out. They tend to wait too long and then do too much.”
So far, payrolls have kept growing, with the economy adding 263,000 jobs in September and the unemployment at 3.5 percent, the same level it was at in February 2020, according to the Bureau of Labor Statistics. The leisure and hospitality sector, by itself, added 83,000 jobs as it continues its recovery from the pandemic. The sector, though, still has 1.1 million fewer employees than it did before Covid-19 struck.
Confidence in the economy, among both businesses and consumers, appears to be slipping. The Institute for Supply Management’s Purchasing Managers Index dipped to 50.2 in October, its lowest level since May 2020. It is moving closer to what the institute defines as the threshold for economic expansion or contraction – 48.7.
“The U.S. manufacturing sector continues to expand, but at the lowest rate since the coronavirus pandemic recovery began,” the chair of the institute’s Manufacturing Business Survey Committee said. “With panelists reporting softening new order rates over the previous five months, the October index reading reflects companies’ preparing for potential future lower demand.”
The Conference Board’s Consumer Confidence Index, meanwhile, fell more than five points to 102.5. (The baseline is 100 in 1985.) The index approached 130 in mid-2021 and was even higher just before the pandemic hit.
“Consumers’ expectations regarding the short-term outlook remained dismal,” the board’s senior director of economic indicators said, adding, “Looking ahead, inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers. And, given inventories are already in place, if demand falls short, it may result in steep discounting which would reduce retailers’ profit margins.”
The Index of Consumer Sentiment from the University of Michigan’s Surveys of Consumers inched up in October but remained 16.5 percent below the level of a year earlier, and not far from the all-time low it sank to in June.
“Given consumers’ ongoing unease over the economy, most notably this month among higher-income consumers, any continued weakening in incomes or wealth could lead to further pullbacks in spending that would reinforce other risks of recession,” the Surveys of Consumers director said.
Housing starts in August fell 8.1 percent from September and 7.7 percent from September 2021, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales dipped 1.5 percent from August to September and were down 23.8 percent year-over-year, the National Association of Realtors reported.
“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6 percent for 30-year fixed mortgages in September and are now approaching 7 percent,” the association’s chief economist said.
The Dow Jones Industrial Average closed at 32,732.95 on Oct. 31, marking a loss of nearly 10 percent through the first 10 months of the year. The Dow, however, gained nearly 14 percent in October, its best monthly performance since 1976. The S&P 500 Index ended October at 3,871.98, for a year-to-date loss of 18.8 percent.
The dollar on Halloween traded at 1.01 euros, 0.87 pounds, 148.6 yen and 7.3 yuan.
As a blunt instrument with delayed effects, monetary policy is not an ideal tool for fine-tuning the economy, especially since even current data is often not truly real-time. A columnist with MarketWatch suggested that the Federal Reserve could gain perspective by consulting with NASA, because the space agency’s “scientists know something the Fed has forgotten: It takes a long time to send and receive messages from space, so they need to account for those delays when sending instructions to their spacecraft so they can land safely on Mars, or orbit Saturn or the moons of Jupiter. It’s the same way with the economy. The signals that the Fed receives from the economy are often delayed, sometimes by months.” If the economy is already slowing and inflation is already easing, and if this cannot be seen in the leading indicators, further interest rate hikes could damage the economy, rather than stabilize it. Such is the challenge for the Fed: To respond to dated information with a slow-acting agent in a way that achieves the much-prized – in both space and economic circles – soft landing.
November 2022 Steel Shorts
U.S., E.U. Trade Officials Discuss Steel; AMSCI Raises Questions
American and European trade officials have held a series of meetings to discuss steel and other issues.
In mid-October, U.S. Trade Representative Katherine Tai and European Commissioner for Trade Valdis Dombrovskis “agreed to increase the pace of discussions about the global steel arrangement” and, at the end of the month, the two officials met again, with Tai “pursuing a high-ambition global arrangement with the European Union in order to address carbon intensity and overcapacity in the steel and aluminum industries.”
AMSCI President Richard Chriss said in a statement that the talks raise “several questions of vital importance to our economy and the supply chains that sustain it.”
Chriss asked:
• If the tariff-rate quota system that restricts steel imports from the European Union into the United States could be lifted “as a way to help ease the extreme run-up in material costs that is helping to drive broad-based U.S. inflation?”
• What the expected deliverables are from the talks and what opportunities stakeholders will have to provide input
• What the status is of talks to achieve the previously announced goal to “restore market-oriented conditions”
• What countries are supporting the Global Sustainable Steel Arrangement developed in 2021 by the United States and the E.U.
“While talks centered around the Global Sustainable Steel Arrangement appear to be one of the key focal points for the administration’s trade policy, these talks should complement and not substitute for an ambitious United States trade policy that includes initiating and leading negotiations with our global trading partners to produce new job-creating market access opportunities for American manufacturers through commitments that are binding and enforceable,” Chriss said.
Wall Street Journal Editorial Bashes Section 232 Tariffs
Although President Joe Biden has undone many of the policies of his predecessor, he has retained the Section 232 tariffs on steel and aluminum, which, The Wall Street Journal asserted in an Oct. 26 editorial, has resulted in “consumers and manufacturers … still paying for the border taxes that benefit only a few companies.”
The publication cited a study conducted for the Beer Institute that found that, while the 10 percent tariff on aluminum has cost American beverage manufacturers $1.7 billion since March 2018, only $120 million of that total has gone to the federal government. The bulk of the money, the Journal Editorial Board wrote, “has been pocketed by domestic aluminum producers and smelters in the U.S. and Canada.”
The newspaper further stated that, “By raising the cost of production, tariffs constrain manufacturers, who cut jobs and pass costs to consumers.”
“Tariffs change trade flows and can open the door to competitors to grab market share from U.S. companies with higher costs,” the editorial stated. “Repealing the Trump Section 232 tariffs could reduce prices at the margin. The longer they stay in place the more they deserve to be called the Biden-Trump tariffs.”
Steel Demand to Dip by 2.3 Percent This Year: World Steel Association
Worldwide demand for steel is expected to shrink by 2.3 percent in 2022 because of global economic challenges, according to the World Steel Association.
Steel consumption increased by 2.8 percent in 2021, but this year, “the global economy is affected by persisting inflation, US monetary tightening, China’s economic deceleration, and the consequences of Russia’s invasion of Ukraine,” Maximo Vedoya, CEO of Ternium and Chairman of the association’s Economics Committee, said.
Vedoya added that 2023 demand will depend, in large part, on inflation and the monetary policies implemented by central banks around the world.
“Particularly the [European Union] outlook is subject to further downside risk due to the high inflation and the energy crisis that have been exacerbated by the Russia-Ukraine war,” he said.
U.S. International Trade Commission Announces Review Determinations
The U.S. International Trade Commission in October announced several metals-related determinations related to the five-year sunset review process required by the Uruguay Round Agreements Act.
On Oct. 3, the commission left in place antidumping duty and countervailing duty orders on imports of aluminum extrusions from China. Two days later, the commission similarly left in place antidumping duty and countervailing duty orders on imports of stainless steel sheet and strip from China.
On Oct. 21, the commission left in place a countervailing duty order on imports of hot-rolled steel from South Korea and antidumping duty orders on imports of hot-rolled steel from Australia, Japan, Netherlands, Russia, South Korea, Turkey and the United Kingdom.
American Metals Supply Chain Institute
Customs Committee Meeting
9:30 am EST Thursday, December 8, 2022
Saybrook Room, Yale Club
50 Vanderbilt Avenue, New York, NY 10017
Virtual Access on Microsoft Teams
Steven W. Baker, Chair
AGENDA
Welcome AMSCI President Richard Chriss
Update on tariff issues – National Import Specialist Angelia Amerson, Charlotte
National Import Specialist Denise Hopkins, New York
NCS Division Director Steven Mack, New York
NISAs Christina M. Howard-Ceterski; Michael Volpe
Recent rulings
Tariff changes
Section 232 Exclusion Request Process
Centers for Excellence and Expertise – Edward Wachovec, Acting Center Director, Cleveland
Michael Dean, Assistant Center Director, Phoenix
Tracy Roy, Assistant Center Director, D. C.
Siadely Meade, National Account Manager, New York
Earl Terry, National Account Manager, Houston
BMC Operations – 10 Years Later
Update on Section 232/301 processing and exclusion issues
Recurring Entry Issues and Problems – What Importers Should Know
AD/CVD – Customs Role -Alex Amdur, Director, AD/CVD Policy and Programs Division (DC)
TFTEA Evasion Cases and Policies
AD/CVD audits/audit surveys
How are steel importers performing – Sam Zengotitabengoa, Branch Chief, AD/CVD (DC)
CBP HQ Compliance Measurement data
The Broker’s Viewpoint – Ed Fitzgerald, Vice President, GEODIS | Trade Services
New Customs Broker Regulations
Power of Attorney Validations
Customs Business – HQ H290535
Forced Labor
Uyghur Forced Labor Prevention Act (“UFLPA”) requires extensive supply chain data from affected importers
UFLPA extends to product inputs
Forced Labor elements incorporated into CTPAT
New Data Element Requirement (Postal Code) for Chinese Goods Delayed
21st Century Customs Framework (21CCF)
Intended to Enhance Facilitation and Security through 21st Century Processes
First major statutory update of Customs laws since Mod Act of 1993
CBP and the trade working to resolve conflicts between security and facilitation
Agriculture Inspections – WPM
WPM written procedures now part of CTPAT Minimum Security Requirements
Aggressive enforcement continues
Voluntary Inspection Program – CBP/USDA training program being scheduled
New Option for Disposal of Wood Dunnage under Discussion with USDA
CBP Commissioner Magnus Resigns
Court Case Updates for Section 232 and CDSOA Interest
China Section 301 Review Process
Additional Contributor: Lawrence W. Hanson, Law Offices of Lawrence W. Hanson, Houston
Meeting open to all AMSCI members. Registration required – contact swbaker@swbakerlaw.com for access information for Microsoft Teams.