September 2021 Market Update
Delta is producing a significant change in the U.S. economy.
During the spring and early summer, with the pandemic fading, businesses fully reopened and people traveling again, it appeared that 2021 would be a year of historic growth. In the second quarter, the economy expanded by 6.6. percent, this on top of 6.3 percent growth from January to March, according to the Bureau of Economic Analysis. The Delta variant, though, has tempered expectations for the second half of the year.
This iteration of the Covid-19 virus already appears to have had an impact on job growth, with the economy adding just 235,000 new positions in August, the Bureau of Labor Statistics reported. During a typical month before the pandemic, this would have been a strong showing. However, given that several million positions lost during the first two months of the Covid-19 outbreak in 2020 still have not been recovered – despite the addition of roughly a million jobs in both June and July – August’s numbers were underwhelming. The hospitality sector, which may have suffered the most during the pandemic, had added an average of 350,000 jobs a month during the first half of the year, but it recorded no job growth in August. Retail employment declined during the month. The nation’s unemployment rate is now at 5.2 percent.
MarketWatch reported that, after the jobs report was released, “A bevy of Wall Street forecasters chopped their targets for U.S. growth,” adding, “some by more than half.”
The Federal Reserve Beige Book, an eight-times-a-year report on the nation’s economy, noted in its Sept. 8 edition that, “Economic growth downshifted slightly to a moderate pace in early July through August.”
“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions,” the report stated.
Fed Chairman Jerome Powell, during an Aug. 27 speech, reiterated that the central bank should not be expected to raise interest rates – the target range for the federal funds rate is now at 0-0.25 percent – anytime soon, especially with Delta causing economic hardship.
“We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time,” Powell said. “We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.”
In August, prices were 5.3 percent higher than they were a year earlier, though this fell to 4 percent after removing food and energy costs. Prices increased by 0.3 percent from July to August after a 0.5 percent increase from June to July. While the inflation numbers for August were somewhat lower than had been expected, there is little to celebrate given that this likely resulted from Delta applying brakes to the economy.
“What we need to see to be fundamentally markets supportive is a continued easing in the inflation piece without deterioration in the economic outlook,” the chief investment strategist at Charles Schwab told CNBC.
Delta and inflation could be slowing consumer spending, which accounts for more than two-thirds of economic activity in the United States. In July, consumer spending increased by just 0.3 percent, a steep drop from 1.1 percent growth in June. Volatility in this measure, however, is not unusual. In April, growth was 1 percent, while in May, it was 0.1 percent.
Perhaps not surprisingly, given all of this, consumer confidence is falling. The Conference Board’s Consumer Confidence Index in August dipped to 113.8, down more than 11 points and now at the lowest level since February, when the nation was just pulling out of the winter coronavirus surge.
“Concerns about the Delta variant – and, to a lesser degree, rising gas and food prices – resulted in a less favorable view of current economic conditions and short- term growth prospects,” the board’s senior director of economic indicators said. “Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.”
Similarly, the director of the University of Michigan’s Surveys of Consumers noted that, “Consumers reported a stunning loss of confidence in the first half of August.” The survey’s Index of Consumer Sentiment fell by 13.5 percent from July to August, its seventh-biggest one-month drop ever. At 71.8, it is now below its April 2020 level.
“There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion,” the director stated. “Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end. In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism.”
Housing starts in July, according to the Census Bureau and the Department of Housing and Urban Development, decreased 7 percent from June and were only 2.5 percent higher than the level in July 2020, when the initial shock of the pandemic was just starting to lift. Existing home sales increased by 2 percent from June to July amid a 7.3 percent increase in inventory, the National Association of Realtors reported. For the 113th straight month, the average existing home price was higher than it was a year earlier. July’s average of $359,900 was 17.8 percent above the July 2020 average.
The Dow Jones Industrial Average ended August at 35,360.73, up 15.5 percent on the year, while the S&P 500 Index closed at 4,522.68 on Aug. 31, recording year-to- date gains of 20.4 percent.
The U.S. dollar ended the month trading at 0.85 euros, 0.73 pounds, 110.06 yen and 6.46 yuan.
The United States today is a bit like Michael Corleone in the most memorable scene in The Godfather: Part III. Angry, frustrated, bitter: “Just when I thought I was out, they pull me back in.” If there is any good news, though, it is that the Delta surge seems to have peaked. The national test positivity rate, which climbed steadily from late-June to late-August, decreased from 11.6 percent on Aug. 21 to 9.7 percent on Sept. 12, according to Johns Hopkins University, and some of the hardest-hit states, including Florida, Louisiana and Mississippi, have seen their average daily number of cases fall by nearly half or more in recent weeks. As of mid-September, 64 percent of the eligible population (those aged 12 and older) in the United States had been fully vaccinated, while 75 percent had received at least one dose, and the Centers for Disease Control and Prevention estimated in a recent study that 83 percent of the population aged 16 and above have immunity either from inoculation or previous infection. With a little luck, and a few more vaccinations, it might finally be time for Delta to sleep with the fishes.
September 2021 Steel Shorts
U.S., E.U. Work on Section 232 Exemption
The United States and the European Union reportedly are expected to reach an agreement by Nov. 1 to exempt E.U. nations from Section 232 tariffs.
The two sides are discussing a proposal to have the United States replace the 25 percent steel tariffs and 10 percent aluminum tariffs with quotas, Fastmarkets AMM reported, adding that, “The shift to tariff-rate quotas is not the only solution under consideration.”
Argus Media quoted the European commissioner for trade as saying, “After the E.U.- U.S. summit in June, I’m more optimistic that a solution will be found.”
On Sept. 3, the American Iron and Steel Institute, the Steel Manufacturers Association, and United Steelworkers wrote to President Joe Biden to urge him to “maintain effective trade measures to prevent another import surge from the E.U. that would destroy good paying jobs, undermine our industry, and increase the carbon footprint of U.S. steel consumption.”
“These measures must be implemented on a product- and country-specific basis and ensure that stringent, effective tariffs will be automatically imposed if steel imports from the EU surge above a non-injurious level,” they wrote. “This is exactly what the EU has done with regard to its own market by extending for another three years its steel safeguard measure, which imposes a tariff rate quota on steel imports from all around the world.”
First Delivery of Fossil-Free Steel Completed
Swedish company SSAB announced in August that it had produced “the world’s first fossil-free steel” and delivered it to Volvo.
The substance is made using “100% fossil-free hydrogen instead of coal and coke,” according to SSAB, which is partnering with LKAB and Vattenfall on the project known as HYBRIT – Hydrogen Breakthrough Ironmaking Technology.
The president and CEO of LKAB described the “trial delivery” as “a crucial milestone and an important step towards creating a completely fossil-free value chain from mine to finished steel.”
In September, SSAB delivered fossil-free steel to Mercedes-Benz and Cargotec.
SSAB is planning to deliver fossil-free steel at an industrial scale by 2026.
Commerce Department Announces Trade Rulings
The Department of Commerce in August announced an affirmative final determination that countervailable subsidies were provided to producers and exporters of stainless steel flanges from India.
Commerce determined that the subsidy rates for the companies in question ranged from 4.15 percent to 4.51 percent.
The agency also announced an affirmative final determination in an antidumping duty investigation of steel flange imports from India. The dumping margins were found to be 145.25 percent.
At least one company that was investigated, Kisaan Die Tech, filed a lawsuit challenging the antidumping finding.
CUSTOMS CORNER
As previously advised, the American Metals Supply Chain Institute (AMSCI) is the new incarnation of the American Institute for International Steel (AIIS). It retains the same mission – advocating for pro-industry policies and supporting free trade measures that are essential to the preservation of a resilient supply chain – but has expanded to a broader range of metals and of supply chain participants. We look forward to continued cooperation with CBP.
AMSCI has scheduled its Annual Dinner this year for November 4, in New Orleans, with sponsorship from the Port of New Orleans. The annual Customs Committee meeting will be the following morning, Friday, November 5, at 9:30, at the Lowes New Orleans Hotel. All are welcome to attend the meeting in person. We are also working to arrange either a video or telephone conference capability, depending on the hotel.
We look forward to seeing you in person or electronically at the meeting. Additional information and an Agenda will be forthcoming.
Please let me know if you have any questions.
Thank you for all of your continued support.
Best Regards,
Steve
Steven W. Baker
Law Offices of Steven W. Baker 448 Ignacio
Boulevard #323 Novato, CA 94949-9802
Tel :415-883-7585
Fax : 415-883-2356
Email : swbaker@swbakerlaw.com
Steven W. Baker
AMSCI Customs Committee Chair
swbaker@swbakerlaw.com