| | | | | | | Presented By Williams Companies | | | | Axios Markets | | By Sam Ro ·Aug 26, 2021 | | Today's newsletter is 1,267 words, 5 minutes. Situational awareness: The agenda for the Fed's Jackson Hole Economic Policy Symposium will be released at 8pm ET tonight. | | | | | | 1 big thing: American manufacturers have some work to do |  Data: Census Bureau, FRED; Chart: Axios Visuals Orders for durable goods stalled unexpectedly in July. But manufacturers have plenty of backlogs to work through. Why it matters: There are a lot of businesses across the economy with empty shelves as they wait for manufacturers to ship the goods. This has been crimping sales while also driving inflation. - Order backlogs offer a snapshot of how much stuff manufacturers have yet to deliver.
By the numbers: Unfilled orders — the backlog — of manufactured goods grew 0.3% month over month to $1.23 trillion in July, according to Census Bureau data released Wednesday. - This was the sixth consecutive month of gains.
- The backlog of core capital goods orders climbed to a record-high $230.9 billion.
What they're saying: "Huge order backlogs will keep manufacturers busy," ING chief international economist James Knightley says. "With customer inventories at all-time lows, manufacturers are also gaining pricing power and this can already be seen in numerous surveys of prices received." - "Backlogs in the manufacturing sector are expected to take well into 2022 to clear," Grant Thornton chief economist Diane Swonk says.
Between the lines: While this may sound good from a demand perspective, the pressure is high for manufacturers to compete. - "When it comes to unfilled orders for manufacturers, it's like being a bartender on a super busy night," Tim Quinlan, Wells Fargo senior economist, tells Axios. "It's good in the sense that you are three deep at the bar."
- "But it can be bad if you're out of lime wedges, you're running out of booze and your other bartender called in to tell you he just took another job. You're slammed, but your customers are gonna find another place for a drink if you can't pick up the pace."
Zoom out: UBS U.S. economist Sam Coffin notes to Axios that while unfilled orders have been on the rise, shipments of goods have risen even faster. - "The ratio of unfilled orders to shipments surged during the pandemic amid supply constraints," he says. "It has fallen back to a more normal ratio and does not look particularly high or low, in aggregate, now."
- In fact, shipments climbed 2.2% month over month to a record-high $257.8 billion in July.
The bottom line: The good news for manufacturers is they have a lot of stuff to make. The good news for their customers is that this stuff is getting manufactured and shipped at an increasing rate. |     | | | | | | 2. Catch up quick | | The White House asked top business leaders to step up their efforts to fight cybersecurity threats. (Reuters) City governments, struggling to fill essential jobs, are offering signing bonuses and raising pay for police officers, firefighters and even drivers. (Bloomberg) Western Digital is in talks to merge with Kioxia in a $20 billion deal that would create a chipmaking behemoth. (WSJ) | | | | | | | | 3. Vaccine penalties are here |  | | | Illustration: Sarah Grillo/Axios | | | | Delta Air Lines' decision to charge unvaccinated employees an extra $200 per month for health insurance signals that rewards alone aren't doing enough to measurably increase rates of COVID-19 vaccination, Axios' Bob Herman reports. Why it matters: Employers are playing a central role in getting more people vaccinated, but it's unclear how much, or if, these types of penalties will help. Our thought bubble: In an effort to address labor shortages, employers across industries have been raising wages and extending other financial incentives to recruit and retain talent. Delta's announcement of financial penalties is a stark contrast and speaks to the urgency of the matter. How it works: Federal law allows employers to charge higher health insurance premiums to workers based on a health factor only if that factor is within a "wellness program," according to Georgetown University health insurance expert Sabrina Corlette. Yes, but: Delta's surcharge may not follow federal guidelines. - Penalties can't be so large that they'd be "coercive," according to the Equal Employment Opportunity Commission.
- Rewards and penalties in a wellness program also can't exceed 30% of the cost of employee-only coverage, which in 2020 averaged $7,470, according to the Kaiser Family Foundation.
- Delta's $200-a-month penalty, or $2,400 for the year, exceeds 30% of that average and would more than double the average worker contribution. Other companies have been contemplating much lower surcharges.
Between the lines: The policy might not even affect all Delta employees, based on a closer read of the company's language. - Delta specifically said this will apply to unvaccinated workers in its "account-based health care plan," which presumably are only those who have some type of health savings account.
The bottom line: If companies want more of their workforce vaccinated, mandates might be the clearest, legally protected option over rewards and penalties. Go deeper. | | | | | | | | A message from Williams Companies | | Check out the newly released 2020 Sustainability Report | | |  | | | | Williams' 2020 sustainability report details a near-term goal of 56% reduction in emissions from the company's 2005 levels, by 2030. The plan: Leverage our natural gas-focused stategy today to fight climate change and build a clean energy economy for the future. Download now. | | | | | | 4. An August record in the loan market |  Data: S&P Global Market Intelligence; Chart: Thomas Oide/Axios August isn't usually a record month for fundraising or deal-making. Tell that to the CLO market, which is having its most active month ever, Axios' Kate Marino writes. - New CLOs, or collateralized loan obligations, have closed at a pace not touched in the last decade, according to data from LCD, an offering of S&P Global Market Intelligence. And August isn't even over yet.
Why it matters: CLOs are funds that invest in leveraged loans, or the loans of larger companies with lower credit ratings. More CLOs means more dry powder to support debt financing for private equity buyouts and M&A deals. Context: 2021 has been a banner year for fundraising across many asset classes — including private equity, according to PitchBook. By the numbers: As of Aug. 23, $17.1 billion in U.S. CLOs had closed during the month. - The previous monthly record was March 2015's $16.2 billion.
- The third and fourth highest months were both in 2021: February and June brought tallies of nearly $16 billion apiece.
The bottom line: Plenty more buyouts are in the works, and they'll need financing. With this rate of CLO formations, that shouldn't be a problem. | | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. What to expect from Jackson Hole |  | | | Illustration: Megan Robinson/Axios | | | | Federal Reserve chair Jerome Powell will speak on Friday. But anyone expecting an announcement on when the Fed will taper its QE asset purchase will likely be disappointed. Why it matters: Powell has the power to move markets with his words. And so regardless of whether he addresses the timing of the taper, markets will be interested in what he has to say. Driving the news: The theme of this year's Economic Policy Symposium — held in Jackson Hole, Wyoming on Friday — is "Macroeconomic Policy in an Uneven Economy." State of play: Multiple Fed watchers Axios follows point to the most recent FOMC minutes that stated: "No decisions regarding future adjustments to asset purchases were made at this meeting." - "That statement implies that Powell is in no hurry to front-run the FOMC and announce the timing, magnitude and roadmap of tapering operations that we expect to be announced in November and start in December," RSM chief economist Joe Brusuelas says.
What they're saying: JPMorgan economist Michael Feroli notes that because the theme of the symposium is targeting the "uneven economy," Powell may elaborate on the Fed's "broad-based and inclusive" employment goal. - In testimony earlier this summer, Powell acknowledged that "joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African Americans and Hispanics."
Climate change is another topic that some feel the Fed should address. - "The Fed knows that it will have to lay out the logic of how monetary policy and financial supervision will be formulated in light of the long-term risks to the economy linked to climate change," Bruesuelas said.
Kristina Hooper, chief global market strategist at Invesco, thinks cryptocurrencies could be discussed. The concept of a central bank digital currency is of high interest lately, and Hooper notes "there is ongoing research momentum at the Fed." What to watch: Powell will deliver his speech on Friday at 10am ET. | | | | | | | | A message from Williams Companies | | Check out the newly released 2020 Sustainability Report | | |  | | | | Williams' 2020 sustainability report details a near-term goal of 56% reduction in emissions from the company's 2005 levels, by 2030. The plan: Leverage our natural gas-focused stategy today to fight climate change and build a clean energy economy for the future. Download now. | | |  | | It'll help you deliver employee communications more effectively. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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