2024 Week 11

The inflation figures weren’t great, but not shocking if you expect a long-term 3-4%.

US gasoline consumption is down but EVs aren’t the reason; Average fuel economy is up 42% since 2003. The US produces more oil than any country, ever. Crude oil production in the United States averaged a staggering 12.9 million barrels per day last year.

The Japanese economy appears on the mend after 25 years. Meanwhile strikes paralyze Germany as workers demand higher wages. While employment numbers for white collar workers are weak, blue collar and service workers are still in demand. I’d expect much more union activity everywhere.

3M is looking to follow GE’s lead and spin its health care business. And geopolitical risks are funneling money into the Indo-Pacific region.

TOPICS

• Inflation
• Energy
• Labor Market
• Life Extending Technology
• Globalization

Inflation

OBSERVATION - To be expected: long-term inflation of 3-4%

• (CNBC)
  • Consumer prices rose 0.4% in February and 3.2% from a year ago
  • Both were one-tenth of a percentage point higher than forecast.
  • A 2.3% increase in energy costs helped boost the headline inflation number.
  • Food costs were flat on the month, while shelter climbed another 0.4%.

Energy

OBSERVATION - Trends that have more mundane underlying causality

• (Over My Shoulder)
  • US gasoline consumption is down but EVs aren’t to blame.
  • Conventional vehicles have grown far more efficient.
    • Average fuel economy is up 42% since 2003.
  • 
  • NOTE:
    • Great point about gasoline consumption. A call out on the chart that around 2009 the “Cash for Clunkers” program removed of older, less efficient vehicles from the road. Also the 2012 CAFE standards came into effect in 2017. This probably contributed to the plateau of demand.
    • Anecdotally my 2022 vehicle is larger and more powerful than my previous 2012 economy car AND has a better overall MPG in real world driving. I can’t say it was a purchase consideration, but a nice benefit.

OBSERVATION - Confirmation

• (Keith Fitz-Gerald)
  • US produces more oil than any country, ever
  • According to the US Energy Information Administration – the EIA - the US produced more crude oil last year than any nation at any time.
  • Crude oil production in the United States averaged a staggering 12.9 million barrels per day last year and reached a high in December of more than 13.3 million barrels per day.
  • To put this in context, the next three largest producers – after the US, Russia, and Saudi Arabia which together account for 40% of global production - Iraq, China, and Canada, combined to produce 13.1 million barrels per day or slightly more than what was produced in the US alone.

Labor Market

OBSERVATION - Japanese economy on the mend.

• (Seeking Alpha)
  • Toyota agrees to union demands for major pay hikes, record bonus
  • Union had demanded bonus payments worth 7.6 months of salary, and monthly wage increases of up to 28,440 yen, which is reportedly the biggest increase in 25 years.
  • According to the Japanese Trade Union Confederation (Rengo), employees at large companies in Japan had sought yearly raises of 5.85%. If approved, this would be the first time in 31 years that hikes have exceeded 5%.

OPINION - Foretaste of the labor shortage to come. Will likely result in further unionization efforts in the US.

• (Brief.News)
  • Strikes Paralyze German Transport: Trains Canceled, Flights Grounded
    • Transport sector faces significant disruptions due to intensified labor disputes across multiple unions.
    • The GDL union’s conflict with Deutsche Bahn has resulted in an 80% cancellation of long-distance trains.
    • Lufthansa’s cabin crew union, UFO, has launched a two-day strike leading to a substantial number of flight cancellations at key airports.
    • The Verdi union has announced a warning strike at Stuttgart Airport, which is expected to spread to other major German airports, impacting departures.
    • This strike is part of a larger push for better working conditions for around 25,000 security staff employed by private firms.
    • The strikes leverage the current skilled labor shortage in Germany, enhancing workers’ bargaining power in negotiations.

OPINION - Weakness in white collar jobs; blue collar job creation remains robust

• (Brief.News)
  • The US job market added 275,000 jobs in February, exceeding expectations and marking significant job growth.
  • Despite the surge in job creation, the unemployment rate rose to a two-year high of 3.9%, indicating potential economic concerns.
  • Average hourly pay has seen a 4.3% increase from the previous year, suggesting wage growth amidst the expanding job market.

Life Extending Technology

OBSERVATION - Following GE’s lead

• (Seeking Alpha)
  • 3M board approved the spinoff of the company’s Health Care business, which will be called Solventum Corp., effective April 1.
  • The new company, which has applied to trade on the NYSE under the SOLV ticker, will separate 3M’s (MMM) relatively faster-growing business in health care as other segments such as industrial and consumer products lag.

Globalization

OPINION - Strategically important to foster capitalist economies in the region.

• (Seeking Alpha)
  • Indo-Pacific focus: U.S. firms to invest $1B in Philippines; next up, Thailand
  • American companies will announce investments totaling over $1B in the Philippines
    • The investments will be in solar and nuclear energy projects, digital upskilling, and a new airline route to Cebu province
    • The country will produce a “robust talent pool” of semiconductor professionals by 2028 with U.S. support under the CHIPS Act.
  • The Indo-Pacific region, comprising 40% of the world’s economy, is at the top of U.S. investors’ list