Empire State Manufacturing Survey
Manufacturing activity fell for a second consecutive month in New York State, according to the April survey. After dropping twenty-six points last month, the general business conditions index climbed twelve points but remained below zero at -8.1.
The new orders and shipments indexes also held below zero at -8.8 and -2.9, respectively, pointing to ongoing declines in both orders and shipments. Unfilled orders edged up slightly.
The inventories index came in at 7.4, signaling that business inventories continued to expand. Delivery times were unchanged, while the supply availability index fell to -5.7, suggesting supply availability was somewhat lower.
The index for number of employees came in at -2.6, while the average workweek index fell to -9.1, pointing to little change in employment levels but a decline in hours worked.
Both price indexes climbed for a fourth consecutive month to their highest levels in more than two years: the prices paid index rose six points to 50.8, and the prices received index rose six points to 28.7.
Firms expect conditions to worsen in the months ahead, a level of pessimism that has only occurred a handful of times in the history of the survey. The index for future general business conditions fell twenty points to -7.4; the index has fallen a cumulative forty-four points over the past three months. New orders and shipments are expected to fall slightly in the months ahead. Capital spending plans were flat. Input and selling price increases are expected to pick up, and supply availability is expected to worsen over the next six months.
Current indicators Forward-Looking
CONSUMER WATCH
The Beauty Salon Recession Indicator Hairdressers and aestheticians report clients are opting for less expensive services and stretching out the time between appointments—signs that US consumers are retrenching.
“It’s feeling a lot like 2008,” said Christy Powers, who’s worked through three economic downturns since 1999. Operating out of Frederick, Maryland, a commuter-train ride from Washington, Powers said more and more of her clients—especially the large swath of federal workers—are “coming in telling me how stressed they are.” Others are halting services altogether to save cash.
Is Powers a financial planner? A real estate agent? Nope: She’s a massage therapist, and she and her service-industry colleagues working in beauty, hair and personal care have been witnessing firsthand some of the earliest possible signs the US is tumbling into recession. (…)
Stylists from Manhattan to rural New Hampshire are seeing regular clients start to skip cuts and blowouts. In from the Maine town of Brewer, hairstylist Alyssa Dow said customers are choosing cheaper, “more low-maintenance” looks—and tipping less. In affluent Longmeadow, Massachusetts, where “people don’t like to walk around with roots” showing, clients who previously got color every two or three weeks are stretching it to four or five, citing the “political situation” and implying they’ve lost money in the stock market, said Michelle LaValley. “They’re cutting back in other areas as well, so it’s not just us,” said the salon owner, who has 28 years in the business.
Longtime clients are “spending less because of the economy,” said Cynthia Almonor, an aesthetician with 15 years of experience in Brooklyn. “I’ve been eliminated from their budget.” It echoes 2009, when the media dubbed a do-it-yourself styling phenomenon “recession hair.” (…)
Beyond any cut to household discretionary spending that the stock market mayhem might kick off, the tariffs also threaten to raise operating costs at salons and spas. The lifeblood of the beauty industry comes from oils, lotions, creams and gels with dozens of ingredients sourced from all over the world. Some chemicals, as well as packaging materials, are really only available in China, McGee said. Trump’s latest tariffs peg China duties at 145%. “People right now are blissfully unaware of the impacts this is going to have on their business,” he said, noting it can take as long as six months for tariffs to fully “hit the marketplace.” (…)
U.S. Plans to Use Tariff Negotiations to Isolate China Treasury Secretary Scott Bessent wants trading partners to limit China’s involvement in their economies in exchange for concessions on reciprocal tariffs
The idea is to extract commitments from U.S. trading partners to isolate China’s economy in exchange for reductions in trade and tariff barriers imposed by the White House. U.S. officials plan to use negotiations with more than 70 nations to ask them to disallow China to ship goods through their countries, prevent Chinese firms from locating in their territories to avoid U.S. tariffs, and not absorb China’s cheap industrial goods into their economies.
Those measures are meant to put a dent in China’s already rickety economy and force Beijing to the negotiating table with less leverage ahead of potential talks between Trump and Chinese President Xi Jinping. The exact demands could vary widely by nation, given their degree of involvement with the Chinese economy. (…)
One brain behind the strategy is Treasury Secretary Scott Bessent, who has taken a leading role in the trade negotiations since Trump announced a 90-day pause on reciprocal tariffs for most nations—but not China—on April 9. (…)
The tactic is part of a strategy being pushed by Bessent to isolate the Chinese economy that has gained traction among Trump officials recently. Debates over the scope and severity of U.S. tariffs are ongoing, but officials largely appear to agree with Bessent’s China plan.
It involves cutting China off from the U.S. economy with tariffs and potentially even cutting Chinese stocks out of U.S. exchanges. Bessent didn’t rule out the administration trying to delist Chinese stocks in a recent interview with Fox Business. (…)
“The ball is in China’s court,” Leavitt said when reading Trump’s statement. “China needs to make a deal with us. We don’t have to make a deal with them. China wants what we have…the American consumer.” (…)
The Treasury secretary is slated to meet with Japan’s economic revitalization minister as soon as Wednesday and has laid out a list of nations he thinks could soon reach deals with the U.S., including Japan, the U.K., Australia, South Korea and India.
China is conducting its own trade diplomacy. This week, Xi traveled to Vietnam—a major U.S. trading partner hard-hit by Trump’s tariffs—and signed dozens of economic pledges with the Hanoi government. (…)
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Boeing Hit From All Sides in Trump’s Trade War China told domestic airlines not to place new orders for Boeing jets, adding new pressure to the struggling American plane maker.
Chinese officials told domestic airlines not to place new orders for Boeing jets and are requiring carriers to seek approval before taking delivery of already-ordered aircraft, according to people familiar with the matter.
The tariff turmoil keeps getting worse for America’s largest exporter: Boeing’s vast and fragile supply chain is grappling with the end of its decadeslong duty-free status. Boeing faces retaliatory tariffs from other countries. And airlines are bracing for a drop in demand for air travel. (…)
In the long run, the new tariff landscape could give a leg up to Boeing’s European rival, Airbus.
President Trump has said his tariff blitz is intended to boost U.S. manufacturing. But the trade war is hurting—not helping—one of the few major companies manufacturing high-tech products here, said Bank of America analyst Ron Epstein.
Even if China signs off on Boeing deliveries, airlines could opt for delays to avoid hefty duties. China is forecast to be Boeing’s largest market over the next two decades. Boeing would take a $1.2 billion hit if China halted all deliveries this year, according to an estimate by equity research firm Bernstein. (…)
Boeing CEO Kelly Ortberg has said he is concerned about the impact of tariffs on Boeing’s supply chain and the jet maker’s ability to export, in addition to direct costs that would result from duties on parts and materials.
The immediate fallout of China’s move is blunted by the fact that demand for Boeing planes far outpaces the jet maker’s pace of production. Boeing has an order backlog of some 5,500 planes; a plane ordered today won’t be delivered for close to a decade.
The longer-term impact could be more serious for Boeing’s business in China, a country that represents one-fifth of global airplane demand. (…)
But trade tensions and higher costs for U.S. planes could put Airbus, already outpacing Boeing in China, even further ahead if airlines start canceling orders. Airbus has two final-assembly lines in China; Boeing doesn’t build planes there but has a center where it completes mostly-finished planes. (…)
Those suppliers face new disruptions after the upending of a trade deal that since the 1980s has allowed Boeing, Airbus and other aerospace manufacturers to build aircraft largely without tariffs.
“Everybody is saying, ‘We don’t know who pays, but under no circumstances is it going to be us,’” said Richard Aboulafia, managing director of AeroDynamic Advisory, an aerospace consulting firm. “That’s a dangerous thing, because you could have the things freeze up.”
The article makes no mention of the 25% tariffs on steel and aluminum that Boeing needs to pay in the U.S.. Airbus is somewhat shielded thanks to its non-U.S. manufacturing plants.
(…) local airlines now face the issue of repairing and maintaining hundreds of aircraft from the US manufacturer in their current fleets.
They also have to find new jets to make up for the Boeing shortfall, no small task given that Airbus SE’s production capacity is constrained and local manufacturer Commercial Aircraft Corp of China Ltd. relies on US-made engines.
For now, airlines and leasing firms have built up a buffer of spare parts over the past couple of years — both from planemakers and from buying up older aircraft — that should help the industry weather the near-term need, people familiar with the matter said.
Comac has also stockpiled engines to build dozens of planes this year, one of the people said, while Chinese government officials are considering asking Airbus to supply any new jets with an extra set of engines, other people familiar with the matter said.
Even if those engines may have been made by US companies or have US components, they wouldn’t be levied if they arrive attached to a plane from a French manufacturer, people familiar with Beijing’s thinking said, asking for anonymity to discuss private matters.
Yet these are short-term fixes that underscore how aircraft represent a huge vulnerability for China’s economy, and an area where it’s still highly reliant on US and Western industrial technology.
The weakness is such that some analysts on Tuesday suggested the pause in deliveries may be more of a negotiating tactic.
“We would be surprised if the delay were extended considering the importance of US parts for the Chinese fleet,” RBC Capital Markets LLC analysts led by Ken Herbert said. Any restriction on the import of new aircraft parts needed to support its existing fleet would be “difficult for China to maintain for an extended period.” (…)
RBC’s Herbert said that Singapore, which is an aviation hub and home to a number of aircraft maintenance shops, could fill the gap.
“Singapore could provide a work-around for delivery of US aircraft parts and services in China,” he wrote in an April 15 note.
Hong Kong’s postal service is halting shipments bound for the U.S. because it says the U.S. is “unreasonable, bullying and imposing tariffs abusively.” (…) The postal service said non-air transport of parcels bound for the U.S. has been halted immediately and airmail services will cease from April 27, while mail containing only documents will not be affected.
China Open to Talks If US Shows Respect, Names Point Person
China wants to see a number of steps from President Donald Trump’s administration before it will agree to trade talks, including showing more respect by reining in disparaging remarks by members of his cabinet, according to a person familiar with the Chinese government’s thinking.
Other conditions include a more consistent US position and a willingness to address China’s concerns around American sanctions and Taiwan, said the person, who asked not to be identified to discuss internal thinking.
Beijing also wants the US to appoint a point person for talks who has the president’s support and can help prepare a deal that Trump and Chinese leader Xi Jinping can sign when they meet, the person said. (…)
Whatever the situation in Trump’s first term, officials in Beijing believe he now has tremendous control over this administration, said the person. As a result, when US officials make pointed statements about China, and Trump doesn’t disavow those views, Chinese officials have assumed the president condones their positions, the person said. (…)
In addition to wanting a consistent message from the US administration, officials in Beijing also want to know that Washington is ready to address some of China’s concerns, the person said. Chief among those is the prevailing perception among Chinese officials that the US has enacted policies designed to contain and suppress China’s modernization.
The US in recent years has tightened export controls around China in an effort to prevent Beijing from obtaining cutting-edge chips and other advanced technology. Trump’s administration on Monday barred Nvidia Corp. from selling its H20 chip in China, escalating the tech fight with Beijing. (…)
China will not undertake any provocative actions on Taiwan, the person said, but it will respond if provoked.
Finally, Beijing also wants the US to designate a point person to oversee talks, the person said. China has no preference for who that is but they want the person to clearly be speaking and acting with Trump’s authority.
Chinese officials also understand that Trump may want to personally lead the negotiations, the person said. While Beijing would be flattered by Trump wanting to invest his time to such discussions, the person said, China believes the best way forward is for officials designated by the two presidents to oversee the talks.
That would be the most-effective way to ensure that negotiations culminated in a meaningful summit between Trump and Xi, the person said.
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“The US president criticized China in a social media post earlier Tuesday, saying the government “just reneged on the big Boeing deal” signed during his first administration.” (Bloomberg)
Reneging agreements has become endemic…
Bloomberg:
US officials first barred Nvidia and other AI chipmakers from selling their most advanced models to China in October 2022, over concerns that the technology could give Beijing a military edge.
Nvidia designed the H20 chip in response to 2023 measures that restricted another China-focused processor, the H800, which the company debuted following the initial curbs.
The move poses challenges for Nvidia — it engineered the H20 chip specifically to comply with earlier US export controls — and for Chinese AI companies, which now face licensing hurdles to acquire the chip and exploit its powerful inference capabilities for widespread AI deployment and sustained innovation.
Nvidia has staunchly opposed the framework, arguing that it will weaken American companies and reinforce China’s determination to make itself independent of US technology. Trump’s team has indicated they want to strengthen and streamline the measures, Bloomberg News has reported, though what that entails remains unclear. Companies are required to start complying with the global restrictions in about a month.
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If there was any doubt that uncertainty persisted, Nvidia provided a nasty reminder after Wall Street trading closed. It announced that its H20 chips, specifically designed to satisfy previous government restrictions on the quality of semiprocessors it could export to China, would now be subject to the same limits. That entailed a $5.5 billion charge against its next earnings. It also suggested that there is no “Magnificent Seven Put” — the White House team is not going to go out of its way to make life more comfortable for the huge companies that have given it money. That in turn increases the incentives for foreigners to yank money from the companies to which they are overexposed. (John Authers)
Global Tech Stocks Drop as ASML Warning Adds to Nvidia Curbs
(…) President Donald Trump’s administration has barred Nvidia from selling its H20 chip in China, an escalation of Washington’s tech battle with Beijing. ASML later added to investor anxiety by posting orders that missed expectations and saying that it doesn’t know how to quantify the impact of recent tariff announcements.
The H20 restrictions are “driven by concerns over China’s rise in the electronics sector, and in that sense, it is likely to become a permanent policy,” said Tomo Kinoshita, global market strategist at Invesco Asset Management. “It is expected to have a significant negative impact on semiconductor supply chain.” (…)
TSMC was already likely to slow some production expansion on a weaker economic outlook, and “the tighter rules on Nvidia’s China sales might amplify the deceleration,” Bloomberg Intelligence analyst Ken Hui wrote in a note.
For China, the broader restrictions raise concerns that access to global tech hardware will be further choked off. Exports of the most-advanced chips and equipment to the Asian nation are already banned, and the H20 is a scaled-down product specifically designed not to be too powerful. (…)
“There is a reliance on the H20 chip from big name players in the Asian tech space, so any moves which could impact supply will be a drag on the broader sector.” (…)
“AI innovation in China is booming and the H20 ban would not dampen it — it may accelerate the use of China domestic chips,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “Domestic AI chips may not perform as well as Nvidia’s H20, but that is missing the point. China has been able to develop innovative AI models despite US restrictions.” (…)
US Push to Rival China’s Humanoid Robots Undercut by Trump’s Tariffs
In late March, representatives from several tech firms met with a bipartisan group of lawmakers in Washington to demonstrate their latest humanoid robots. The event, organized by the House Select Committee on the Chinese Communist Party, was intended as a show of force and to help mobilize the US to take on China in a new technological battleground.
Days later, President Donald Trump unveiled sweeping tariffs that threaten to upend US progress in robotics — and particularly for humanoid robots.
Humanoids, which look and move like people, require more components than traditional, industrial robots, including specialized actuators, sensory systems and computing chips. Many critical parts of the hardware are manufactured in China, according to a recent analysis by Bank of America. And as of now, China is the country facing the heaviest import levies.
Actuators, which make up over 50% of a robot’s total materials, often contain frameless torque motors, planetary roller screws and precision bearings that are produced in China, according to the analysts. Similarly, four out of the five major suppliers of humanoid robot vision systems — which can cost thousands of dollars — are Chinese companies, the report found. (…)
The tariff uncertainty now risks making it harder for the US to take the lead in the robot race. “Some companies tell me they want to bring manufacturing back to the US, but we don’t even have suppliers that sell some of these components. And if we do, they’re so much costlier,” Burnstein said. “If the cost of these parts skyrockets, it’s going to slow our ability to compete.” (…)
“China now produces a lot of components and the cost of the hardware has come way down,” said Aaron Jacobson, a partner at venture capital firm New Enterprise Associates. “It’s actually enabled startups to go pursue some areas which, historically, you would have not seen because it was too expensive.”
Trump’s escalating trade war changed the dynamic almost overnight. “Everybody has been very excited and now tariffs have sort of thrown this whole new wrench in the momentum,” said Kim Losey, CEO of Rapid Robotics, a startup that’s backed by NEA. (…)
Trump could derail the conquering march of American finance
Honda says it is not planning to move car production from Ontario to U.S.
California’s Newsom Says State to Sue Over Trump’s Tariffs
The state will file a complaint Wednesday in San Francisco federal court challenging Trump’s use of emergency powers to enact broad tariffs against Mexico, China and Canada, according to a statement issued by Newsom’s office.
Axios: The White House relied on untested emergency powers to impose tariffs, a move at least three lawsuits now argue is executive overreach.
China’s Home Price Slump Eased in March Before US Tariffs
New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.08% from February, when they declined 0.14%, National Bureau of Statistics figures showed Wednesday. Values of second-hand homes fell 0.23%, the smallest decline in almost two years. (…)
From a year earlier, new-home prices fell 4.99%, narrowing from February’s 5.22% drop, the statistics bureau said. Existing-home prices dropped 7.25%, compared with a 7.53% fall a month earlier. (…)
Residential sales dipped 0.4% by value in March from a year earlier, according to Bloomberg calculations based on separate official data. The stabilizing reading stands in contrast with private data, which showed sales of new homes by the 100 biggest real estate companies reversed a brief gain to tank 11% on year that month. Property investment plunged 9.9% in the first quarter, official data showed. (…)
(…) Steven Englander of Standard Chartered PLC puts it as follows:
Public and private investors may see the announced tariffs as reversible, but not the confidence loss from one-sided policy announcements that have overthrown decades of precedent on trade relationships and the conduct of negotiations… If tariff policy can be dictated by one side and enforced by economic threats, what is to stop analogous policy decisions on bonds and other US assets held by non-US residents?
If there’s evidence of a loss of trust, it comes from the interaction of the dollar with bond yields. Usually, exchange rates are driven in large part by interest rate differentials — money flows to places where it will be paid higher rates. The following chart shows the actual performance of the broad Bloomberg dollar index (in blue) with the performance that could be predicted by rates. The sudden divergence in recent weeks suggests a sudden shock to trust:
Source: BofA Global Research
White House Moves to Limit Newswire Access After AP Lawsuit Win
The White House announced Tuesday that it was eliminating the traditional press pool access for wire services after a federal court ordered the administration to end viewpoint discrimination against the Associated Press.
The move will significantly reduce the traditional level of access for journalists from the AP, Reuters, and Bloomberg News to the press pool, which covers the president in areas like the Oval Office and aboard Air Force One where space is limited.
“For decades, the daily presence of the wire services in the press pool has ensured that investors and voters across the United States and around the world can rely on accurate real-time reporting on what the president says and does,” said Bloomberg Editor-in-Chief John Micklethwait. “We deeply regret the decision to remove that permanent level of scrutiny and accountability.”
The Associated Press sued the Trump administration in February when the White House began restricting reporters and photographers from the outlet after the wire service refused to update its style guide to rename the “Gulf of Mexico” the “Gulf of America” following a Trump executive order.
Last week, District Judge Trevor McFadden, a Trump appointee, ruled that the White House could not bar the newswire from covering the president in restricted areas because of their editorial decision. But McFadden also said he was not explicitly ordering the AP back into the pool, simply saying they needed to be treated similarly to other outlets. (…)
In response, the Trump administration and White House press secretary Karoline Leavitt moved to reshape the pool. Under new guidelines she issued on Tuesday, wire services – which traditionally attend each presidential event – will simply be “eligible for selection” to cover events. (…)
[White House press secretary Karoline] Leavitt would “retain day-to-day discretion to determine composition of the pool.”
“This is necessary to ensure that the President’s message reaches targeted audiences and that outlets with applicable subject-matter expertise are present as events warrant,” she said.
White House Correspondents Association President Eugene Daniels said the changes to the pool arrangement “show that the White House is just using a new means to do the same thing: retaliate against news organizations for coverage the White House doesn’t like.”