MANUFACTURING

Record US Manufacturing Spending Struggles To Translate Into Jobs — New Data Signals Worsening Trend

Quality control has become damage control for the once-booming US manufacturing sector. Despite a record $19.7B invested into US manufacturing facilities in June — an 18.6% increase from last year and nearly 100% from June 2022 — job growth has been minimal, and the problem has recently intensified.

Factories collecting dust: In July, the manufacturing sector contracted for the fourth consecutive month, with a steeper decline than in previous months. Data from the Commerce Department’s Census Bureau released last Friday showed factory orders fell 3.3% in June, exceeding economists’ forecasts.

• Companies are feeling the squeeze from elevated interest rates, rising costs, weak demand, and a strong dollar — while uncertainty ahead of the presidential election is also delaying major investments.

• According to Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee, interest rate uncertainty is the “most significant factor” holding companies back — stating, “We are entering into a deeper slowdown period as demand remains elusive.”

The Manufacturing Boom That Wasn’t

No matter where you look, manufacturers are struggling with tough market conditions. Deere & Co. ($DE), the world’s largest farm equipment maker, has cut 15% of its hourly workforce since November. Appliances manufacturer Whirlpool ($WHR) cited a soft housing market for weak demand — while recreational vehicle maker Polaris ($PII) reported a 49% drop in quarterly income.

• Earlier this year, Rivian ($RIVN) paused the construction of its $5B Georgia plant over slowing electric vehicle (EV) sales — while Ford ($F) and General Motors ($GM) have also pulled back on their EV investments.

• TSMC ($TSM) also delayed plans for its Arizona chip facility, part of a $40B investment — which followed Samsung’s decision to push back the timeline on its $17B chip plant in Texas in December.

And the jobs that didn’t follow: US manufacturing spending soared to record levels in recent years, rising 63% in 2023, the most significant increase over 70 years. Despite this record spending, the manufacturing sector added only a net 23K jobs between Jan. 2023 and Jan. 2024. And those numbers have worsened in recent months, with US manufacturing job openings falling by 100K in June compared to the previous month.

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LARGECAP RECAP

🍝 DoorDash’s Strong Gains Shine Despite Restaurant Industry Slowdown

Knock, knock. Who’s there? It’s DoorDash ($DASH) delivering your favorite meals along with another quarter of solid results, which sent its stock up 8% last Friday. Revenue jumped 23% to $2.63B, with a net loss of $157M, while total orders surged 19%. Barclay’s Ross Sandler remarked that the food delivery leader “continues to defy gravity with its execution and consistency amid a challenging end market.”

• DoorDash’s stock has risen nearly 20% this year, even as consumer spending and restaurant traffic have slowed, with the latter falling 2.6% in the first half of the year.

• CEO Tony Xu noted that while restaurants are facing “headwinds in traffic, their digital channels are growing very robustly — many multiples of their overall growth.”

Dashing out the competition: The food delivery app, which commanded a 67% market share of US meal delivery sales in March, is venturing into new areas like groceries, beauty, and home improvement by partnering with well-known brands such as Ulta Beauty and Michaels. This expansion has led to more frequent orders and threatens traditional shippers like UPS and FedEx, as customers increasingly choose DoorDash’s quick and direct deliveries to order a growing range of retail items.

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Markets & Economy

Buffett trims more Bank of America: Berkshire Hathaway ($BRK.A) has now sold $3.8B worth of Bank of America ($BAC) shares, reducing its stake to ~12%. It remains the primary shareholder, with this stock being its third-largest holding behind Apple ($AAPL) and American Express ($AXP). [Read]

Big Tech’s AI spending spree benefits Nvidia: Amazon ($AMZN), Google ($GOOG), Microsoft ($MSFT), and Meta ($META) reported massive jumps in AI spending, boosting Nvidia, while Intel struggles to keep up. [Read]

Homeownership costs dampen mobility: Rising property taxes and insurance costs are curbing relocations. Bank of America data shows a 4% annual drop in cross-city moves for Q2 2024, with Gen Z and lower-income households now making up a larger share of movers, affecting household spending. [Read]

Business & Wealth

Nvidia faces antitrust scrutiny: Shares of Nvidia fell following reports of a US Department of Justice antitrust probe into the chipmaker’s AI dominance. The investigation focuses on Nvidia’s GPU market position, which is crucial for AI development and potentially impacts its rapid growth in the sector. [Read]

Morgan Stanley allows advisors to pitch Bitcoin ETFs: Starting Aug. 7, the firm’s ~15K financial advisors can offer Bitcoin ETFs to qualified clients, marking a pioneering move toward mainstream acceptance of cryptocurrency investments. [Read]

DraftKings to tax winning bets in high-tax states: The sports betting titan ($DKNG) will impose a surcharge on winning bets in states with tax rates over 20%, aiming to boost profitability as it reports its first profitable quarter since going public. [Read]

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DIGIT OF THE DAY

US Unemployment Rate Rises To 4.3% for First Time Since October 2021, Bringing Back Recession Fears

The latest economic report card is in, and it’s not making the honor roll this time. Contrary to expectations, the US added just 114K jobs, the slowest since the pandemic rebound. The unemployment rate increased to 4.3% as more people entered the job market, but not due to a rise in job losses. This rate is already above the 4% the Fed anticipated by the end of 2024.

• Job growth was concentrated in education and health services (+55K), and construction (+25K) — while the information sector saw a decline (-20K).

• The number of part-time workers rose to 4.57M, the highest since June 2021, and long-term unemployment reached 1.54M, the most since Feb. 2022.

Hard landing zone ahead: The surge in unemployment could trigger the Sahm Rule, a reliable indicator of an impending recession. This data supports the possibility of a September rate cut — which KPMG Chief Economist Diane Swonk says would take “a major reversal in the inflation data to take September off the table.” LPL Financial’s Jeffrey Roach notes, “The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness” (CNBC).