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G.M. Chief’s Test: Satisfy Striking Workers and Sustain Bottom Line

Mary T. Barra has often referred to her years of experience on the General Motors factory floor. So it was familiar terrain when the chief executive embarked this year on a tour of plants across the Midwest and South, a mission to create good will among unionized workers ahead of contract talks.

At the Lake Orion assembly plant near Detroit, she said G.M. was going to spend $300 million to prepare the plant to make a new electric vehicle, creating 400 jobs. She traveled to Spring Hill, Tenn., to announce $22 million in spending, and chatted with workers in Lansing, Mich., where G.M. had chosen to make a new sport utility vehicle.

“The success of our new trucks and S.U.V.s and crossovers is allowing us to create jobs all over the company,” she said at a pickup plant in Fort Wayne, Ind., which was tabbed for $24 million in upgrades.

The effort hasn’t engendered as much harmony as G.M. might have hoped. Negotiations that started over the summer failed to head off a walkout by 49,000 members of the United Auto Workers on Sunday night, the first against G.M. since 2007.

“It was just a show,” Sergio Cristian, 60, who works in paint repair at the Lansing Delta Township assembly plant, said of Ms. Barra’s visit there. “If she cares about us, where is she now? She figured she’d step in there, show her face, show that she’s concerned. You are? I don’t think so.”

Finding a formula that will satisfy a restive work force without upending the company’s financial calculus has become Ms. Barra’s biggest challenge.

[Read more: The key issues and impacts in the dispute between General Motors and the United Auto Workers.]

A Michigan native, she started working at G.M. at 18, studied electrical engineering at the company’s own university, and rose through the ranks to hold senior positions in manufacturing, personnel and product development. In 2014, she became the first woman to head a major automaker.

Image
CreditJeffrey Sauger for General Motors

She came into the job just in time to manage G.M. through a scandal in which faulty ignition switches had caused a series of fatal accidents. Under her watch, which has coincided with a surge in demand for big, high-margin vehicles, G.M. has generated record profits and won plaudits for forging a future of electric and autonomous vehicles.

“She has done a good job setting a vision and moving the company in the right direction,” said Sam Abuelsamid, an analyst with Navigant Research. “She’s made some tough decisions, like getting rid of cars and products that weren’t performing and getting out of Europe.”

Now she faces a worldwide decline in the industry’s sales that has forced the company to reconsider its model choices and production.

G.M. hasn’t gained much ground so far with the electric model Ms. Barra has championed, the Chevrolet Bolt compact, Mr. Abuelsamid said. “They haven’t executed as quickly as people would have liked,” he added. “The Bolt is not the right car for the market at this time.”

And as the company ponders cutbacks — like its decision this year to shut its assembly plant in Lordstown, Ohio — Ms. Barra must contend with opposition not only from the union but sometimes from the White House. President Trump has been a frequent antagonist of the company over its foreign operations, including its use of plants in Mexico while paring its head count in the United States, a criticism he reiterated on Monday after the strike began.

“I don’t want General Motors building plants in China and Mexico — this was before my watch, and I don’t think they’ll be doing that,” Mr. Trump told reporters. “I had meetings with Mary Barra, the head of G.M., and I don’t want them leaving our country.”

The president and Ms. Barra met at the White House early this month, though it is not clear how broad the discussions were.

Contract negotiations continued Tuesday, the second full day of the strike, in a conference room at the Renaissance Center in downtown Detroit, where G.M. has its headquarters. While Ms. Barra is not at the table with U.A.W. leaders, she is staying nearby and taking an active role, people close to the negotiations say.

Union and management officials were breaking into groups to discuss specific issues, like the use of temporary workers and how production is allocated to various sites, and then reconvening in larger meetings, according to people with knowledge of the talks.

Image

CreditBill Pugliano/Getty Images

G.M. is hoping to bring its labor expenses — especially health care costs — more in line with those of Toyota, Honda and other foreign automakers that operate nonunion plants in the South. According to the Center for Automotive Research, an hour of U.A.W. labor costs G.M. $63 in wages and benefits, compared with $50 for labor in foreign-owned nonunion plants.

Tensions between the two sides increased on Tuesday after G.M. stopped covering the cost of health care premiums for striking workers. The U.A.W. told members that it would provide heath care assistance or temporary coverage until the matter was settled.

The union counters that G.M. is highly profitable in North America under the current labor contract. Last year, the company made $10.8 billion in the region — more than the North American units of Toyota, Honda and Nissan combined.

In addition to resisting higher payments for health care, the U.A.W. wants G.M. to rework its pay structure, which differentiates between those hired before and after 2007, and to increase pay for temporary workers. Many of the more recent hires and temps make $15 to $25 an hour, or roughly $30,000 to $50,000 a year before overtime or the profit-sharing checks that have averaged $11,000 in the last three years. Veteran workers doing comparable work can make $31 an hour and many take home $90,000 a year and up with overtime and profit-sharing.

Over the weekend, G.M. offered to invest $7 billion in United States plants, and create 5,400 new jobs. The offer, a person close to the talks said, included building a battery plant near the shuttered Lordstown factory and keeping open a Detroit car plant slated to close in March, and leaving worker heath care contributions largely unchanged.

In a letter to G.M., Terry Dittes, the U.A.W. vice president leading the negotiations, complained that those offers arrived two hours before the contract expired Saturday night. “Had we received this proposal earlier in the process, it may have been possible to reach a tentative agreement and avoid a strike,” he said in a letter to G.M.

The union’s decision to strike took place the next morning, about 12 hours after G.M. made its offer, and the walkout did not begin until midnight that night.

While the details of the talks are particular to G.M., the outcome is meant to serve as a template for contracts with the other Detroit automakers, Ford Motor and Fiat Chrysler. In 2014, an accord was reached just before the previous contract expired, and the union’s G.M. membership approved it in a close vote. Some workers say the U.A.W. failed to gain enough in that round, and are pressing for a better outcome.

The good will that Ms. Barra set out to gain this year remains elusive.

“I hope she stands for what she said,” said Mr. Cristian, the paint-repair worker in Lansing and a 40-year G.M. veteran. “Everybody makes promises. We’ll wait and see on her. I’m hoping for the best.”

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Author: Neal E. Boudette Continue reading G.M. Chief’s Test: Satisfy Striking Workers and Sustain Bottom Line

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G.M. Chief’s Test: Satisfy Striking Workers and Sustain Bottom Line

Mary T. Barra has often referred to her years of experience on the General Motors factory floor. So it was familiar terrain when the chief executive embarked this year on a tour of plants across the Midwest and South, a mission to create good will among unionized workers ahead of contract talks.

At the Lake Orion assembly plant near Detroit, she said G.M. was going to spend $300 million to prepare the plant to make a new electric vehicle, creating 400 jobs. She traveled to Spring Hill, Tenn., to announce $22 million in spending, and chatted with workers in Lansing, Mich., where G.M. had chosen to make a new sport utility vehicle.

“The success of our new trucks and S.U.V.s and crossovers is allowing us to create jobs all over the company,” she said at a pickup plant in Fort Wayne, Ind., which was tabbed for $24 million in upgrades.

The effort hasn’t engendered as much harmony as G.M. might have hoped. Negotiations that started over the summer failed to head off a walkout by 49,000 members of the United Auto Workers on Sunday night, the first against G.M. since 2007.

“It was just a show,” Sergio Cristian, 60, who works in paint repair at the Lansing Delta Township assembly plant, said of Ms. Barra’s visit there. “If she cares about us, where is she now? She figured she’d step in there, show her face, show that she’s concerned. You are? I don’t think so.”

Finding a formula that will satisfy a restive work force without upending the company’s financial calculus has become Ms. Barra’s biggest challenge.

[Read more: The key issues and impacts in the dispute between General Motors and the United Auto Workers.]

A Michigan native, she started working at G.M. at 18, studied electrical engineering at the company’s own university, and rose through the ranks to hold senior positions in manufacturing, personnel and product development. In 2014, she became the first woman to head a major automaker.

Image
CreditJeffrey Sauger for General Motors

She came into the job just in time to manage G.M. through a scandal in which faulty ignition switches had caused a series of fatal accidents. Under her watch, which has coincided with a surge in demand for big, high-margin vehicles, G.M. has generated record profits and won plaudits for forging a future of electric and autonomous vehicles.

“She has done a good job setting a vision and moving the company in the right direction,” said Sam Abuelsamid, an analyst with Navigant Research. “She’s made some tough decisions, like getting rid of cars and products that weren’t performing and getting out of Europe.”

Now she faces a worldwide decline in the industry’s sales that has forced the company to reconsider its model choices and production.

G.M. hasn’t gained much ground so far with the electric model Ms. Barra has championed, the Chevrolet Bolt compact, Mr. Abuelsamid said. “They haven’t executed as quickly as people would have liked,” he added. “The Bolt is not the right car for the market at this time.”

And as the company ponders cutbacks — like its decision this year to shut its assembly plant in Lordstown, Ohio — Ms. Barra must contend with opposition not only from the union but sometimes from the White House. President Trump has been a frequent antagonist of the company over its foreign operations, including its use of plants in Mexico while paring its head count in the United States, a criticism he reiterated on Monday after the strike began.

“I don’t want General Motors building plants in China and Mexico — this was before my watch, and I don’t think they’ll be doing that,” Mr. Trump told reporters. “I had meetings with Mary Barra, the head of G.M., and I don’t want them leaving our country.”

The president and Ms. Barra met at the White House early this month, though it is not clear how broad the discussions were.

Contract negotiations continued Tuesday, the second full day of the strike, in a conference room at the Renaissance Center in downtown Detroit, where G.M. has its headquarters. While Ms. Barra is not at the table with U.A.W. leaders, she is staying nearby and taking an active role, people close to the negotiations say.

Union and management officials were breaking into groups to discuss specific issues, like the use of temporary workers and how production is allocated to various sites, and then reconvening in larger meetings, according to people with knowledge of the talks.

Image

CreditBill Pugliano/Getty Images

G.M. is hoping to bring its labor expenses — especially health care costs — more in line with those of Toyota, Honda and other foreign automakers that operate nonunion plants in the South. According to the Center for Automotive Research, an hour of U.A.W. labor costs G.M. $63 in wages and benefits, compared with $50 for labor in foreign-owned nonunion plants.

Tensions between the two sides increased on Tuesday after G.M. stopped covering the cost of health care premiums for striking workers. The U.A.W. told members that it would provide heath care assistance or temporary coverage until the matter was settled.

The union counters that G.M. is highly profitable in North America under the current labor contract. Last year, the company made $10.8 billion in the region — more than the North American units of Toyota, Honda and Nissan combined.

In addition to resisting higher payments for health care, the U.A.W. wants G.M. to rework its pay structure, which differentiates between those hired before and after 2007, and to increase pay for temporary workers. Many of the more recent hires and temps make $15 to $25 an hour, or roughly $30,000 to $50,000 a year before overtime or the profit-sharing checks that have averaged $11,000 in the last three years. Veteran workers doing comparable work can make $31 an hour and many take home $90,000 a year and up with overtime and profit-sharing.

Over the weekend, G.M. offered to invest $7 billion in United States plants, and create 5,400 new jobs. The offer, a person close to the talks said, included building a battery plant near the shuttered Lordstown factory and keeping open a Detroit car plant slated to close in March, and leaving worker heath care contributions largely unchanged.

In a letter to G.M., Terry Dittes, the U.A.W. vice president leading the negotiations, complained that those offers arrived two hours before the contract expired Saturday night. “Had we received this proposal earlier in the process, it may have been possible to reach a tentative agreement and avoid a strike,” he said in a letter to G.M.

The union’s decision to strike took place the next morning, about 12 hours after G.M. made its offer, and the walkout did not begin until midnight that night.

While the details of the talks are particular to G.M., the outcome is meant to serve as a template for contracts with the other Detroit automakers, Ford Motor and Fiat Chrysler. In 2014, an accord was reached just before the previous contract expired, and the union’s G.M. membership approved it in a close vote. Some workers say the U.A.W. failed to gain enough in that round, and are pressing for a better outcome.

The good will that Ms. Barra set out to gain this year remains elusive.

“I hope she stands for what she said,” said Mr. Cristian, the paint-repair worker in Lansing and a 40-year G.M. veteran. “Everybody makes promises. We’ll wait and see on her. I’m hoping for the best.”

Source:

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Author: Neal E. Boudette Continue reading G.M. Chief’s Test: Satisfy Striking Workers and Sustain Bottom Line

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Dow slips for second day as Wall Street braces for Fed decision

The Dow Jones Industrial Average fell on Tuesday as the Federal Reserve kicked off a two-day monetary policy meeting.

The 30-stock index traded 16 points lower, or 0.1%. The S&P 500 traded along the flatline along with the Nasdaq Composite.

The meeting is scheduled to end Wednesday, when the central bank is expected to announce its latest decision on monetary policy. The Fed is largely expected to cut rates by 25 basis points. That would be the central bank’s second rate cut of 2019.

“The drama is centered on just how strongly the Fed will signal that it’s going to cut rates again by the end of 2019,” Tom Essaye, founder of The Sevens Report, said in a note. “It’ll be the ‘dots’ and statement that determine whether the Fed meets market expectations (and spurs a short-term rally) or if we see another ‘hawkish’ cut and uptick in volatility.”

Traders work on the floor of the New York Stock Exchange (NYSE) on July 10, 2019.

Spencer Platt | Getty Images

Bank stocks fell broadly. The SPDR S&P Bank ETF (KBE) dropped 1.3% as Citigroup, J.P. Morgan Chase and Bank of America all slid at least 0.5%. Regional banks also pulled back. The SPDR S&P Regional Banking ETF (KRE) slipped 1.4%. 

The dots refer to the Fed’s projection of the overnight rate, which is also set for release Wednesday.

Wall Street ended lower on Monday amid ongoing fears over a potential increase in oil prices, after drone strikes in Saudi Arabia. U.S. President Trump said he is not in a rush to respond to the attacks. Monday’s decline snapped an eight-day winning streak for the Dow.

U.S. crude futures skyrocketed more than 14% on Monday, their biggest one-day gain since December 2008, after the attacks. Energy stocks got a boost from the higher oil prices, with the sector gaining 3.41%. Crude plunged more than 5% on Tuesday after the Saudi energy minister said the country’s oil supply will be back online by the end of the month.

The major indexes were within striking distance of their record highs. The Dow and S&P 500 were about 1% below all-time highs set in July while the Nasdaq was 2.1% below its record mark.

“We’re right near that resistance level on the S&P 500,” said Sandy Villere, partner at Villere & Co. “We’re waiting for the markets to come back down a bit. Then we can buy some of the growthier names that have been beaten up over the last few days.”

Value stocks have outperformed their growth counterparts this month, rising nearly 7% through Monday’s close. Growth stocks, meanwhile, are down 1.2%. This is a reversal from an overarching trend seen over the past few years.

The iShares Edge MSCI Value Factor ETF (VLUE) is up about 30% over the past five years. The iShares Edge MSCI Momentum Factor ETF (MTUM) has surged over 80% in that time.

The Dow briefly turned positive on Tuesday after President Donald Trump said a U.S.-China trade deal could come soon. 

Trump told reporters that China was buying U.S. farm products in a “big league” way, noting a deal could come before the 2020 election or a day after. Both countries have been engaged in a trade war since last year. The two sides are expected to hold negotiations next month.

Peter Cardillo, chief market economist at Spartan Capital Securities, said China’s economy is showing signs of “cracking,” noting this could lead to a “relaxation” of some tariffs by the Chinese.

—CNBC’s Silvia Amaro contributed to this report. 

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Oil drops 5% one day after historic surge as Saudis signal output to return to normal soon

Oil prices plunged on Tuesday after the Saudi energy minister said the kingdom’s oil supply will soon be back online.

Brent crude futures, the international benchmark, dropped 6.55% or $4.52, to $64.46 per barrel. The contract soared as much as 19.5% on Monday to $71.95 per barrel, the biggest jump in history after a series of attacks on Saudi’s heart of oil industry disrupted its production.

U.S. West Texas Intermediate futures ended the session 5.7% or $3.56 lower at $59.34 per barrel after posting their biggest climb since 2008 in the previous session.

Energy minister Prince Abdulaziz bin Salman said in a press conference Tuesday that oil production capabilities were fully restored and that oil output will be back to pre-attack levels by the end of September.

Brent crude oil prices surged the most on record on Monday following a series of attacks over the weekend on Saudi’s oil industry that disrupted the kingdom’s crude production.

The largest oil processing facility at Abqaiq and the nearby oil field was attacked on Saturday, knocking out 5.7 million barrels of daily crude production or more than half of the kingdom’s oil output.

Fifty percent of the oil production loss from the attack has been restored in the past two days, bin Salman said, adding that production capacity would reach 10 million barrels of crude per day (bpd) by the end of this month and 12 million bpd by the end of November.

The CEO of Saudi Aramco, the national oil company, said its Abqaiq oil plants are producing 2 million barrels of oil at the moment.

President Donald Trump said Tuesday he did not think it would be necessary to release oil from the Strategic Petroleum Reserve because oil prices have not jumped very much, Reuters reported.

“Geopolitical events have a historic tendency of exaggerated initial impact in markets, with a smaller economic and market impact emerging over a short period of time,” Steven Wieting, Citi’s chief investment strategist, said in a note. “The degree of any escalation with Iran is the more critical issue for longer-lasting supply risks. Temporary disruptions for repairs inside Saudi are very different.”

The Saudis have grown increasingly confident that Iran directly launched a complex missile and drone attack from its southern territory, Reuters reported, citing people familiar with the investigation.

Trump said Monday he’s in no rush to respond to the coordinated attack. When asked if Iran was behind it, Trump said “It’s certainly looking that way at this point.”

Iranian president Hassan Rouhani said the attacks on Aramco were a “reciprocal response” to the aggression against Yemen.

The Saudi Ministry of Foreign Affairs said initial investigations have indicated that the weapons used in the attack were Iranian weapons. “Investigations are still ongoing to determine the source of the attack,” it said.

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Author: Continue reading Oil drops 5% one day after historic surge as Saudis signal output to return to normal soon

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Facebook enlists Ray-Ban maker to help with ‘Orion’ smart glasses, a project years in the making

Facebook CEO Mark Zuckerberg makes his keynote speech during Facebook Inc’s annual F8 developers conference in San Jose, California, U.S., April 30, 2019.

Stephen Lam | Reuters

Facebook has been working to develop augmented reality glasses out of its Facebook Reality Labs in Redmond, Washington, for the past couple of years, but struggles with the development of the project have led the company to seek help. Now, Facebook is hoping a partnership with Ray-Ban parent company Luxottica will get them completed and ready for consumers between 2023 and 2025, according to people familiar.

The glasses are internally codenamed Orion, and they are designed to replace smartphones, the people said. The glasses would allow users to take calls, show information to users in a small display and live-stream their vantage point to their social media friends and followers.

Facebook is also developing an artificial intelligence voice assistant that would serve as a user input for the glasses, CNBC previously reported. In addition, the company has experimented with a ring device that would allow users to input information via motion sensor. That device is code-named Agios.

The company has hundreds of employees at its Redmond offices working on technology for the AR glasses, but thus far, Facebook has struggled to reduce the size of the device into a form factor that consumers will find appealing, a person who worked on the device told CNBC.

Given the long lead time, there’s no guarantee that the glasses will be completed on time or ever ship. But one person familiar with the project said that CEO Mark Zuckerberg has a strong interest in the glasses, and asked hardware chief Andrew Bosworth to prioritize them.

Facebook declined to comment. Luxottica did not immediately return request for comment.

Facebook is not alone in believing that smart glasses that superimpose computer-generated images over the real world will be the next big thing in computing. Already, Microsoft makes the HoloLens 2 headset, Snapchat parent company Snap sells its Spectacles glasses and Florida startup Magic Leap sells its Magic Leap One AR glasses, although none of these devices has become a hit. Apple is also reportedly working on a similar product that could hit the market as early as next year.

Luxottica is the parent company of Ray-Ban, Oakley and other sunglasses brands. The company has previously experimented with this technology, partnering in 2014 with Google to design, develop and distribute the Google Glass device.

WATCH: Here’s how to see which apps have access to your Facebook data — and cut them off

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Author: Continue reading Facebook enlists Ray-Ban maker to help with ‘Orion’ smart glasses, a project years in the making

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How the Boeing 737 Max grounding hurts its most-loyal customer — Southwest Airlines

Southwest Airlines grew from a small low-cost carrier in Texas in the 1970s to the airline that transports more passengers in the U.S. than any other. The backbone of this expansion: the Boeing 737, the plane the airline has operated almost exclusively since it started flying in 1971.

Loyal as it’s been to Boeing and the 737, the fallout from two fatal crashes of a new version of the plane has prompted Southwest to mull other options for its future.

“It’s something that we’ll want to explore,” CEO Gary Kelly told analysts on an earnings call in July. Adding a new plane supplier would be highly complicated and take years, Kelly said, however. “There is no way to avoid risk with a fleet. Period,” he added.

Regulators worldwide grounded the Boeing 737 Max, a more fuel-efficient version of the workhorse jet that’s been flying since the late 1960s, in mid-March after the second of two crashes that killed 346 people.

Southwest had 34 Max planes in its fleet at the time of the grounding and was expected to receive about 40 more this year, making it the largest U.S. Max customer. The grounding has forced Southwest and other airlines that bought the Max to cancel thousands of flights and rein in their growth plans this year.

Boeing took a $5.6 billion pretax charge in the second quarter, a sum that in part will compensate its Max customers for the grounding, which is now in its seventh month.

Boeing declined to comment on negotiations with airlines but Kelly told Southwest employees last week  that negotiations are ongoing with Boeing “to reach a business settlement related to the damages that our airline has suffered as a result of the Max grounding.” Kelly said that the airline is considering sharing “proceeds as appropriate” with employees.

Boeing expects the planes to fly early in the fourth quarter, but regulators have repeatedly said they have no firm date for a resumption of flights. Southwest has removed them from its schedules until January, later than any other U.S. 737 Max customer.

Watch more:

Why Boeing and Airbus dominate aircraft manufacturing

From startup to the big leagues, how JetBlue plans to stay relevant

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How an Oil Price Surge Could Hurt the U.S. Economy

For months, American consumers have kept the economy humming. While businesses pulled back, shoppers continued to spend.

But a prolonged surge in gasoline prices after the attacks on oil production facilities in Saudi Arabia could undermine that phenomenon and increase the risk of a recession.

“It’s clearly not a positive, and it adds a negative to the outlook,” said Steve Blitz, chief United States economist at T.S. Lombard, an independent research firm. “It’s another straw on the camel’s back.”

Monday’s nearly 15 percent spike in oil prices to $62.90 a barrel isn’t big enough to bring on a recession — it only returns crude prices to where they were this spring. And the economy expanded from 2011 to 2014 even when prices were above $100 a barrel.

Monday’s jump is expected to add roughly 20 cents to gas prices, which now average $2.56 a gallon nationally, said Tom Kloza, global head of energy analysis for the Oil Price Information Service. Those higher prices should be in place by the end of the month, he said.

He estimates that the typical American family uses 90 gallons of gasoline every month, which means they would spend an extra $18 a month as a result of the attacks on Saudi Arabia.

[Read more: Oil markets are on edge after the attack on Saudi facilities.]

But a shock in the form of a rapid $20 or $30 a barrel jump in oil prices would have a bigger economic impact.

“At that level, the consumer takes a significant hit,” said Ethan Harris, head of global economics and research at Bank of America Merrill Lynch.

A $25 a barrel increase in oil prices, the kind of move analysts cite as a potential threat to the economy, would add 50 cents to the cost of each gallon of gas. That would mean an extra $45 in monthly spending for the typical family.

The Federal Reserve will be keeping a close eye on energy prices as policymakers meet in Washington on Tuesday and Wednesday. Most observers expect the Fed to reduce interest rates a quarter-point.

Image
CreditJim Wilson/The New York Times

Worries about growth have been building over the last six weeks. If consumer spending faded, the economy wouldn’t have much to fall back on.

An important measure of manufacturing published this month showed that factory activity had contracted two months in a row. And in the second quarter, business and residential investment fell.

The financial markets have been shaky, and short-term bond yields have exceeded returns on longer-termed notes, a sign a recession could lie ahead.

Through all of that, consumers have appeared to be in fine shape. Retail sales rose 0.4 percent in August, after a 0.8 percent jump in July, the government reported Friday. Demand for automobiles, sporting goods and building materials all showed strength.

And the University of Michigan reported Friday that its preliminary September reading for consumer confidence stood at 92, a bit better than expected and an improvement from August.

[Saudi Arabia’s new energy minister is taking over in a crisis.]

Changes in energy prices can cause broader economic swings, including when prices drop sharply. A plunge in oil prices from $106 a barrel in June 2014 to $30 in February 2016 dealt a blow to manufacturing as demand for oil-related products fell and, in turn, slowed overall economic growth.

The effect of higher oil prices on businesses is complicated because oil’s role in the economy has changed since the energy shocks of the 1970s. Buoyed by oil production from shale deposits in Texas, New Mexico and other states, America has slashed imports and has become a major exporter of oil and gas.

Higher prices would help not only oil companies but also steel producers, which have become major suppliers of metal pipe and other goods to the energy industry. They’d most likely see a pickup in demand as drilling activity increased, offsetting some of the damage a spike would cause to consumer spending.

But other businesses, particularly those in the transportation sector, could suffer. Companies, including airlines and delivery firms that rely on cheap fuel to make money distributing packages for online retailers, could be big losers if oil prices soar.

“Shale has shifted the paradigm,” said Gregory Daco, chief United States economist at Oxford Economics. “On the one hand, with higher prices there is a hit to consumers. But there’s an incentive for oil and gas companies to invest and produce more to reap the benefits.”

The biggest risk to consumers — and the economy itself — would be a significant military conflict between the United States and Iran. Businesses, already cautious about spending, would pull back further. Consumers would likewise retreat.

“When these things happen, people stay home and watch the news,” said Mr. Blitz of T.S. Lombard. “You’d see a dip in spending at the mall.”

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Author: Nelson D. Schwartz Continue reading How an Oil Price Surge Could Hurt the U.S. Economy

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WeWork Delays I.P.O. After Chilly Reception From Investors

WeWork, the shared office space giant, was able to gain the backing of some of the world’s top investors, but it received a much colder reception when it tried to pitch its shares on Wall Street.

Facing deep skepticism about its business model and corporate governance, the company has delayed its initial public offering by several months. A person with knowledge of the offering says the stock sale, which was expected to happen in a matter of weeks, may wind up being scrapped entirely.

This week, the company had been expected to begin a road show for the stock offering — where it pitched prospective investors on the deal — two people said. That would have put it on track to begin trading on the Nasdaq stock market by the end of next week.

But at a meeting on Monday, executives and advisers decided to shelve the plans for now after finding little appetite from prospective investors, the people said, asking not to be identified discussing internal deliberations.

In a statement released late Monday night, WeWork’s parent, the We Company, said that it anticipated the offering would be completed by the end of the year.

But a delay — whether for weeks or months — may not allay the concerns of investors who had questioned the valuation of the company. WeWork had been privately valued at $47 billion in January, when SoftBank of Japan made a large investment. But the prospect of going public has focused attention on a business that is deeply unprofitable and will most likely remain so for years.

WeWork has been trying to rescue its public offering in a number of ways. On Friday, the company said it would reduce the power of its co-founder and chief executive, Adam Neumann, amid criticism of the business’s corporate governance.

WeWork is the latest of the so-called unicorns — businesses funded by venture capital firms that are valued at $1 billion or more — to falter. Shares in Uber and Lyft, two other unicorns, dropped significantly after their public offerings this year.

WeWork, the biggest private tenant in Manhattan, leases large amounts of office space and converts it into sleek work areas. Though the company has grown quickly, it remains deeply unprofitable. In the first half of this year, it recorded an operating loss of $1.37 billion and spent $1.5 billion in cash.

Analysts and investors have also said that WeWork has not been forthcoming with detail on profits and occupancy that would give them greater insight into how its properties are performing.

If the initial offering is significantly delayed, WeWork will need to find other ways to raise cash.

Without an infusion of new money, the We Company may have to slow its expansion, which is consuming hundreds of millions of dollars of cash. In the first half of this year, the firm spent $1.5 billion of cash running its business and building out its operations. It had nearly $2.5 billion of cash on its balance sheet at the end of June.

It had anticipated collecting $6 billion from bank financing that was connected to the stock sale — but that money would be available only if the company raised at least $3 billion from the I.P.O.

That financing has not yet been renegotiated, one of the people briefed on the matter said, though it is possible that WeWork eventually strikes a new agreement with the banks.

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Pelosi tells Cramer: Dems are hopeful they’re on ‘path to yes’ on Trump’s North American trade deal

Democrats hope to approve updates to the North American Free Trade Agreement, but still have concerns about enforcing the deal, House Speaker Nancy Pelosi said Tuesday.

“But we hope that we’re on a path to yes. The most important issue outstanding is enforceability,” she said in an interview with CNBC’s Jim Cramer.

The White House has pushed for swift ratification of the trade agreement struck last year among the U.S., Mexico and Canada. Pelosi and top negotiators in the Democratic-held House have repeatedly said they want to see better mechanisms to enforce labor and environmental standards, and resolve fears that the deal could lead to higher drug prices for U.S. consumers.

President Donald Trump, who campaigned in 2016 on overhauling U.S. trade relationships, sees passing the United States-Mexico-Canada Agreement as one of his top economic and political priorities. Still, the California Democrat said she does not worry that ratifying the deal would hand President Donald Trump a political victory ahead of his 2020 reelection bid.

“The idea that we would give a victory to the president is irrelevant. It’s a victory for the American people,” she told the “Mad Money” host.

House Speaker Nancy Pelosi (D-CA)

Erin Scott | Reuters

The White House did not immediately respond to CNBC’s request for comment on Pelosi’s remarks.

Congress returned to Washington last week from its more than month long recess. Democratic negotiators expect the pace of talks with the Office of the U.S. Trade Representative to pick up this month as they look to make changes to USMCA.

The Trump administration has made ratifying the deal a priority in the final months of the year. Pelosi said Tuesday that “there is nothing to bring to the floor yet” in terms of concrete legislation to ratify the deal.

Out of the three countries’ legislatures, only Mexico’s has approved the agreement.

Republicans, and some Democrats representing areas reliant on trade with Canada and Mexico, have urged Democratic leaders to move forward more quickly with the deal. In a CNBC interview earlier Tuesday, Sen. Rob Portman, R-Ohio, argued the deal “does have enforceable” labor and environmental standards.

Key U.S. labor groups have worried the deal will not do enough to protect American workers and prevent outsourcing. Democratic lawmakers and Trump alike have argued NAFTA sapped American manufacturing jobs after it took effect in 1994.

Many business organizations and the agriculture industry have agitated for USMCA’s passage. They have looked for stability in their Canadian and Mexican markets as the Trump administration’s escalating trade war with China helps to fuel concerns about slowing global economic growth.

The U.S. exported about $300 billion in goods to Canada last year, making its northern neighbor its largest export market. It sent about $265 billion in products to Mexico, its second-largest export market.

Cramer’s full interview with Pelosi will air at 6 p.m. ET on “Mad Money.”

Subscribe to CNBC on YouTube.

Source: Top News and Analysis (pro)
Author: Continue reading Pelosi tells Cramer: Dems are hopeful they’re on ‘path to yes’ on Trump’s North American trade deal

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Oil drops 5% on report Saudi oil output will return to normal faster than initially anticipated

Oil prices dropped more than 5% in a sudden move on Tuesday after report said Saudi Arabia’s oil production will be restored to normal levels faster than initially expected.

Brent crude futures, the international benchmark, fell $3.68 or 5.33%, to $65.34. The contract soared as much as 19.5% on Monday to $71.95 per barrel, the biggest jump in history.

U.S. West Texas Intermediate futures slipped $3.15, or 5.01%, to $59.76 per barrel after posting their biggest climb since 2008 in the previous session.

The kingdom’s oil output will be fully back online in the next two to three weeks, Reuters reported, citing top Saudi sources briefed on the oil operations.

Brent crude oil prices surged the most on record on Monday following a series of attacks over the weekend on Saudi’s oil industry that disrupted the kingdom’s crude production.

Saudi is close to restoring 70% of the production lost due to the attacks, Reuters reported. The impact on Saudi oil exports has been “minimal” following the attack because of ample storage, Reuters said.

The largest oil processing facility at Abqaiq and the nearby oil field was attacked on Saturday, knocking out 5.7 million barrels of daily crude production or more than half of the kingdom’s oil output. Saudi Aramco, the national oil company, reportedly could take weeks before it can restore the majority of its output at Abqaiq.

Aramco did not immediately respond to CNBC’s request for comment. 

“Geopolitical events have a historic tendency of exaggerated initial impact in markets, with a smaller economic and market impact emerging over a short period of time,” Steven Wieting, Citi’s chief investment strategist, said in a note. “The degree of any escalation with Iran is the more critical issue for longer-lasting supply risks. Temporary disruptions for repairs inside Saudi are very different.”

President Donald Trump said Monday he’s in no rush to respond to the coordinated attack. When asked if Iran was behind it, Trump said “It’s certainly looking that way at this point.”

Iranian president Hassan Rouhani said the attacks on Aramco were a “reciprocal response” to the aggression against Yemen.

The Saudi Ministry of Foreign Affairs said initial investigations have indicated that the weapons used in the attack were Iranian weapons. “Investigations are still ongoing to determine the source of the attack,” it said.

“Going forward, the main driver of prices will be time, specifically how long the Saudi production facilities will be offline,” Tom Essaye, founder of Sevens Report, said in a note on Tuesday.

Source: Top News and Analysis (pro)
Author: Continue reading Oil drops 5% on report Saudi oil output will return to normal faster than initially anticipated