Month: October 2022

A seriously low U.S. and global diesel supply is likely to drive up fuel costs and worsen inflation, raising concerns as the cold weather months approach.

Analysts say that a confluence of factors, long bubbling beneath the surface, are now coming to a head as colder temperatures bring more seasonal demand for diesel, a fuel that powers trucks and buses and is also used in heating.

“This is the start of heating oil season. This is when demand really starts picking up as we enter the winter months,” said Debnil Chowdhury, the head of North and Latin American refining and marketing research at S&P Global Commodity Insights.

A confluence of factors has also strained diesel markets.  These factors include reduced refining capacity due to the pandemic, increased demand amid COVID-19 recovery and Chinese export quotas, Chowdhury said.

“Diesel demand came back a lot faster than other products. There are refineries that shut down across the globe so the ability to supply was hindered,” he said. “And then finally, China, which is a larger diesel exporter … wasn’t able to export.”

In a recent interview with Bloomberg, National Economic Council Director Brian Deese called the inventory levels “unacceptably low” and called on industry to build up its inventory.

Energy Secretary Jennifer Granholm called on industry to cut back its exports of “refined products” which include diesel and gasoline, in recent weeks, arguing that the supply is needed stateside.

About two million people in Wisconsin and three other Midwestern states could have better access to specialty health care.

That’s if a merger between Marshfield Clinic Health System and Essentia Health moves forward. Marshfield Clinic operates hospitals and clinics throughout Wisconsin. This month, it announced a potential merger with the Minnesota-based Essentia Health. Both signed a written agreement on October 12 to explore the logistics of forming an integrated health system.

The health systems have complementary geographies and capabilities, officials said. If combined, the merged health system would include 3,500 providers, 150 care sites and 25 hospitals. Around 1,600 of those providers would come from Marshfield Clinic, along with 11 hospitals and 60 clinics. Essentia, meanwhile, has 70 clinics and 14 hospitals.

While the Marshfield Clinic and Essentia merger discussion is the most recent hospital merger dialogue in Wisconsin, it likely won’t be the last.

The hospital industry has consolidated substantially over the last two decades, and at a more rapid pace since 2010, according to a 2020 study by Harvard Medical School scientists.

The Harvard scientists examined patient outcomes from almost 250 hospital mergers between 2009 and 2013. They found that hospital mergers lead to higher prices for commercially insured patients and the quality of care at consolidated hospitals has either gotten worse or stayed the same.

Real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the third quarter of 2022, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.6 percent.

The increase in real GDP reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, that were partly offset by decreases in residential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The increase in exports reflected increases in both goods and services. Within exports of goods, the leading contributors to the increase were industrial supplies and materials (notably petroleum and products as well as other nondurable goods), and nonautomotive capital goods. Within exports of services, the increase was led by travel and “other” business services (mainly financial services). Within consumer spending, an increase in services (led by health care and “other” services) was partly offset by a decrease in goods (led by motor vehicles and parts as well as food and beverages).

Within nonresidential fixed investment, increases in equipment and intellectual property products were partly offset by a decrease in structures. The increase in federal government spending was led by defense spending. The increase in state and local government spending primarily reflected an increase in compensation of state and local government employees.

Within residential fixed investment, the leading contributors to the decrease were new single-family construction and brokers’ commissions. The decrease in private inventory investment primarily reflected a decrease in retail trade (led by “other” retailers). Within imports, a decrease in imports of goods (notably consumer goods) was partly offset by an increase in imports of services (mainly travel).

Real GDP turned up in the third quarter, increasing 2.6 percent after decreasing 0.6 percent in the second quarter. The upturn primarily reflected a smaller decrease in private inventory investment, an acceleration in nonresidential fixed investment, and an upturn in federal government spending that were partly offset by a larger decrease in residential fixed investment and a deceleration in consumer spending. Imports turned down.

The Internal Revenue Service (IRS) has released Notice 2022-55, containing cost-of-living adjustments for 2023 that affect amounts employees can contribute to 401(k) plans and individual retirement accounts (IRAs).

2023 Increases

The employee contribution limit for 401(k) plans in 2023 has increased to $22,500, up from $20,500 for 2022. Other key limit increases include the following:

• The employee contribution limit for IRAs is increased to $6,500, up from $6,000.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500.
• The employee contribution limit for SIMPLE IRAs and SIMPLE 401(k) plans is increased to $15,500, up from $14,000.
• The limits used to define a “highly compensated employee” and a “key employee” are increased to $150,000 (up from $135,000) and $215,000 (up from $200,000), respectively.
• The annual limit for defined contribution plans (for example, 401(k) plans, profit-sharing plans and money purchase plans) is increased to $66,000, up from $61,000.
• The annual compensation limit (applicable to many retirement plans) is increased to $330,000, up from $305,000.

The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs and claim the Saver’s Credit (also known as the Retirement Savings Contributions Credit) also increased for 2023. The IRS’ news release contains more details.

A supply chain specialist warns the United States will be “in a world of hurt” if semiconductor production coming out of Taiwan is disrupted.

Rosemary Coates, founder and executive director of the Reshoring Institute, discussed logistics trends yesterday during a webinar hosted by the Metropolitan Milwaukee Association of Commerce’s World Trade Association.

She said new U.S. semiconductor plants are being built in Ohio, New York, Texas, California and Arizona in order to “reduce the vulnerability that we have right now” in the global semiconductor industry. According to most estimates, Taiwan currently produces more than 90 percent of the world’s most advanced semiconductor chips, which are used in a wide variety of technology including computers, vehicles and military applications.

“Because of the geopolitics with China, Taiwan is in a vulnerable position,” Coates said. “So it’s really important we rebuild the semiconductor industry in the U.S.”

Coates noted the percentage of semiconductors produced in the United States has fallen from 40 percent to just 12 percent in the past 20 years. And she added most of the chips produced domestically are “fairly low level” in terms of sophistication.

She also stressed the importance of the CHIPS and Science Act, which aims to boost the U.S. semiconductor industry. She argued “that is incredibly important” as the country is “vulnerable not only in our everyday consumer products, but also in high-tech defense products.”

This vulnerability has been exacerbated by the conflict in Ukraine, as the eastern European country produces two-thirds of the world’s supply of neon gas, which is required for semiconductor production.

Along with the efforts to boost this industry, Coates also discussed the shift toward “reshoring” of manufacturing more broadly, both in the United States and around the world. She explained the “mood of America has changed” around importing for a variety of factors, including pandemic supply chain disruptions, instability in the global economy and the impacts of tariffs.

She said the 301 tariffs on Chinese imports to the United States were meant to help support domestic production by raising the cost of these imports. But Coates explained the tariffs largely just resulted in higher costs being paid by U.S. consumers.

Student test scores saw precipitous declines in math and reading over the past two years, according to new data from the National Assessment of Educational Progress, commonly known as the nation’s report card.

The 2022 scores, which measure student proficiency in reading and math, is the first edition of the nation’s report to be released since COVID-19 pandemic policies forced schools nationwide to close their doors, in some cases up to a full year.

The biggest score declines were in math, which the National Center for Education Statistics said in a press release were the biggest decline ever recorded. For fourth graders, math scores declined by five points to 236 from their 2019 number of 241, while eighth grade scores plummeted a whopping eight points from 282 to 274.

In reading, both fourth and eighth graders saw three point declines from 2019. Fourth grade scores fell from 220 to 217 and eighth grade scores from 263 to 260.

“The results show the profound toll on student learning during the pandemic, as the size and scope of the declines are the largest ever in mathematics,” Peggy Carr, the commissioner of the National Center of Education Statistics, said in a press release. “The results also underscore the importance of instruction and the role of schools in both students’ academic growth and their overall wellbeing. It’s clear we all need to come together—policymakers and community leaders at every level—as partners in helping our educators, children, and families succeed.”

Not a single state saw an increase in scores for either subject, although a handful of states saw no change in their results. In all, 51 out of 53 states or territories saw declines in eighth grade math scores, with Delaware, West Virginia, and Oklahoma registering the largest declines. Only Utah and the Department of Defense Education Activity —which provides public schooling to military families—did not register declines in eighth grade math scores.

For eighth grade reading, scores declined in 33 states and territories, remained even with previous results in 18, and rose within DOD schools by two points. Maine, Delaware, Oklahoma, and Oregon saw the largest declines in reading scores, with scores dropping by eight points in Maine, and seven points in the other three states.

The abysmal state of student proficiency in math and reading was largely expected due to the prolonged school closures brought on by pandemic policies. But Monday’s results are the most comprehensive measurement of student achievement since the beginning of the pandemic more than two years ago.

It’s been a very good year for U.S. manufacturing.

Factories added 467,000 jobs in the last 12 months. And factory production in September was the highest in 14 years, according to the Federal Reserve.

Even as other industries struggle under the weight of rising interest rates, factories keep churning out products to meet consumers’ insatiable demand for cars, computers and candy bars. Now manufacturers are working to expand their capabilities, while struggling with supply and labor scarcities and looking to the near-future, where some economists and many on Wall Street say a recession looms.

While the new Federal Reserve data show factory production is still growing, there are anecdotal signs that demand for manufactured goods may be slowing.

A recent survey by the Institute for Supply Management found new factory orders declined last month. And manufacturing managers have grown more cautious about replacing workers when they quit or retire.

Yesterday, the Internal Revenue Service today announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2022-38 provides details about these annual adjustments.

The tax year 2023 adjustments described below generally apply to tax returns filed in 2024.

The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
• Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).The other rates are:

  35% for incomes over $231,250 ($462,500 for married couples filing jointly);
  32% for incomes over $182,100 ($364,200 for married couples filing jointly);
  24% for incomes over $95,375 ($190,750 for married couples filing jointly);
  22% for incomes over $44,725 ($89,450 for married couples filing jointly);
  12% for incomes over $11,000 ($22,000 for married couples filing jointly).

  The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

• The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
• The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
• For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
• For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
• For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
• For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
• Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
• The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2021.
• The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
• For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

The U.S. Energy Information Administration (EIA) expects most U.S. households will pay more to heat their homes this winter. In its 2022 Winter Fuels Outlook, EIA forecasts higher U.S. residential energy prices compared with last winter, as well as higher consumption of heating fuels during what is forecast to be a slightly colder winter than last year.

Compared with last winter’s heating costs, EIA forecasts U.S. households will spend 28% more for natural gas, 27% more for heating oil, 10% more for electricity, and 5% more for propane.

“Forecasting months-long weather and energy trends is not an exact science, but it’s highly likely that global dynamics affecting energy commodities will lead to higher U.S. prices for heat this winter,” said EIA Administrator Joe DeCarolis.

The Winter Fuels Outlook is a supplement to EIA’s Short-Term Energy Outlook (STEO). Other highlights from this month’s STEO include:

• EIA forecasts crude oil prices to remain below $100 per barrel through 2023, despite OPEC’s announcement of production cuts. “The global landscape for liquid fuels is complicated, but we expect that limited demand growth will partially offset price increases that would normally result from a cut in production,” DeCarolis said.
• EIA expects U.S. motorists to drive more through 2023, but it forecasts consumption of gasoline to average just below 9 million barrels per day in 2022 and 2023, slightly lower than the 2021 average. “We expect that increases in vehicle fuel efficiency will offset increases in driving by U.S. motorists in the short term,” DeCarolis said.

Wisconsin ended its fiscal year with a record $4.3 billion budget surplus.

The state Department of Administration released the numbers Friday covering the 2022 fiscal year, which ended on June 30. The state’s rainy day fund also hit its highest number in Wisconsin’s history at $1.73 billion.

Jason Stein, research director for the Wisconsin Policy Forum, said the surplus was generated as the state saw higher-than-expected tax revenues, with taxes flowing into the general fund growing by 5 percent. That growth was driven largely by increases in sales tax revenues. He said that that increase was likely helped by inflation, which drove up the cost of goods, in turn pushing up sales tax collections.

“It’s a little different when you do have those really rapid rises in consumer prices, because that’s going to, in some degree, drive up the surplus somewhat artificially,” Stein said.

Although the state cut state income taxes this year, overall income tax revenue fell by less than 1 percent.

At the same time, Stein said, spending from the state’s general fund was 2 percent less than budgeted. He said that seems to be because the state spent less than expected on Medicaid for low-income residents. He said that spending may have been offset by the flow of federal pandemic money for programs.

He said with a surplus of this size, state leaders could make significant changes.

“The state could do things like really overhaul our tax system, cut taxes. They could use the money to overhaul the way schools are funded. It could use the money to make big investments in infrastructure. It could use the money to help ensure the state is more financially sustainable,” Stein said.