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U.S. consumer spending strong; robust wage gains hint at long spell of high inflation

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October 29, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending increased solidly in September, but was partly flattered by higher prices, with inflation remaining hot as shortages of motor vehicles and other goods persisted amid global supply constraints.

Inflation pressures are broadening out, with other data on Friday showing employers boosted wages by the most on record in the third quarter as they competed for scarce workers. The industry-wide surge could undercut Federal Reserve Chair Jerome Powell’s long-held view that high inflation is transitory.

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The strength in consumer spending at the end of last quarter, together with falling COVID-19 infections and recovering consumer confidence bode well for a pickup in economic activity in the final three months of the year, though shortages and more expensive goods pose risks. The economy grew at its slowest pace in more than a year in the third quarter.

“The economy has a supply problem not a demand problem,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The economy has money to burn and that is why inflation will be hard to extinguish.” 

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month after rebounding 1.0% in August, the Commerce Department said. Economists polled by Reuters had forecast consumer spending increasing 0.5%.

Spending was driven by demand for services such as healthcare, dining out as well as hotel and motel accommodation amid declining cases of the coronavirus Delta variant. A wave of infections over summer worsened worker shortages at factories, mines and ports, further stressing supply chains.

Services spending increased 0.6% after advancing 0.7% in August. That offset a 0.2% drop in outlays on long-lasting manufactured goods, which largely reflected a decrease in new motor vehicle sales.

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Outside the shutdown in spring 2020, which severely depressed output, the third quarter was the worst period for motor vehicle production since early 2009 because of a global shortage of semiconductors. Auto inventories have been run down and some shelves are bare, curbing spending and boosting prices.

Price pressures remained strong in September, reducing consumers’ buying power. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, climbed 0.2%. That was the smallest gain since February and followed a 0.3% rise in August.

In the 12 months through September, the so-called core PCE price index increased 3.6% for a fourth straight month. The core PCE price index is the Fed’s preferred inflation measure for its flexible 2% target. When adjusted for inflation, consumer spending rose 0.3% after gaining 0.6% in August.

Stocks on Wall Street were trading lower after dismal results from mega-cap firms Apple and Amazon.com reignited concerns of labor and supply shortages. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

WAGES SURGING

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The Fed is expected to announce at next week’s policy meeting that it will start reducing the amount of money it is pumping into the economy through monthly bond purchases.

The consumer spending and inflation data was included in the advance gross domestic product report for the third quarter published on Thursday.

Growth in consumer spending braked to a 1.6% annualized rate after double-digit gains in the previous two quarters. That restricted economic growth to a 2.0% rate, the slowest since the second quarter of 2020, when the economy suffered a historic contraction in the wake of stringent mandatory measures to contain the first wave of COVID-19 infections.

Strong inflation pressures were underscored by a separate report from the Labor Department on Friday showing the Employment Cost Index, the broadest measure of labor costs, surged 1.3% in the third quarter.

The largest gain since the first quarter of 2001, when the government started tracking the series, reflected an increase across industries and followed a 0.7% rise in the April-June period. Labor costs powered ahead 3.7% on a year-on-year basis, the largest rise since the fourth quarter of 2004, after increasing 2.9% in the second quarter.

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The ECI is viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Economists had forecast the ECI advancing 0.9% in the third quarter.

Wages and salaries soared a record 1.5% last quarter after increasing 0.9% in the April-June quarter. They were up 4.2% year-on-year. Benefits gained 0.9% after rising 0.4% in the second quarter. The COVID-19 pandemic has upended labor market dynamics, creating an economy-wide acute shortage of workers. There were 10.4 million job openings at the end of August.

“While we expect wage growth to slow over the second half of 2022, as more workers return to the jobs market, the near-term pressure on labor costs will keep inflation elevated over the next few quarters and make it difficult to settle back to the Fed’s 2% target anytime soon,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.

Solid wage growth and ample savings should help to support consumer spending and keep the economic expansion going. Though the Commerce Department data showed personal income tumbling 1.0% in September, that largely reflected the expiration of government-funded unemployment benefits.

Wages increased by a strong 0.8% last month. The saving rate fell to a still-high 7.5% from 9.2% in August.

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Household wealth is at record highs, thanks to a strong stock market and high house prices, positioning consumers to boost spending when supply improves. Consumers also accumulated at least $2.5 trillion of excess savings during the pandemic.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

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Tesla sold 52,859 China-made vehicles in November – CPCA

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December 8, 2021

BEIJING (Reuters) – U.S. electric vehicle maker Tesla Inc sold 52,859 China-made vehicles in November, including 21,127 for export, the China Passenger Car Association (CPCA) said on Wednesday.

Tesla, which is making Model 3 sedans and Model Y sport-utility vehicles in Shanghai, sold 54,391 China-made vehicles in October, including 40,666 that were exported.

Chinese EV makers Nio Inc 10,878 cars last month, a monthly record high, and Xpeng Inc delivered 15,613 vehicles. Volkswagen AG said it sold over 14,000 ID. series EVs in China in November.

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CPCA said passenger car sales in November in China totalled 1.85 million, down 12.5% from a year earlier.

(Reporting by Sophie Yu, Brenda Goh; editing by Jason Neely)

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Renault Zoe goes from hero to zero in European safety agency rating

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December 8, 2021

By Nick Carey

LONDON (Reuters) – French carmaker Renault on Wednesday received a blow for its popular Zoe electric model, as the European New Car Assessment Programme (NCAP) gave it a zero-star safety rating in tests that are standards for Europe.

The carmaker, which is cutting costs and working to turn around its performance after overstretching itself over years of ambitious global expansion, also received a one-star rating for its electric Dacia Spring model.

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Euro NCAP said the latest Zoe had a worse seat-mounted side airbag than earlier versions. Euro NCAP noted the Renault Laguna had been the first car ever to receive a five-star rating in 2001.

“Renault was once synonymous with safety,” Euro NCAP secretary general Michiel van Ratingen said in a statement. “But these disappointing results for the ZOE and the Dacia Spring show that safety has now become collateral damage in the group’s transition to electric cars.”

In the year through October, the Zoe was the third top-selling fully-electric car in Europe, behind Tesla’s Model 3 in top place and Volkswagen’s ID.3.

In a press release titled “Hero to Zero,” UK insurance group Thatcham Research noted the Zoe had initially received a five-star rating back in 2013.

“It’s a shame to see Renault threaten a safety pedigree built from the inception of the rating,” said Matthew Avery, Thatcham’s chief research strategy officer and a Euro NCAP board member.

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Eleven cars received ratings in Euro NCAP’s final round of tests for 2021, which did not include Tesla models.

A number of other vehicles received five-star ratings, including BMW’s electric iX, Daimler’s electric Mercedes-Benz EQS, Nissan’s Qashqai and Volkswagen’s VW Caddy.

(Reporting By Nick Carey; Editing by Bernadette Baum)

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Weibo shares close down 7.2% in Hong Kong debut

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December 8, 2021

By Scott Murdoch

HONG KONG (Reuters) -Chinese social media giant Weibo Corp’s shares closed 7.2% below their issue price in Hong Kong on Wednesday, as it became the latest U.S.-listed China stock to seek out a secondary listing closer to home.

The Hong Kong debut was in line with a fall in Weibo’s primary listing in New York after a torrid week for U.S.-listed China shares, which are facing greater U.S. regulatory scrutiny and also under pressure from Chinese authorities.

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Weibo, which raised $385 million for its Hong Kong listing, opened at $256.20 and closed at HK$253.2 after a volatile debut session.

The stock had been priced at HK$272.80 each in its secondary listing in which 11 million shares were sold.

“For Weibo, it’s a matter of timing. The Hong Kong market had started to rebound this week and now we are seeing some softness emerging in the market,” said Louis Tse, Wealthy Securities director in Hong Kong.

Weibo’s fall came as Hong Kong’s Hang Seng Index closed Wednesday up 0.06% while the Tech Index was 0.03% higher.

Some major stocks such as Alibaba Group Holdings, down 4.35%, were off sharply as sentiment towards tech majors remains fragile.

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“The listing market in Hong Kong is very lukewarm right now,” said Dickie Wong, Kingston Securities executive director.

“Plus, there is regulatory pressure from the (U.S. Securities and Exchange Commission) on Chinese companies to disclose basically everything within three years.

“So there is a major trend that most of the U.S.-listed Chinese companies will seek secondary or dual primary in Hong Kong so they can exit the U.S. market if they need to.”

Ride-hailing giant Didi Global decided last week to delist from New York https://www.reuters.com/technology/didi-global-start-work-delisting-new-york-pursue-ipo-hong-kong-2021-12-03, succumbing to pressure from Chinese regulators concerned about data security and denting sentiment toward Chinese stocks.

Hong Kong and China’s mainland STAR Market have attracted $15.2 billion worth of secondary listings from U.S. listed Chinese companies so far this year, according to Refinitiv data.

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“The moves are probably based on the increasing recognition that the U.S.-China decoupling will not stop and will proceed steadily,” said LightStream Research analyst Mio Kato, who publishes on Smartkarma.

“I would expect a continuous flow of listings from New York to Hong Kong over the next year or two.”

The U.S administration is progressing plans to delist Chinese companies if they do not meet the country’s auditing rules, which could affect more than 200 companies.

Chinese companies https://www.reuters.com/business/us-sec-mandates-foreign-companies-spell-out-ownership-structure-disclose-2021-12-02 that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity, and provide evidence of their auditing inspections, the Securities and Exchange Commission (SEC) said last week.

(Reporting by Scott Murdoch and Donny Kwok; editing by Richard Pullin and Louise Heavens)

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