Connect with us

Business

Subsiding Delta wave seen boosting U.S. job growth; worker shortages still a constraint

Published

on

November 5, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth likely accelerated in October as the headwind from the surge in COVID-19 infections over the summer subsided, offering more evidence that economic activity was regaining momentum early in the fourth quarter.

But the Labor Department’s closely watched employment report on Friday is expected to show worker shortages persisting, even after federal government-funded unemployment benefits have expired and schools have reopened for in-person learning.

Advertisement

Nonetheless, it will join rising consumer confidence and services sector activity in painting a more favorable picture of the economy, after the Delta variant of the coronavirus and economy-wide shortages of goods restrained growth in the third quarter to its slowest pace in more than a year.

“September was a bad dream, but since then vaccines have beaten back the Delta virus and the economy is marching forward and upward,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles. “We could have seen employment gains probably approaching 800,000, the primary constraint is labor shortages.”

Nonfarm payrolls likely increased by 450,000 jobs last month, according to a Reuters survey of economists. The economy created 194,000 jobs in September, the fewest in nine months.

October’s anticipated job gains would bring employment about 4.5 million jobs below its peak in February 2020. Estimates ranged from as low as 125,000 jobs to as high as 755,000.

Education employment is a wild card after sharp drops in payrolls at state and local governments as well as private institutions contributed to curbing job growth in September.

Advertisement

Pandemic-related staffing fluctuations in education have distorted normal seasonal patterns. Shortages of bus drivers and other support staff have been well documented. Education hiring in September was lower than usual, resulting in a decline after stripping seasonal fluctuations. Economists believe October was the same story.

“We think that seasonally adjusted education-related employment could fall by another 50,000 in October, as the increase in hiring that month anticipated by the seasonal factors does not fully materialize,” said Daniel Silver, an economist JPMorgan in New York.

Education payrolls dropped by 180,000 jobs in September.

The drop in COVID-19 cases has allowed Americans to travel, attend sporting events and frequent restaurants, boosting demand for workers.

IMPROVED OUTLOOK

Advertisement

Indeed, labor market indicators were fairly strong in October, with the ADP National Employment Report on Wednesday showing an acceleration in private payrolls. The Conference Board’s labor market differential – derived from data on consumers’ views on whether jobs are plentiful or hard to get – hit a 21-year high.

The number of Americans filing new claims for unemployment benefits fell below 300,000 in October and has remained under that level for four straight weeks.

The unemployment rate is forecast falling to 4.7% from 4.8% in September. While companies desperately want to hire, millions remain unemployed and outside the labor force.

This labor market disconnect has been blamed on caregiving needs during the pandemic, fears of contracting the coronavirus, early retirements, massive savings and career changes as well as an aging population and the recently ended expanded unemployment benefits. There were 10.4 million unfilled jobs as of the end of August. About five million people have left the labor force since the pandemic started.

Federal Reserve Chair Jerome Powell told reporters on Wednesday that “these impediments to labor supply should diminish with further progress on containing the virus, supporting gains in employment and economic activity.”

Advertisement

The Fed announced it would this month start scaling back the amount of money it is pumping into the economy through monthly bond purchases.

STRUCTURAL SHIFT

According to Beth Ann Bovino, chief economist at S&P Global Ratings, there was no evidence that generous pandemic jobless benefits discouraged the unemployed from seeking work. Bovino said the reason for people not taking up jobs appeared to stem more from the decision to drop out of the workforce entirely, signaling a structural shift rather than a temporary change.

She also noted that many people who moved out of cities during the pandemic have yet to return, which could create a mismatch between the open jobs and location.

“The labor market conditions since the pandemic began highlight a possible structural shift in the labor force, with 60% of the five million missing workers comprising people who have left the workforce entirely,” said Bovino.

Advertisement

There are concerns that worker shortages could be exacerbated by the White House’s vaccine mandate, which comes into effect on Jan. 4 and applies to federal government contractors and businesses with 100 or more employees.

There has also been a rise in strikes as workers take advantage of the tight labor market to demand more pay and better conditions. The walk out by about 10,000 Deere & Co workers will have no impact on October’s payrolls as it started in the middle of the period during which the government surveyed households and businesses for the employment report.

“Recent strike activity and vaccine mandates have been challenging factors on the supply front and suggest that labor market improvement will be gradual in coming months,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

The scramble for workers is boosting wage growth, which together with record savings should help to underpin consumer spending over the holiday session, though salaries are lagging inflation and shortages of goods abound.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

Advertisement

Continue Reading
Advertisement

Business

Volkswagen exploring IPO of luxury carmaker Porsche -sources

Published

on

December 7, 2021

BERLIN/HAMBURG (Reuters) -Volkswagen is still exploring a possible initial public offering of its luxury brand Porsche AG as a way to fund its costly shift towards software and electric vehicles, two people familiar with the matter told Reuters on Tuesday.

Speculation about a Porsche listing, which could be a record-breaking IPO, has surfaced over the year, but no decision has been made due to a complex stakeholder set-up, the sources said, adding it was unclear whether a listing would happen.

Reports about a possible listing of the unit have included estimates of a standalone Porsche AG valuation of between 45 billion and 90 billion euros ($101 billion).

Advertisement

Earlier, Handelsblatt reported that the Porsche and Piech families, who control Volkswagen’s largest shareholder Porsche SE, are considering selling part of their VW stake to fund a substantial stake purchase in a possible Porsche IPO.

The families, who own 31.4% of Volkswagen shares and have 53.3% of voting rights via Porsche SE, could sell enough shares to raise roughly 15 billion euros, the German newspaper said.

They would remain the largest shareholder in Volkswagen, Handelsblatt added, ahead of the state of Lower Saxony, which holds a 11.8% equity stake and 20% of voting rights.

Porsche SE called the report “pure speculation”, without giving further comment. Volkswagen declined to comment.

Volkswagen preference shares, which have fallen significantly in recent weeks due to a leadership tussle, closed up 8.6% at the top of Germany’s benchmark DAX index.

Advertisement

Porsche SE shares closed 8.5% higher.

People familiar with the matter told Reuters in May that the families were prepared to take a direct stake in Porsche https://www.reuters.com/business/finance/porsche-piech-families-weigh-direct-stake-possible-porsche-ipo-sources-2021-05-31 AG should the luxury carmaker be separately listed.

Such a move would loosen the grip of the families on Europe’s largest carmaker Volkswagen, in favour of direct ownership of the sports car brand founded by their ancestor Ferdinand Porsche, which dates back to 1931.

Asked about a potential listing of Porsche in October, Chief Executive Herbert Diess said that Volkswagen was constantly reviewing its portfolio, but gave no further comment.

Diess will probably stay on as VW CEO although he will cede some responsibilities after a clash with labour leaders, two sources familiar with the matter told Reuters.

Advertisement

($1 = 0.8894 euros)

(Reporting by Victoria Waldersee, Ilona Wissenbach, Jan Schwartz, Pamela Barbaglia and Christoph Steitz; Editing by Madeline Chambers and Alexander Smith)

Continue Reading

Business

American Airlines taps president Isom as next CEO

Published

on

December 7, 2021

By Rajesh Kumar Singh and Abhijith Ganapavaram

(Reuters) – American Airlines Group Inc CEO Doug Parker will hand over the reins of the No. 1 U.S. airline to president Robert Isom on March 31, the company said on Tuesday, sending its shares up 2% in morning trade.

Parker will continue as chairman, while Isom will join the carrier’s board after he takes over as CEO.

Advertisement

Isom, a longtime airline industry executive, took over as president in 2016 and has overseen operations, planning, marketing and pricing.

The leadership change comes as the industry recovers from the lows hit during the pandemic but faces operational challenges due to the threat posed by the Omicron coronavirus variant.

Isom faces the challenge of repairing American’s balance sheet as the pandemic has left it with the largest debt stock in the U.S. airline industry. He will also have to work on improving relations with the company’s labor unions.

In an interview, Isom said American would focus on returning to profitability as soon as possible and delivering a reliable service. He also aims to pay down a lot of debt.

“We’re going to be really focused on making sure that we have an appropriate level of leverage,” Isom told Reuters.

Advertisement

Returning to profitability, however, is contingent upon a full recovery in travel demand. Isom said while the airline’s domestic business remained strong, new travel restrictions following the Omicron variant’s discovery had dampened demand in some international markets.

“If there’s anything, it just delays recovery,” he said.

Isom, 58, has been playing a key role in developing American’s strategy before and through the pandemic.

Analysts at Jefferies said he would bring broad experience to the job and the leadership change was unlikely to result in a deviation from the strategy, focused on fleet renewal and alliances, under Parker.

“Given Mr. Isom’s lengthy history with Mr. Parker, this transition was likely in place for a significant period of time,” they wrote in a note.

Advertisement

A ‘THOUGHTFUL AND WELL-PLANNED’ SUCCESSION

In a letter to employees, Parker said the transition was the result of a “thoughtful and well-planned multi-year process”, dating back to Isom’s elevation to president in 2016.

Parker, 60, said the transition would have happened sooner if it was not for the pandemic, which brought the airline industry to its knees.

“While we still have work to do, the recovery from the pandemic is underway and now is the right time to make the transition,” he said.

Parker, one of the longest-serving chief executives in the airline industry, is known for overseeing consolidation in the industry as well as leading it through crises.

Advertisement

He took the reins at America West Airlines just 10 days before the 9/11 attacks. When America West merged with US Airways in 2005, Parker continued as CEO of the combined company.

He was named chairman and CEO of American Airlines in 2013 after its merger with US Airways.

He was also instrumental in negotiating a COVID-19 relief package for the industry, which carriers say has saved thousands of jobs, prevented bankruptcy and put it in a position to support the economy’s recovery from the pandemic.

Under Parker, American expanded overseas and took on low-cost carriers at home, sparking a fare war. He formed strategic partnerships with Alaska Airlines and JetBlue Airways Corp to compete in markets where other carriers had an advantage.

The alliance with JetBlue, however, has invited lawsuits from the U.S. Justice Department and six states.

Advertisement

In June, Southwest Airlines Co named company veteran Robert Jordan as CEO in place of Gary Kelly, who will step down next year.

(Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru Editing by Arun Koyyur, Jason Neely and Mark Potter)

Continue Reading

Business

U.S. bank executives worried about sustained high inflation

Published

on

December 7, 2021

By Matt Scuffham

NEW YORK (Reuters) -U.S. bank executives on Tuesday raised concerns about the impact of a sustained period of higher inflation, adding to pressure on the Federal Reserve to accelerate plans to wind down the pace of its asset purchases.

Senior bankers are increasingly concerned that higher inflation could impact borrowers’ ability to pay back loans, slow U.S. economic growth and destabilize stock markets.

Advertisement

Wells Fargo Chief Executive Charlie Scharf said at a conference that the U.S. central bank may need to move quicker to address inflation concerns. Goldman Sachs CEO David Solomon said he anticipated a period of higher inflation.

Bank of America CEO Brian Moynihan said his bank was running internal health checks to ensure its portfolios could withstand a return to 1970s-style inflation.

“We’ve been doing that for three or four quarters now figuring that we’d be at this place where inflation is real and out there,” Moynihan said at the Goldman Sachs Financial Services Conference.

Annual U.S. inflation increased from 1.4% to 13.3% from 1960 to 1979, while the country’s economic growth stagnated.

That had a marked impact on people’s lives, with the value of savings and the purchasing power of fixed incomes like pensions being undermined.

Advertisement

U.S. inflation is running at more than twice the Fed’s flexible 2% annual target.

The International Monetary Fund last week warned of intensifying inflationary pressures, especially in the United States, and said U.S. central bankers should focus more on inflation risks.

“There’s a case to be made that they (the Federal Reserve) should be moving faster than they’ve been moving,” Scharf said.

“Inflation is very, very real,” he said. “Prices are significantly higher for inputs across most industries. Labor shortages and wage increases are extremely real. Whether that continues for several years is not all that relevant, but it certainly will have an impact over the next year or so.”

PANDEMIC’S SHADOW

Advertisement

The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Fed Chair Jerome Powell said last week.

“My guess is now that there will be a quicker path to appropriate actions,” Scharf said.

Goldman Sachs’ Solomon anticipates inflation will be higher for a period but doesn’t expect a repeat of the cost rises of the 1970s, he said in an interview with CNBC.

“There’s a reasonable chance that we’re going to have inflation above trend for a period of time, but that doesn’t mean it has to be like the 1970s,” he said. “You’ve got to be cautious and manage your risk appropriately.”

Solomon acknowledged “uncertainty” in global financial markets due to factors including the emergence of the Omicron COVID-19 variant and question marks over the pace at which the Fed and other central banks will reduce asset purchases.

Advertisement

The Fed has begun reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities on a pace that would put it on track to complete the wind-down in mid-2022. There is growing pressure on the central bank to accelerate the end of the bond-buying program, which was unveiled in 2020 to stem the economic fallout from the pandemic.

“We’re still not completely out of the pandemic. There’s uncertainty that comes from that and that uncertainty is going to affect economic activity,” Solomon said.

“On top of that, we have shifts going on in fiscal and monetary policy to try to balance that. There’s no question that this has been an unprecedented period, so it’s very hard to predict how we’re going to come out of this.”

(Reporting by Matt Scuffham, Editing by Louise Heavens, Emelia Sithole-Matarise and Paul Simao)

Advertisement
Continue Reading
Advertisement

Trending