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Six questions that could shape the future of the U.S. labor market

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November 8, 2021

By Jonnelle Marte

(Reuters) – More than a year and a half after the COVID-19 pandemic ruptured the U.S. job market in historic fashion, huge gaps in employment and the labor force remain despite unprecedented demand for workers and a record number of vacant jobs.

Policymakers are struggling to understand just what is keeping so many people from returning to work – or even looking for a job. Friday’s monthly payrolls report showed strong hiring in October but the labor force participation rate tracking the share of people either working or searching for jobs didn’t budge.

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“There’s room for a whole lot of humility here as we try to think about what maximum employment would be,” Federal Reserve Chair Jerome Powell said last week after the central bank’s latest policy meeting.

Moments that were expected to mark turning points in the labor market recovery, such as the start of the school year or the expiration of enhanced unemployment benefits, did not lead to a massive return to the workplace.

Instead, economists are learning, workers may be stepping back because of family responsibilities, concerns about the virus or the desire to do something new.

Here’s a look at the questions experts say could help determine what the labor market could look like as the pandemic fades.

HOW MANY PEOPLE ARE NOT WORKING BECAUSE OF THE VIRUS?

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That remains hard to pin down, but Friday’s data did signal some improvement. About 3.8 million people were unable to work or reported reduced hours due to their business closing or reducing operations, down from roughly 5.0 million in September, resuming a downward trend that was interrupted by a rise in August.

Those saying they did not look for work because of the pandemic declined to 1.3 million last month from 1.6 million in September, the first notable drop since June.

WILL RETIREES COME BACK TO THE LABOR FORCE?

Retiree ranks increased by 3.6 million from February 2020 to June 2021, greater than the 1.5 million retirements that would have been expected under the pre-pandemic trend for retirements, according to the Kansas City Fed. That was driven by a big drop in those moving from retirement back to work, likely because of health concerns. More baby boomers also left the labor market.

(GRAPHIC: Spike in number of retirees – https://graphics.reuters.com/USA-ECONOMY/FULL-EMPLOYMENT/jnvwexemavw/chart.png)

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Fed Board Governor Michelle Bowman said last month surging retirements “may make it harder, or even impossible in the near term, to return to the high level of employment achieved before the pandemic.”

The tight prepandemic labor market brought some people out of retirement, and economists say that could happen again if infections keep dropping and wages keep rising.

HOW LONG UNTIL WOMEN’S EMPLOYMENT RECOVERS?

School reopenings were predicted to bring waves of women back to the work force, but that has yet to happen and may not, according to the Brookings Institution.

Tracking how long it takes those women, including Black and Hispanic women hardest hit by pandemic job losses, to get back to work is “going to be a very important focus of policymakers over the next six months,” said Joe Brusuelas, chief economist for RSM.

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(GRAPHIC: Women of color see slower labor recovery – https://graphics.reuters.com/USA-ECONOMY/FULL-EMPLOYMENT/lgvdwnkbjpo/chart.png)

If a large share find jobs in that time, that could lift the labor supply and ease wage pressures, he said. If not, then expectations for work force recovery may drop and wage pressures could persist.

ARE SAVINGS KEEPING PEOPLE HOME?

Savings accumulated during the pandemic as consumers reduced spending, received stimulus checks and benefited from a federal pause on student loan and mortgage payments. This perhaps gave job seekers room to hold out for the right position or to care fulltime for family longer. Those funds could soon run out now that enhanced unemployment benefits are gone and some forbearance programs are expiring, economists say.

(GRAPHIC: Pandemic cash cushion Pandemic cash cushion – https://graphics.reuters.com/USA-ECONOMY/gkplgxroevb/chart.png)

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As of September, households had saved about $2.5 trillion more than they would have if the pandemic had never happened, Mark Zandi, chief economist at Moody’s Analytics, estimates. Most of that was stashed away by higher-income households. Still, he estimates about $500 billion was saved by households in the 20%-60% range of the income distribution, leaving those households with about $10,000 per person, which he projects will get spent down by the end of this year or early 2022.

Lower-income households, by contrast, have only about $1,000 saved on average, according to the JPMorgan Chase Institute. “The financial pressure to go back to work will be overwhelming,” Zandi said.

HOW MANY PEOPLE PREFER TO WORK FOR THEMSELVES?

The pandemic sparked a surge in filings for new businesses as people tried to capitalize on new trends, make ends meet as freelancers or take more control over their work.

That could help explain some of the worker shortage: More people are choosing to go it alone. It is too early to know how many new businesses will survive or how many jobs they might create.

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Analysis from the Atlanta Fed and University of Maryland economist John Haltiwanger found many of the new businesses are likely to remain “non-employer” firms – one-person businesses run by people who are now self-employed. But the number of firms with a “high propensity” to generate jobs also increased.

WILL IMMIGRATION REBOUND?

Immigration declined over the past several years under former President Donald Trump’s stricter policies and then restrictions imposed during the pandemic. Visas issued to work-eligible foreigners declined by 1.2 million during the pandemic, according to the Cato Institute.

(GRAPHIC: Fewer foreign workers – https://graphics.reuters.com/USA-ECONOMY/FULL-EMPLOYMENT/mopanlnxnva/chart.png)

That trend is reversing as infections drop and restrictions are loosened. The number of immigrant workers could rise by between 250,000 to 500,000 next year from current levels, Julia Coronado, president of MacroPolicy Perspectives and a former Fed economist, said during a recent webinar.

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The decline in immigration could allow labor market conditions to stay tight even without a full return to pre-pandemic employment levels, said Jesse Edgerton, a senior economist at J.P. Morgan. That means wages could continue to grow for some jobs, pulling more people off of the sidelines and boosting labor force participation.

(Reporting by Jonnelle Marte; Editing by Dan Burns and Chizu Nomiyama)

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Oil up on OPEC+ plan to meet ahead of schedule if Omicron dents demand

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December 3, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Friday, extending gains after OPEC+ said it would review supply additions ahead of its next scheduled meeting if the Omicron variant hits demand, but prices were still on course for a sixth week of declines.

U.S. West Texas Intermediate (WTI) crude futures rose 27 cents, or 0.4%, to $66.77 a barrel at 0122 GMT, adding to a 1.4% gain on Thursday.

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Brent crude futures rose 12 cents, or 0.2%, to $69.79 a barrel, after climbing 1.2% in the previous session.

The Organization of the Petroleum Exporting Countries, Russia and allies, together called OPEC+, surprised the market on Thursday when it stuck to plans to add 400,000 barrels per day (bpd) supply in January.

However the producers left the door open to changing policy swiftly if demand suffered from measures to contain the spread of the Omicron coronavirus variant. They said they could meet again before their next scheduled meeting on Jan. 4, if needed.

That boosted prices with “traders reluctant to bet against the group eventually pausing its production increases,” ANZ Research analysts said in a note.

Wood Mackenzie analyst Ann-Louise Hittle said it made sense for OPEC+ to stick with their policy for now, given it was still unclear whether Omicron could resist existing vaccines.

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“The group’s members are in regular contact and are monitoring the market situation closely,” Hittle said in emailed comments.

“As a result, they can react swiftly when we start to get a better sense of the scale of the impact the Omicron variant of COVID-19 could have on the global economy and demand.”

The market has been roiled all week by the emergence of Omicron and speculation that it could spark new lockdowns, dent fuel demand and spur OPEC+ to put its output increases on hold.

Brent was poised to end the week down about 4%, while WTI was on track for a 2% drop on the week, both down for a sixth straight week.

(Reporting by Sonali Paul; editing by Richard Pullin)

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Didi Global to start work on delisting from New York, to pursue listing in Hong Kong

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December 3, 2021

(Corrects last paragraph to say Reuters reported last month on Didi preparing for relaunch of its apps, not this month)

SHANGHAI (Reuters) -Chinese ride-hailing giant Didi Global will delist from the New York stock exchange and pursue a listing in Hong Kong, it said on Friday, after it ran afoul of Chinese regulators by pushing ahead with its $4.4 billion U.S. IPO in July.

The company made the announcement first on its Twitter-like Weibo account.

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“Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong,” it said.

It later said in a separate English language statement that its board had approved the move.

“The company will organize a shareholders meeting to vote on the above matter at an appropriate time in the future, following necessary procedures,” it said.

Reuters reported last week citing sources that Chinese regulators had pressed Didi’s top executives to devise a plan to delist from the New York Stock Exchange due to concerns about data security.

The company pressed ahead with its New York listing despite a regulator urging it to put it on hold while a cybersecurity review of its data practices was conducted, sources have told Reuters.

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Didi is also preparing to relaunch its apps in the country by the end of the year in anticipation that Beijing’s cybersecurity investigation into the company would be wrapped up by then, Reuters reported last month.

(Reporting by Brenda Goh; Editing by Himani Sarkar and Edwina Gibbs)

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Exclusive-Toyota turns to Chinese tech to reach its electric holy grail

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December 3, 2021

By Norihiko Shirouzu

BEIJING (Reuters) – Toyota Motor Corp will launch an all-electric small sedan in China late next year, having turned to local partner BYD for key technology to finally make an affordable yet roomy runaround, four sources told Reuters.

Two of the four people with knowledge of the matter described the car as an electric holy grail for Toyota which has struggled for years to come up with a small EV that is both competitive on cost in China and doesn’t compromise on comfort.

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The sources said the breakthrough was chiefly down to BYD’s less bulky lithium-iron-phosphate (LFP) Blade batteries and its lower-cost engineering know-how – a turning of the tables for a Chinese company whose popular F3 saloon was inspired by Toyota’s Corolla back in 2005.

Little known outside China at the time, BYD, or “Build Your Dreams”, hit the headlines in 2008 when Warren Buffett bought a 10% stake and it has since become one of the biggest manufacturers of so-called new energy vehicles in the world.

Toyota’s new EV will be slightly bigger than its compact Corolla, the world’s best-selling car of all time. One source said think of it as “a Corolla with bigger back-seat section”.

It will be unveiled as a concept car at the Beijing auto show in April and will then most likely be launched as the second model in Toyota’s new bZ series of all-electric cars, even though it will only be on sale in China for now.

“The car was enabled by BYD battery technology,” one of the sources told Reuters. “It has more or less helped us resolve challenges we had faced in coming up with an affordable small electric sedan with a roomy interior.”

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It will be pitched below premium EVs such as Tesla’s Model Y or the Nio ES6 but above the ultra-cheap Hong Guang Mini EV, which starts at just $4,500 and is now China’s best-selling electric vehicle.

Two of the four sources, all of whom declined to be named because they are not authorised to speak to the media, said the new Toyota would be priced competitively.

One said it would likely sell for under 200,000 yuan ($30,000), aiming for a segment of the Chinese market Tesla is expected to target with a small car within the next two years.

“We don’t comment on future products,” a Toyota spokesperson said. “Toyota considers battery electric vehicles as one path to help us get to carbon neutrality and is engaged in the development of all types of electrified vehicle solutions.”

A BYD spokesperson declined to comment.

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‘ALL KINDA FLOORED’

The fact Toyota has been compelled to turn to BYD to solve its low-cost EV conundrum shows how far the competitive balance of the global auto industry has tipped in the past decade.

When the quality of Chinese vehicles was considered below par, global automakers were not too concerned that they couldn’t compete on price and left Chinese companies to control the domestic market for cheap, no-frills cars.

But times have changed.

Toyota executives started to worry back in 2015 when BYD launched its Tang plug-in hybrid, with significant improvements in styling, quality and performance. Most worrying was that fact it was still about 30% cheaper than comparable Toyota models.

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There was a critical turn of events in 2017 when Toyota’s top engineering leaders, including then-executive vice president Shigeki Terashi, drove several BYD cars such as the Tang at its proving ground in Toyota City near its headquarters in Japan.

Terashi subsequently visited BYD’s headquarters in Shenzhen and drove a prototype of its Han electric car.

“Their long-term quality is still a question mark, but the design and quality of these cars showed levels of maturity, yet they were much cheaper than comparable Toyota models,” said one of the four sources, who participated in the test drives.

“We were all kinda floored by that.”

Two of the sources said the BYD evaluations pushed Toyota to create its research and development (R&D) joint venture with BYD last year. Toyota now has two dozen engineers in Shenzhen working side-by-side with about 100 BYD counterparts.

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BLADE WINNER

Toyota’s new EV comes at a time it is under fire from environmental groups that maintain it is not committed to zero emissions. They say Toyota is more interested in prolonging the commercial usefulness of its successful hybrid technology.

Toyota executives say they’re not against battery electric vehicles (BEVs) but argue that until renewable energy becomes more widely available, they won’t be a silver bullet for slashing carbon emissions.

Nevertheless, Toyota has set up division in Japan dedicated to zero-emissions cars called ZEV Factory and it is developing safer and lower-cost battery technologies, including solid-state lithium-ion cells which would significantly boost an EV’s range.

While Toyota has long advocated a runaround that doesn’t compromise on comfort as the best way to popularise BEVs, it has struggled to produce such a car.

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One problem stems from need to stack bulky, heavy batteries under the floor, as they eat up the interior unless the roof is raised too – which is why many smaller EVs are SUVs.

In 2018, Toyota briefly explored the idea of a battery venture with BYD. That and subsequent interactions led Toyota’s engineers to come across BYD’s LFP Blade battery. They described it as a game-changer as it was both cheaper and freed up space.

“It’s a ‘scales fell from my eyes’ kind of technology we initially dismissed because its design is so radically simple,” one of the four sources said.

BYD officially launched its Blade battery in 2020.

LFP batteries have a lower energy density than most other lithium-ion cells but are cheaper, have a longer shelf-life, are less prone to overheating and don’t use cobalt or nickel. Tesla already uses LFP batteries in its Model 3 and Model Y in China.

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One of the sources said a typical Blade pack is about 10 cm (3.9 inches) thick when the modules are laid flat on the floor, roughly 5 cm to 10 cm thinner than other lithium-ion packs.

A BYD spokesperson said that was possible, depending on how an automaker packages the Blade pack in a car.

CUTTING CORNERS?

While Toyota has not fully solved the puzzle as to how BYD keeps coming in low on costs, two of the sources said one factor may be its abbreviated and flexible design and quality assurance process – which some Toyota engineers see as cutting corners.

Toyota’s planning process is much more rigid and thorough, the sources said. Once it has decided on the technologies, components and systems at the outset of a car’s three-to-four-year development process, it rarely changes designs.

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During the process, Toyota typically does three design prototypes and three manufacturing prototypes. Some are driven about 150,000 km (93,000 miles) to bullet-proof quality and reliability when testing for emissions or bad-road durability.

At BYD, engineers do far less prototyping – there are typically just two – and designs can be changed as late as two years into the process, which is a definite no-no at Toyota, one source said. A BYD spokesperson declined to comment.

But as a result of those last-minute changes, the technology in a BYD car is much more up to date than in a Toyota when it hits the market, and is often cheaper.

The four sources believe that further advances in simulation and virtual engineering know-how, as well as the fact that BYD produces a wide array of its own components, have helped it close potential gaps in quality and reliability that could stem from such last-minute design changes.

“Our challenge at Toyota is whether we dismiss BYD’s way of engineering as being loosey-goosey and too risky, or whether we can learn from it,” one of the sources said.

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($1 = 6.3703 Chinese yuan renminbi)

(Editing by David Clarke)

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