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U.S. weekly jobless claims hit 19-month low as labor market tightens

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October 21, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labor market, though a shortage of workers could keep the pace of hiring moderate in October.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed unemployment rolls shrinking significantly early this month. There is cautious optimism that the expiration of federal government-funded benefits on Sept. 6 will broaden the pool of labor in the coming months.

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“Hiring demands remain robust, and the short supply of potential workers should make employers think twice about cutting payrolls,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 290,000 for the week ended Oct. 16, the lowest level since the middle of March in 2020, when the nation was in the early stage of the COVID-19 pandemic.

It was also the second straight week that claims remained below 300,000 as employers hold on to workers in the face of an acute labor shortage. Economists polled by Reuters had forecast 300,000 claims for the latest week.

Unadjusted claims, which economists say offer a better read of the labor market, tumbled 24,293 to 256,304 last week. A jump of 17,570 in filings in California was offset by notable declines in Virginia, Michigan, Pennsylvania, Texas, New York, Kentucky and the District of Columbia.

Claims have declined from a record high of 6.149 million in early April 2020. A 250,000-300,000 range for claims is seen as consistent with a healthy labor market. The number of people continuing to receive benefits after an initial week of aid dropped 122,000 to 2.481 million in the week ended Oct. 9. That was also the lowest level since the middle of March in 2020.

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Stocks on Wall Street were mixed. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.

The pandemic has upended labor market dynamics, leading to a staggering 10.4 million job openings as of the end of August even as about 7.7 million people were officially unemployed in September. A range of factors has been blamed for the disconnect, including lack of childcare, expanded unemployment benefits, early retirements and career changes.

Though schools have reopened for in-person learning and the expanded unemployment benefits ended, there was no boost to the labor force last month. About 183,000 people dropped out, leading to a decline in the labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one.

WIDESPREAD SHORTAGES

But with the number of people receiving unemployment checks under state and federal government programs falling by about 9 million since early last month, economists are betting they will start trekking back to the labor market. The total number of people collecting unemployment checks under all programs dropped 369,992 to 3.279 million during the week ended Oct. 2.

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“Presumably many of these workers will be looking for work soon, if they haven’t already started to, this will help alleviate some of the current labor shortages in the economy,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

The claims data covered the period during which the government surveyed employers for the nonfarm payrolls component of October’s employment report. Filings dropped significantly between the September and October survey weeks, implying a pickup in employment growth this month.

Claims data, however, has not been a reliable indicator of employment growth over the past year because of the upheaval caused by the pandemic. Nonfarm payrolls increased by just 194,000 jobs in September, the fewest in nine months.

Labor shortages are occurring across all industries, and are causing congestion at ports and hurting production at factories as well as leaving shelves empty and fanning inflation.

The paucity of workers was echoed on Wednesday by the Federal Reserve’s “Beige Book” report of anecdotal information on business activity collected from contacts nationwide, which showed “employment increased at a modest to moderate rate in recent weeks, as demand for workers was high, but labor growth was dampened by a low supply of workers.”

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Shortages of workers and raw materials have led economists to anticipate that gross domestic growth slowed to as low as a 0.5% annualized rate in the third quarter after accelerating at a 6.7% pace in the April-June quarter.

Slowing activity because of the inputs crunch was underscored by a separate survey from the Philadelphia Fed on Thursday that showed manufacturing in the mid-Atlantic regions grew at a moderate pace in October.

Factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware, reported strong orders growth as well as a building up of unfinished work. They were upbeat about business conditions over the next six months and anticipated higher capital expenditures in 2022.

The soft growth patch was also highlighted by a third report from the Conference Board showing its index of Leading Economic Indicators rose 0.2% in September, the smallest gain in seven months, after increasing 0.8% in August.

“Anecdotal evidence suggests that bottlenecks are not easing, and survey evidence indicates that many businesses anticipate disruptions to last throughout 2022,” said Evan Karson, an economist at Moody’s Analytics in West Chester, Pennsylvania.

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There was, however, some good news from the housing market. A fourth report from the National Association of Realtors showed existing home sales jumped to an eight-month high in September. But the share of first-time buyers was the smallest in six years as tight inventory kept home prices elevated.

“Lack of homes for sale, compared with strong demand for owner-occupied residences, will continue to push house prices higher,” said David Berson, chief economist at Nationwide in Columbus, Ohio. “It will be difficult for existing home sales to rise significantly in coming months.”

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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Wood’s ARK fund fails to join broad market rally as lockdown stocks slip

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November 30, 2021

By David Randall

NEW YORK (Reuters) – The broad market relief rally on Monday left many so-called stay-at-home stocks behind, dealing another blow to Cathie Wood’s ARK Innovation fund.

The $18.6 billion ARK Innovation fund, which outperformed all other U.S.-based equity funds last year due to its outsized holdings of stocks that rallied during the economic lockdowns, dropped 0.5% in morning trading Monday, well behind the 1% gain in the S&P 500.

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The benchmark index dropped nearly 2.3% Friday on news a new coronavirus variant, now known as Omicron, had been identified in southern Africa, spurring new travel restrictions worldwide. Yet global equity markets made up some of that lost ground Monday on reports the new variant may produce mild symptoms.

Signs Omicron will not deal a severe blow to the economy are prompting investors to remain in cyclical stocks, said Phil Orlando, chief equity market strategist at Federated Hermes.

“This is not February of 2020 when the world is about to shut down. If anything we think the economy will continue to improve from here,” he said.

ARK Innovation’s declines were widespread Monday, with 8 out of the fund’s 10 largest holdings down for the day. Telemedicine company Teladoc Health Inc, the fund’s second-largest holding, fell 5.1%, while streaming company Roku Inc shed 2.6% and Zoom Video Communications Inc lost 3.2%.

For the year, ARK Innovation is down 14%, while the benchmark S&P 500 is up 23.4%. That underperformance places ARK Innovation among the worst-performing mid-cap growth funds for the year to date, according to Morningstar. It remains among the top-performing funds over the last 5 years.

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Ark did not respond to a request to comment for this story.

(Reporting by David Randall; Editing by Mark Porter)

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Oil prices rise on bets OPEC+ will hold off output hike

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November 30, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Tuesday, extending a rebound from last week’s plunge on growing expectations major producers would pause plans to add crude supply in January amid uncertainty over the severity of the Omicron coronavirus variant.

U.S. West Texas Intermediate (WTI) crude futures jumped 99 cents, or 1.4%, to $70.94 a barrel at 0105 GMT, adding to a 2.6% rise on Monday.

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Brent crude futures climbed 82 cents, or 1.1%, to $74.26 a barrel, after gaining 1% on Monday.

Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global growth.

The World Health Organization said on Monday Omicron posed a very high risk of infection surges, and several countries stepped up travel curbs. It is still unclear how severe the new variant is and whether it can resist existing vaccines.

With the demand outlook under a cloud, expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, due to meet on Dec. 2 will put on hold plans to add 400,000 barrels per day (bpd) of supply in January.

“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

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Pressure was already growing within OPEC+ to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.

“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighbouring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production,” OANDA analyst Edward Moya said in a note.

Also weighing on the market is the prospect of a resumption of oil exports from Iran, following upbeat comments from diplomats as talks resumed on Monday between world powers and Iran on reviving a nuclear pact.

(Reporting by Sonali Paul. Editing by Gerry Doyle)

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Main IKEA retailer’s profits jump despite ‘unprecedented challenges’

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November 30, 2021

By Anna Ringstrom

STOCKHOLM (Reuters) – Ingka Group, the owner of most IKEA stores world-wide, reported on Tuesday a jump in annual profit on the back of record demand for home furnishing as people stay at home more due to the pandemic.

Despite more temporary store closures due to pandemic related restrictions than the year before, and product shortages due to the global supply chain crisis, operating profit in the 12 months through August was up 31% at 1.9 billion euros. Sales were up 6%, to above pre-pandemic levels, with online sales jumping to account for 30% of total sales, against 18% the year before.

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Compared to the pre-pandemic fiscal 2019, profit was still down, by 8%, due to high investment levels. Capital expenditure was up 52% on the year, at 3.2 billion euros, as Ingka accelerated investments in digitalisation, new inner-city store formats, existing stores, and distribution and delivery networks.

Chief Financial Officer Juvencio Maeztu told Reuters he expected sales to grow also in the current fiscal year, and profits to be at least as high as in the past year. Investment levels would probably remain at least as high as in the past year, he said.

“Our journey to create a better IKEA forges ahead in a world that faces unprecedented challenges. COVID-19 will continue to impact our business and the communities we are a part of,” the company said in a statement.

“The global supply and transport crisis will require a resilient, flexible response. Efforts across the value chain will continue to mitigate the challenges with product availability, inflation, prices of raw materials and transport that are expected to continue into FY22.”

Budget furniture brand IKEA operates through a franchise system, with Ingka the main franchisee to brand owner Inter IKEA with 392 stores including city stores, and 73 smaller store formats.

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Inter IKEA, which is in charge of design and supply, in the past year absorbed substantially higher costs for raw materials and transports, but has flagged it will raise prices to its retailers this year in the face of continued high supply related costs.

Ingka’s Maeztu said in the interview that he could not rule out that Ingka would also raise prices this year.

(Reporting by Anna Ringstrom; editing by Richard Pullin)

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