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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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Deutsche Post CEO favourite to become Telekom chairman – sources

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December 5, 2021

BERLIN (Reuters) – Frank Appel, the chief executive of German logistics company Deutsche Post, is the favourite to become the next supervisory board chairman of Deutsche Telekom, two sources close to the matter told Reuters.

The sources said Deutsche Post’s supervisory board is due to meet on Wednesday and Deutsche Telekom’s board will meet a week later to discuss the matter.

Both companies declined to comment.

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The Handelsblatt newspaper reported on Saturday that Appel would potentially be proposed for election at Deutsche Telekom’s annual meeting on April 7.

The term of office of Telekom chairman Ulrich Lehner, who has headed the Telekom supervisory body since 2008, ends at next year’s shareholder meeting. He had already confirmed that an external search for a successor was under way.

Appel’s predecessor at Deutsche Post, Klaus Zumwinkel, also served as supervisory board chairman of Telekom.

The German government holds stakes in both companies.

Appel, a former McKinsey consultant, has been with Deutsche Post since 2000. In 2002, he became a member of the board of management, and in 2008 he moved up to the post of CEO.

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His contract runs until 2022 and a decision on his future at the Post had been expected soon. Some industry insiders have speculated that Appel could be ready to move on given that Deutsche Post has posted record results through the pandemic.

(Reporting by Matthias Inverardi and Nadine Schimroszik; Writing by Emma Thomasson; editing by David Evans)

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Canadian employers, facing labor shortage, accommodate the unvaccinated

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December 5, 2021

By Julie Gordon and Steve Scherer

OTTAWA (Reuters) – Canada’s tight labor market is forcing many companies to offer regular COVID-19 testing over vaccine mandates, while others are reversing previously announced inoculation requirements even as Omicron variant cases rise.

Canadian Prime Minister Justin Trudeau’s government adopted one of the strictest inoculation policies in the world for civil servants and has already put more than 1,000 workers on unpaid leave, with thousands more at risk.

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Airlines, police forces, school boards and even Canada’s Big Five banks https://www.reuters.com/world/americas/canadas-major-banks-require-employees-entering-premises-be-vaccinated-2021-08-20 have also pledged strict mandatory vaccine policies. But following through has proven less straightforward, especially as employers grapple with staffing shortages and workers demand exemptions.

Job vacancies in Canada have doubled so far this year, official data shows, and vaccine mandates can make filling those jobs harder, potentially putting upward pressure on wages. That could fuel inflation https://www.reuters.com/world/americas/canadas-annual-inflation-rate-hits-47-oct-highest-since-feb-2003-2021-11-17, already running at a near two-decade high.

“It’s already difficult to find staff, let alone putting in a vaccine mandate. You’d cut out potentially another 20%” of potential workers, said Dan Kelly, chief executive of the Canadian Federation of Independent Business.

There are pitfalls to employing the unvaccinated. Companies run a higher risk of COVID-19 outbreaks and many vaccinated employees are uncomfortable working with those who have not had the jab, said industry groups and marketing experts.

At Luda Foods, a Montreal-based soup and sauce maker, president Robert Eiser said he has 14 open jobs, no vaccine mandate and no plans to restrict new hires to the vaccinated.

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“I don’t know that I want to reduce the (labor) pool, which is already quite low,” said Eiser. “We need to attract people to meet the demand. If we don’t, our competitors will.”

Data released on Friday underpinned Canada’s tight labor market, with a hefty 153,700 jobs https://www.reuters.com/markets/us/canada-posts-hefty-job-gains-outlook-clouded-by-omicron-variant-2021-12-03 added in November. It also showed a growing mismatch between available workers and unfilled jobs. And job postings are far above pre-pandemic levels. (Graphic: Canada job postings surge above pre-pandemic level Canada job postings surge above pre-pandemic level, https://graphics.reuters.com/HEALTH-CORONAVIRUS/CANADA2/klvyknzklvg/chart.png)

WALKING BACK

The province of Quebec backtracked on a vaccine mandates for healthcare workers last month, saying they could not afford to lose thousands of unvaccinated staff. Ontario, which was also eyeing a mandate, said it would not go ahead.

Toronto-Dominion Bank and Bank of Montreal have both softened their vaccine policy to allow regular testing for workers who missed their Oct. 31 inoculation deadline.

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In Canada, 86% of adults are fully inoculated, though that drops under 80% among 18-40 year olds. At least 15 cases of the new Omicron https://www.reuters.com/markets/rates-bonds/canada-has-reported-total-11-cases-omicron-variant-health-official-2021-12-03 variant in Canada have been reported in the past week.

John Cappelli, vice president of onsite managed services in Canada for global recruitment firm Adecco, said half of his clients are mandating vaccines with the other half allowing regular testing for the unvaccinated.

But he expects the Omicron variant will prompt more workplaces to get strict on vaccination, even as they grapple with the tightest job market he’s seen in his 25-year career.

“We are now starting to see our first workplace (COVID-19) cases in five months,” he said.

The number of Canadian job postings on search website Indeed mentioning vaccine requirements has quadrupled since August. (Graphic: Canada job postings and vaccine mandates, https://graphics.reuters.com/HEALTH-CORONAVIRUS/CANADA3/byvrjqrlmve/chart.png)

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In the hard-hit manufacturing sector, where 77% of firms say their top concern is attracting and retaining workers, vaccine mandates are more rare.

Dennis Darby, CEO of Canadian Manufacturers and Exporters, said most of Canada’s factories have operated safely throughout the pandemic. While CME encourages vaccination, “some companies are still using rapid testing if somebody doesn’t want to get vaccinated,” he added.

But companies risk a hit to their reputation if they are overt in efforts to tap into the unvaccinated as a labor pool, said Wojtek Dabrowski, managing partner at Provident Communications.

“If you go out and say, ‘We are intentionally seeking to hire unvaccinated people,’ many customers are equating that with you being anti-science and anti-safety,” said Dabrowski.

(Reporting by Julie Gordon and Steve Scherer in Ottawa, additional reporting by Rod Nickel in Winnipeg and Nichola Saminather in Toronto; Editing by Alistair Bell)

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Israeli firm to sell HSBC Tower in New York for $855 million

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December 5, 2021

By Steven Scheer

JERUSALEM (Reuters) – Israel’s Property and Building Corp said on Sunday it agreed to sell the HSBC Tower building in midtown Manhattan for $855 million to New York-based real estate firm Innovo Property Group, recording a net loss of $45 million.

The Israeli company, which is 63% owned by Discount Investment Corp, said it had also sold property in Israel for 390 million shekels ($123 million).

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Doron Cohen, chief executive of both Property and Building and Discount, said management was focusing on income-producing properties in Israel and that the amount it was receiving from both transactions would allow it to advance this policy.

“We are continuing the policy and examining the possibility of realising additional properties in the United States and in Israel,” Cohen said, noting the sale of the HSBC building came despite “gloomy” predictions over U.S. commercial real estate market.

He cited Tivoli Village, an upscale apartment complex in Las Vegas that opened this year, which may be put up for sale as part of the company’s efforts to boost liquidity and reduce debt.

Along with conglomerate Koor Industries, Property and Building, bought the 30-storey, 80,000 square metre HSBC Tower in 2009 for $353 million. In 2011, Property acquired Koor’s stake in the tower which has an occupancy of 99%, it said. HSBC had bought the building in the 1990s.

Property and Building said the value of the HSBC Tower in its books was $864 million as of Sept. 30. After costs, it said it would record a net loss of $45 million from the sale.

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Completion of the sale is expected by April 1, 2022 subject to Innovo’s right to advance the date while also receiving options to postpone the completion twice for 30 days each.

Property said after the sale it will have a net cash flow of $343 million.

Its shares were 0.7% lower in afternoon trading in Tel Aviv.

($1 = 3.1605 shekels)

(Reporting by Steven Scheer;Editing by Elaine Hardcastle)

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