Connect with us

Business

U.S. private payrolls beat expectations in October; worker shortages linger

Published

on

November 3, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. private payrolls increased more than expected in October, suggesting the labor market and overall economy were regaining momentum early in the fourth quarter, though worker and raw material shortages remain constraints.

Private employment rose by 571,000 jobs last month, the ADP National Employment Report showed on Wednesday. Data for September was revised down to show 523,000 jobs added instead of the initially reported 568,000. Economists polled by Reuters had forecast private payrolls would increase by 400,000 jobs.

Advertisement

“For the labor market, shortages remain a constraint,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “Our base case remains that shortages will ease as health concerns recede, school reopenings are smoother owing to vaccinations and as savings diminish.”

The ADP report is jointly developed with Moody’s Analytics and was published ahead of the Labor Department’s more comprehensive, and closely watched employment report for October due on Friday. But it has a poor record predicting the private payrolls count in the department’s Bureau of Labor Statistics (BLS) employment report because of methodology differences.

Still, the report was consistent with an improvement in other labor market indicators in October as the summer wave of COVID-19 infections driven by the Delta variant subsided significantly. Coronavirus infections worsened supply chain problems, restraining economic growth to its slowest pace in more than a year in the third quarter.

Last month’s broad-based gains in private payrolls were led by leisure/hospitality, where businesses added 185,000 jobs.

Manufacturing employment increased by 53,000 jobs, while construction hiring rose 54,000. Large corporations accounted for the bulk of the increase in private payrolls last month.

Advertisement

Economists expect hiring picked up in October, though persistent worker shortages remain a challenge. According to a Reuters survey of economists, private payrolls likely increased by 400,000 jobs in October. With government hiring anticipated to have rebounded by 50,000, that would lead to overall payrolls rising by 450,000 jobs. The economy created 194,000 jobs in September, the fewest in nine months.

Economists were generally content to keep their estimates for October nonfarm payrolls, citing ADP’s spotty record.

“The ADP report provides only a rough guide to the official figures,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York. “It tells us little about what happened to public education payrolls in October following the more than 150,000 decline in September in seasonally adjusted terms.”

The labor market recovery is regaining traction. Initial claims for unemployment benefits have dropped below 300,000 for the first time since the coronavirus pandemic barreled through the United States about 20 months ago.

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 Institute for Supply Management’s measure of factory employment also rose.

Advertisement

But workers continue to be scarce. There were 10.4 million job openings at the end of August. Labor supply has remained tight despite the expiration of federal government-funded unemployment benefits, which businesses and Republicans had argued were a disincentive for the jobless to seek work.

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

Continue Reading
Advertisement

Business

Investors brace for potential hit to earnings because of Omicron

Published

on

December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

Advertisement

That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

Advertisement

U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

Advertisement

Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

Advertisement

(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

Continue Reading

Business

Bank investment chiefs signal China and emerging market caution

Published

on

December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

Advertisement

“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

Advertisement

(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

Continue Reading

Business

IMF says euro zone should keep supporting economy, high inflation is temporary

Published

on

December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

Advertisement

“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

Advertisement

Continue Reading
Advertisement

Trending