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Analysis-Flatlining participation, rising wages leave Fed employment puzzle unresolved

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November 8, 2021

By Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve’s hoped-for surge of people into the U.S. job market fell short again in October, with the labor force participation rate now flat for 15 months and continued broad wage gains reflecting what’s become perhaps the key supply “bottleneck” for the central bank.

Average hourly earnings rose 4.9% on an annual basis in October, the most since March and continuing a pandemic-era rise in wages the Fed is watching for its possible effect on inflation.

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(GRAPHIC: Wage change by industry pay – https://graphics.reuters.com/USA-ECONOMY/JOBS/myvmnknlnpr/chart.png)

So far the wage gains are generally welcomed by the Fed, likely to support spending and economic growth in coming months as pandemic-era government programs decline, and providing some evidence the central bank’s ultra-easy monetary policy is helping the least well off.

Earnings in the lower-paid leisure and hospitality industry, hardest hit in terms of joblessness at the outset of the pandemic and still the farthest from recovering lost employment, rose more than 11% as of October compared to a year ago, nearly double the pace of the next closest industry, transportation.

(GRAPHIC: The jobs hole facing Biden and the Fed – https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png)

But an otherwise strong October employment report, with 531,000 jobs added, came with a footnote: Growth in the labor force moved sideways again, foiling the Fed’s hopes that people would return to jobs or begin actively seeking work in larger numbers. Since August of 2020 the labor force participation rate has ranged between 61.4% and 61.7%, making little headway back to the pre-pandemic level of 63.4% that policymakers have set their sights on.

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(GRAPHIC: Labor market progress – https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/yzdvxmmmdpx/chart.png)

October’s rate was 61.6%, unchanged from September.

Unless that improves, wrote Capital Economics Senior U.S. Economist Michael Pearce, wages are likely to continue higher and the Fed left open to the risk that “maximum employment” may arrive sooner, with a lower-than-anticipated level of jobs.

“There was absolutely no sign of a pick-up in labor supply. That suggests the sharp acceleration in wage growth in recent months has further to run,” Pearce said. Fed officials are “arguing that participation rates will rebound as virus fears and caregiving burdens ease. But with growth in the labor force muted even as case numbers drop back, we’re increasingly worried that the big drop in participation over the past few years will prove permanent.”

So far Fed Chair Jerome Powell and top policymakers feel the increase in wages is in line with changes in prices overall and labor productivity – meaning it won’t be an inflationary force on its own, and help turn what’s expected to be a temporary period of rising prices into something more persistent.

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(GRAPHIC: Wages, prices and productivity – https://graphics.reuters.com/USA-FED/WAGES/gdvzydqarpw/chart.png)

Recent gains have helped narrow some of the gap in the U.S. income distribution, bringing the leisure and hospitality industry’s $19 average hourly pay a bit closer to the nearly $31 national average, and narrowing the spread with workers in the highest-paid and tech-influenced information industry.

(GRAPHIC: Industry wage as percent of national average – https://graphics.reuters.com/USA-ECONOMY/WAGES/gkplgdgomvb/chart.png)

(GRAPHIC: High vs. low wage industries – https://graphics.reuters.com/USA-ECONOMY/WAGES/klvykdgmlvg/chart.png)

The transition of the economy back to fuller reliance on private earnings will also be key to sustaining U.S. growth that Fed officials and economists expect to accelerate now that the pandemic is easing again.

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An Atlanta Fed real-time tracker for quarterly economic growth for the rest of 2021 jumped Friday to 8.5% from 8.2% after news U.S. companies added 531,000 jobs in October, a pace that shows an easing of pandemic concerns and which could make up the job market’s remaining lost ground sometime next year.

The unemployment rate of 4.6% is now just 1.1 percentage points above the 3.5% mark hit at the start of the pandemic, and has clawed back more than 90% of the surge in the spring of 2020 when it spiked to 14.8%.

“Wages have been moving up strongly, very strongly…It’s very important, and it’s generally a good thing,” Powell said last week after the Fed’s latest policy meeting.

But the Fed has now tied its policy, and any increase in interest rates from the current near-zero level, to reaching “maximum employment.” That’s a concept the central bank has not quantified but is judging against an array of statistics including the behavior of labor force participation and wages.

The two influence each other, and Powell this week acknowledged that the lack of improvement in the numbers of people working or actively looking for work has surprised him.

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As the infections from the coronavirus Delta variant subsided “we thought that schools reopening and elapsing unemployment benefits would produce some sort of additional labor supply. That doesn’t seem to have been the case,” he said.

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)

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Apple starts legal action against Russian regulator in App Store dispute -RIA

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December 6, 2021

MOSCOW (Reuters) – Apple has started legal proceedings against Russia’s anti-monopoly regulator in a dispute concerning alternative payment options on its App Store platform, the RIA news agency reported on Sunday citing court filings.

Russia opened an antitrust case against Apple in late October, accusing it of failing to allow app developers to tell customers about alternative payment options when using its App Store. It said Apple could face a fine based on its revenue in Russia if found guilty.

In documents published on Dec. 1, the Moscow Arbitration Court listed Apple as a claimant and Russia’s Federal Anti-monopoly Service (FAS) as a defendant in “economic disputes over administrative legal relations.”

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Apple, which did not immediately respond to a Reuters request for comment, demanded that additional documents be added to the case on Dec. 2, RIA reported.

Forbes Russia cited a FAS representative as saying that the proceedings related to a warning it issued on Aug. 30 over Apple’s alleged failure to inform users they could also pay for purchases outside the App Store.

The FAS did not immediately respond to a request for comment.

Apple faced pushback over its App Store rules in the United States in September when a federal judge issued a ruling forcing the company to allow developers to send their users to other payment systems.

(Reporting by Alexander Marrow; Editing by Andrew Osborn)

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Weaker foreign demand sinks German industrial orders in October

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December 6, 2021

By Michael Nienaber

BERLIN (Reuters) -Weaker demand from abroad drove a much bigger than expected drop in German industrial orders, including cars, in October, data showed on Monday, further clouding the growth outlook for manufacturers in Europe’s largest economy.

A pandemic-related scarcity of microchips and other electronic components has caused massive supply bottlenecks and production problems in Germany’s mighty automobile industry and other important sectors of the economy.

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Orders for goods ‘Made in Germany’ dropped 6.9% on the month in seasonally adjusted terms after a revised rise of 1.8% in September and a plunge of 8.8% in August, figures from the Federal Statistics Office showed.

A Reuters poll of analysts had pointed to a smaller decline of 0.5% on the month in October.

“After incoming orders climbed to an all-time high in mid-2021, the index has lost more than 16 points in recent months,” the economy ministry said, adding that the second sharp decline within three months put a further damper on the economic outlook.

Excluding distorting factors from bookings for big ticket items such as planes, industrial orders were still down 1.8%, the data showed.

The drop was driven by a decline in foreign orders of more than 13% on the month, with demand from countries outside the euro zone such as China particularly weak. Orders from domestic clients rose 3.4%.

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“New lockdowns in Asia are slowing industry in Germany,” VP Bank analyst Thomas Gitzel said. He added that the current wave of coronavirus infections across the globe was putting a renewed burden on the world economy.

Gitzel said that domestic demand should remain strong, helped by the new ruling coalition’s commitment to massive investment in the green economy.

“The decarbonization of the economy requires major investments in new technologies. German industry can and will benefit from this,” Gitzel said.

The weak orders data suggest that manufacturing will hamper overall economic growth in the coming months, with analysts expecting stagnation at best in the final quarter of this year.

(Reporting by Michael Nienaber, editing by Kirsti Knolle and Philippa Fletcher)

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Marketmind: Chasing the Omicron dip

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December 6, 2021

A look at the day ahead from Julien Ponthus.

Buying the dip triggered by the Omicron COVID-19 variant across global markets has proven a costly strategy so far. But some investors seem determined to have another go.

European and U.S. stocks futures are trading sharply higher after ending last week on a sour note and notwithstanding a dismal day in Asia where an MSCI index of Asia-Pacific shares outside Japan lost about 0.9%.

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The region has seen a series of corporate setbacks after ride-hailing giant Didi decided to withdraw from the New York stock exchange last week.

Shares in China Evergrande, the world’s most indebted developer, plunged 14% after it said there was no guarantee it would have enough funds to meet debt repayments.

Another giant, Alibaba dropped 5% after announcing it would reorganise its international and domestic e-commerce businesses. And U.S. regulatory opposition to the sale of Softbank-owned chip firm Arm pushed the Japanese conglomerate 8% lower.

But the mood is lighter already across Europe, allowing 10-year Treasury yields to claw back some of Friday’s falls which took them below 1.4% for the first time since late September.

There are five trading sessions left before Friday’s U.S. consumer price report which some reckon will provide the green light for the Federal Reserve to accelerate its tapering of bond purchases.

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Oil prices too rose by more than $1 a barrel after Saudi Arabia raised prices for its crude sold to Asia and the United States.

And if the market mood is perking up, there is no sign of that in Bitcoin which has fallen further and is now at $48,244 — some $20,000 below peaks hit a month ago.

Key developments that should provide more direction to markets on Monday:

-Vivendi is open to discuss with Rome over state control on TIM’s network

-Alibaba overhauls e-commerce businesses, names new CFO

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-Swiss National Bank Vice Chairman Zurbruegg to retire in July 2022

-Weaker foreign demand sinks German industrial orders in October

-CBI cuts UK economic growth forecasts on supply chain hit

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

– Russian President Vladimir Putin visits India

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– UK construction PMI/new car sales

-Euro zone finance ministers to discuss 2022 draft budgets, euro summit

BOE deputy Governor Broadbent, ECB Governor Lagarde and board member Panetta speak:

(Reporting by Julien Ponthus; editing by Sujata Rao)

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