Tag Archives: supply constraints

U.S. job openings surge to new record high, hiring rises

WASHINGTON (Reuters) -U.S. job openings jumped to a fresh record high in June and hiring also increased, an indication that the supply constraints that have held back the labor market remain elevated even as the pace of the economic recovery gathers momentum.

Job openings, a measure of labor demand, shot up by 590,000 to 10.1 million on the last day of June, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report, on Monday.

Hiring also rose to 6.7 million in June from 6.0 million in the prior month. The government reported on Friday that job growth accelerated in July as U.S. employers hired the most workers in nearly a year and continued to raise wages.

Economists polled by Reuters had forecast job openings would rise to 9.28 million in June. Vacancies increased in all four regions and the job openings rate rose to 6.5% from 6.1%.

The high number of job openings has been fueled by the speed from which the economy has emerged from the depths of the COVID-19 pandemic, which upended many businesses as restrictions and fears of the virus kept people home.

But the number of people re-entering the workforce has lagged job openings. Generous unemployment benefits, childcare issues and lingering worries about the virus may all have played a part, with economists generally expecting a bump in hiring as schools reopen and crisis-era unemployment benefits come to an end.

The largest increases in vacancies in June were in professional and business services, retail trade and accommodation and food services.

The rise in hiring was led by retail trade, with 291,000 more positions filled, while state and local government education filled 94,000 jobs.

Worries remain, however, that a resurgence in infections, driven by the Delta variant of the coronavirus, could once again discourage some unemployed people from returning to the labor force.

The report also showed the number of people voluntarily leaving their employment in June increased to 3.9 million from 3.6 million in May. The quits rate is usually seen as a barometer of job market confidence. The number of people quitting their jobs is well above pre-pandemic levels.

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)

U.S. services sector growth accelerates despite supply constraints

By Lucia Mutikani

WASHINGTON (Reuters) – A measure of U.S. services industry activity jumped to a record high in July, boosted by the shift in spending to services from goods, but businesses continued to pay higher prices for inputs because of supply constraints.

The Institute for Supply Management survey on Wednesday also showed a rebound in a gauge of services industry employment last month. That eased worries of a sharp slowdown in job growth, which had been stoked by the ADP Employment Report showing the smallest gain in private payrolls in five months in July.

The bounce back in the ISM services employment index followed a similar reading for the manufacturing sector. The economy is pushing ahead after fully recovering in the second quarter the sharp loss in output suffered during the very brief COVID-19 pandemic recession.

“For months, employers have struggled to find labor and employment numbers have been held down from the worker side rather than a lack of demand from companies,” said Chris Low, chief economist at FHN Financial in New York. “These increases bode well for Friday’s employment report. ADP has not been very useful this year.”

The Institute for Supply Management said its non-manufacturing activity index raced to 64.1 last month, the highest reading since the series started in 2008, from 60.1 in June. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index climbing to 60.5.

All services industries reported growth, with anecdotes of pent-up demand as “companies begin to fully reopen and remote workers return to offices.”

Demand is rotating back to services as nearly half of the population has been fully vaccinated against COVID-19, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic in favor of goods.

Government data last week showed spending on services accelerated sharply in the second quarter, helping to lift the level of gross domestic product above its peak in the fourth quarter of 2019.

The ISM survey’s measure of new orders received by services businesses increased to a reading of 63.7 from 62.1 in June. Further gains are likely in the months ahead, with inventories lean and inventory sentiment among customers poor. Businesses depleted inventories at a rapid clip in the second quarter. Stocks at retailers are well below normal levels.

U.S. stocks were trading lower after a record close for the S&P 500 index. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

PORTS CONGESTION

The strong demand is continuing to strain supply chains. The survey’s measure of supplier deliveries rose to 72.0 from a reading of 68.5 in June. A reading above 50 indicates slower deliveries. Some businesses complained about the scarcity of appliances, laptops as well as rental cars. Others said heating, ventilation and air conditioning repairs also were impacted by longer than normal lead times for replacement units.

Wholesalers said congestion at the ports of Long Beach/Los Angeles and Seattle had increased lead time by 15 days. They were also facing additional delays at the Chicago rail yard.

With bottlenecks in the supply chain persisting, a measure of prices paid by services industries surged to 82.3, the highest reading in nearly 16 years, from 79.5 in June.

Fed Chair Jerome Powell has repeatedly stated that inflation will moderate as supply constraints abate.

Services industries hired more workers in July, though labor shortages lingered, especially in the accommodation and food services sector. A measure of services industry employment rebounded to a reading of 53.8 from 49.3 in June.

That offset the ADP report showing private payrolls rose by 330,000 jobs last month, less than half of the 695,000 that had been anticipated by a Reuters survey of economists.

The slowdown in hiring last month was across all business sizes and industries. Leisure and hospitality payrolls increased by 139,000 jobs, below the 330,000 average in the second quarter. Economists said this suggested the early terminations of benefits in at least 20 states led by Republican governors was not forcing low-wage earners to return to work.

Factories added only 8,000 jobs in July. A global shortage of semiconductors is hampering production in the automobile sector. Hiring at construction sites stalled as expensive lumber and scarce building materials constrain homebuilding.

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

According to a Reuters survey of economists, private payrolls likely increased by 750,000 jobs in July after rising 662,000 in June. With government employment expected to have increased by about 130,000, thanks to education-related hiring, that would lead to overall payrolls advancing by 880,000 jobs in July. The economy created 850,000 jobs in June.

July’s nonfarm payrolls estimate is highly uncertain, with labor market indicators mixed. Data from Homebase, a payroll scheduling and tracking company, showed its employees working index rising moderately in July compared to June.

The Conference Board’s labor market differential, derived from data on consumers’ views on whether jobs are plentiful or hard to get, in July hit its highest level since 2000.

Education payrolls typically fall by at least 1 million in July, before adjusting for seasonal fluctuations, as schools and universities close for summer.

This year, however, many students are in summer school catching up after disruptions caused by the pandemic. Economists anticipate a small decline in education employment, which would boost the seasonally adjusted payrolls for the sector.

“We are maintaining our forecast for the BLS report to show 900,000 jobs added in July, with 550,000 coming from the private sector,” said Daniel Silver, an economist at JPMorgan in New York.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

U.S. consumer prices post biggest gain in nearly 12 years as inflation pressures build

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints, which could fuel financial market fears of a lengthy period of higher inflation.

The report from the Labor Department on Wednesday also showed a strong building up of underlying price pressures. Demand is being driven by nearly $6 trillion in government relief since the COVID-19 pandemic started in the United States in March 2020 and the vaccination of more than a third of the population.

Federal Reserve Chair Jerome Powell and many economists largely view higher inflation as transitory, with supply chains expected to adapt and become more efficient. But there are concerns that inflation could linger amid reports that companies are raising wages as they compete for scarce workers.

Though job openings are at a record 8.1 million and nearly 10 million people are officially unemployed, companies are scrambling for labor. Generous unemployment benefits, fears of contracting COVID-19, parents still at home caring for children and pandemic-related retirements have been blamed for the disconnect. Average hourly earnings jumped in April.

The consumer price index jumped 0.8% last month, the largest gain since June 2009. The CPI rose 0.6% in March. Food prices increased 0.4%. The cost of food consumed at home also gained 0.4%. The cost of food consumed away from home rose 0.3%. Gasoline prices fell 1.4% after accelerating 9.1% in March.

Economists polled by Reuters had forecast the CPI climbing 0.2% in April.

In the 12 months through April, the CPI shot up 4.2%. That was the largest gain since September 2008 and followed a 2.6% increase in March. The jump mostly reflected the dropping of last spring’s weak readings from the calculation.

Those so-called base effects are expected to push annual inflation even higher in the months ahead.

U.S. stock index futures extended losses on the data, which investors feared could force the Fed to raise interest rates sooner than expected. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.

The Fed slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through monthly bond purchases. The U.S. central bank has signaled it could tolerate higher inflation after years of lower inflation.

Excluding the volatile food and energy components, the CPI soared 0.9%, the largest gain since April 1982. The so-called core CPI rose 0.3% in March. There were increases in prices for used cars and trucks, shelter, airline fares, recreation, motor vehicle insurance as well as household furnishings.

In the 12 months through April, the core CPI jumped 3.0% after increasing 1.6% in March.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target, a flexible average. The core PCE price index is at 1.8%.

(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Andrea Ricci)

Exclusive: Fed Chair Powell says won’t allow ‘substantial’ overshoot of inflation target – April 8 letter to U.S. senator

By Ann Saphir

(Reuters) – The U.S. economy is going to temporarily see “a little higher” inflation this year as the economy strengthens and supply constraints push up prices in some sectors, but the Federal Reserve is committed to keeping any overshoot within limits, Fed Chair Jerome Powell said in an April 8 letter.

“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” Powell told Senator Rick Scott in a five-page letter responding to a March 24 letter from the Florida Republican raising concerns about rising inflation and the Fed’s bond buying program. “I would emphasize, though, that we are fully committed to both legs of our dual mandate – maximum employment and stable prices.”

Scott, while not on the Senate Banking Committee that directly oversees the Fed, nonetheless has been a vocal critic of Powell. He has warned that the Fed’s low interest rates and bond-buying program will force prices higher, hurting families and businesses.

His office provided Powell’s letter to Reuters, and suggested the response did not allay the senator’s concerns.

“The data is clear that inflation is rising, and Chair Powell continues to ignore this growing problem,” Scott’s office told Reuters in the email. “Senator Scott remains concerned about the impact inflation will have on low and fixed-income American families, like his growing up. He is calling on Chair Powell to wake up to this threat, lay out a clear plan to address rising inflation and protect American families.”

Powell in his letter said that low inflation constrains the Fed’s ability to offset economic shocks with easy policy, and that after a decade of too-low inflation, the Fed is now aiming for inflation moderately above 2%.

“We understand well the lessons of the high inflation experience in the 1960s and 1970s, and the burdens that experience created for all Americans,” Powell said in the letter. “We do not anticipate inflation pressures of that type, but we have the tools to address such pressures if they do arise.”

(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Dan Burns)

U.S. housing starts near 15-year high; consumer sentiment rises moderately

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. homebuilding surged to nearly a 15-year high in March, but soaring lumber prices amid supply constraints could limit builders’ capacity to boost production and ease a shortage of homes that is threatening to slow housing market momentum.

The sharp rebound reported by the Commerce Department on Friday added to robust retail sales in March in suggesting that the economy was roaring after a brief weather-related setback in February. Increasing COVID-19 vaccinations, warmer weather and massive fiscal stimulus are driving the economy, with growth this year expected to be the strongest in nearly four decades.

But caution is starting to creep in among consumers as the course of the pandemic remains uncertain and inflation is showing signs of heating up. Other data on Friday showed consumer sentiment rose moderately in early April.

“We’re in a unique situation with the economy beginning to rebound from the worst of the pandemic,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “Uncertainties remain, with many businesses yet to reopen, unemployment still high, and COVID-19 levels lower but persistent.”

Housing starts surged 19.4% to a seasonally adjusted annual rate of 1.739 million units last month, the highest level since June 2006. Economists polled by Reuters had forecast starts would rise to a rate of 1.613 million units in March.

Starts soared 37.0% on a year-on-year basis in March. Homebuilding slumped in February as large parts of the country reeled from unseasonably cold weather, including winter storms in Texas and other parts of the densely-populated South region.

Groundbreaking activity increased in the Northeast, Midwest and South, but fell in the West. Permits for future home building rose 2.7% to a rate of 1.766 million units last month, recouping only a fraction of February’s 8.8% plunge. They jumped 30.2% compared to March 2020.

“While housing demand is expected to remain strong, we expect it to diminish somewhat as the year progresses,” said Doug Duncan, chief economist at Fannie Mae in Washington. “Homebuilders continue to face supply constraints, including increasing prices of lumber and other materials.”

Stocks on Wall Street were mostly higher, with the S&P 500 index and the Dow Jones Industrial Average hitting fresh record highs. The dollar slipped against a basket of currencies. U.S. Treasury prices were lower.

RECORD LUMBER PRICES

The housing market is being fueled by demand for bigger and more expensive accommodations, with millions of Americans continuing to work from home and remote schooling remaining in place as the pandemic enters its second year. Housing supply has been insufficient, with the inventory of previously-owned homes at record lows. This is underpinning homebuilding.

A survey from the National Association of Home Builders on Thursday showed confidence among single-family homebuilders increased in April amid strong buyer traffic. Builders appealed for solutions “to increase the supply of building materials as the economy runs hot in 2021.”

Inflation concerns were on consumers’ minds early this month. A separate report from the University of Michigan on Friday showed its preliminary consumer sentiment index rose to 86.5 from a final reading of 84.9 in March.

Economists had forecast the index would rise to 89.6.

The survey’s one-year inflation expectation jumped to 3.7%, the highest level in nearly a decade, from 3.1% in March. Its five-year inflation outlook was unchanged at 2.7%.

Reports this month showed big increases in both consumer and producer prices in March as strong domestic demand pushed against supply constraints. Federal Reserve Chair Jerome Powell and many economists view higher inflation as transitory, with supply chains expected to adapt and become more efficient.

Supply disruptions because of coronavirus-related restrictions are driving up commodity prices. Softwood lumber, which is used for frames and trusses of houses, surged by a record 83.4% on a year-on-year basis in March, according to the latest producer price data published last week. Prices of other building materials such as plywood have also risen sharply.

Port congestion on the West Coast as well as winter weather in Canada that has shut mills and restricted truck shipping were also contributing to the shortages that were driving prices of building materials higher, according to an Institute for Supply Management survey published early this month.

Single-family homebuilding, the largest share of the housing market, surged 15.3% to a rate of 1.238 million units in March. Still, starts remained below last December’s peak, likely constrained by the more expensive building materials.

Single-family building permits rose 4.6% to a rate of 1.199 million units.

“The failure of single-family starts to fully recover to last winter’s peak level despite tight inventories in most metropolitan areas supports the idea builders are holding back,” said Chris Low, chief economist at FHN Financial in New York.

Starts for the volatile multi-family segment soared 30.8% to a pace of 501,000 units. Building permits for multi-family housing projects fell 1.2% to a pace of 567,000 units.

Housing completions accelerated 16.6% to a rate of 1.580 million units last month, the highest since March 2007. Single-family home completions shot up 5.3% to a rate of 1.099 million, the highest since November 2007.

Realtors estimate that single-family housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to close the inventory gap.

The stock of housing under construction rose 0.8% to a rate of 1.306 million units, the highest since September 2006.

(Reporting by Lucia Mutikani; Editing by Paul Simao)