Pace of U.S. economic recovery accelerates, Fed says

By Jonnelle Marte, Ann Saphir and Howard Schneider

(Reuters) – The U.S. economic recovery accelerated to a moderate pace from late February to early April as consumers, buoyed by increased COVID-19 vaccinations and strong fiscal support, opened their wallets to spend more on travel and other items, the Federal Reserve said on Wednesday.

The labor market, which was decimated by the coronavirus pandemic, also improved as more people returned to work, with the pace of hiring picking up the most in the manufacturing, construction, and leisure and hospitality sectors.

“Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors,” the U.S. central bank said in its latest “Beige Book,” a collection of anecdotes about the economy from its 12 regional districts.

Hospitality contacts told the Atlanta Fed they had “solid bookings for the remainder of spring and through the summer months and beyond,” according to the report, which was compiled by the Dallas Fed using surveys conducted before April 5.

While most districts said the pace of growth in their regional economies was moderate, the New York Fed said its economy “grew at a strong pace for the first time during the pandemic, with growth broad-based across industries.”

The improvement occurred despite an increase in COVID-19 cases in the region, the New York Fed said. “Moreover, business contacts have grown increasingly optimistic about the near-term outlook.”

FOCUS ON WAGES

Fed Chair Jerome Powell said this week that the U.S. economy is at an “inflection point” where growth and hiring could pick up speed over the coming months thanks to increased COVID-19 vaccinations and strong fiscal stimulus.

The United States added 916,000 jobs in March, the largest gain in seven months, according to Labor Department data. And U.S. consumer prices rose at the fastest clip in more than 8-1/2 years in March as vaccinations and stimulus boosted economic activity, according to Labor Department data released on Tuesday.

However, Powell and other Fed officials say the brighter economic forecasts and brief period of higher inflation will not affect monetary policy, and the central bank will keep its support in place until the crisis is over. The U.S. economy is still 8.4 million jobs short of its pre-pandemic levels.

Policymakers agreed last month to leave interest rates near zero and to keep purchasing $120 billion a month in bonds until there was “substantial further progress” toward the Fed’s goals for maximum employment and inflation. Fed officials will gather again in two weeks for their next policy-setting meeting.

The report highlighted the strategies some businesses are considering as they reopen, increase capacity and attempt to recruit workers. One staffing services firm told the Cleveland Fed that pay had for the first time become the top priority of job seekers, surpassing the type of work.

Several workforce contacts suggested that employers might be delaying wage hikes in hopes of a surge of newly vaccinated job seekers, the Minneapolis Fed reported: “Why start raising wages when a lot of labor might be coming back?”

(Reporting by Jonnelle Marte; Editing by Paul Simao)

Cold weather chills U.S. retail sales, manufacturing production

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales fell more than expected in February amid bitterly cold weather across the country, but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households.

The harsh weather also took a bite out of production at factories last month as the deep freeze in Texas and other parts of the South put some petroleum refineries, petrochemical facilities and plastic resin plants out of commission.

The setback is probably temporary, with the strongest economic growth since 1984 anticipated this year, thanks to massive fiscal stimulus and an acceleration in the pace of vaccines, which should allow for broader economic re-engagement, even as new COVID-19 cases are starting to creep up.

Federal Reserve officials, who started a two-day meeting on Tuesday, are likely to focus on the underlying economic strength, expectations of higher inflation and a steadily recovering labor market.

“We knew the economy took a major hit in February due to the brutally cold weather and a lot of snow,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “No reason to panic over the February numbers, the economy is moving forward rapidly and it should pick up the pace as the latest stimulus payout hits home.”

Retail sales dropped by 3.0% last month, the Commerce Department said. But data for January was revised sharply up to show sales rebounding 7.6% instead of 5.3% as previously reported. Economists polled by Reuters had forecast retail sales falling only 0.5% in February.

Unseasonably cold weather gripped the country in February, with deadly snow storms lashing Texas. The decline in sales last month also reflected the fading boost from one-time $600 checks to households, which were part of nearly $900 billion in additional fiscal stimulus approved in late December, as well as delayed tax refunds.

The broad-based decrease was led by motor vehicles, with receipts at auto dealerships dropping 4.2%. Sales at clothing stores fell 2.8%. Consumers also slashed spending at restaurants and bars, leading to a 2.5% drop in receipts. Sales at restaurants and bars decreased 17% compared to February 2020.

Receipts at electronics and appliance stores dropped 1.9% and sales at furniture stores tumbled 3.8%. There were also big declines in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores were unchanged. Sales at building material stores decreased 3.0%. Online retail sales plunged 5.4%.

Stocks on Wall Street were mixed. The dollar rose against a basket of currencies. Longer-dated U.S. Treasury prices fell.

TEMPORARY SETBACK

Excluding automobiles, gasoline, building materials and food services, retail sales decreased 3.5% last month after surging by an upwardly revised 8.7% in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have shot up 6.0% in January.

President Joe Biden last week signed his $1.9 trillion rescue package into law, which will send additional $1,400 checks to households as well as extend a government-funded $300 weekly unemployment supplement through Sept. 6. Households have also accumulated $1.8 trillion in excess savings.

“This year, we expect the combination of an improved health situation and generous fiscal stimulus to fuel a consumer boom for the history books,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.

Economists at Goldman Sachs on Saturday raised their first-quarter GDP growth estimate to a 6% annualized rate from a 5.5% pace, citing the latest stimulus from the Biden administration. The economy grew at a 4.1% rate in the fourth quarter.

Goldman Sachs forecast 7.0% growth this year. That would be the fastest growth since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years.

The rosy economic outlook was not dimmed by a separate report from the Fed on Tuesday showing output at factories tumbled 3.1% in February, also weighed down by a global semiconductor shortage because of the pandemic.

“While we expect these supply disruptions to be temporary, auto production could remain soft in the very near term,” said Veronica Clark, an economist at Citigroup in New York. “With substantial new fiscal stimulus to support demand for consumer goods in the coming months, supply disruptions could lead to rising prices.”

Indeed, supply constraints because of coronavirus-related restrictions are driving up commodity prices. A third report from the Labor Department showed import prices rose 1.3% last month after surging 1.4% in January. They jumped 3.0% on a year-on-year basis after rising 1.0% in January.

Though inflation is expected to accelerate as early as the first half of this year, many economists do not expect it to spiral out of control with millions of Americans unemployed. Supply chain bottlenecks are also expected to start easing as more people around the globe get vaccinated.

The dollar has also strengthened so far this year against the currencies of the United States’ main trade partners.

“There is still a great deal of unused industrial capacity in the U.S. economy. This will help keep inflation under control throughout this year,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

(Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci)

Fed’s Powell says support for economy needed for ‘some time’

By Howard Schneider

WASHINGTON (Reuters) – The U.S. economic recovery remains “uneven and far from complete” and it will be “some time” before the Federal Reserve considers changing policies it adopted to help the country back to full employment, Fed Chair Jerome Powell said on Tuesday.

The U.S. central bank’s interest rate cuts and purchases of $120 billion in monthly government bonds “have materially eased financial conditions and are providing substantial support to the economy,” Powell said in remarks prepared for delivery to a Senate Banking Committee hearing on the state of the economy.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” the hurdle the Fed has set for discussing when it might be appropriate to pare back support.

While the health crisis in the country is improving and “ongoing vaccinations offer hope for a return to more normal conditions later this year,” Powell said, “the path of the economy continues to depend significantly on the course of the virus and the measures taken to control its spread.”

Powell’s appearance in Congress comes at a significant juncture for the U.S. economy, which is still reeling from the pandemic but perhaps poised to take off later this year if the vaccination program hits its stride.

The hearing before the Senate Banking Committee, one of the Fed chief’s mandated twice-a-year appearances on Capitol Hill, is Powell’s first since Democrats won the White House and control of both chambers of Congress.

After his opening remarks, Powell will field questions from senators who are likely to focus on the tension between a pandemic that has claimed more than half a million U.S. lives and left millions unemployed, and an economy flush with savings and central bank support, and about to get a fresh gusher of federal spending.

INFLATION DEBATE

The growing likelihood that Congress will pass President Joe Biden’s $1.9 trillion stimulus plan has raised concerns about a possible spike in inflation and overheating in asset markets, but Powell’s message to lawmakers will likely be a familiar one: don’t let off the gas.

Even with Americans being vaccinated at a rate of more than 1.5 million a day and coronavirus caseloads dropping, Powell and his fellow Fed policymakers are focused instead on the nearly 10 million jobs missing from the economy compared to a year ago, and the potent risks still posed by the virus.

They’ve pledged to keep interest rates low and use other monetary policy tools to speed up a labor market recovery. Two weeks ago, Powell pushed for a “society-wide commitment” to that goal – a nudge to lawmakers debating Biden’s stimulus plan.

The scale of the proposed stimulus, coming on the heels of about $4 trillion in federal aid and heavy bond purchases by the Fed last year, has flustered the feathers of inflation hawks and stoked criticism that the U.S. central bank has boosted prices of stocks and other assets to unsustainable levels.

Fed officials are united on that front. They don’t think inflation is a risk, and regard much of the recent rise in stock prices, for example, as a sign of markets’ confidence in a post-pandemic economic rebound, not an artificial run-up fueled by cheap money.

The hearing on Tuesday, which will be followed by Powell’s appearance before the House of Representatives Financial Services Committee on Wednesday, may also provide a gauge of his prospects of remaining Fed chief when his current four-year term expires early next year.

Biden will have to decide in coming months whether to reappoint Powell, who was chosen for the job by former President Donald Trump. The nomination is subject to Senate ratification.

(Reporting by Howard Schneider; Editing by Paul Simao)

Fed sees ‘considerable’ risk of ongoing U.S. business failures

WASHINGTON (Reuters) – The risks of ongoing business failures in the United States “remain considerable” even as the economy emerges from the coronavirus pandemic, the Federal Reserve said on Friday in its semi-annual monetary policy report to Congress.

Business borrowing “now stands near historic highs,” the U.S. central bank said in the report. Even though large cash balances, low interest rates, and renewed economic growth may dampen problems in the near term, “insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.”

Fed Chair Jerome Powell will present the report in hearings before the U.S. Senate Banking Committee on Tuesday and the U.S. House of Representatives Financial Services Committee on Wednesday.

After presenting his own summary of where the economy stands he will field questions from lawmakers that are likely to focus on how much more help the economy needs from the federal government to reach the point where ongoing COVID-19 vaccinations make it safe to resume normal commerce.

The Biden administration is pushing a $1.9 trillion stimulus plan that has already cleared a major hurdle in the Senate, money on top of the nearly $900 billion approved late last year and the roughly $3 trillion appropriated at the start of the crisis in 2020.

Those federal payments, including one-time checks to families, increased unemployment insurance, and loans to small businesses, led to faster-than-expected economic growth and less-than-anticipated financial stress among households and the banks that hold their mortgages and credit card loans.

But while banks and household balance sheets remain in reasonable shape, the Fed’s reference to business debt highlights the potential economic hangover still to come after a historically trying year.

Along with business failures, the report noted how changes to the economy that are still underway could, for example, cut the market for already highly-valued commercial real estate and lead to “sharp declines” in prices – a potential blow to investors or lenders involved with those properties.

The report also noted that the borrowing and spending used in some countries to fight the pandemic had made their financial systems “more vulnerable” than before, and the situation may be getting worse. Stress in some emerging market nations, the report warned, could spill over “and produce additional strains for the U.S. financial system and economic activity.”

Next week will be Powell’s first appearance on Capitol Hill since Democrats won the White House and control of both chambers of Congress.

The Fed has pledged to keep its current policy of low interest rates and $120 billion in monthly bond purchases intact until the recovery is more complete. That may be tested in coming months if, as expected, the reopened U.S. economy begins to generate rising inflation.

(Reporting by Howard Schneider; Editing by Paul Simao)

U.S. consumer spending falls again; inflation gradually rising

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending fell for a second straight month in December amid renewed business restrictions to slow the spread of COVID-19 and a temporary expiration of government-funded benefits for millions of unemployed Americans.

The report from the Commerce Department on Friday also showed inflation steadily picking up last month. Stirring price pressures were also corroborated by other data showing a solid increase in labor costs in the fourth quarter. Though inflation is expected to breach the Federal Reserve’s 2% target this year, the U.S. central bank is seen maintaining its ultra-easy policy stance for a while as the economy battles the COVID-19 pandemic.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slipped 0.2% last month as outlays at restaurants declined. Spending at hospitals also fell, likely as consumers stayed away in fear of contracting the coronavirus.

Households also cut back spending on recreation. Consumer spending tumbled 0.7% in November. Economists polled by Reuters had forecast consumer spending falling 0.4% in December.

When adjusted for inflation, consumer spending decreased 0.6% in December after dropping 0.7% in November. That likely sets a lower base for consumer spending in the first quarter.

The data was included in Thursday’s advance gross domestic product report for the fourth quarter, which showed the economy growing at a 4% annualized rate after a record 33.4% pace in the third quarter. Consumer spending rose at a 2.5% rate last quarter following a spectacular 41.0% growth pace in the July-September period.

Economic growth is expected to decelerate to below a 2% rate in the first quarter as it works through the disruptions from a virus surge in winter. The government provided nearly $900 billion in additional relief in late December. This together with an anticipated pick-up in the distribution of vaccines is likely to spur growth by summer.

President Joe Biden has also unveiled a recovery plan worth $1.9 trillion, though the package is likely to be pared down amid worries about the nation’s swelling debt.

U.S. stocks opened lower after Johnson & Johnson said its single-dose vaccine was 72% effective in preventing COVID-19 in the United States, but a lower rate of 66% was observed globally. The dollar was steady against a basket of currencies. U.S. Treasury prices were lower.

INCOME REBOUNDS

The late December stimulus package included direct cash payments to some households and renewed a $300 unemployment supplement until March 14. Government-funded programs for the self-employed, gig workers and others who do not qualify for the state unemployment programs as well as those who have exhausted their benefits were also extended.

Last month, personal income rebounded 0.6%, boosted the unemployment benefits payouts as well as a rise in wages. Income tumbled 1.3% in November. Americans increased savings last month. The saving rate rose to 13.7% from 12.9% in November.

Despite weak consumer spending inflation edged higher. The personal consumption expenditures (PCE) price index excluding the volatile food and energy component increased 0.3% after being unchanged in November. In the 12 months through December, the so-called core PCE price index increased 1.5% after advancing 1.4% in November.

The core PCE index is the preferred inflation measure for the Fed’s 2% target, a flexible average.

The gradually firming inflation environment was reinforced by separate report from the Labor Department on Friday showing its Employment Cost Index, the broadest measure of labor costs, rose 0.7% last quarter after advancing 0.5% in the third quarter. That lifted the year-on-year rate of increase to 2.5% from 2.4% in the third quarter.

The ECI is widely 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 climbing 0.5% in the fourth quarter.

Wages and salaries increased 0.9% after gaining 0.4% in the third quarter. They were up 2.6% year-on-year. The private sector accounted for the surge in wages and salaries. Benefits rose 0.6%, matching the third quarter’s increase.

Inflation is seen accelerating as weak readings last March and April drop from the calculation. It is also expected to be boosted by a strengthening in economic growth, driven by fiscal stimulus and the inoculation of more Americans against COVID-19.

Bottlenecks in the supply chain are expected to contribute to higher inflation. Recent manufacturing surveys have shown a surge in price measures for both raw materials and finished products.

(Reporting by Lucia Mutikani; Editing by Hugh Lawson and Andrea Ricci)

Fed likely to leave support in place for struggling U.S. economy

By Howard Schneider

WASHINGTON (Reuters) – The Federal Reserve is expected to keep monetary policy locked in crisis-fighting mode on Wednesday as the U.S. central bank assesses an economy still struggling through the shock of a pandemic but looking forward to relief from a vaccination campaign and another government aid package.

The Fed, which will release its latest policy statement at 2 p.m. EST (1900 GMT), has used its recent meetings to roll out significant changes, linking any future increase in interest rates to a persistent rise in inflation, and tying any change in its $120 billion in monthly bond purchases to “substantial further progress” on its employment and inflation targets.

If anything, economic data since Fed officials met in the middle of December has been disappointing, and analysts say policymakers will likely fend off any suggestion that the economic boost from vaccines or a possible surge in inflation this spring will cause them to waver on the promise of continued loose monetary policy.

Major U.S. stock indexes were down about 1% in mid-morning trading, with analysts attributing the fall to concerns that vaccinations may not roll out as fast – or allow the economy to reopen as soon – as initially expected.

U.S. bond yields also dropped and a measure of longer-term market inflation expectations fell towards the Fed’s 2% target after a recent rise, evidence the recovery has not gained full traction and a pullback that, if sustained, would worry the central bank.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said she, like many economists, anticipates a “mini-boom” beginning in the spring as more of the U.S. population is vaccinated against the virus, people feel freer to travel and spend, and the Biden administration’s own spending plans move forward.

About 25 million people had received at least one of the required two doses of vaccine as of Sunday, and President Joe Biden hopes to boost the pace of daily shots to 1.5 million. He has requested an additional $1.9 trillion in government spending to speed up the vaccinations and expand benefits to U.S. businesses, workers and families hard hit by the pandemic.

Though that could fuel faster economic growth, Fed Chair Jerome “Powell will maintain his dovish tone for now,” by noting that inflation remains below the central bank’s 2% annual target and employment is still about 10 million short of its pre-pandemic level, Bostjancic wrote.

Powell is scheduled to hold a news conference half an hour after the release of the policy statement.

INFLATION TALK

Since approval of the first coronavirus vaccines in December, Fed officials have shared a general view that the U.S. economy was likely entering what one called the “endgame” of the pandemic, marked by short-term risks but likely buoyant growth in the second half of the year.

Fed policymakers, however, also have noted the large hole left in the economy, particularly the job market, after a year in which activity crashed spectacularly and then only partially rebounded. The United States actually lost jobs in December.

Many of the steps the Fed took last spring in response to the onset of recession, including slashing interest rates to zero, are now expected to remain in place for a potentially extended period of time – with policymakers not anticipating the need to raise rates for perhaps three years.

That’s designed to help push the economy onto a path of both higher employment and one that meets, after years of misses, the central bank’s 2% inflation goal.

Investors appear to have taken the Fed’s higher inflation talk seriously. The expected inflation rate over the longer term as measured by Treasury securities indexed for inflation has moved above 2%. Fed officials also have begun laying the foundation to ignore what’s expected to be a spike in prices this spring and summer, spurred by faster economic activity but also distorted by comparison to weak prices last year.

“The rebound in market-based inflation compensation measures will not alarm the Fed,” said Paul Ashworth, chief U.S. economist for Capital Economics. “Instead, Fed officials are more likely to view the rise as a welcome vindication of the tweaks they made to the policy framework.”

(Reporting by Howard Schneider; Editing by Andrea Ricci and Paul Simao)

Fed sees little to no growth in much of U.S. as stress mounts

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Federal Reserve officials saw “little or no growth” in four of their 12 regional districts and only modest growth in the others in recent weeks as a rapidly spreading health crisis and ongoing recession continued to devastate some U.S. businesses and families even as many others thrive.

In the U.S. central bank’s latest “Beige Book” compendium of anecdotes from businesses across the country, Fed officials seemed to signal that the winter slowdown they’ve feared would follow a new coronavirus outbreak is taking root.

Earlier on Wednesday, Fed Chair Jerome Powell repeated his plea for Congress to provide more aid to “get us through the winter” and support businesses and households until a vaccine allows for a broader resumption of commerce. Initial inoculations may begin in the United States this month.

Meanwhile, the pandemic is spreading at a rate of a million new cases a week and around 1,500 deaths a day.

In some places that has led officials to impose new restrictions on businesses and social gatherings. In others, households have pulled back on their own.

But overall it has left little capacity to fix problems that have plagued the economy since the onset of the pandemic last spring, with women sidelined from the workforce due to childcare concerns, leisure and hospitality firms semi-shuttered, and banks concerned their loans books may come under stress soon.

“This is one of the most troubling Beige Books we have seen in a long time,” Jefferies LLC economist Thomas Simon said.

The possibility of growing loan bank stress added a newly worrisome note: The comparative lack of loan defaults so far has prevented the recession from spawning a separate financial crisis.

But “banking contacts in numerous Districts reported some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors,” Fed officials reported. “An increase in delinquencies in 2021 is more widely anticipated.”

Commercial real estate – especially in the office and retail sectors – was a weak spot across most districts. The Boston Fed reported that contacts there “estimated daytime office occupancy rates at around 20 percent – bad news for the shops and restaurants that relied on office workers’ business.”

The regional bank also said office tenants nearing the end of leases were renewing only for the short term and that some respondents noted an increase in available subleased space, signaling more trouble ahead in the sector.

Similarly, firms had become tentative about hiring because of the uncertain path of the pandemic.

LABOR MARKET WORRIES

Nearly all districts reported that employment was growing more slowly and that the recovery “remained incomplete.”

Businesses said it was harder to retain workers, especially women, because of challenges finding child care and dealing with school closures caused by the virus. Firms in several districts said they feared “employment levels would fall over the winter” before improving.

In Boston, “a supplier to commercial aviation announced major layoffs over the summer and has not had any reason to revise those plans either up or down,” local Fed officials noted.

Still the latest collection of Fed field reports, compiled on or before Nov. 20, included stories of other firms where managers struggled to find workers to help meet a boom in goods sales.

That divide, among regions and sectors that are doing well and those that are not, has become a hallmark of the current recession and presents the Fed with a difficult decision as it debates whether to provide more support for the economy at its Dec. 15-16 policy meeting.

The economy continues to recover from the deep blow it suffered at the start of the pandemic, and the prospect of a coming COVID-19 vaccine means the recovery could gain steam next year.

In the meantime, the country is 10 million jobs short of where it was in February. Job numbers for November will be released on Friday and are expected to show the pace of improvement is slowing, with some analysts now predicting an outright job loss.

(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Paul Simao)

U.S. coronavirus wildfire hitting jobs as broad recovery trudges on

By Howard Schneider

WASHINGTON (Reuters) – The most intense U.S. coronavirus outbreak yet appears to have slowed hiring and may have begun to drag on retail spending on the cusp of the holiday shopping season, even as overall economic activity proves more resilient than in the spring.

But that uneasy coexistence – wildfire-like spread of a deadly disease with an economy that remains largely open – may be tested in coming weeks if face mask mandates and lighter-touch restrictions imposed by local governments fail to curb the spread of COVID-19. Infections are growing by more than 1 million a week, according to data from the COVID Tracking Project, and the week-to-week percentage change is rising too.

Some local governments are taking more aggressive steps, with New York City again closing schools, and in a rare federal response from the “lame-duck” administration of President Donald Trump, the U.S. Centers for Disease Control and Prevention urged Americans not to travel for next week’s Thanksgiving holiday, which typically sees tens of millions on the move.

Most states, though, are moving gingerly, curbing restaurant hours or seating capacity, but not shuttering nonessential businesses like during the early months of the U.S. outbreak in the spring.

Still, the surge in cases appears to have capped the U.S. economic rebound, according to high-frequency data tracked by economists for real-time evidence about the recovery.

Employment at a sample of mostly small businesses from time management firm Homebase declined for a fourth week, and shifts worked across different industries fell, according to time management firm UKG.

“The uncertainty that exists right now and has existed really since mid-summer is making it really hard for business owners to think about growth,” said David Gilbertson, UKG vice president for strategy and operations. “We seem to take one step forward, and then one step back.”

The decline in shifts from mid-October to mid-November likely points to a weakening jobs report in November, he said.

LOOKING ‘GRIM’

Since the spring’s catastrophic drop in employment, the economy has clawed back about half of the more than 20 million lost positions. But momentum is slowing, and last week the number of new claims for unemployment insurance rose for the first time in about a month.

An index of new job postings from analytics firm Chmura as of August had reached a high of 85% of the level predicted in the absence of the pandemic, but is now at 67%.

Workers may be in for a “grim” period, said AnnElizabeth Konkel, economist at Indeed Hiring Lab, whose index of job postings remains 13% below 2019 levels. Holiday hiring is largely complete, and unemployment benefits are expiring for many of those out of work since the spring, a lapse that may finally be weighing on national data.

Initially, the flood of government support increased incomes for many families and supported consumer spending. Data on 30 million JPMorgan debit- and credit-card customers, however, showed spending fell “notably” in early November from a level just 2.7% below 2019 to 7.4% below last year, said JPMorgan economist Jesse Edgerton.

Declines were sharper in places where COVID-19 was spreading more rapidly but were still widespread, suggesting “a broader pullback in spending,” Edgerton wrote. U.S. retail sales in October also grew less than expected.

That and other data indicate an outright decline in jobs in November versus October, Edgerton said, evidence that millions left jobless by the pandemic face a long road back to normal.

SOME IMPROVEMENTS

Vaccine prospects, however, “represent a ray of light at the end of the tunnel,” said Gregory Daco, chief U.S. economist at Oxford Economics. Oxford recovery tracker rose slightly last week, snapping a five-week skid, a sign that the scale of economic collapse seen in the spring is not in the offing.

Data from OpenTable showed a slight rise in diners seated at restaurants over the past week even as new limits were imposed.

Some Federal Reserve officials have noted how businesses, particularly in manufacturing, construction and some parts of the retail sector, have adapted to operating during the pandemic. A New York Fed weekly index projecting growth in gross domestic product has risen steadily since the recession began.

But Oxford’s index and other data have also remained largely stalled, well below pre-pandemic levels. Data tracking cellphone movement from Unacast, for example, has shown no upward trend since summer.

That may remain the case until vaccines are rolled out to enough people to make a difference.

Meanwhile, “the recovery is becoming entrenched in a low-growth mode, and we are worried about signs of lasting economic damage,” Daco wrote.

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)

Senate blocks confirmation of Trump Fed nominee Shelton

(Reuters) – The U.S. Senate on Tuesday blocked President Donald Trump’s nomination of Judy Shelton to the board of the Federal Reserve, making her the latest in a string of failed nominees to the central bank.

Trump’s Republican Party has a 53-47 majority in the current Senate, but several were absent, including two who were quarantining due to exposure to COVID-19, and others joined Democrats in voting ‘no’ in the so-called cloture vote.

The vote was 47 to 50 with Senate Majority Leader Mitch McConnell voting ‘no’ to preserve the option to reconsider later.

Shelton, an adviser to Trump’s 2016 presidential campaign who has argued the nation would be better off returning to the gold standard, as recently as 2017 criticized the Fed’s power over money and financial markets as “quite unhealthy.” During her Senate confirmation process, she called the Fed’s bond-buying and zero rates in the last crisis “extreme.”

Her views on interest rates have moved in lockstep with Trump’s. She lambasted easy money before Trump’s presidency, but supported it after he took office, and has expressed skepticism over the Fed’s need to set policy independently from the president and Congress.

Other Trump Fed nominees that failed to be confirmed included former Republican presidential candidate Herman Cain, who later died of COVID-19.

(Reporting by Patricia Zengerle and Doina Chiacu; writing by Ann Saphir; editing by Jonathan Oatis and Edward Tobin)

U.S. manufacturing near two-year high; road ahead difficult

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods like motor vehicles and food as the COVID-19 pandemic drags on.

The survey on Monday from the Institute for Supply Management (ISM) was the last piece of major economic data before Tuesday’s bitterly contested presidential election. But the outlook for manufacturing is challenging.

While the coronavirus crisis has boosted demand for goods complementing the pandemic life, a resurgence in new cases across the country could lead to authorities re-imposing restrictions to slow the spread of the respiratory illness as winter approaches, which could crimp activity. Government money for businesses and workers hit by the pandemic, which boosted economic growth in the third quarter, has dried up.

“Manufacturing rebounded strongly with fewer restrictions on economic activity and stimulus efforts, but the path forward will be more difficult as the economy continues to cope with the pandemic,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

The ISM said its index of national factory activity increased to a reading of 59.3 last month. That was the highest since November 2018 and followed a reading of 55.4 in September.

A reading above 50 indicates expansion in manufacturing, which accounts for 11.3% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 55.8 in October.

The jump in activity, however, likely overstates the health of the manufacturing sector. A report from the Federal Reserve last month showed output at factories dropping 0.3% in September and remaining 6.4% below its pre-pandemic level.

Manufacturers and suppliers said last month they “continue to operate in reconfigured factories” and with every month were “becoming more proficient at expanding output.”

Though sentiment among manufacturers remained upbeat, there were two positive comments for every cautious comment, a slight decrease compared to September.

The outcome of Tuesday’s vote is expected to lead to a brief period of uncertainty. President Donald Trump is trailing former Vice President and Democratic Party candidate, Joe Biden, in national opinion polls.

Stocks on Wall Street were trading higher following their steepest weekly loss. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

NEW ORDERS SURGE

Fifteen industries, including apparel, food, furniture and transportation equipment reported growth last month. Textile mills and printing reported a contraction.

Manufacturing’s continued recovery will likely keep the economy floating, with growth expected to slow sharply in the fourth quarter after a historic 33.1% annualized rate of expansion in the July-September period.

Growth last quarter, which followed a record 31.4% pace of contraction in the April-June quarter, was juiced up by more than $3 trillion in government pandemic relief. There is no deal in sight for another round of fiscal stimulus.

A separate report from the Commerce Department on Monday showed construction spending rose a moderate 0.3% in September, slowing after a 0.8% increase in August.

The coronavirus crisis has pulled spending away from services towards goods that complement the changed life-style. Spending on goods has surpassed its pre-pandemic level.

Makers of chemical products reported “business continues to be robust.” Food manufacturers said they had “increased production due to stores stocking up for the second wave of COVID-19.” Manufacturers of computer and electronic products said the coronavirus continued “to have an effect on supplier support and operations, more from a decreased labor perspective rather than unavailable material.”

The ISM’s forward-looking new orders sub-index surged to a reading of 67.9 last month, the highest reading since January 2004, from 60.2 in September. Customers’ inventories remained too low for the 49th straight month and order backlogs steadily increased, which bodes well for future production.

“On the upside, social distancing efforts, which have been a factor in consumers pivoting spending away from services and toward goods, is showing no signs of abating, especially as virus case counts are surging again,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

“This shift to goods spending should continue to underpin orders, but is unlikely to go on with the same muster as it did earlier when an initial flurry of spending on manufactured goods aimed at setting up at-home offices and remote classrooms boosted goods spending.”

With orders booming, manufacturing employment expanded for the first time since July 2019. The ISM’s manufacturing employment gauge rose to a reading of 53.2 from 49.6 in September. That likely supported overall job growth in October.

According to a Reuters survey of economists, nonfarm payrolls probably increased by 700,000 jobs last month after rising 661,000 in September. Employment growth has cooled from a record 4.781 million in June. About 11.5 million of the 22.2 million jobs lost during the pandemic have been recovered.

The government is scheduled to publish October’s employment report on Friday.

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