HOT AIR BALLOON FLIGHT

By Julia Horowitz • Friday, November 5

Good morning. In today's newsletter: A look at how the US labor market has changed ahead of Friday's jobs report. Plus, the White House accuses OPEC and Russia of putting the economic recovery at risk, and vaccine maker stocks aren't made of Teflon.

 

US stock futures are up after the S&P 500 and Nasdaq Composite set new records on Thursday. Markets in Europe gained in early trading, while stocks in Asia dropped.

 

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MARKET FLASH

The job market may never be the same again

 

America's job market is showing signs of strength — welcome news after a choppy summer.

 

What's happening: Analysts polled by Refinitiv expect to learn Friday that roughly 450,000 positions were added to the economy in October as concerns about the Delta variant of the coronavirus eased. That would be more than in September and August.

 

But increasingly, economists are starting to wonder: As shortfalls of workers persist, has the labor market changed for good? If the answer is yes, the ramifications for policymakers could be huge.

 

Breaking it down: Businesses are still struggling to attract and retain enough staff to keep up with an explosion of demand. Employers had hoped that improved access to child care and reduced Covid-19 fears would boost the number of people looking for work this fall. Instead, the number of people actively searching for jobs was flat in September and October, according to Indeed, which recently polled 5,000 people in the United States.

 

Churn also remains an issue. In August, the most recent month for which data is available, a record 4.3 million workers quit their jobs. 

 

Joseph Brusuelas, chief economist at RSM US, told me that he's closely monitoring what happens in the coming months with two demographic groups: women aged 25 through 54, and baby boomers who may have retired early.

 

Women with young children disproportionately left the labor force during the pandemic, and many haven't come back. Meanwhile, new research from the Federal Reserve Bank of St. Louis found that Covid-19 pushed an estimated 3 million older Americans to retire sooner than expected.

 

These groups should start to rejoin the workforce in greater numbers. The approval of vaccines for children aged five to 11 in the United States could mitigate some concerns about the virus that kept parents at home. And this is the point in the recovery when some retirees should start reconsidering their decisions as wages rise, Brusuelas noted.

 

"In previous cycles, once the unemployment rate tended to drop below 5%, retirees tended to show up," Brusuelas said. The US unemployment rate fell to 4.8% in September. "We should start to see this now."

 

And if these workers don't come back? That could indicate a deeper shift.

 

"It may signal what lasting structural damage there is to the workforce from the pandemic," Brusuelas said.

 

Big picture: If a 4.5% unemployment rate now signifies "full employment" in the United States, and not 3.5%, as before the pandemic, that could encourage the Federal Reserve to roll back crisis-era policies even faster than expected.

 

For now, the Fed has said it's waiting for the employment situation to improve before hiking interest rates from historic lows. 

 

Watch this space: Central banks are trying to telegraph their next steps to investors to avoid unsettling markets. But data on jobs and inflation remains hard to read. The Bank of England surprised investors on Thursday when it opted not to raise interest rates, citing uncertainty about the effects of the end of the country's furlough program.

 

VOICES

On the persistence on inflation

"I think the Fed is still not fully recognizing the gravity of the situation."

 

FORMER US TREASURY SECRETARY LARRY SUMMERS

 

Watch his full interview on CNN.

OIL MONITOR

OPEC isn't yielding to US demands

The White House has accused OPEC and its allies of putting the global economic recovery at risk by refusing to pump more oil. That sets up a geopolitical showdown that could spark more market volatility and prompt the United States to release crude from its strategic reserves, my CNN Business colleague Charles Riley reports.

The latest: The Biden administration said it would "consider the full range of tools at our disposal to bolster resilience and public confidence" after the OPEC+ coalition, which includes Saudi Arabia and Russia, disregarded US calls to increase output by more than planned in December.

"Our view is that the global recovery should not be imperiled by a mismatch between supply and demand," a spokesperson for the US National Security Council said in a statement. "OPEC+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world."

The price of Brent crude oil, the global benchmark, has roughly doubled over the past year to $81 per barrel as the global economy rebounds from its pandemic slump. Bank of America predicts that prices could hit $120 per barrel by June 2022.

Soaring oil prices are fueling inflation, hurting vulnerable households and dampening the global economic recovery at a crucial moment. The United States, Japan and India have all called on OPEC+ to open the taps wider to help bring down prices.

 

Step back: Elevated gasoline prices could have political ramifications for Democrats heading into next year's midterm elections. US gas prices have surged to a seven-year high of $3.40 a gallon nationally. Gasoline and diesel prices have hit record highs in parts of Europe and the United Kingdom, too.

 

But OPEC+ showed Thursday that it was in no hurry to heed Biden's call for increased production.

On the radar: The United States could ease conditions on its own by tapping the Strategic Petroleum Reserve, which can hold up to 714 million barrels of crude and is the world's largest backup oil supply. Will it do so? 

UP NEXT

Canopy Growth, Cinemark and Groupon report results before US markets open.

Also today: The US jobs report arrives at 8:30 a.m. ET.

 

Coming next week: For the first time in nearly two years, the United States will welcome fully vaccinated visitors from all countries. That could give the travel industry a needed boost.

WHAT WE'RE READING AND WATCHING

▸ Peloton shares sink as at-home exercise falls out of favor (Reuters)
▸ SoftBank under pressure from investors to prop up share price (FT)
▸ Live Nation returns to profit with summer concert season (Bloomberg)
▸ A warning about food supply in China sparked panic (CNN Business)
▸ America's trade deficit jumps to record high (CNN Business)
▸ Fed Chair Jerome Powell seen visiting the White House (WSJ)

FINAL WORD

Vaccine stocks have soared. They're not bulletproof

When Pfizer reported earnings this week, the results were unambiguous: Sales of coronavirus vaccines were generating tons of money for the drugmaker.

 

The latest: Revenue soared to more than $24 billion, up 134% from a year earlier. Pfizer's vaccine business was responsible for more than 60% of the company's sales, with Covid-19 sales yielding $13 billion. Shares jumped more than 4% on the news.

 

Then there's Moderna, which is dealing with production and shipment issues. On Thursday, the company missed revenue and profit expectations for its most recent quarter and warned that full-year Covid vaccine shipments would not meet its forecasts. 

 

Moderna now expects full-year revenue of between $15 billion to $18 billion. Three months ago, it had predicted revenue of $20 billion. Shares plunged 18%.

 

Step back: Both companies are cashing in. Pfizer shares are up 19% this year. Moderna's stock has jumped more than 170% after lodging huge gains in 2020. The coronavirus vaccine is the firm's first major product.

 

But their shares aren't made of Teflon when expectations are this elevated.