No end in sight for labor shortages as U.S. companies fight high costs
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[October 26, 2021] By
Caroline Valetkevitch
NEW YORK (Reuters) - Labor shortages may be
the most intractable of the cost risks that U.S. companies faced in the
latest quarter, and as the earnings season moves into its peak there are
signs the problem will persist, some strategists say.
Finding and paying for workers is a challenge investors are paying close
attention to as third-quarter results come in, with supply bottlenecks
and high energy and other commodity prices among other key risks for
companies.
Warnings have come already from companies in several industries,
including healthcare, with hospital operator HCA Healthcare Inc saying
higher labor costs seen in the third quarter could stick around longer
because of a shortage of workers.
Domino's Pizza cited a shortage of drivers as it reported recently a
rare fall in U.S. sales, and FedEx Corp also cited higher labor costs in
September when it cut its full-year forecast.
The coming weeks, which bring results from the bulk of S&P 500
companies, should give investors more clues on how long labor pressures
could persist.
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"We're going to see it come up in the next couple of quarters as we try
to continue to reopen," said Mace McCain, chief investment officer at
Frost Investment Advisors. "The reopening was delayed by the Delta
variant, so we haven't seen the full impact of the labor shortage yet."
Goldman Sachs strategists wrote in a research note ahead of this week
that there have been some "tentative signs of improvement from supply
chain data and commodity prices," while labor market tightness could be
a challenge "for many companies for years."
"Our economists expect COVID-related pressure on labor market supply
will ease in coming months but forecast a U.S. unemployment rate of 3.5%
by the end of 2022, meaning companies will continue to face many of the
labor market challenges they face today," they wrote.
Among stocks within the leisure and hospitality industry, low-labor-cost
names have outperformed high-labor-cost peers for months, the Goldman
strategists said, noting that in the broader market, "the most asset-
and labor-efficient firms have outperformed peers in recent years and in
recent weeks."
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A hiring sign is seen in front of a Qdoba restaurant, as many
restaurant businesses face staffing shortages in Louisville,
Kentucky, U.S., June 7, 2021. Picture taken June 7, 2021. REUTERS/Amira
Karaoud
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Recent economic data has underscored the tightening labor market trend.
The latest data showed the number of Americans filing new claims for
unemployment benefits dropped to a 19-month low in the week ended Oct.
16, marking a second straight week that claims remained below 300,000 as
employers hold on to workers amid an acute labor shortage.
U.S. companies managed to keep profit margins at record levels in the
second quarter, but rising costs have sparked some concern among
investors.
So far this reporting period, stronger-than-expected earnings have
raised the year-over-year profit growth forecast for S&P 500 companies
to 34.8%, up from about 30% at the start of the month, according to IBES
data from Refinitiv.
To be sure, a labor shortage is good news for people out of work and
looking for a job. And there are several signs that suggest the labor
shortage may be temporary, Thomas Lee, managing partner and head of
research at Fundstrat Global Advisors, wrote in recent note.
"Labor usage is actually 4.9 million lower now than pre-COVID-19," he
wrote. "Has the economy permanently changed during COVID-19 that somehow
less people working means a tighter labor market? Nope."
Paul Nolte, portfolio manager at Kingsview Investment Management in
Chicago, said labor shortages seem to be more of a problem for some
industries than others.
"Customer-facing businesses" that were forced to close during the
pandemic lockdowns are having a hard time filling jobs and getting back
up to speed, he said, while "manufacturers never quite completely shut
down."
(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Leslie
Adler)
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