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As the U.S. economy restarts from the pandemic, parts of it are severely broken

Manufacturers are struggling to catch up with a jolt in demand amid supply crunches in components and raw materials

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A customer wearing a protective mask loads lumber at a Home Depot store in Pleasanton, California, Feb. 22, 2021.

David Paul Morris | Bloomberg | Getty Images

The U.S. economy is trying to restart its engine after tumbling into its deepest recession in generations, but a variety of supply chain constraints are threatening the country’s rebound.

The country faces major shortages in everything from labor to semiconductors, lumber and packaging materials. Not even swimming pools can be counted on this summer with the U.S. running low on chlorine. The scarcity left and right is not only preventing the economy from reaching its full potential, but it’s also raising fears of higher inflation as companies are forced to hike prices amid the low supply.

People swim in a pool at a country club in Bloomfield Hills Township, Michigan, U.S., on Monday, June 8, 2020.

Emily Elconin | Bloomberg | Getty Images

“These shortages, both labor and non-labor, will affect the speed under which the economy recovers,” Barclays head of U.S. economics research Michael Gapen said. “Labor and non-labor inputs are complements in production. You need both. If I can’t get my semiconductors to make my autos, then I don’t necessarily need to hire more labor right now.”

The U.S. labor force participation rate remains well below pre-pandemic levels as many Americans have yet to go back to work. This is partly due to generous unemployment benefits and childcare duty.

Meanwhile, manufacturers are struggling to catch up with a jolt in demand amid supply crunches in components and raw materials. This has stalled the rebound across broad swaths of the economy from housing to services, tech, autos and leisure.

“This is going to be a longer process coming out than when it went in,” Gapen said. “Like the global economy is recovering at an uneven pace, it’s likely that the U.S. economy is going to do the same. There are some kinks to still work out in the system.”

’10 million jobs short’

While the labor market is ready to snap back, there appears to be a lack of available workers to keep powering the grand recovery.

Hiring was a huge letdown in April, with nonfarm payrolls increasing by just 266,000, compared to a Dow Jones consensus estimate of 1 million jobs.

“This is a labor market that is 10 million jobs short of where it should be. But unlike the normal shortages that we have, I think this is just as much about a shortage in labor supply as it is about a shortage of labor demand,” said Jason Furman, an economist at Harvard University and a former Obama administration advisor.

Companies are struggling to hire workers at a time when Covid infection risk persists. Federal jobless benefits, as well as child care obligations with many schools still closed, could be preventing many Americans from re-entering the labor force.

The labor force participation rate plunged to its lowest level since 1973 in April 2020 as the pandemic kicked a massive number of workers out of the jobs market. While the rate has edged higher in the following months, it is still stubbornly below pre-Covid levels — 61.7% in April versus more than 63% before March 2020.

“We have job openings at record levels, we have workers voting for their confidence in labor markets with near-record levels of quits,” Furman said. “If you look at April, it appears that there were about 1.1 unemployed workers for every job opening. So there are a lot of jobs out there, there is just still not a lot of labor supply.”

Companies raise alarm bells on chip shortage

When the Covid-19 pandemic hit, an already red-hot semiconductor industry experienced a demand explosion in products like smartphones and computers, causing an unprecedented supply shock that grips businesses across the board rushing to meet orders.

The semiconductor scarcity has been well documented by executives on earnings calls this quarterly reporting season. At least 70 S&P 500 companies highlighted the chip shortage during their earnings calls over the past three months, according to a CNBC analysis of FactSet data.

Ford Motor said the chip crunch slashed first-quarter vehicle volume by 17%, hitting 2021 free cash flow by $3 billion. CEO Jim Farley warned the impact to production will get worse before it gets better.

Tesla CEO Elon Musk said the electric carmaker suffered “some of the most difficult supply chain challenges” in the firm’s history in the first quarter.

“Insane difficulties with supply chain with parts – over the whole range of parts. Obviously, we’ve heard about the chip shortage. This is a huge problem,” Musk said on an April 26 earnings call.

It’s not just electronics and autos — companies of all types are updating investors on the fallout of the semi crunch. Chips have become such a ubiquitous component to so many products that firms selling medical devices, chemicals, apparel and even tobacco are sounding the alarms, according to the analysis.

Lumber prices driving up home costs

Lumber — the wood used to frame a house as well as in cabinets, doors and flooring — saw its prices surging more than 80% this year and up 340% from a year ago. The soaring prices were triggered by a combination of reduced supply amid pandemic shutdowns and surging demand for new homes.

Brooks Mendell, president and CEO of forest industry consulting firm Forisk, said Monday on CNBC’s “Worldwide Exchange” that consumer demand for lumber did not slow down even when many manufacturers were forced to halt operations.

“Beginning last year when Covid and the recession hit, the sawmills slowed down, projects that were expanding mill capacity slowed down,” he said. “But meanwhile, everybody at home kept doing their projects, home demand continued and repair and remodeling just kept cooking along.”

The shortage led to the average price of a new single-family home increase by nearly $36,000, according to an analysis by the National Association of Home Builders.

“This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth,” NAHB Chairman Chuck Fowke said in a statement.

Packaging materials costs soar 50%

There is also a major shortage in packaging materials such as plastics, paper and metals, which drove packaging costs up more than 50% since the start of the pandemic, according to data from Mintec Global.

A rapid rise in e-commerce during the lockdown created a surge in demand for paper packaging materials, which tightened supply further amid reduced wastepaper from the retail sector, according to analysts at Mintec.

Supply is also expected to be limited for longer as many paper mills stop for scheduled maintenance in the spring, the analysts said.

Prices for most plastic materials are trending at multiyear highs, with U.S. polypropylene prices more than doubling year over year, according to Mintec. On top of lockdown restrictions at the height of the pandemic, plastic markets were hit by substantial plant outages in the third quarter caused by hurricanes followed by severe winter storms during February.

Mintec also said logistical problems including container bottlenecks and a lack of shipping containers have led to an exponential rise in freight costs.

It’s widely expected that some of the supply chain bottlenecks and increasing price pressures will get passed down to consumers.

“Over the course of 2021, goods price inflation will be above its longer-term trend,” Gapen said.

Economists expect the consumer price index to rise by 0.2% in April from March following a 0.6% gain the prior month. But on a year-over-year basis, the index is expected to look sizzling with a 3.6% jump, according to Dow Jones.

Chemical fire shrinks chlorine supply

Chlorine had already been more in demand than usual this past year due to pandemic-induced home improvement projects and staycations. Then a chemical fire erupted at one of the country’s major manufacturers of chlorine products in Louisiana, cutting off a key source of supply.

Chlorine prices started to rise after the August fire, data from IHS Markit shows, and are up 72% from January 2019 levels. The plant is not expected to reopen until 2022.

Americans may be forced to seek alternatives this summer such as converting pools to saltwater systems. Those, however, are also in short supply.

— CNBC’s Tom Franck contributed reporting.

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The country faces major shortages in everything from labor to semiconductors, lumber and packaging materials. Not even swimming pools can be counted on this summer with the U.S. running low on chlorine. The scarcity left and right is not only preventing the economy from reaching its full potential, but it’s also raising fears of higher inflation as companies are forced to hike prices amid the low supply.

Source: https://www.cnbc.com/2021/05/11/as-the-us-economy-restarts-from-the-pandemic-parts-of-it-are-severely-broken.html

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Source: https://www.cnbc.com/us-top-news-and-analysis/

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Corporate Company Earnings, Find Earnings Per Share and Earnings History Online

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Source: https://www.cnbc.com/earnings/

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Nike earnings and sales beat estimates as retailer books record revenue in North America

Nike on Thursday reported fiscal fourth-quarter earnings and sales that topped analysts’ estimates, fueled by record revenue in North America.

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A man walks in front of Nike products exhibit, on February 22, 2021 in New York City.

John Smith | Corbis News | Getty Images

Nike on Thursday reported fiscal fourth-quarter earnings and sales that topped analysts’ estimates, fueled by record revenue in its largest market, North America.

It also offered a better-than-expected sales outlook for the upcoming year, driven by optimism around its women’s category, apparel business and Jordan brand.

Nike continues to benefit from consumers seeking out comfortable clothing to wear for workouts but also around the house. Even as people return to schools, offices and other social settings, many are still searching for relaxed options such as sneakers and stretchy pants.

Nike also saw a boost to its wholesale business — something that was largely inactive a year earlier during the Covid pandemic, when shopping malls and department stores had to temporarily shut their doors and put orders for merchandise on pause. Some of Nike’s key wholesale partners include Dick’s Sporting Goods, Foot Locker and JD Sports.

Nike shares jumped more than 12% in after-hours trading.

Here’s how the company did during its fiscal fourth quarter, compared with what analysts were anticipating, using Refinitiv estimates:

  • Earnings per share: 93 cents vs. 51 cents expected
  • Revenue: $12.34 billion vs. $11.01 billion expected

Nike’s net income for the period ended May 31 rose to $1.5 billion, or 93 cents per share, compared with a loss of $790 million, or 51 cents per share, a year earlier. That topped analysts’ forecast of 51 cents per share, using Refinitiv data.

Total revenue rose to $12.34 billion from $6.31 billion a year earlier, topping estimates for $11.01 billion. Sales were aided by the company selling more goods at full price and relying less on markdowns.

In North America, Nike’s biggest market, sales more than doubled to a record $5.38 billion as the company surged from a year earlier when the Covid pandemic was hitting the retail industry the hardest. The region’s sales were up 29% on a two-year basis.

In Greater China, sales were up just 17% at $1.93 billion. Though China is typically one of the fastest-growing markets for Nike, consumers in China have threatened a boycott after some Western brands including Nike expressed concern about allegations of forced labor in Xinjiang.

Management said Thursday that Nike is seeing improvement in China sequentially month by month.

“Building on our 40-year history in Greater China, we continue to invest in serving consumers with the best products Nike has to offer in locally relevant ways,” CFO Matt Friend said during a post-earnings conference call.

Digital sales were up 41% compared with the prior year and rose 147% compared with the same period in 2019.

The company said its membership model is helping to fuel its e-commerce business. Online purchases from Nike members, who receive first access to exclusive products and other perks, hit a record $3 billion during the fourth quarter. Nike said it now has more than 300 million members globally.

“Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike’s long-term growth,” said Nike CEO John Donahoe.

In fiscal 2022, Nike is expecting revenue to grow a low double-digit percentage, surpassing $50 billion. Analysts were looking for annual revenue of $48.5 billion.

The company anticipates the first half of the year to grow faster than the second half, Friend said.

“It’s important to note as we normalize our post-pandemic business and continue to reshape the marketplace, we do not expect quarter-by-quarter growth to be linear,” he said.

Nike also anticipates supply chain delays and higher logistics costs will persist throughout much of fiscal 2022. The headaches have been plaguing much of the retail industry for months now. A shortage of containers and a dearth of truck drivers, among other factors, have stalled merchandise from getting from ports to warehouses to shoppers’ homes.

Nike shares are down more than 5% year to date. The company has a market cap of $211 billion.

Find the full earnings press release from Nike here.

Nike continues to benefit from consumers seeking out comfortable clothing to wear for workouts but also around the house. Even as people return to schools, offices and other social settings, many are still searching for relaxed options such as sneakers and stretchy pants.

Source: https://www.cnbc.com/2021/06/24/nike-nke-q4-2021-earnings.html

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