Inflation nears decade high as reopening juices price growth across the economy

People shopping
Bolstered by three rounds of stimulus checks, US consumers are spending more.

  • The PCE price index – a popular inflation gauge – rose to 3.5% from 1.7% in the first quarter.
  • The measure signals that reopening and stimulus boosted demand, lifting prices at a nearly decade-high rate.
  • The Fed expects inflation to climb but only temporarily, before fading to normal levels.
  • See more stories on Insider’s business page.

The inflation that economists and the Federal Reserve have been warning of for months has arrived.

The Personal Consumption Expenditures price index – among the most popular measures of nationwide price growth – rose in the first quarter to 3.5% from 1.7%, the Commerce Department said Thursday. The reading marks the second-fastest pace of price growth since 2011, surpassed only by a 3.7% rate in the third quarter of 2020.

Core PCE inflation, which leaves out volatile food and energy prices, rose to 2.3% in the first quarter from 1.3%.

The stronger inflation was largely attributed to the quarter’s economic rebound. US gross domestic product grew at an annualized rate of 6.4% in the first three months of 2021, according to the Commerce Department. That rate signals the second-strongest quarter of expansion since 2003, surpassed only by the record-breaking surge seen in the third quarter of last year.

The quarter ending in March saw stimulus passed by former President Donald Trump and President Joe Biden drive a sharp increase in spending. Widespread vaccination and falling COVID-19 case counts also boosted economic activity as governments eased lockdowns and businesses reopened.

The uptick in price inflation mirrors a similar signal from the Consumer Price Index from earlier in April. The inflation gauge rose 0.6% from February to March, slightly exceeding economist forecasts. More remarkable was a 2.6% year-over-year gain that market the strongest jump in price growth of the pandemic era.

Inflation was at the center of the debate over new stimulus, with Republicans and even moderate Democrats warning that a colossal package could spark rampant price growth and create a new economic crisis.

On the surface, the latest data suggests those warnings were correct. Yet the Fed has long anticipated that any spike in inflation through the recovery would be “transitory” and quickly fade. For one, year-over-year measures of price growth are somewhat skewed by data from the first months of the pandemic, when initial lockdowns saw price growth turn negative. That dynamic, known as base effects, leaves a lower bar for the present-day readings to clear.

The pickup is also unlikely to reverse the decades-long trend of price growth landing below the Fed’s target, according to Fed Chair Jerome Powell.

“An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future,” the central bank chief said Wednesday. “It is the Fed’s job to make sure that does not happen.”

The Fed adjusted its framework in August to pursue inflation that averages 2% over time, as opposed to targeting steady price growth at a 2% rate. The change signals the central bank will allow inflation to run above the 2% threshold for some time as the country recovers. Powell has said that the low-inflation environment of the late 2010s suggest the Fed can run the economy hot in hopes of reaching maximum employment.

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Here’s how fast homebuilding is catching up to the record-low number of houses for sale

UBS STARTS
Source: UBS.

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

“We may have overestimated the immediate storm-rebound by a little, and so expected more rebound to come in starts in April,” UBS economists led by Samuel Coffin said in a note. “But with permits on target in March, we continue to see the underlying trend in single-family activity at about a 1.2 million unit annual rate.”

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

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Housing starts soar to 15-year high as builders sprint to fill market shortage

home house construction
Workers are shown building luxury single family homes in Carlsbad, California,

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

Spending at US retailers rockets 9.8% higher as stimulus supercharges reopening

Hollywood
  • US retail sales surged 9.8% in March to a record $619.1 billion, the Census Bureau said Thursday.
  • The leap nearly doubles the median economist estimate of a 5.8% gain from a Bloomberg survey.
  • Sales were bolstered by warmer weather and $1,400 checks included in Democrats’ stimulus plan.
  • See more stories on Insider’s business page.

Warmer weather, reopening, and stimulus support converged in March to drive the strongest month of retail spending the US has ever seen.

Retail sales increased 9.8% last month to a record $619.1 billion, according to Census Bureau data published Thursday. The leap nearly doubles the median economist estimate of a 5.8% gain from economists surveyed by Bloomberg. February’s decline was revised higher to a 2.7% contraction.

The March reading sits 27.7% higher than that seen exactly one year ago. Sales dipped in March 2020 and hit their pandemic-era floor in April as initial lockdowns and fears of COVID-19 kept Americans from spending at physical stores.

Retail sales have been a key indicator for economic activity and became even more relevant amid the virus-induced restrictions. Such spending counts for roughly 70% of economic activity, and the rebound seen after the winter virus wave suggests the country can soon return to pre-pandemic strength.

Stimulus boost, redux

Last month’s upswing mirror that seen at the start of the year. Retail sales shot 7.6% higher in January as Americans deployed direct payments included in President Donald Trump’s $900 billion stimulus package. The climb snapped a three-month streak of declines and handily beat economist forecasts.

It appears the $1.9 trillion stimulus measure approved by President Joe Biden in March achieved a similar effect.

“With fresh stimulus checks in hand, consumers took advantage of warmer weather and increased vaccinations to splurge at car dealerships, shopping malls, restaurants, and home improvement stores,” Gregory Daco, chief US economist at Oxford Economics, said, adding the March reading only marks the beginning of the “consumer boom.”

Oxford Economics expects private spending to grow 8.4% through 2021 on the back of widespread vaccination and reopening. That would be the fastest growth rate since 1946.

Early data suggests Americans didn’t even use the full payments to drive the March increase. Stimulus check recipients only spent about 25% of the payments, according to researchers at the Federal Reserve Bank of New York. That’s less than the share spent from the previous two rounds of stimulus checks. Conversely, larger portions were diverted to savings.

The data is clear: The economy is recovering

The retail sales report caps a month that’s likely to mark a turnaround for the US economy. For the first time since the pandemic began, practically every economic release pointed to a broad and fast-paced recovery.

Consumer sentiment leaped to one-year highs as the vaccination rate improved and nicer weather allowed for a return to some pre-pandemic activities. Jobless claims tumbled to pandemic-era lows, and fell further still last week. The manufacturing sector continued to grow at a healthy pace, and the service businesses saw activity rebound after struggling through the winter.

Perhaps the most notable report came on April 2 from the Bureau of Labor Statistics. The agency reported a 916,000-payroll gain in March, beating estimates and marking the strongest month of job growth since August. Readings for January and February were both revised higher, and the headline unemployment rate fell to 6% from 6.2%.

To be sure, there’s still plenty of progress to make before the country is fully in the clear. The government’s monthly jobs report showed the economy is still down some 8.4 million payrolls from before the health crisis. Unofficial estimates that include misclassification and workers who dropped out of the labor force since February 2020 place that sum closer to 14 million. And while jobless claims continue to decline, they still sit at levels twice as high as those seen before the pandemic.

The Thursday spending data is an encouraging sign. Increased spending lifts businesses’ demand for workers and, in turn, accelerates hiring. The pace of vaccination continues to improve, and state and local governments are slowly relaxing their lockdown measures.

Coronavirus strains still present some risks, but the economy seems to be at an “inflection point,” Federal Reserve Chair Jerome Powell said Wednesday. Americans should keep socially distancing and masking up to ensure the country can effectively curb the virus’s spread, he added.

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US economy adds 379,000 payrolls in February, smashing forecasts as virus cases tumble

Fishing store
  • The US added 379,000 jobs in February, beating the consensus estimate of 200,000 additions.
  • The reading marked a second straight month of labor-market expansion and an increase from January.
  • The unemployment rate dropped to 6.2% from 6.3%, putting it lower than forecasts.
  • Visit the Business section of Insider for more stories.

The US labor-market recovery accelerated in February as daily COVID-19 cases swiftly declined and the pace of vaccinations improved.

Businesses added 379,000 payrolls last month, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg expected a gain of 200,000 payrolls.

The increase follows a revised 166,000-payroll jump in January. The labor market has now grown for two straight months after contracting in December as virus cases surged.

The US unemployment rate fell to 6.2% from 6.3%, according to the government report. Economists expected the rate to stay steady at 6.3%. The U-6 unemployment rate – which includes workers marginally attached to the labor force and those employed part-time for economic reasons – remained at 11.1%.

The labor-force participation was also unchanged at 61.4%. A falling participation rate can drag the benchmark U-3 unemployment rate lower, but such declines signal deep scarring in the labor market.

The bigger picture

Jobless-claims data and private-payrolls reports offer some detail as to how the labor market fared through February, but the BLS release paints the clearest picture yet as to how the coronavirus pandemic has affected workers and the unemployed.

Roughly 13.3 million Americans cited the pandemic as the main reason their employer stopped operations. That’s down from 14.8 million people in January.

The number of people saying COVID-19 was the primary reason they didn’t seek employment dropped to 4.2 million from 4.7 million.

About 22.7% of Americans said they telecommuted because of the health crisis. That compares with 23.2% in January.

Roughly 2.2 million Americans said their job loss was temporary, down from 2.7 million the month prior. The number of temporary layoffs peaked at 18 million in April, and while the sum has declined significantly, it still sits well above levels seen before the pandemic.

Filling the hole

The Friday reading affirms that while the economy is far from fully recovered, the pace of improvement is picking up, most likely tied to the steady decline in daily new COVID-19 cases. The US reported 54,349 new cases on the last day of February, down from the January peak of 295,121 cases. Hospitalizations and daily virus deaths have similarly tumbled from their early-2021 highs, according to The COVID Tracking Project.

All the while, the country has ramped up the distribution and administration of coronavirus vaccines. The US has administered more than 82.6 million doses, according to Bloomberg data. The average daily pace of vaccinations climbed above 2 million on Wednesday and has held the level. At the current rate, inoculating three-quarters of the US population would take roughly six months, but the Biden administration has a rosier outlook.

The president on Tuesday announced the US would have enough vaccine doses for every adult by the end of May. While distributing the shots will most likely last beyond May, the new timeline marks a two-month improvement to the administration’s previous forecast.

Still, other data tracking the labor market points to a sluggish rebound. Initial jobless claims totaled 745,000 last week, according to Labor Department data published Thursday. That was below the median economist estimate of 750,000 claims but a slight increase from the previous week’s revised sum of 736,000. Weekly claims counts have hovered in the same territory since the fall as lingering economic restrictions hinder stronger job growth.

Continuing claims, which track Americans receiving unemployment benefits, fell to 4.3 million for the week that ended February 20. The reading landed in line with economist projections.

Other corners of the economy are faring much better amid the warmer weather and falling case counts. Retail sales grew 5.3% in January, trouncing the 1% growth estimate from surveyed economists. The strong increase suggests the stimulus passed at the end of 2020 efficiently lifted consumer spending in a matter of weeks.

All signs point to another fiscal boost being approved over the next few days. Senate Democrats voted to advance their $1.9 trillion stimulus plan on Thursday, kicking off a period of debate before a final floor vote. President Joe Biden has said he wants to sign the bill before expanded unemployment benefits lapse March 14. The new package includes $1,400 direct payments, a $400 supplement to federal unemployment insurance, and aid for state and local governments.

The bill isn’t yet a done deal. Sen. Ron Johnson of Wisconsin forced a reading of the entire 628-page bill on Thursday, as Republicans seek to at least drag out its passage into law. Not a single Republican senator voted to advance the bill Thursday.

A process known as “vote-a-rama” will start after the 20 hours of debate and give Republicans the chance to further impede a final vote by introducing potentially hundreds of amendments to the bill.

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US weekly jobless claims rise less than forecasted to 745,000 as stimulus nears key vote

unemployment jobless claims
  • US jobless claims totaled 745,000 last week, a slight increase from the prior week’s revised 736,000 total.
  • The reading comes in just below the consensus economist estimate of 750,000 claims.
  • Continuing claims dropped to 4.3 million for the week that ended February 20.
  • Visit the Business section of Insider for more stories.

The number of people filing for unemployment insurance in the US rose less than estimated as Democrats neared a critical vote on President Joe Biden’s stimulus proposal.

New jobless claims reached an unadjusted 745,000 for the week that ended Saturday, according to the Labor Department. The median estimate from economists surveyed by Bloomberg was for 750,000 claims. The reading comes in above the previous week’s revised count of 736,000 claims.

Continuing claims, which track Americans receiving unemployment benefits, declined to 4.3 million for the week that ended February 20, in line with economist expectations.

“We expect the trend to fall sharply over the next few months, provided the new Covid variants don’t trigger a spring wave in cases and, more importantly, hospitalizations,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said. “The jury is still out.”

More than 80 million filings for unemployment benefits have been made since claims first shot higher nearly one year ago. That sum dwarfs the 37 million filings made during the Great Recession. All weekly readings since March still exceed the high of 665,000 from the previous downturn.

 

The claims data comes one day after ADP published its monthly count of private payroll additions. The US private sector added 117,000 jobs in February, according to the Wednesday report. The gains come in well below the 200,000 private payrolls expected by economists, signaling a weaker labor market recovery than hoped.

A more detailed look at how hiring fared last month will emerge when the Bureau of Labor Statistics publishes its monthly nonfarm payrolls data. Economists expect the report to show the US adding 198,000 payrolls in February.

The millions of Americans still jobless could soon receive fresh aid from Washington. House Democrats approved the $1.9 trillion American Rescue Plan Act on Saturday, teeing the stimulus package up for a Senate vote in the coming days. The deal includes $1,400 direct payments, a $400 boost to unemployment benefits, and state and local government aid.

Democrats are still split on some tenets of the package. More moderate members of the party have pushed a smaller, $300-per-week supplement to federal unemployment insurance. Others are debating whether the boost should end in August as established in the package or in September.

Compromises have already been made as a result of this moderate pressure. Biden on Wednesday approved a faster phaseout for stimulus checks that leaves individuals earning more than $80,000 and couples making more than $160,000 without payments.

With the Senate vote looming and Democrats needing all 50 Senate members to back the measure, additional changes could be made to shore up support.

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US weekly jobless claims drop more than expected to 730,000 as economic recovery pushes forward

New York Unemployment Strike
  • US jobless claims totaled 730,000 last week, down significantly from the previous week’s revised total of 841,000.
  • The total also comes in below the economist estimate of 825,000 claims.
  • Continuing claims fell to 4.4 million for the week that ended February 13.
  • Visit the Business section of Insider for more stories.

The number of Americans filing for unemployment benefits declined more than expected last week, signaling the labor market recovery is still recovering, albeit at a modest pace.

New jobless claims reached an unadjusted 730,000 for the week that ended Saturday, the Labor Department announced Thursday morning. Economists surveyed by Bloomberg expected the reading to come in at 825,000 claims. Last week’s total is also below the previous period’s revised count of 841,000 claims.

Continuing claims, which track Americans currently receiving unemployment benefits, dropped to 4.4 million for the week that ended February 13. Economists projected continuing claims to decline slightly to 4.5 million.

While down significantly from spring 2020 levels, jobless claims wavered around 800,000 for weeks amid slowed hiring activity. Weekly counts still exceed the 665,000 filings made during the worst week of the financial crisis. And the roughly 80 million claims made since the pandemic hit the US is more than double the 37 million filings seen during the previous downturn.

 

Labor-market indicators haven’t fared as well as some other economic data in recent weeks. Retail sales leaped 5.3% in January, according to Census Bureau data published last week, trouncing the 1% gain expected by economists. The data signals stimulus passed by President Donald Trump late last year efficiently lifted household spending during one of the worst months of the pandemic.

More recently, IHS Markit reported US business activity improved the most in almost six years in a preliminary February reading. The firm’s index of output across the service and manufacturing industries rose 0.1 point to 58.8, marking the strongest rate of growth since March 2015. The bulk of the improvement came from the service sector, while the manufacturing industry continued to expand at a relatively strong pace.

Pandemic data has similarly shown encouraging trends. Daily case counts are less than a third of their early January peak, and hospitalizations have also steadily declined. The US is administering 1.3 million vaccines per day on average and has so far administered 65 million doses, according to Bloomberg data.

The recovery is set to receive a boost from Washington in the coming weeks. House Democrats on Wednesday indicated they’ll hold a floor vote on President Joe Biden’s $1.9 trillion stimulus proposal on Friday. The legislation would then be sent to the Senate, where Democrats aim to pass the bill through budget reconciliation and send it to the president’s desk by March 12.

That timeline would allow for expanded unemployment benefits to continue instead of expiring on March 14. The package also includes $1,400 direct payments, aid for state and local governments, and an increase of the federal minimum wage to $15 an hour.

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US business output climbs the most in nearly 6 years as services bounce back, IHS Markit says

GettyImages 1302361021
A person wearing a protective mask disinfects tables at an outdoor restaurant in Greenwich Village on February 15, 2021, in New York City.

  • IHS Markit’s gauge of US business output rose to 58.8 in a preliminary February reading.
  • The data marks the strongest rate of growth since March 2015.
  • Revived activity in the service industry drove the bulk of the improvement. Manufacturers grew, albeit at a slower pace.
  • Visit the Business section of Insider for more stories.

A popular gauge of US business output improved the most in nearly six years as falling COVID-19 case counts lifted the service industry, IHS Markit said Friday.

The firm’s Composite Output Index rose 0.1 points to 58.8 in a preliminary February reading, signaling the strongest rate of expansion since March 2015. The bulk of the improvement was driven by an uptick in the service sector. A measure of service activity rose to 58.9 from 58.3, also its highest level since March 2015.

IHS’ manufacturing purchasing managers’ index declined to 58.5 from 59.2, its lowest point in two months. Readings above 50 indicate sector growth, while those below the threshold signal contraction.

The service-sector improvement marks a major turnaround for the national economy. Economic restrictions imposed during the winter surge in virus cases halted the industry’s recovery as Americans were urged to stay at home. While manufacturers’ growth improved, service businesses dragged on overall output.

“The data add to signs that the economy is enjoying a strong opening quarter to 2021, buoyed by additional stimulus and the partial reopening of the economy as virus-related restrictions were eased on average across the country,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

The data follows a similarly encouraging retail-sales report published by the Census Bureau on Wednesday. Americans’ spending at retailers gained 5.3% last month, trouncing the 1% growth anticipated by economists. The jump was likely fueled by stimulus passed in late December and declining case counts.

Slower manufacturing growth in the month to date was attributed to extreme weather and supply shortages. Supplier delays hit a record high in the preliminary report. Rising input costs across manufacturers and businesses drove the biggest selling-price increase since at least October 2009, IHS said.

Business confidence remained elevated, though down slightly from its recent high. Service businesses reported slightly softer expectations, while manufacturers posted the strongest confidence in three months.

While activity in the service sector ticked higher, it hasn’t yet translated to a hiring surge. Firms expanded their payrolls “only marginally” in February, IHS said. Hiring at manufacturers, on the other hand, reached its quickest rate since December 2017.

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