Economy, Small Business

Economic Data Roundup (08/09/2016)

8/9/16 12:00 PM

iStock_000009946822_Small.jpgThere were two important reports on the U.S. economy released this morning. First, the National Federation of Independent Business’s (NFIB’s) small business optimism index rose to 94.6 in July, the fourth month-over-month gain in a row but only a fractional increase from June’s 94.5 print and still well below the long-term average (98.0). Four of the ten main components that make up the sentiment index improved last month, with respondents’ economic outlooks and inventory building plans seeing the biggest gains. Surveyed business owners were found to be less confident about earnings trends and sales growth in July, and slightly fewer respondents reported plans to make capital outlays. The biggest decline, though, was seen in the gauge of current job openings, which fell to the lowest level since April. However, measures of hiring plans and wage growth both firmed in July, likely related to the 46 percent of surveyed owners who reported few or no qualified applicants for the positions they were trying to fill. Although workers will welcome an uptick in compensation, the net percent of owners raising prices continued lower last month, perhaps implying an additional strain on margins. Elsewhere in the report, the top two problems facing surveyed small business owners were once again taxes and government regulation but “quality of labor” continues to be a growing challenge. Many owners were also worried about poor sales in July, which is worth monitoring going forward because such concerns often lead unemployment. Bill Dunkelberg, NFIB’s chief economist, added that “Small business owners remain in 'maintenance mode'. A record high percentage of owners cited 'the political climate' as the major reason for viewing the current period as a bad time to expand.”

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Next, data from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity (employee output per hour) decreased at an annual rate of 0.5 percent during the second quarter of 2016, as hours worked increased faster than output. This is essentially no improvement from the 0.6 percent decline seen in Q1 and much worse than the +0.4 percent rebound economists had expected. Productivity has now declined for three quarters in a row, the first time that has occurred since 1979 and the largest such decrease since 1993. Moreover, productivity fell by 0.4 percent over the past twelve months, the first annual decline recorded in three years, and since the recession ended in 2009, productivity has grown at an annualized 0.9 percent, the slowest pace for any business cycle. Weak business investment has been a big factor behind softer productivity growth. Evidence of this can be found in fixed nonresidential investment, which has declined for three consecutive quarters, and disappointing core capital expenditures. Elsewhere in the report, the Q1 figures for real hourly compensation and unit labor costs were revised significantly lower, +4.2 percent to -0.4 percent and +4.5 percent to -0.2 percent, respectively. Altogether, this was a very discouraging report, especially for Federal Reserve Chair Janet Yellen who earlier last year described productivity growth as the “most important factor determining continued advances in living standards.”

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Sources: Econoday, Twitter, Bloomberg, ZH, NFIB, U.S. BLS, FRBSL

Post author: Charles Couch