There were a few important reports on the U.S. economy released this morning. First, total industrial production in America rose in July by 0.1 percent, according to new data from the Federal Reserve Board of Governors. That was a smaller gain than forecast but the prior month’s increase was revised much higher. Strength in business equipment spending and manufacturing helped offset weakness in construction, mining, and utilities last month. On a year-over-year basis, total industrial production in July rose by 4.2 percent, the fastest pace of annual growth since 2012. As for capacity utilization, this leading indicator of inflation and potential output held at 78.1 percent in July, slightly below estimates but still one of the best readings of the past few years.
Next, a report from the U.S. Census Bureau showed that advance estimates of retail and food services sales in July totaled $507.5 billion. That was a 0.5 percent increase from June’s downward-revised print, the sixth monthly gain in a row, and significantly better than expected. “Core” retail sales, which exclude the volatile automobile and gasoline components, also increased in July (+0.6 percent), helped by gains in nine of the thirteen major retail categories. Under the hood, notable weakness was seen at sporting goods stores and furniture outlets, while large gains occurred at clothing stores and restaurants. The non-store category also saw a jump in sales in July, not surprising since Amazon’s big “Prime Day” sale occurred last month. Altogether this report showed that consumer spending is continuing to drive economic growth during the third quarter of 2018. However, larger wage gains will likely be needed to sustain this level of consumption since consumers have relied a lot on credit cards and savings recently to support their spending.
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity surged by 2.9 percent during the second quarter of 2018, as output (+4.8 percent) increased faster than hours worked (+1.9 percent). That was better than the 2.5 percent gain economists anticipated and the largest quarterly increase since 2015. Q2’s productivity rise is above the average for the past two decades, but the quarterly data can be volatile, and some economists are skeptical that the latest boost is sustainable. Moreover, companies used recent tax savings to increase capital spending and reinvest in their businesses. If this can continue then productivity may finally be in a new uptrend after years of disappointing growth. This is important because higher productivity can help limit inflation as the economy expands. Former Federal Reserve Chair Janet Yellen also described productivity growth as the “most important factor determining continued advances in living standards.”
Sources: Econoday, FRBG, U.S. Census Bureau, U.S. DoL, Bloomberg, FRBSL
Post author: Charles Couch