There were two encouraging reports on the U.S. economy released this morning. First, nonfarm business sector labor productivity rose by 2.3 percent during the second quarter of 2019, according to data from the Bureau of Labor Statistics. That was down from Q1’s brisk 3.5 percent pace of expansion but significantly better than expected and the 14th consecutive quarter of growth. Such gains are important because an alternative to raising selling prices when labor costs increase is to instead keep prices low to try to gain market share. This can be more easily achieved by boosting the productivity (output per hour) of the existing workforce through investments in equipment, technology, and employee training. The recent tax cuts helped many U.S. companies move forward the timetables for such capital spending initiatives, and a continued rise in employee compensation will only increase the importance of additional investments in productivity.
Next, advance estimates of retail and food services sales in July totaled $523.5 billion, according to a new report from the U.S. Census Bureau. That was a 0.7 percent increase from June’s downward-revised print, and “core” retail sales, which exclude the volatile automobiles and energy components, jumped by 1.0 percent. Ten of the thirteen major retail categories posted a gain in July, including a 2.8 percent spike in non-store retailers (Amazon Prime Day). Even more encouraging were “control group” retail sales, which some economists believe better track consumer demand trends by stripping out sales at food services establishments, car dealers, building-materials stores, and gasoline stations. This metric also increased by 1.0 percent in July, which exceeded the highest of analysts’ estimates and clearly bodes well for third quarter U.S. gross domestic product (GDP) growth. Moreover, this morning’s data provide additional evidence that the U.S. economy is doing a lot better than the recent volatility in the bond market would suggest.
Sources: Econoday, U.S. DoL, U.S. BEA, Twitter, FRBSL
Post author: Charles Couch