There were a few important reports on the U.S. economy released this morning. First, personal income for Americans rose by 0.3 percent in September, according to the U.S. Department of Commerce. That was in line with estimates and the 43rd monthly increase in a row. Consumer spending, which accounts for the bulk of the U.S. economy, lifted by 0.2 percent last month, matching August’s upward-revised gain. These figures are consistent with yesterday’s solid GDP report and provide some additional relief after a few weeks of disappointing data. Further, Federal Reserve chair Jerome Powell in yesterday’s policy announcement said that “we would need to see a really significant move up in inflation that's persistent before we even consider raising rates.” Given that the Fed’s preferred gauge of household inflation released this morning fell to the lowest level since February, financial conditions are unlikely to be tightening anytime soon.
Elsewhere, a report from the Bureau of Labor Statistics showed that total employment costs (employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits) in America grew by 0.7 percent in the third quarter of 2019. That was an increase from Q2 and helped by healthy gains in both wage growth and benefits. Add to this the above-mentioned easing in consumer inflation and it appears that productivity growth in America is continuing to improve. Indeed, when worker compensation increases businesses can raise selling prices to aggressively defend profit margins or instead keep prices low to try to gain market share. The latter can be more easily achieved by boosting the productivity (output per hour) of the existing workforce through investments in new equipment, technology, and employee training. The recent tax cuts helped many U.S. companies move forward the timetables for such capital spending initiatives, and continued wage growth will only increase the importance of investing in productivity.
Sources: Econoday, U.S. DoC, U.S. DoL, FRBSL