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Economic Perspectives
Q2 Productivity Growth Upwardly Revised to 4.3 Percent
Productivity growth for the second quarter was upwardly revised to 4.3 percent (SAAR), from the preliminary 2.2 percent estimate. This followed growth of 2.6 percent in the first quarter. From a year prior, growth was 3.4 percent higher.
The upward revision was driven by a significant increase in total output, which is consistent with the recent upward revision to GDP; however, total hours worked also were revised down somewhat to -0.8 percent growth. Therefore, unit labor costs were greatly revised downward to -0.5 percent from a 1.3 percent increase. This followed a downwardly revised 1.2 percent gain in the first quarter (previously 2.5 percent increase). Labor costs have not been a recent significant contributor to core inflation.
Hourly compensation was revised upward to 3.7 percent from 3.6 percent. Real compensation declined 1.3 percent, compared to the previously estimated 1.4 percent drop.
08.09.04 (Source: Bureau of Labor Statistics)
ISM Non-Manufacturing Index Up 1.1 Points to 50.6
After two consecutive months below the expansionary threshold of 50, the ISM non-manufacturing index rose 1.1 points to 50.6 in August. This was the second consecutive increase. After a falloff in January, the index has hovered within a range of about 48 to 52 since February, indicating relative service sector stagnation but not contraction. Notable components of the Index in August include:
Business Activity: Up 2.0 points to 51.6
Employment: Down 1.7 points to 45.4
New Orders: Up 1.8 points 49.7
Backlogged Orders: Down 3.o points to 49.0
Inventories: Down 1.0 point to 53.5
08.09.04 (Source: Institute for Supply Management)
ADP Employment Report: Payrolls Down 33,000
According to the American Data Processing National Employment Report, private payrolls decreased by 33,000 in August after a downwardly revised increase of 1,000 jobs in July (previously 9,000). The ADP report is constructed using similar methods as the BLS estimate but only tracks private employment. During the recent down cycle, however, the estimates have tended to show stronger employment numbers than its Bureau of Labor Statistics counterpart.
In August, the month’s employment loss was driven by the loss of 78,000 goods producing jobs, the twenty-first consecutive monthly decline. Manufacturing lost 56,000 jobs for the 24th consecutive decrease, while construction lost 25,000, the 21st consecutive fall. Service sector jobs rose by 45,000, particularly in small and mid-sized firms. Financial services continued to shed jobs however, losing 1,000 over the month.
08.09.04 (Source: American Data Processing)
Economic Outlook
Alan Blinder
The Federal Open Market Committee (FOMC) met on Tuesday and did nothing. It also had nothing much to say—and said exactly that.
At its previous meeting, on June 25th, the Fed had declared that "the downside risks to growth… appear to have diminished somewhat." Such an optimistic tone would have sounded badly out of touch with recent data. So, on August 5th, it simply stated that "downside risks to growth remain." You knew that, didn't you?
The markets were watching most eagerly for the Committee's words on inflation. Would the Fed strike a more hawkish or a more dovish pose? Well, the answer was neither. In fact, all the FOMC did was scramble the order of its previous words—with one exception (again required by recent events). Last time, the Committee had characterized the "upside risks to inflation" as having "increased." Since hardly anyone would say that today (compared to June 25th), the Committee didn't. Instead, it merely characterized inflation risks as being "of significant concern." Well, did anyone ever think otherwise?
What all this means is that the Fed did not want to tip its hand in any way—and for good reason. It almost certainly has no idea when it will next raise rates. (My own guess is: not until next year.) So it certainly did not want to give markets any impression that it had turned either more hawkish (indicating a rate hike sooner) or more dovish (indicating a longer delay until a rate hike). It succeeded. When your goals are that modest, success is not hard to achieve.
But lest anyone think otherwise, I do not mean to criticize the Fed. When a central bank has no message to convey, it shouldn't convey one by accident. The Fed's tacit message to the markets was the right one: Keep watching the incoming data; we are.
08-08-06
Questions? Please contact Eric Brescia for more information.
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