U.S. economic data has been sound this week, providing investors with good news amid a wave of conflicting headlines and market volatility.
Second quarter nonfarm productivity, released August 15, was an especially encouraging report. As shown in the LPL Chart of the Day, Nonfarm Productivity Picks Up, nonfarm productivity climbed 2.3% in the second quarter and 1.8% year over year.
Nonfarm productivity growth shows that U.S. companies are getting more output per employee, an important development in a late-cycle economy as productivity lifts gross domestic product (GDP) growth and keeps employer costs contained.
“Higher productivity is a powerful tool, as it boosts both consumer and corporate well-being,” said LPL Research Chief Investment Strategist John Lynch. “A resurgence in productivity could provide the U.S. economy a timely boost, especially as many investors wonder what could extend this near-record expansion.”
Productivity increases typically come as businesses invest in capital improvements and employee training, which is why growth in capital expenditures (capex) is a key part of our economic outlook. Over the last two quarters, productivity has increased at the fastest rate since 2014, showing that companies’ capex surge from early 2018 could be flowing through to economic output.
However, productivity gains could be limited going forward, and there are signs that last quarter’s rise may have been more of a function of fewer hours worked. Nonfarm hours worked declined 0.1% in the quarter, the biggest such drop since September 2009. Manufacturing hours were the main source of the decline, likely a consequence of weakening demand globally.
Ideally, we’d like to see the global environment stabilize and capex pick up again so the U.S. economy can reach its full potential. Unfortunately, that may not happen until we see U.S.-China trade resolution.
Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.
If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:
|Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit|
For Public Use | Tracking # 1-883901