Retail sales likely kept chugging in July
The government just reported a second straight month of booming job growth, but the Federal Reserve is looking for other economic indicators to pick up if it’s going to boost interest rates for the first time this year in September.
A light week of economic news will highlight the economy’s core strength, consumers, as well as one of its biggest weaknesses, feeble productivity growth. Also on tap are earnings reports from Walt Disney, News Corp. and Macy’s.
The Labor Department on Tuesday is expected to report a modest 0.4% gain in productivity in the second quarter after two straight quarterly declines. Productivity, or output per labor hour, gets relatively little notice but is critical to growth in gross domestic product and wages. During the seven-year-old recovery, productivity increases have been meager, averaging 0.9% per year, compared to 2.1% to 2.5% annual averages in the previous three recoveries.
Analysts blame a dearth of new, innovative technology after the 1990s boom and a reluctance by businesses to make capital investments because of tepid demand, as well as an uncertain climate amplified by global weakness and the U.S. presidential election. An apparent benefit of weak productivity gains is that they’ve forced companies to hire lots of workers despite paltry economic growth. But they deprive firms of the profits needed to increase wages more sharply and create a prosperous economy.
Labor’s Job Openings and Labor Turnover Survey for June, out Wednesday, provides a more granular look at the labor market than its employment report, which highlights the net number of jobs added after figuring both hiring and layoffs. The JOLTS report specifies the number of openings, hires and quits. Openings fell by about 300,000 in May from a near record 5.8 million the previous month, consistent with the paltry 24,000 net job gains recorded, while the number of hires and quits dipped as well.
In June, employers added a blockbuster 292,000 jobs, and that should have translated into a surge in openings and hires. Many economists say this year’s slowdown in payroll growth stems largely from a shrinking pool of available workers now that the unemployment rate is below 5% — not a pullback in employer demand. That theory could be supported by a sharp rebound in openings.
Retail sales have been on a tear, with a 1.2% increase in April, the largest in a year, followed by a healthy 0.6% jump in June. And a core measure that excludes volatile categories such as autos and gasoline has been even stronger, with consumers benefiting from steady job growth and low pump prices. Nomura economist Lewis Alexander expects the Commerce Department to report Friday that the core reading moderated in July but still rose a solid 0.3%.