Key facts
- U.S. worker productivity grew at a 1.4% annualized rate in the second quarter.
- The labor share of U.S. nominal gross domestic product fell to a record low of 52.9% in the second quarter.
- The labor share of U.S. nominal gross domestic product was 53.7% in the first quarter.
- U.S. job growth is expected to pick up in July.
- The U.S. unemployment rate is forecast to remain unchanged at 4.2%.
- Layoffs in the U.S. fell to a two-year low in July.
- Federal Reserve Bank of St. Louis President Alberto Musalem stated policy should not chase productivity gains.
- U.S. wholesale inventories increased 0.2% in June.
- Canada's services PMI rose to 49.1 in July.
- The U.S. dollar gained against the yen and euro.
U.S. worker productivity experienced a faster-than-expected increase in the second quarter, growing at a 1.4% annualized rate. This surge in productivity, coupled with unit labor costs rising at a slower pace than anticipated, suggests potential containment of wage inflation. However, this productivity growth has coincided with a decline in the labor share of U.S. nominal gross domestic product, which fell to a fresh record low of 52.9% in the second quarter, down from 53.7% in the first quarter. This trend indicates that productivity gains are outpacing wage growth.
Looking ahead, U.S. job growth is expected to accelerate in July, with the unemployment rate forecast to remain steady at 4.2%. Layoffs dropped to a two-year low in July, further supporting the notion of a resilient labor market. This economic resilience allows the Federal Reserve to maintain its focus on tackling inflation. Federal Reserve Bank of St. Louis President Alberto Musalem articulated this stance, stating that monetary policy should not chase productivity gains but must prioritize bringing down inflation. He cautioned that prioritizing future productivity over current inflation control could jeopardize the central bank's credibility.
In other economic indicators, U.S. wholesale inventories saw a slight downward revision, increasing by 0.2% in June, marking the fifth consecutive quarter of inventory drawdown amidst strong domestic demand. The U.S. dollar appreciated against the yen and euro, influenced by geopolitical tensions in the Middle East and speculation surrounding a potential Federal Reserve interest rate hike. Investors are closely monitoring upcoming U.S. jobs data for further signals regarding monetary policy direction. Separately, Canada's services sector contracted for a second consecutive month in July, with its services PMI rising to 49.1 but remaining below the 50-point contraction threshold, impacted by economic uncertainty and geopolitical events.