What's On Tap..

Job Gains and Productivity


Last week the equity markets hit all-time highs after a positive July jobs report along with an upward revision of the June payrolls.  In July, 255,000 jobs were added broadly across all sectors and industries as illustrated below and average hourly earnings increased by a solid 2.6%.  This employment strength was in contrast to a disappointing GDP report just one week ago which showed the U.S. economy increasing by 1.2% versus expectations of 2.5% growth.

Bureau of Labor Statistics

Bureau of Labor Statistics

The labor market has added an average of 190,000 jobs a month over the last 6 months, yet the economy is still growing below trend.  Part of the blame for this can be seen in the productivity numbers which were released Tuesday morning showing a decline of -0.5%.  This was the third consecutive quarterly decline in productivity and the longest stretch of negative productivity since 1979.  For the last five years, the productivity numbers are close to zero, which helps explain the weak GDP growth exhibited over the last few years.   As shown in the second quarter GDP numbers, consumer spending is healthy, but corporations are not making capital investments.  Productivity will likely remain low until there is a pick-up in capital spending.

The accommodative monetary policy the Federal Reserve has undertaken over the last seven years has failed to spur corporate spending on capital improvements.  Instead, companies took advantage of the policy by refinancing their debt at lower interest rates, buying back stock, and increasing dividends. In order for businesses to open their purse strings and spend, fiscal reforms need to be enacted.  Both presidential candidates are talking about tax reform and increased infrastructure spending which could lead to increased productivity.  We see this as a positive for the economy as increased corporate spending will boost demand for many goods and services which could lead us out of the below-trend economic growth we have mired in for the last few years.  We welcome this type of change.


            Christopher S. Deeley,, CFA                    Portfolio Manager

            Christopher S. Deeley,, CFA

                  Portfolio Manager


IMPORTANT INFORMATION: This material is for information purposes only. The views expressed are those of the author(s) as of the date noted and not necessarily of the Firm and are subject to change based on market or other conditions without notice. The information should not be construed as investment advice or a recommendation to buy or sell any security or investment product. It does not take into account an investor's particular objectives, risk tolerance, tax status, investment horizon, or other potential limitations. All material has been obtained from sources believed to be reliable, but the accuracy cannot be guaranteed.  We do not seek to endorse any investment products or financial services described herein.  Any information about a product or service should be confirmed with its sponsor.  Any remote links herein are provided only for your convenience and Braver Capital has no interest in, responsibility for, or control of the information on the linked website.  We make no promises or warranties, expressed nor implied, including the accuracy of and fitness for a particular purpose of the content on any linked website.  In no way will Braver Capital be liable for any damages resulting from use of these links under any circumstances.