Productivity, NFIB and China

Over time, GDP growth is equal to population growth + productivity. With population growth in the US at about 1% and the 60 year average of productivity being 2.3%, GDP growth should be between 3-3.5% in order to maximize the country’s asset base. Anything below that means the US is not producing to its potential and excess capacity is the result. Q2 Productivity is expected to rise 5.5%, the sharpest gain since Q3 ’07 as employee hours worked likely dropped far faster than the decline in output. Unit Labor Costs as a result are expected to fall by 2.5%. The July NFIB small biz optimism index fell to 86.5 from 87.8. Those that expect a better economy fell for the first month in 4, falling 10 points. Those that plan to hire fell and those that plan to increase inventory rose 1 point but remained negative. An increase in cap ex plans rose 1 point but is just back to the 6 month average. Credit conditions remained tight.

Chinese stocks broke its 4 day losing streak with a .5% gain as new bank loans in July rose at a slower than expected pace and were down dramatically from June, easing concerns of overheating. July trade data, IP and retail sales all were about in line with forecasts while CPI y/o/y fell 1.8%, .2% more than expected. Interestingly, the Yuan is at the lowest level vs the $ since June 23rd and maybe a way on the part of the PBOC to ease pressure on that end while they try to cool lending growth on the other. China’s stimulus plan announced last November and which ramped up in Q1 helped to lift the global economy off the mat so the pace of Chinese growth in the 2nd half of the year is of key focus.

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