Over time, GDP growth should equal population growth plus productivity growth. Thus, the quarterly productivity data is worth watching. Q2 Productivity rose 1.6% quarterly annualized after a .5% drop in Q1 as output growth of 2% was driven with only .4% of employee hours. Expectations were for a rise of 1.4% but because compensation per hour rose more than productivity growth, Unit Labor Costs rose 1.7%, higher than expectations of a gain of .5%. This follows a 5.6% gain in unit labor costs in Q1 but is after 3 quarters in a row of declines previously. With population growth of about 1% and productivity growth of only 1.1% on average over the past two years, it explains why GDP has only grown 2.1% on average since mid 2010. Savings and investment will drive a more sustainable gain in productivity and thus GDP growth rather than the continuous policy attempt to juice consumption through borrowing and temporary tax cuts/credits as opposed to permanent ones.
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