As UBS experts highlight, “nonfarm business productivity jumped 2.5% at an annual rate in Q2 (cons 1.6%, UBS e 1.9%). On a y/y basis, productivity was up 1.2% in Q2, little different from the soft trends of recent years. Unit labor costs (ULC) were more interesting, rising only modestly (0.6%) in Q2 but revised up sharply over the past year. The 1.9% y/y pace is faster than last year’s trend. In one regard, it squeezes margins and threatens faster inflation; however, more positively, the acceleration largely reflects faster growth in compensation.”
Therefore, UBS analysts continue to forecast acceleration in real GDP growth “from the pallid 0.9% annual rate in H1 to a pace a bit better than 3% in H2 and in 2015. Recent survey data support that acceleration. The ISM surveys for July portrayed stronger growth and hiring at the start of Q3. The easier lending standards in the Fed’s Senior Loan Officer Survey for July suggest an increasing boost to growth from bank credit conditions in later quarters. Loan demand also has been picking up.”
On the other hand, the US trade deficit narrowed in July, dropping to -$41.5 billion, the lowest deficit since April and Jobless claims decreased by 14,000 to 289,000 in the week ended Aug. 2 from 303,000 in the prior period, a sign the labor market continues to improve.