Tuesday, August 9, 2016

Data news ahead of the bell today: Productivity and Labor Costs posted some worse-than-expected results. Q2 productivity fell 0.5%, whereas expectations were to have grown 0.5%. This follows a -0.6% read in Q1, meaning over the past 2 quarters, labor market productivity has fallen more than a full percentage point.

Unit labor costs rose by 2% (the original read was +4%). In Q1, we saw unit labor costs fall 0.2%. Comparisons to a year ago: +3.1% in Q2 2015 and -0.8% the quarter previous to that. This implies some seasonality in the numbers, but even more importantly it clearly signifies labor is costing more than productivity.

Considering that the U.S. jobs market has put up strong numbers over the past couple months — and averages more than 200K new jobs per month over the past year — this points to an important disconnect: why should more jobs lead to lower productivity? Can we chalk it up to baby boomers retiring, being replaced by millennials without the same level of experience with which to be productive?

We saw market index futures cut by this news this morning. Prior to the Productivity and Labor Costs report’s release, the S&P 500 was up 3 points (now down to +1.5), the Nasdaq fell from +8.25 to +4 and the Dow from +30 to +18. Still looking for a positive open, but perhaps the inherent dichotomy in this morning’s numbers may cause market watchers to pause and reflect on this country’s current relationship between jobs and productivity.

Oil futures have dipped below Monday’s close, but WTI has remained buoyed above $42 per barrel. Brent is performing even better at above $45 before Tuesday’s market open.

Q2 earnings season continues to wane, but some big retailers posted results this morning: Coach is down in early trading even though it posted better-than-expected results in its fiscal Q4, whereas Gap (GPS Quick QuoteGPS - Free Report) shares are down 4% on lower comps in same-store sales. Other companies in the retail space are expected to report earnings ahead of the bell later this week.

Mark Vickery
Senior Editor