Buoyant consumer sentiment boosted retail sales more than expected in July, while bigger than expected productivity gains point toward lower inflation and possible wage gains.
Retail sales, which are the total receipts at stores that sell merchandise and related services to final consumers, rose 0.5 percent in July, according to data released by the Commerce Department Wednesday. Economists had expected sales to rise by just 0.1 percent. The sales numbers were so strong that they exceeded the top range of expectations of economists surveyed by Bloomberg.
Outside of auto and gas sales, retail sales grew an even stronger 0.6 percent.
Productivity, which has had very small gains or even retreated in recent years, rose 2.9 percent in the most recent quarter compared with the prior quarter. That topped expectations for gains of 2.5 percent and was far above the paltry 0.4 percent increase in the first quarter. Productivity measures the growth of labor efficiency in producing goods and services. Rising productivity can hold back inflationary pressures even when the labor market is tight. It can also lead to higher wages in the longer run.
Unit labor costs, a measure that reflects the labor costs of producing each unit of output, was expected to decline 0.2 percent, after declining 0.3 percent in the prior quarter. Instead, it declined 0.9 percent. That too is an indicator that inflation is likely to remain tame.
The increase in #productivity last quarter is a promising sign for the economy—especially when seen alongside record levels of openings, hires, and quits, and low levels of unemployment. https://t.co/Y1QNPfHPIa
— Julia Pollak (@juliaonjobs) August 15, 2018
The Federal Reserves New York State manufacturing survey also highlighted economic strength and showed no signs of stress from tariffs or anecdotal reports of parts shortages. The survey came in at 25.6, moving higher when economists had expected a decline to 20 from the prior reading of 22.6. The survey asks 200 manufacturing executives for their views on business conditions.
The picture comprised by the data released Wednesday morning was one of a strong economy when viewed from supply and demand sides, with rising productivity dampening inflation fears.