Positive economic outlook despite trade uncertainty: productivity, employment and economic activity post gains

A quick roundup of recent national economic news reveals a generally upbeat outlook despite the roiling trade waters. The Federal Reserve Bank reports, “Economic activity expanded at a modest pace overall from April through mid-May, a slight improvement over the previ- ous period.” That’s the top line takeaway from the May release of the Fed’s Beige Book.

The summary for the San Francisco Fed, which includes Washington, is this:

Economic activity in the Twelfth District continued to expand at a moderate pace. Labor market conditions remained tight, and price inflation was unchanged on balance. Sales of retail goods increased modestly, and activity in the consumer and business services sectors increased moderately. Conditions in the agriculture and manufacturing sectors improved modestly. Activity in residential real estate markets expanded moderately, and commercial activity was steady. Lending activity in-creased slightly.

The Wall Street Journal reports,

The report suggests the renewal of trade tensions with China has yet to have much of a significant impact on American manufacturers, although many expressed worries about the future…

Fed officials will study the report in advance of their June 18-19 meeting. Policy makers have said they are keeping a close eye on the impact of tariffs on the U.S. economy. On Tuesday, Fed Chairman Jerome Powell said the central bank was monitoring the recent rise in trade tensions and suggested the Fed would be ready to cut interest rates if needed.

The Bureau of Labor Statistics also reports positive news on labor productivity.

Nonfarm business sector labor productivity increased 3.4 percent in the first quarter of 2019, the U.S.
Bureau of Labor Statistics reported today, as output increased 3.9 percent and hours worked increased
0.5 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the
first quarter of 2018 to the first quarter of 2019, productivity increased 2.4 percent, reflecting a 3.9-
percent increase in output and a 1.5-percent increase in hours worked.  The four-quarter
increase in productivity is the largest since a 2.7-percent gain in the third quarter of 2010.

The Associated Press adds,

The first quarter gain was more than double the 1.3% increase in the fourth quarter, although it was slightly lower than an initial estimate of 3.6% made a month ago. Labor costs fell during the first quarter, declining by 1.6% following a 0.4% drop in the fourth quarter.

Productivity, the amount of output per hour of work, is a key factor determining an economy’s growth potential. If the current rebound continues, it would provide support for President Donald Trump’s efforts to achieve sustained 3% growth rates.

We’ll close this post with today’s jobs report from the National Federation of Independent Business. (Press release, full report)

America’s small businesses are continuing their hiring spree, with a net addition of 0.32 workers per firm, according to NFIB’s monthly jobs report, released today. However, 25 percent of all owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, matching the record high. Sixty-two percent of owners reported hiring or trying to hire employees, up five points from last month, but 54 percent reported few or no qualified applicants for the positions they were trying to fill (up five points).

So far, so good. But we share employers’ concerns with trade policy and the shortage of qualified workers.