Date: August 15, 2018
Productivity in U.S. Climbs 2.9%, Fastest Pace in Three Years
Productivity gains in the U.S. accelerated by more than expected to the fastest pace since 2015 while labor costs fell, amid an economic-growth pickup supported by tax cuts and federal spending, a Labor Department report showed Wednesday. The data indicate that the lift to growth in the quarter from Republican-backed tax cuts also came with a boost to productivity. That gives President Donald Trump another economic point to cheer, though many analysts are skeptical that the administration’s policies will deliver a large, sustained acceleration in efficiency. The latest advance in productivity compares with a 1.3 percent average pace over the period spanning 2007 to 2017, and a 2.7 percent average from 2000 to 2007. Improved gains in efficiency would support faster economic growth without generating higher inflation, a development that could suggest a slower pace of Federal Reserve interest-rate hikes than otherwise warranted. Productivity figures can be volatile from quarter to quarter, as shown by the jump in the most recent data following a lull in the first quarter. U.S. trade tariffs and reciprocal levies may also curb business investment, and some companies have already lowered profit estimates.
U.K. Inflation Rate Accelerates on Fuel, Transport, Games
U.K. inflation accelerated for the first time in eight months in July, boosted by the cost of auto fuel, transport tickets, computer games and food. Annual consumer-price growth quickened to 2.5 percent from 2.4 percent in June, as economists forecast, figures from the Office for National Statistics Wednesday show. The Bank of England had predicted inflation would pick up to 2.6 percent in July before resuming its downward path as the effect of sterling’s post-Brexit referendum decline fades. Officials raised interest rates this month to tame price pressures in the labor market and indicated further hikes will be needed to return inflation to target, providing Britain avoids a chaotic Brexit. “The rise was mainly driven by volatile computer game prices, a move that says little about the underlying inflation trend. There are good reasons to expect price gains to fall back in the coming months, the most significant of which is the waning influence of past sterling declines.” Upward pressures on inflation were offset by some financial services and clothing and footwear prices, which fell 3.7 percent on the month as struggling retailers extended summer discounts. The drop in women’s clothing prices was particularly marked. Core inflation, which excludes food, energy, tobacco and alcoholic drinks, stayed at 1.9 percent. The pound was little changed after the data, and traded at $1.2723 as of 11:16 a.m. London time. “This rise should be seen as a brief upward blip in an otherwise falling profile for CPI inflation — we believe to around its 2 percent target by the end of the year,” said George Buckley, chief U.K. economist at Nomura in London. “The upward impact of sterling’s past depreciation is beginning to fade, while at the same time domestic inflation pressures have thus far been limited.”
Turkey Moves to Ward Off Financial Crisis as U.S. Spat Worsens
Turkey took its boldest steps yet to try to ward off a financial crisis by making it harder for traders to bet against the battered lira and easing rules on restructuring troubled loans that have already topped $20 billion. As President Recep Tayyip Erdogan intensified a diplomatic feud with his U.S. counterpart Donald Trump with a spate of new import tariffs, the nation’s banking regulator published new rules that have so far succeeded at lifting the lira off record lows. Investors continued to demand higher interest rates. The measures “are aimed at the symptoms of recent lira weakness and not the cause,” said Nigel Rendell, an analyst at Medley Global Advisors LLC in London. “The cure for a persistently weak currency is not rocket science – nor is it liquidity measures and policy tweaks – it is higher interest rates.” Erdogan, who tightened his grip on power in June elections, is refusing to give in to pressure from Trump to release an evangelical pastor who he accuses of aiding a coup attempt against him two years ago. A court on Wednesday rejected an appeal for the release of Andrew Brunson from house arrest. The standoff between the two NATO allies has escalated quickly since Trump slapped sanctions on the interior and justice ministers on Aug. 1, following that move with tariffs on Turkish steel and aluminum imports last week. In retaliation on Wednesday, Turkey said it was imposing taxes of ranging from 50 to 140 percent on rice, alcohol and cars from the U.S. That comes after Erdogan called on Turks to boycott American electronics, like the iPhone, which have in any case become a lot more expensive as the lira lost almost 40 percent of its value this year. The collapse, which intensified this month and triggered contagion that spread across emerging markets, is making it much more costly for businesses to refinance at least $16 billion in bonds denominated in foreign currencies that are due by year-end, according to calculations by Bloomberg.