Productivity increase 3.3% in 2nd quarter 2015 might be enough for Fed to raise rates September

News today from the Bureau of Labor Statistics suggest the nonfarm productivity increased 3.3% in Q2 2015 (annual rate).  Manufacturing productivity increased 2.3%.  Unit labor costs decreased.

My last analysis (see The World Economy is in an Econimic Funk) suggested that the Fed is held back by at least two factors:

  • Wage growth (jobs are growing, wages are not)
  • Productivity (commodity costs are down, capital investment too)

Both were flat, nonexistent or growing anemically.  With is new data point the chances are that with GDP jumping and overall employment growing, enough signs are aligned that the Fed will now seek a minimal increase in interest rates.  I still think this is a mistake: market volatility us just too great.  But the Fed has said they are “data-driven”.  They now have the amo they seek.  I just wish they had their guns facing in a different direction.

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