| | Close
Aug 10 | Close
Jul 31 | Weekly
Change | Net Weekly
Change % |
DJIA | 54,036.93 | 52,485.03 | +1,551.90 | +2.96% |
Nasdaq | 26,690.62 | 25,373.85 | +1,316.77 | +5.19% |
S&P 500 | 7,757.64 | 7,489.72 | +267.92 | +3.58% |
| S&P TSX | 36,381.23 | 35,226.14 | +1,155.09 | +3.28% |
Source: Globe & Mail
Plentiful Payoffs of Peppy Productivity
Sal Guatieri
Senior Economist
U.S. labour productivity growth remained solid in the second quarter. Among nonfarm businesses, productivity rose 1.4% a.r., keeping the yearly rate (2.2%) slightly above the long-run average. The increase in the four-quarter average, a better gauge of the trend in this usually volatile series, was even stronger at 2.5% and has stayed above normal for more than two years. That is a meaningful shift from the nine-year period before the pandemic, when this rate averaged just 1.0% and never exceeded its norm.
The jury remains out on why U.S. productivity has accelerated in the past two years, though greater use of automation likely plays a role. Not only has automation (whether AI-driven or not) made workers more efficient, it has enabled businesses to shift some work to their customers, e.g., through self-checkout kiosks. Whatever the drivers, there is little sign of a slowdown, and optimism remains high that AI will deliver at least a moderate payoff in the future.
What is perfectly clear is that robust productivity growth supports the economy by:
• Driving the supply-side and long-run potential growth. This has rarely been more important than today when that other potential growth driver, the labor force, has shifted into reverse due to rising retirements, deportations, and a crackdown on immigration.
• Supporting wage growth and, in turn, consumer spending. Although moderating in recent years, hourly compensation still rose 3.7% in the past year and 4.0% on a smoothed four-quarter basis. Decent wage growth is particularly helpful at a time when rising gas prices have eroded purchasing power.
• Pumping profits and, therefore, business investment and the equity-wealth effect that’s fanning consumer spending.
• Containing inflation. Unit labour costs rose just 1.3% annualized in Q2, leaving both the year-over-year and four-quarter average rates at a subdued 1.4%. If this critical driver of underlying inflation remains this low, it could lead to inflation eventually undershooting the 2% target, once the temporary effects of tariffs and energy prices fade.
• Possibly persuading the Fed to ease policy. Prior to becoming Chair, Kevin Warsh was a strong proponent of the view that robust productivity growth, by calming inflation even in a strong economy, could open the door for easier monetary policy. He likely now just needs hard evidence that core inflation is progressing toward the target to keep this option in play.
The one drawback of strong productivity growth, at least in the near term, is that it can displace some hiring. That’s a concern especially today when AI is a major source of job anxiety. Over the longer run, however, productivity growth is the foundation of an expanding economy, by supporting higher incomes and wealth creation, and the new spending and jobs that follow.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
Equity markets pushed higher this week as earnings results continued to handily top expectations.
The TSX continues to push record territory as well, adding 3.3% last week on massive rallies in materials and tech.
YTD, the TSX is up 14.72%, and the benchmark 10-year yield ended the week to yield 3.65%.
U.S. & Global
The S&P 500 rose 3.6% to a new record high, led by technology.
S&P 500 earnings are quite simply blowing the roof off, with growth now pegged at around 50% y/y for 2026Q2. With about 350 companies in the S&P 500 reporting, 85% have topped analyst expectations, which is well above the typical rate (high-70% range). Revenues are also topping the bar at a higher-than-normal 77% rate. From the start of July, the level of expected S&P 500 earnings has been revised up by roughly $140 billion, pulling up growth to 40% y/y from 24% y/y expected at the start of the reporting season. In short, if you’re an earnings watcher, you know these results are about as good as it gets.
How much is real and how much is an AI-driven illusion is up for debate, but suffice it to say that these numbers are getting juiced. As one example, “other income” reported by the Magnificent 7 looks to be running at around $160 bln for the quarter alone—this includes things like marking unrealized equity gains in AI investment stakes. Scrub that out, and S&P 500 earnings growth falls below 20% y/y. We’ve also noted some other factors, like last Friday's capex boom driving reported earnings immediately as revenues soak up purchases of chips, hardware and infrastructure, but leave the expense line to only bite later as these investments get depreciated. Cash flow, therefore, has looked more subdued.
That’s the bearish view. The bullish view is that the S&P 500 is still probably running with double-digit earnings growth across sectors like energy, financials, industrials and utilities. And a lot of that, while also leveraging the AI boom, is much more ‘real’.
Back in the economy, U.S. payrolls printed a disappointing -23k in July, but the declines were in government—privatesector employment rose a decent 30k in the month. That leaves the 3-month average private-sector gain at 40k, and the 12-month running at 53k. Household employment was also down in the month (-87k), but the jobless rate still dipped a tenth to 4.1% with labour force growth stalled out. Still, the market read this is mildly dovish, and Fed rate hike expectations have now been pared back to just over 25 bps by December, with the upcoming September meeting at less than fifty-fifty.
YTD, the DJIA is up 12.43%, the NASDAQ is up 14.84%, and the S&P 500 is up 13.32%. The 10-year Treasury yield ended the week to yield 4.64%.
Source: BMO Capital Markets
The Good:
Employment +75,100 (July); Jobless Rate -0.1 ppts to 6.4% (July)—two-year low; Merchandise Trade Surplus widened to $3.9 bln (June); S&P Global Composite PMI +1.8 pts to 49.7 (July)
The Bad:
Average Hourly Wages +2.8% y/y (July)—slowed; Auto Sales slowed to +0.5% y/y (July); Ivey PMI -1.1 pts to 55.1 (July)
The Good:
Jobless Rate -0.1 ppts to 4.1% (July)—but on lowest part rate since the ’70s (outside of pandemic); Average Hourly Earnings +0.1% (July); Productivity +1.4% a.r. (Q2 P)—and Unit Labour Costs growth remained low at +1.3% a.r.; ISM Manufacturing PMI +2.3 pts to 55.6 (July); ISM Services PMI +0.1 pts to 54.1 (July); Goods & Services Trade Deficit $73.3 bln (June)—but a touch narrower than May; Global Supply Chain Pressure Index eased to 0.79 (July); Challenger Layoffs -46.1% y/y (July); Conference Board’s CEO Confidence +5 pts to 52 (Q3)
The Bad:
Nonfarm Payrolls -23,000 (July)—unexpected drop; Auto Sales slip to 16.5 mln a.r. (July); Construction Spending -0.1% (June); Job Openings fell to 7,359k (June); Factory Orders -0.3% (June); Jobless Claims +2k to 199k (Aug. 1)—but historically low; NY Fed 1-Year Inflation Expectations +3.63% y/y (July)—still high
Source: Associated Press
Free-roaming cats that are part of daily life in Istanbul
ISTANBUL (AP) — Cats are an inseparable part of daily life in Istanbul, where thousands of free-roaming felines share the city’s streets, waterfronts, markets and historic neighborhoods with its more than 16 million residents.
They can be found almost everywhere — lounging outside bookstores and cafes, wandering through bazaars, watching ferries cross the Bosphorus, resting near mosques or unexpectedly appearing at soccer stadiums and wedding photo shoots.
For many visitors, the city’s cats become as memorable as landmarks such as the Hagia Sophia or the Grand Bazaar. Often, they can be found inside the landmarks. A cat named Gli lived in the Hagia Sophia for years, becoming a social media celebrity before dying in 2020 at the age of 16.
Residents routinely feed and care for the animals and small shelters and feeding stations can be found across the city. Their presence dates back to the Ottoman era, when cats helped protect homes and food stores by controlling rodents. Today, they remain a distinctive symbol of Istanbul and its long tradition of coexistence between people and animals.