×
Newsmax TV & Webwww.newsmax.comFREE - In Google Play
VIEW
×
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
VIEW
Tags: productivity | small business | optimism | invest

Businesses Must Spend to Boost Nation's Productivity

Businesses Must Spend to Boost Nation's Productivity

(Dollar Photo Club)

Joel L. Naroff By Tuesday, 09 August 2016 01:39 PM EDT Current | Bio | Archive

  • INDICATOR: Second Quarter Productivity and July Small Business Optimism
  • KEY DATA: Productivity: -0.5%; Labor Costs: +2%/ NFIB: +0.1 point
  • IN A NUTSHELL: “With businesses failing to invest in either capital or labor, it should not be a surprise that productivity is weak.”


WHAT IT MEANS: You have to spend money to make money and businesses are doing neither. Capital spending has been down for three consecutive quarters and firms are doing all they can to keep wages down. While that may keep quarterly earnings from totally falling apart, it is also causing efficiency, both in the short run and ultimately the longer-term to be weak. Productivity fell for the third consecutive quarter as output rose less than hours worked. Even though wages rose at a modest pace – and adjusted for inflation they declined – labor costs were up nonetheless. Increasing labor costs and falling productivity is never a good combination for firms.

Small business optimism rose a touch in July, according to the National Federation of Independent Businesses. That said, the level remains well below the long-term average, so we cannot say that small business owners are ebullient. Actually, they seem to be moving forward only cautiously. Hiring is getting better, but barely. The biggest problem remains qualified workers, though the firms don’t seem willing to pay up to attract them. Investment doesn’t look like it will grow strongly anytime soon. Basically, as NFIB Chief Economist Bill Dunkelberg commented, “small businesses continue to be in maintenance mode”.

MARKETS AND FED POLICY IMPLICATIONS: What kind of thinking is it if you keep doing the same thing and you get the same result? Yet business executives keep on doing the same thing: They are not investing in anything. They seem to be caught in one of those infamous vicious cycles: Earnings are weak so capital spending gets cut, which reduces productivity, so earnings soften, which causes wage increases to be limited, which further reduces productivity, which … Get the picture? But, of course, it is all about the next quarter’s numbers, so the idea of spending your way out of the problem by investing in capital and labor is not on CEOs or CFOs option list. But the problems that this failure to invest are creating are not just in the here an now. Potential GDP growth is being reduced. What will change the negativity into a positive cycle? Hard to know as the C-Suite lives in its own strange world. But the Fed has to be concerned about this as it limits the ability of the economy to rebound from the sluggish growth pattern it has been in. As for investors, it is the issue of quarterly earnings reports that, at least in part, is the problem with corporate spending. But they keep demanding performance now and as long as that continues, we will have periods like this where we seem to be going nowhere and with no solution in sight.

 

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. To read more of his blogs, CLICK HERE NOW.

© 2022 Newsmax Finance. All rights reserved.


JoelNaroff
With businesses failing to invest in either capital or labor, it should not be a surprise that productivity is weak.
productivity, small business, optimism, invest
517
2016-39-09
Tuesday, 09 August 2016 01:39 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
 
Get Newsmax Text Alerts
TOP

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved
NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved