Consumers are Happier!

Financial FAQs

The consumer is happier, at least, due mostly to higher wages, even if overall economic growth is lagging. Consumer sentiments and retail sales are rebounding after a punk first quarter. Corporations don’t want to invest in new plants and equipment—so-called capex spending—so they have to boost their employees incomes in order to convince them to work longer hours and produce more.

Sales at U.S. retailers rose a solid 0.5 percent in May after an even larger gain in the prior month, suggesting consumers still feel confident enough in the economy to stick to their usual spending patterns despite a slowdown in hiring. The sales gains were widespread. Auto dealers, Internet retailers, clothing outlets, gas stations, sporting-goods stores and restaurants all saw a healthy uptick in sales.

This is in large part because small businesses, which employ most of US, are hiring again. The Index of Small Business Optimism rose two tenths of a point in May to 93.8, according to the National Federation of Small Businesses (NFIB) monthly economic survey released today.


Graph: NFIB

Fifty-six percent reported hiring or trying to hire (up 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Hiring activity increased substantially, but apparently the “failure rate” also rose as more owners found it hard to identify qualified applicants. … Twenty-seven percent of all owners reported job openings they could not fill in the current period, down 2 points, but historically strong.

It is in line with the Labor Department’s JOLTS report, which showed 5.8 million job openings, and just 5.1 million hires in April. There are plenty of unfilled jobs, in other words. Why aren’t corporations investing more in capital expenditures? It is hurting economic growth in a big way.


Graph: Econoday

The second revision to first-quarter productivity fell at a quarter-to-quarter annualized pace of 0.6 percent, reports Econoday. It took a 1.5 percent rise in hours in the quarter to produce a 0.9 percent gain in output. With the labor market nearing full employment, this mismatch may very well become increasingly urgent for national policy. Not only did hours exceed output, compensation rose at the same time, up 3.9 percent to lift unit labor costs by an outsized 4.5 percent.

The lack of capex investment is puzzling economists, but one reason has to be they don’t have to, sitting on record profits and $4.5 trillion is cash and cash equivalent assets. Corporations would rather buy back their stock to boost stock prices, and so enrich their stockholders and CEOs than their employees and consumers.

But that will soon change, as they now have to pay their employees more, or begin to invest in expanding their productivity.

Harlan Green © 2016

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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