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US Stock Market Overview – Stock Consolidate Ahead of Fed Decision

US Productivity declines to a 4-year low
David Becker

US stocks edged higher on Tuesday led by the Nasdaq which increased by 0.2%. Sectors were mixed, led by a rally in Energy shares, materials were the worst-performing sector in the S&P 500 index. US yields edged lower, as traders await a decision from the Trump administration as to whether they will increase tariffs on Chinese goods on December 15. The Fed began a 2-day meeting, and will likely be on hold for the next 6-months according to a report on CNBC. US productivity declined to a 4-year low, which will likely cap future growth. The VIX volatility index whipsawed on Tuesday initially rising and then declining before settling down 1% for the trading session.

 

US Productivity Drops to a 4-year Low

US productivity dropped to the lowest level in 4-years which is likely to weigh on growth. The Labor Department reported that nonfarm productivity, decreased at a 0.2% annualized rate in the last quarter, the biggest drop since the fourth quarter of 2015. Productivity was previously reported to have decreased at a 0.3% pace in the Q3. A rebound in hours, driven by a surge in the volatile self-employed and unpaid family workers component, outpaced output in the third quarter. Productivity grew at an unrevised 2.5% rate in the Q2. Expectations has been for Q3 productivity to be revised up to show it falling at a 0.1% rate.

Productivity increased at a 1.5% year over year, instead of the previously reported 1.4% pace. Tepid productivity suggests the economy is unlikely to achieve the Trump administration’s goal of 3% annual growth. Productivity increased at an average annual rate of 1.3% post the financial crisis to the current level which is well below the long-term average of 2.1% from 1947 to 2018, according to CNBC.

On a positive note, the House Democrats and the White House have agreed to a deal on USMCA. The two sides had worked for more than a year to resolve Democratic concerns. House Democrats, President Donald Trump, top Senate Republicans, and labor leaders all cited progress toward a deal this week.

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