Productivity gains play an important role in economic output, and recent gains support an encouraging picture of the U.S. economy. Productivity, first and foremost, is a primary driver of gross domestic product (GDP) growth [Figure 1]. In the second quarter of 2018, nonfarm productivity rose 2.9%, its fastest pace of growth since the first quarter of 2015. Business sector productivity grew 3.6%, its biggest quarterly jump since the fourth quarter of 2009, while manufacturing sector productivity rose 0.9%. Nonfarm productivity grew primarily from an increase in output per hour of work (versus the number of hours worked). Output increased 4.8%

Second quarter earnings season was outstanding by many measures. The numbers were strong even without the boost from the new tax law, while guidance was generally positive despite tariffs and trade policy uncertainty. In this week’s commentary, we recap an outstanding second quarter earnings season and highlight three key takeaways.

By the Numbers

We expected another strong earnings season for the second quarter, and we got it. Growth was again very impressive, with S&P 500 Index earnings growing 25% year over year, nearly matching the 26% growth rate from the quarter before. Even when excluding the impact of the new

Federal Reserve (Fed) Chair Jerome Powell’s speech Friday at the Economic Policy Symposium in Jackson Hole, Wyoming, served as a fitting complement to the minutes from the Fed’s most recent policy meeting. Both Powell’s comments and the minutes reinforced the Fed’s strong case for hiking rates for the third time this year when it meets in September, an outcome the markets are largely expecting [Figure 1].

The path of rate hikes beyond September is less certain, given strong growth but still-contained inflation and largely balanced upside and downside risks.

Powell’s pragmatic emphasis in

Turkey is facing a serious financing problem, and investors in emerging market debt (EMD) have clearly taken note. Turkey has borrowed heavily in foreign currency markets, much of it in U.S. dollars. That, by itself, is not an issue; borrowing in foreign currencies can attract new investor sets and help emerging market (EM) countries raise capital they otherwise could not in their own currencies. The problem for Turkey, however, is that the value of its currency, the Turkish lira, has fallen steeply relative to other currencies, including the dollar. This makes its debt costlier to repay, prompting investors to question whether Turkey has the