Largest Component of Inflation Decelerates, Productivity Remains Healthy, Inventories Rise

- Preliminary 2Q Non-farm Productivity rose 2.2% versus estimates of a 2.0% gain and an upwardly revised 3.2% increase in 1Q.
- Preliminary 2Q Unit Labor Costs rose 1.3% versus estimates of a 2.9% increase and an upwardly revised 3.6% gain in 1Q.
- Wholesale Inventories for June rose .7% versus estimates of a .4% increase and a .3% gain in May.

BOTTOM LINE: Hours worked rose at a 2.1% rate in 2Q versus a 1.1% gain in 1Q. The smaller-than-expected rise in 2Q unit labor costs is a big positive as these costs comprise two-thirds of inflation.

Stockpiles at US wholesalers rose more-than-expected in June, a sign that companies are rebuilding inventories as the economy picks up speed, Bloomberg reported. The inventory-to-sales ratio held steady at 1.19 months. Inventory building subtracted 2.32 percentage points from economic growth in the second quarter, the most since 2000. I expect inventory rebuilding to add to economic growth through the remainder of the year.