Remember, we are in the early days of what may be the most productivity enhancing technological advancement of our lifetime, in generative AI.

On that note, Q3 productivity data was reported this morning.  And it was big, at 4.7%.  That follows productivity gains of 3.7% (annual rate) in the second quarter.  For perspective, we averaged less than 1% productivity growth for the decade prior to the pandemic.  

These hot productivity gains create the opportunity for the continuation of much needed wage gains (to restore living standards, which have been eroded by inflation). 

On that note, despite some of the hottest wage gains we’ve seen in decades, the annual growth in the cost per unit of output last quarter was actually negative (-0.8%).  This means wage growth is more than being offset by productivity gains. 

That means increasing wages are not a problem in the inflation picture.  And Jerome Powell admitted as much yesterday. 

So, we’re in the early stages of a productivity boom.  That’s great news.  And guess who presented on the importance of productivity growth as a driver of the long-term potential growth rate of the U.S. economy?  Jerome Powell did, back in 2016 (here).

This all supports the path of both economic growth (hot) and inflation (falling).

With the above in mind, we‘ve talked about the reversal signals in the bond market.  With the Fed meeting now behind us, and the increasing likelihood that the next change will be in the direction of interest rate policy, yields continued to slide today.