The final reading on the second quarter GDP was revised up this morning, to a 3.8% annual rate.
Related to this, let's talk about some comments made by KKR's Henry McVey this morning, one of the most influential capital allocators in the world.
He said "productivity numbers are going to go through the roof."
Why?
Trump policies are driving a boom in capex. Meanwhile, the job growth numbers have just taken large downward revisions. And this formula will result in a jump in output per worker (fewer workers/hours in the denominator) — higher productivity.
On that note, back in July, one of Trump's Fed Chair candidates, Kevin Warsh, said "we are at the front end of a productivity boom."
And as we've discussed often in my daily notes, hot productivity gains promote wage growth, which is needed to reset wages to the increased level of prices (which restores quality of life).
High productivity can fuel wage growth without stoking inflation.
And Jerome Powell himself presented back in 2016 at the Peterson Institute (here), that higher productivity growth is a driver of a higher long-term potential growth rate of the economy.
If we look back at the late 90s boom, which was fueled by a technology revolution (the internet), we were in a productivity boom. Economic growth averaged 4.5% a year, stocks averaged 26% a year over a five-year period, and inflation averaged just 1.6%.
