{"id":280,"date":"2014-08-08T10:19:12","date_gmt":"2014-08-08T14:19:12","guid":{"rendered":"http:\/\/naroffeconomics.com\/?p=280"},"modified":"2014-08-13T10:20:20","modified_gmt":"2014-08-13T14:20:20","slug":"second-quarter-productivity-and-costs","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=280","title":{"rendered":"Second Quarter Productivity and Costs"},"content":{"rendered":"

KEY DATA:<\/strong> Productivity: +2.5%; Output: +5.2%; Real Hourly Compensation: +0.1%; Unit Labor Costs: 0.6%<\/p>\n

IN A NUTSHELL:<\/strong>\u00c2\u00a0\u00e2\u20ac\u0153Productivity rebounded, keeping business costs low as wage gains remain largely under control.\u00e2\u20ac\u009d <\/em><\/strong><\/p>\n

WHAT IT MEANS:<\/strong>\u00c2\u00a0Rising wages don\u00e2\u20ac\u2122t have to be a major problem for firms as long as workers offset those increases with improved output.\u00c2\u00a0 Unit labor costs, which reflect the balance between wages and production, edged upward in the spring.\u00c2\u00a0 Strong spring economic growth, a reflection of the rebound from the winter weather-restrained production in the first quarter, offset an increase in wages.<\/em><\/strong>\u00c2\u00a0 Indeed, there was a huge rise in labor costs in the first quarter, which points out that the quarter-to-quarter numbers really don\u00e2\u20ac\u2122t mean a whole lot.\u00c2\u00a0 Smoothing out the data by looking at the year-over-year numbers gives a better indication of what is happening with productivity and costs.\u00c2\u00a0 If you want to know about the potential for consumer spending to rise faster, just look at compensation adjusted for inflation.\u00c2\u00a0 Real hourly compensation was at the same level in 2013 as it was in 2007.\u00c2\u00a0 But that may finally be changing, at least a little.\u00c2\u00a0 While workers inflation-adjusted income fell by 0.3% in 2013, it is rising at about a 1.5% during the first half of the year.<\/em><\/strong>\u00c2\u00a0 If wage gains accelerate, as I expect, we might actually hit 2%.\u00c2\u00a0 Will that cause business labor costs to rise?\u00c2\u00a0 Probably, but not necessarily a whole lot.\u00c2\u00a0 Productivity will likely rise about 1.5% to 2% this year so labor costs should be mostly offset by additional worker output.\u00c2\u00a0 But we may see unit labor costs look a lot less positive for businesses than they have been the case for a decade.<\/em><\/strong><\/p>\n

MARKETS AND FED POLICY IMPLICATIONS:<\/strong> Labor costs are and will be the focus of attention for a very long time.<\/em><\/strong>\u00c2\u00a0 Yesterday\u00e2\u20ac\u2122s unemployment claims report points to strong job gains and a decline in the unemployment rate.\u00c2\u00a0 Full employment is on the horizon, whether the business community wants to accept that or not.\u00c2\u00a0 Today\u00e2\u20ac\u2122s report doesn\u00e2\u20ac\u2122t say that labor costs are a problem yet, but it hints at some improvement in pay.\u00c2\u00a0 <\/em><\/strong>That is good.\u00c2\u00a0 Real worker compensation has essentially gone nowhere for six years, so how can anyone think that people will be able to shop \u00e2\u20ac\u02dctill they\u00e2\u20ac\u2122re tired let alone \u00e2\u20ac\u02dctill they drop unless wages rise solidly?\u00c2\u00a0 The Fed members, at least the inflation hawks, will likely look at the report as supporting their view that it is time to change direction.\u00c2\u00a0 But investors will probably take solace from the headline number, which implies that labor costs are again well contained.\u00c2\u00a0 These numbers are hugely volatile and believing the quarterly numbers mean anything is a short-cut to muddled thinking.\u00c2\u00a0 Regardless, with geopolitical issues heating up, who knows what will drive the markets these days.<\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA: Productivity: +2.5%; Output: +5.2%; Real Hourly Compensation: +0.1%; Unit Labor Costs: 0.6% IN A NUTSHELL:\u00c2\u00a0\u00e2\u20ac\u0153Productivity rebounded, keeping business costs low as wage gains remain largely under control.\u00e2\u20ac\u009d WHAT IT MEANS:\u00c2\u00a0Rising wages don\u00e2\u20ac\u2122t have to be a major problem for firms as long as workers offset those increases with improved output.\u00c2\u00a0 Unit labor costs, … Continue reading Second Quarter Productivity and Costs<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,34,35],"tags":[],"class_list":["post-280","post","type-post","status-publish","format-standard","hentry","category-economic-indicators","category-productivity","category-unit-labor-costs"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=280"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/280\/revisions"}],"predecessor-version":[{"id":281,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/280\/revisions\/281"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}