JACKSON HOLE, Wyo. -- Fresh
productivity and cost
numbers for the nonfarm business sector were
released this morning.
A 4.7% increase in output less a 1.7% increase in hours worked yielded (roughly) a 2.9% increase in this measure of productivity last year. (Note that subtracting labor costs from compensation produces the same result; not all calculations are precise due to rounding.)
If productivity growth should level out or actually falter because additional technology synergies fail to materialize, or because output per hour has been less tied to technology in the first place, inflationary pressures could re-emerge, possibly faster than some currently perceive feasible.
For, obviously if productivity growth slows, unit labor costs would rise, first pressuring profit margins, and then prices. Indeed, we cannot rule out such a process if labor productivity growth simply levels out.
Will a central bank spitting out nuggets like that be happy to learn that productivity growth accelerated by only one-tenth of a percentage point between 1998 and 1999?
The acceleration in both compensation and unit labor costs we saw during the two to three years ended 1998 reversed last year.
Will they decelerate again this year? Has something meaningful changed?
Or will they reaccelerate? Was last year just a burp?
The central-bank chief prefers the productivity and cost numbers from nonfinancial corporations (Table 6 in the
release) to the nonfarm business ones (Table 2) shown above.
Finally, because the measured level of productivity in the noncorporate business sector exhibits noncredible weakness for substantial spans of time, I believe data for the nonfinancial corporate sector afford a more accurate, though admittedly more narrow, measure of productivity performance. And here the numbers are still more impressive, nearly 3% on average over the past five years, and more than 4% over the past two. By this measure, productivity growth in the 1970s and 1980s also averaged about 1 3/4% per year. Moreover, the acceleration in productivity appears reasonably widespread among nonfinancial corporate firms beyond the high-tech industries themselves, even though gains in output per hour in the advanced technology companies have verged on the awesome.
Full-year 1999 numbers for this sector won't be available for a couple of months. We will write them up when they are.
Three things about rates.
(a) Forget the bond-two spread.
It has nothing meaningful to say.
Concentrate instead on the spread between the 10-year note and the three-month bill.
Also keep in mind that any given spread needs to persist over a substantial amount of time -- a quarter, say, not just a few weeks -- in order to contribute something meaningful about the fundamental economic outlook.
See this great
paper for more.
(b) Wise up.
The talk about the supply thing working against what the Fed's trying to do is ridiculous. The Treasury and the Fed do not have separate goals. They're working together to prevent stocks from crashing. The Fed has to get mean and drive rates up ... but Treasury can push some supply buttons to make things look less ugly.
And if you just can't believe that, email me your credit-card numbers and I will call you if I notice any suspicious activity.
These guys were way way ahead of markets on this one.
(c) You gotta be kidding.
Market participants who know when big bond moves are coming ... but who wait until they've passed to say anything?
What do you call them?
I eagerly await your write-ins.
As originally published, this story contained an error. Please see
Corrections and Clarifications.