Selected Rantings on the GDP Report

And all the numbers aren't even out yet.
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The Crying Game

JACKSON HOLE, Wyo. -- Wages and salaries

rose 0.9% during the third quarter -- smaller than your narrator's

forecast and right in line with trend -- to lower their year-on-year rate of increase to 3.3% from 3.6%.

The GDP numbers: Join the discussion on

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message boards.

Benefit costs rose 0.8% during the third quarter -- smaller than your narrator's forecast and bigger than trend -- to bump their year-on-year rate of increase to 2.7% from 2.5%.

The

Employment Cost Index

as a whole rose 0.8% during the third quarter -- smaller than your narrator's forecast and right in line with trend -- as a result. Its year-on-year rate of increase fell to 3.1% during the third quarter from 3.2% during the second.

What to take away here?

Our central bankers now have less of a reason to tighten if they place a good deal of weight on the most recent ECI numbers.

Do they?

I wish I knew.

From the

minutes of the February

FOMC

meeting.

Growth of hourly compensation of private industry workers slowed considerably in the fourth quarter of 1998, and the increase in hourly compensation for the year was little changed from that of 1997.

From the

minutes of the June FOMC meeting.

Members noted that the trend in average hourly earnings appeared to have tilted up in recent months. While this relatively recent development was not yet conclusive evidence of accelerating labor costs, especially without further information about productivity, anecdotal reports of faster increases in labor compensation also appeared to have multiplied.

From

testimony in June.

To be sure, labor market tightness has not, as yet, put the current expansion at risk. Despite the ever shrinking pool of available labor, recent readings on year-over-year increases in labor compensation have held steady or, by some measures, even eased.

From the

minutes of the Aug. 24 FOMC meeting.

With labor markets very tight, increases in wages and total compensation had been somewhat larger recently. The employer cost index for hourly compensation of private industry workers jumped in the second quarter after an unusually small gain in the first quarter, and increases in average hourly earnings of production or nonsupervisory workers picked up in June and July. Nonetheless, year-over-year changes in some measures of nominal compensation continued to decline.

Here we have references to all three of the compensation measures that have been discussed a number of times in this space. The first and fourth quotes refer to the

ECI generally and to the private industry measure in

Table 3 specifically. They are both growing at year-on-year rates of 3.1% (compare to 3.7% and 3.8% a year ago).

The second and fourth quotes refer (obviously) to the average hourly earnings (or AHE)

series from the employment

report. It is growing at a year-on-year rate of 3.8% (compare to 3.9% a year ago).

The third quote refers to the

compensation numbers that are

released with the

productivity numbers. They are growing at year-on-year rates of 4.3% and 4.6% (compare to 4.3% and 4.4%).

So. The ECI and AHE series both show (a) three-handles and (b) deceleration over the past year; the other sports a four-handle and a steady-to-slightly higher trend.

Which will the central bankers lean on more heavily?

I honestly haven't a clue, but it seems most reasonable to me that the latter numbers would carry more weight. If the Feds consider the published productivity numbers so important that they're monitoring each new one closely for signs of leveling out or faltering -- and they do, and they are -- then surely the measure of compensation most worth consideration is the one that's released right alongside them.

Also keep in mind that the four-handle increases come from a broader measure of compensation -- they include things like tips and hiring, retention, and referral bonuses, whereas the ECI and AHE series do not -- and that they include forms of equity-based pay like stock options (also absent in the ECI and AHE series). They therefore square better with what we know is happening in the real world -- and fit more with what is by all indications a heightened Fed focus on anything to do with shares.

The third-quarter productivity release will hit the tape two weeks from tomorrow, and the odds of a tightening will fall somewhat if the compensation measures therein confirm the deceleration that the third-quarter ECI showed today.

Likewise, a denial will raise them.