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 a 3.0% increase in this measure of productivity last year (you can find these numbers in
Table 2). (Note that subtracting labor costs from compensation produces the same result; not all calculations are precise due to rounding.)
That marks a two-tenths improvement on its 1998 increase.
Phatty-Phat Phat Phat
There are only two things you need to keep in mind when it comes to these numbers. The central-bank quotes below set up the first.
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.
The conditionality here (if productivity then costs) means (at least to your narrator) that however favorable the news on the compensation-and-unit-labor-costs front -- and the fact that both grew more slowly last year than they did the year prior is favorable indeed -- it still takes a backseat to the productivity figures. Think of it this way: Productivity is a very here-and-now beast, while changes in compensation and costs emerge only with lags. We should therefore not be surprised aboot (did you see that wicked Bogues-Carter alley-oop last night?!) the slowpoke nature of the latter, and that's less important than what's going on with the productivity numbers themselves.
That brings us to the second thing.
A big productivity number itself isn't what's important. What's important is the improvement the productivity numbers show.
Central bankers have touched on this repeatedly (note "level out" and "falter" in the quotes above, and recall the dead-horse "at some point ... wage increases must rise above even impressive gains in productivity" repeated
again yesterday). It therefore seems safe to assume (at least to your narrator) that they will not be entirely happy unless they see more of the kinds of
we saw between 1995-1996 (a 1.7-point betterment) and between 1997-1998 (1.8 points).
And the two-tenths improvement we saw last year?
You make the call.
(a) Popular interpretations of recent central-bank comments on the subject notwithstanding, it is hard to imagine that any policymaker would in any way be out-and-out pissed about big productivity numbers. Keep in mind that genuinely better productivity means better living standards for everybody; only the choicest wing-nut ain't all for that.
What policymakers are pissed about are the
channels through which -- and higher share prices are one of them
-- an increase in structural (or permanent, as opposed to cyclical, or temporary) productivity can aggravate the imbalance between aggregate supply and aggregate demand.
A muddy distinction if ever there was one -- this is the same kind of confusion that results in certain mo-rons screaming repeatedly that the Phillips Curve concept is dead and therefore useless -- but a keenly important one at that.
(b) The central-bank chief prefers the productivity and cost numbers from nonfinancial corporations (Table 6 in the
release) to the popularly reported 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 until May 4. We will write them up then.
All apologies for not being able to respond to all of the mail. I do read every piece.
And hey. Help us out with a music thing? Favorite bond-guy-to-the-stars Grauer (whose excellent work has been
featured regularly in this space) ain't all charts: He also fancies himself a poet (well, a lyricist, technically, but that doesn't fit with the Floyd reference). A few of his pieces are now being considered by
for inclusion in a major full-feature animation, and we want to present the three songs up for selection to the Side Dish audience (a trend-setting crowd) in order to determine the pick of the litter. If you'd be kind enough to click on the links below, which will play the song and register a vote at MP3, and then check your fave in the poll, we'd very much appreciate it.
Grauer's work's been a big help to this column; now we can return the favor.
Here is song
Here is song
And here is song