posted on 11 August 2015
Written by Steven Hansen
A simple summary of the headlines for this release is that the growth of productivity exceeded the growth of costs (headline quarter-over-quarter analysis). The year-over-year analysis says the opposite. I personally do not understand why anyone would look at the data in this series as the trends are changed from release to release.
The market was expecting:
Note that in this quarter's release, productivity, unit labor costs, and related measures in the business and nonfarm business sectors were subject to revision going back to 2010, due to revisions in source data including output, compensation, and hours.
The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity was up 0.3% year-over-year, and unit labor costs were up 2.1% year-over-year. Bottom line: the year-over-year data is saying that costs are still rising faster than productivity.
Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvement are productivity improvements. [read more on this statement] Further, the productivity being measured is "capital productivity" - not "labor productivity". [read more on this statement here]
Even though a decrease in productivity to the BLS could be considered an increase in productivity to an industrial engineer, this methodology does track recessions. [The current levels are well above recession territory.
Please note that the following graphs are for a sub-group of the report nonfarm > business. Business sector real productivity is barely growing (see graph below).
Seasonally Adjusted Year-over-Year Change in Output of Business Sector
And the year-over-year output per person was worse than the last quarter (see graph below).
Seasonally Adjusted Year-over-Year Change of Output per Hour for the Business Sector
All this is happening while business sector unit labor costs increased - but growth is at a slower rate than last quarter.
Seasonally Adjusted Year-over-Year Rate of Change of Unit Labor Costs
The headlines from the press release:
final chart from last quarter:
preliminary chart from this quarter;
Caveats Relating to Productivity
Productivity is determined using monetary criteria, and does not recognize outsourced man hours - in other words, if a business cuts half of its workforce by outsourcing a sub-component or sub-service, this would be a 50% productivity improvement.
Econintersect believes a better measure (if you must use monetary tools to tract productivity) would be competitiveness.
Looking at productivity / output long term - output fall below 0% year-over-year change is a good sign that a recession is underway. Another way to look at it - if productivity rate of gain is falling, this could be an indicator a recession is coming.
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