posted on 01 September 2016
Written by Steven Hansen
A simple summary of the headlines for this release is that the growth of productivity contracted while the labor costs grew (headline quarter-over-quarter analysis). The year-over-year analysis also shows productivity in negative territory, and negative productivity is a usual indicator of a recession.
The market was expecting:
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 down 0.4% year-over-year, and unit labor costs were up 2.6 % year-over-year. Bottom line: the year-over-year data is saying that costs are rising faster than productivity.
Please note that the following graphs are for a sub-group of the report nonfarm > business.
Seasonally Adjusted Year-over-Year Change in Output of Business Sector
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.
Seasonally Adjusted Year-over-Year Rate of Change of Unit Labor Costs
The headlines from the press release:
Preliminary Chart from 2Q2016
Final Chart from 2Q2016
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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