Janet Yellen and the Fed are concerned about Labor Productivity. It’s down for the third consecutive quarter, a rarity.
Nonfarm business sector labor productivity decreased at a 0.6-percent annual rate during the second quarter of 2016, the U.S. Bureau of Labor Statistics reported today, as output increased 1.1 percent and hours worked increased 1.7 percent. Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.
In the second quarter of 2016, nonfarm business productivity was revised down slightly to a decline of 0.6 percent. Output was revised down slightly to an increase of 1.1 percent, and hours were revised down slightly to an increase of 1.7 percent. Unit labor costs increased 4.3 percent rather than increasing 2.0 percent as reported August 9, due mainly to a 2.2-percentage point upward revision to hourly compensation, in addition to the slight downward revision to productivity.
In the second quarter of 2016, manufacturing sector productivity was revised down to a decline of 0.4 percent from a previously-reported decline of 0.2 percent. Unit labor costs increased 6.7 percent, higher than the preliminary
estimate of 3.1 percent. Durable and nondurable goods manufacturing unit labor costs were also revised up, to increases of 3.0 percent and 13.0 percent, respectively. After revision, nondurable goods unit labor costs had its largest gain in the series since a 13.2-percent gain in the fourth quarter of 2008.
Unit Labor Costs Soar
On August 9, the BLS reported labor costs increased 2.0%. In today’s report we see unit labor costs rose 4.3%, more than double the initial report.
Robust Hiring About To End?
It takes an increasing amount of hours to produce less output. Economists believe businesses are not investing in equipment. In a few years productivity will soar due to driverless vehicles. I rather doubt the Fed will like the result.
Meanwhile, we have an overabundance of stores of all kinds that have to be stocked and staffed. Stores are effectively cannibalizing their own sales.
Rapid store expansion only made sense to expand because of cheap rates and low wages. Now minimum wages and Obamacare costs are both expanding rapidly. Robust job hiring will come to an end.
Mike “Mish” Shedlock
