Merk Investments:
Non-Farm Productivity: Q2 2008
The Labor Departments revised estimate of non-farm productivity for the second quarter of 2008 indicated that output per worker, per hour increased by 4.3%, while unit labor costs declined -0.5%. The revision, if it holds, is nearly twice the rate of productivity seen in the initial estimate and looks to have been largely due to a decline in employee hours worked. That indicator declined -0.8%, along with a -1.3% drop in real compensation. Perhaps, more importantly productivity at non-financial corporations increased 5.6% after falling in Q1.
The Federal Reserve caught a significant break with the Q2 non-farm productivity and unit labor costs data. For sometime we have made the case that one of the real bright spots in an otherwise dreary economic environment has continued to be the rate of productivity in the economy. If this data does hold, this is quite good news and gives those inside the Fed that would prefer to maintain the very accommodative monetary policy currently in effect a powerful argument to not move on rates anytime soon. Although, we see greater risk to the upside with respect to inflation, the fall in unit labor costs and the soaring rate of productivity inside non-financial corporations is an unmitigated bout of positive US macroeconomic data.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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