Productivity & Costs Report - The New Style!

By "The Greek" - Economy & Markets

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Today's Productivity and Costs Report revision may have confounded you. After all, how could productivity exceed expectations in a period as harsh as that which we traversed in the third quarter. Wall Street Greek makes some sense of it here for you.

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The day offered a slew of data, from the early employment reports to ISM Non-Manufacturing, EIA Petroleum Status and the Productivity and Costs Report for the third quarter. As interesting and harsh as each data point was this morning, most of it made sense. We thought you may have had question with the P&C data though, and so we'll clear things up for you.

Productivity & Costs

Q3 Productivity: +1.3%, revised up from a 1.1% increase
Q3 Costs: +2.8%, revised down from 3.6%

The Productivity & Costs data offered by the Bureau of Labor Statistics this morning was actually a revision of data first reported in November. The metric is mainly useful as an inflation gauge. Recall, productivity gains of the past were attributed for keeping inflation in check over the last two decades. Technological innovation and other operational efficiencies boosted productivity, allowing the economy to grow swiftly without significant inflation cost.

But with GDP slowing, and goods orders and other production barometers showing decline, why would productivity possibly rise? The answer is simple. Productivity measures the output per hour of all persons employed, and companies are getting more out of less employees these days.

With intensifying layoff numbers, workers who keep their jobs are being asked to do a little more. Those workers still employed may be tired, but they're more than willing to do what it takes to keep their jobs. I expect many readers can relate to that.

"...we got more out of the mule."

This particular report noted that hours worked were revised lower more than output was. In plain English, this reads, we got more out of the mule. Actually, it's more like, we got more out of less, but the mule quote travels!

Manufacturing is a Different Story

Today's data showed productivity declined within the manufacturing sector, but don't worry, layoffs are quickly catching up to output losses. After all, it takes more time to shut down manufacturing capacity, than it does to close down service businesses.

• -2.7 percent in manufacturing
• +2.9 percent in durable goods manufacturing
• -10.2 percent in nondurable goods manufacturing

So, this kind of productivity gain is a little different than that which drove the great "tech bubble" and the "new economy". This is the old fashioned way to do it.

Compensation

This growth isn't going to stick either. Take note that the third quarter cost increase was revised sharply lower today. With concessions coming from large employee unions like the UAW, the pace of cost increases should drop dramatically, if not see some redux. Early retirement offerings and simple firings of higher paid employees, to be replaced by fresh faces at lower cost, help accomplish that as well. Quoting The Beastie Boyz, "it's the new style" economy. Quoting The Who, "Meet your new boss, same as the old..." Read "The Greek," the only place where valuable economic analysis meets The Beastie Boyz head on.


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