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2008 Economic Calendar |
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Resource Center » U.S. & Intl Recaps | Release Dates | Why Investors Care | Today's Calendar
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Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends. Why Investors Care
| Released on 12/5/07 For Q3 Revised 2007 | |||||||||||||||||||||||||
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Highlights
Productivity and labor costs in the third quarter were highly favorable for low inflation and even more so with revisions. Third quarter productivity was revised up sharply to an annualized 6.3 percent increase, following a 2.2 percent gain in the second quarter. The third quarter boost was above the consensus forecast for a 5.7 percent annualized increase. The third quarter gain had previously been estimated to be a 4.9 percent increase. Unit labor costs dropped 2.0 percent annualized in the third quarter, following a 1.1 percent decline in the second quarter. The consensus had projected a 1.1 percent decline in unit labor costs for the third quarter. The third quarter estimate for unit labor costs originally was a 0.2 percent annualized dip.
Compensation posted a robust 4.7 percent annualized boost in the third quarter, following a 4.2 percent increase in the second quarter. However, more recent personal income data and employment gains have been on the soft side, suggesting a slowing in compensation growth.
Year-on-year, productivity was up 2.7 percent in the third quarter, compared to up 0.7 percent the prior quarter. Year-on-year, unit labor costs in the third quarter stood at up 3.0 percent, down from up 4.2 percent in the prior quarter. Year-on-year, compensation came in at up 5.8 percent, compared to up 5.0 percent in the second quarter.
Today's report is highly favorable toward inflation trends as reflected in third quarter data. However, current forecasts for anemic growth in the fourth quarter will reverse significant portions of the third quarter improvement. Nonetheless, the Fed is focusing mainly on economic weakness and the third quarter productivity surge and drop in unit labor costs supports a Fed rate cut on December 11 if the Fed sees other factors pointing in that direction. While the productivity report numbers should be good for bond and equity markets, investors are focusing on the ADP employment number for November which came in very strong.
Nonfarm productivity in the third quarter surged to an annualized 4.9 percent increase, following a 2.2 percent gain in the second quarter. With the upward revision to third quarter GDP by a full 1.0 percentage point to 4.9 percent, productivity is certainly going to be revised up also. The initial estimate for third quarter unit labor costs showed an annualized decline of 0.2 percent, following a 2.2 percent increase in the second quarter. Currently, productivity and labor costs look quite favorable toward inflation trends but the numbers can change in a hurry if output flattens as most expect for the fourth quarter.
Nonfarm Productivity Consensus Forecast for revised Q3 07: +5.7 percent
Range: +5.5 to +6.3 percent
Unit Labor Costs Consensus Forecast for revised Q3 07: -1.1 percent rate
Range: -2.1 to -0.7 percent rate
![[Chart]](chart.gif)
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Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates. |
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