Today the Bureau of Labor Statistics released the preliminary productivity and labor cost data for the third quarter. Here's the word.
The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were:
2.3 percent in the business sector and
1.9 percent in the nonfarm business sector...Hourly compensation in the business sector increased at an annual rate
of 3.8 percent during the third quarter of 2004, more slowly than the 4.3-
percent rise one quarter earlier (revised). This measure includes wages and
salaries, supplements, employer contributions to employee benefit plans, and
taxes. Real hourly compensation, which takes into account changes in
consumer prices, grew by 2.0 percent in the third quarter of 2004 after
falling by 0.4 percent in the second quarter and 0.8 percent in the first
quarter of the year.Unit labor costs, which reflect changes in both hourly compensation and
productivity, rose 1.5 percent during the third quarter, about the same rate
of increase as the 1.4-percent growth in the second quarter. The implicit
price deflator for the business sector increased 0.9 percent during the third
quarter of 2004, following a 3.3 percent increase in the previous quarter.
Is this good? Here's the Bloomberg headline.
U.S. Economy: Productivity Rises at Slowest Rate in 2 Years
Sounds bad, but wait! It must be good news!
``From a job growth point of view, the drop in productivity is good news,'' said Tim McGee, chief economist at U.S. Trust Corp. in New York. ``Businesses are to the point that, if they want to keep up with demand, they have to hire.''
The presumption seems to be that the strong productivity growth of the last several years was the squeezing blood from a stone variety, and not the kind that increases the value of workers, and makes firms want to hire more. History certainly tells us that, over time, the latter type of productivity gains are the rule. So, if a slowdown is something to celebrate, maybe we better hope the party doesn't last too long.