Everyone talking about productivity now
Are they reading the ebb and flow of our discussion?
Contrary Investor attempts to tackle this complex question:
To us, the important question regarding productivity at the moment is, "just how can the corporate profits recovery in the current cycle look so much like the experience of the recovery cycles of the mid-1970's and early 1980's, yet at the same time witness payroll and unit labor cost experience be so wildly different at the moment?" Before looking for a few answers, a few pictures of life that basically put prior and current recovery cycle experience for payroll employment, unit labor costs and headline productivity advancement together in simultaneous fashion for each economic recovery of the past three decades. We've updated the payroll chart many a time. The comparative unit labor cost and productivity charts are new. As you'll see, all the charts have been created in an indexed fashion so as to fairly compare experience in each cycle.
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Yes, in the current cycle, we're experiencing the best productivity growth of any economic recovery cycle of the last thirty years at least. And the primary reason for this is that we're currently experiencing the worst payroll and unit labor cost recovery experience of the last thirty years at least. So although the current recovery in after-tax corporate profits looks quite similar to the profit recoveries of the mid-1970's and early 1980's, the primary drivers for the current profit recovery are completely different than those two prior cycles. The current cycle is built on dramatic cost cutting. But that's not the whole story by a long shot.
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As crazy as it may sound, we suggest that the current productivity miracle is almost completely foreign to us. And we don't mean foreign in terms of some type of anomaly. We strongly suggest that the current productivity miracle is being driven by what is happening in the interplay between the domestic and foreign economies. Our bottom line is that we owe the supposed productivity miracle of the moment to our friends in the foreign community. But we also suggest that before it's over, perceptions regarding domestic productivity will change. The "miracle", per se, may indeed turn out to be a nightmare. Here's the thinking.
The bottom line:
Without sounding melodramatic, it is virtually crystal clear to us that a very meaningful degree of our recent and current headline productivity experience in this country is owed to the influence of changing global capital flow and labor flow dynamics. These are the roots of the supposed miracle. During this recovery cycle, it's been foreign labor and foreign capital that have made the US productivity miracle possible. But what is also true is that from a longer term standpoint, these productivity numbers are no miracle for the US economy at all. In fact, it's something quite the opposite. What the productivity numbers over the last three years have really measured is the pressure on US domestic labor markets and associated wage gains, or lack thereof to be more correct. Some miracle. We fully expect this "miracle" to be seen for what it is at some point as perceptions regarding the character of the current economic recovery are bound to shift ahead.
Read the rest here.
contraryinvestor.com
Some nice charts too!
Mish |
