Lee, zipping through Barron's today I stumbled upon an article entitled "Day
Labor - a surprising factor in hourly earnings". Since I was somewhat
surprised by yesterday's upward move by the Dow & Nasdaq despite the
404,000 non-farm payroll increase & the 4.6% unemployment rate I
decided to see if this writer - Gene Epstein -had anything to say on the
matter.
Lo and behold this guy said something very interesting concerning the
way in which the Bureau of Labor Statistics calculates hourly earnings
increases. Distortions in the system generate a 7.2% increase on an
annualized basis for the November period. December's will, in most
likelihood, work oiut to be 0% on the same annualized basis. The reason -
very simple - 20 weekdays in November vs 23 in December. Can it be so
simple? It appears so & the BLS is in the process of fixing this minor
glitch.
Another salient point; we no longer operate in a closed economy - we
compete in a global economy. Rising wage rates, therefor, don't
necessarily translate into inflation since we are competing with lower
wage rates from abroad. This is particularly important since Asia is
actually experiencing disinflation. Companies must absorb wage rate
increases & find ways of maintaining profitability without raising prices in
order to remain competitive & keep shareholders happy.
So, net net, the BLS data is questionably accurate particularly since they
continue to adjust it in later periods anyway. And, lower unemployment
although a direct catalyst for wage increases doesn't necessarilly
translate into a higher overall inflation rate. The only sobering thing is that
companies have to offset these wage increases through better
management - and this includes improved productivity, exploitation of
higher margin new markets, and superior marketing know-how. And, there in a nutshell is why DELL is my favorite & most productive stock in my portfolio. |
