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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: James C. Mc Gowan who wrote (30695)	2/10/2000 7:38:00 AM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

VOD is holding nicely but hope to recover from this two way trade soon.. ELAN is very promising. looking at it closely.. <<The Paradox Continues ? Higher Growth Means Lower Unit Labor Costs. February 8, 2000 The productivity miracle has provided another astounding picture of the U.S. economy. In the 4Q, output per hour rose at a 5.0% annual rate, the same phenomenal pace as in the 3Q - shown on the top chart. That strong productivity growth offset the 4.0% annualized increase in compensation costs, pushing unit labor costs down at a 1.0% annual rate. The paradox is that higher growth ? which brings fears of more inflation ? can actually result in less inflation pressure by spreading costs across more units of output. Since the productivity data is often erratic from quarter to quarter (as seen on the top chart), we prefer to use the yr/yr change in the 4 quarter moving average to better gauge the trend. The middle chart shows that picture ? a veritable textbook version of how an economy should perform. For those not familiar with the calculation, take compensation (rise in labor cost per hour) and subtract productivity (increase in output per hour) to get unit labor cost (increase in labor cost per unit of output). The productivity gain is not an end in itself. It is the means by which employees can get solid wage increases while also preventing employers from having to increase prices. It is the Win-Win scenario for an economy ?and the U.S. has gotten it right. Unit labor costs are up only 1.8% on a 4 quarter moving average basis ? and are slowing (the yr/yr increase in 4Q ?99 vs. 4Q ?98 was only 1.1%). Historically, the trend of unit labor costs have the best correlation to "core" inflation of any indicator. This report will probably not prevent the Fed from tightening on March 21, but it will keep them on the course of gradualism and caution. They do not want to kill the goose that laid the golden egg ? and an important part of that process is strong growth. In the 2Q of 1999, real growth slowed to 1.8%, productivity rose only 0.6%, and thus unit labor costs rose 4.2% - so what was the benefit of slower growth? None. The media will highlight the surge in manufacturing productivity to a 10.7% pace in the 4Q, putting the yr/yr increase at 6.9%. That?s great, but more importantly, in our view, is the improvement in non-manufacturing shown in the bottom chart. The BLS does not report non-manufacturing separately. We derived the figures using total non-farm and manufacturing data.>