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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: OX who wrote (49300)	5/4/2000 11:04:00 AM
From: OX	Respond to of 99985

from briefing.com > 10:27 ET ****** > > Productivity : This isn't a stock, but it's important for all stocks. The trend > in productivity growth is at the heart of the current new/old economy debate. If > productivity growth accelerates, economic growth (and thus corporate profit > growth) can remain strong without prompting higher inflation. Today's Q1 > productivity report is calling the accelerating trend into question, as growth > slowed to 2.4% from its 3.6% trend of the prior 12 month period. Many new > economy skeptics -- and there are plenty -- are jumping on this number as > evidence that the productivity boom is over. Can you say deja vu? Rewind to > August 1999 and the release of the Q2 1999 productivity data. The preliminary > release for that quarter revealed growth of just 1.3% and a large 3.8% jump in > unit labor costs. At that time, we heard volumes from stubbornly old (economy) > economists about how productivity growth was not accelerating, potential growth > was not rising, and inflation would not remain contained. We noted at the time > that productivity numbers are extremely volatile on a quarter to quarter basis, > and that it was stupid to declare a trend on the basis of one number. As it > turned out, productivity growth boomed in the succeeding two quarters by 5.0% > and 6.9% in Q3 and Q4, bringing the year/year pace to a new late-business cycle > peak. Now, we have a number of 2.4% that keeps the year/year pace at a very > strong 3.5%, and the old economy school that previously thought trend > productivity growth was 1% calls this a bad number. Please spare us. The > productivity boom continues and will reach a new and higher plane as B2B > technologies bring Internet efficiencies to the business-to-business realm. > Finally, a little reminder about what matters. The market was frightened by a > worse than expected Employment Cost number last week, but that measure is not > the key to inflation. The key is unit labor costs -- how much a business has to > pay to produce each unit of output. Wage and benefit costs can rise, but if > productivity grows faster, unit labor cost growth will decelerate. That is what > we have seen over the past year. And if unit labor cost growth is less than the > inflation rate, then inflationary pressures stemming from the labor market are > waning, not waxing. That is the case now, with year/year unit labor costs > growing at a meager 0.7% vs total inflation of over 3% and core inflation of > about 2%. In short, businesses are currently raising prices more than their unit > labor costs are rising, and they can therefore either reduce the rate of price > increases (lower inflation) or allow profit margins to rise. In short, today's > productivity report doesn't change the bullish productivity and inflation view > anymore than the Q2 1999 report did. Many economists will argue otherwise, but > they will be the same economists who were wrong last year, and in 1998, and in > 1997, and so on. - Greg Jones, Briefing.com