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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Logain Ablar who wrote (6069)	5/9/2002 5:24:58 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Q1 productivity surged 8.6%, unit labor costs -5.4% Key Factors Tremendous 8.6% surge in productivity (output/hour) the strongest since Q2 1983. Q4 revised higher to 5.5%. Annual growth of a stunning 4.3% comes during a recession. Productivity surge tied to 6.5% boom in inventory-led output as hours worked fell -1.9%. Unit labor costs (compensation deflated by productivity) plunged -5.4% given slightly stronger compensation costs of just 2.7%. Compensation costs are on a sharp downtrend from 9% in Q400 to 2.7% in Q1. Annual unit labor cost growth fell to -0.9% -- very helpful lift to corporate profits. Big Picture The pre-recession slowing in productivity growth found help from the plunge in hours worked (employment, workweek) and now the extremely strong boost in output tied to inventories. A very friendly face during an economic recession and transition period. The Fed had warned of weakened near-term productivity growth as investment would be focused on security rather than output (heck, the investment hasn't even arrived yet). The Fed's longer term view remains quite optimistic. The big picture is that trend productivity growth plus trend labor force growth equals potential GDP growth -- what some call the economy's longer term speed limit. Labor force growth is running near 1% annually. If structural productivity growth is 3%, potential GDP growth is a strong 4%. Strong productivity growth is a win/win situation given lower unit labor costs (compensation deflated by productivity) and the stronger wage growth allowed through the increased output produced. Category Q1 Q4 Q3 Q2 Q1 Nonfarm Business Sector Productivity Q/Q 8.6% 5.5 1.1 2.1 -0.1 Unit Labor Costs Q/Q -5.4 -3.1 2.6 2.6 5.0 Productivity Y/Y 4.3 2.1 1.3 1.5 2.6 Unit Labor Costs Y/Y -0.9 1.7 4.1 4.9 4.6 Manufacturing Sector Productivity Q/Q 9.7% 4.7 2.6 -0.5 -2.7 Unit Labor Costs Q/Q -6.5 -2.1 0.8 6.7 8.9 Productivity Y/Y 4.0 1.0 0.5 0.7 2.3 Unit Labor Costs Y/Y -0.4 3.5 6.5 8.1 6.7