Productivity in Q4 of 2011

Productivity in the fourth quarter of 2011 rose 0.7% according to the Bureau of Labor Statistics (BLS) which defines it as “the growth of labor efficiency in producing the economy’s goods and services.”  You start with the actual output of the two, which they say rose by a healthy 3.6% over last year’s third quarter.  From that you subtract how much it cost to make everything which gives us a total.  One significant portion of the latter is called unit labor cost (ULC) which combines elements like hours worked and compensation.  The fourth quarter ULC saw a 1.2% increase, influenced heavily by a 2.9% hike in hours worked while compensation enjoyed a 1.9% climb.

These quarterly numbers are quite volatile and subject to frequent revision.  The third quarter’s total was revised down from 3.1% to 2.3%, still much stronger than the second quarter’s 0.1% dip.  Output was shaved to a 3.2% increase from 3.8% while hours worked were nudged up 0.2% to a 0.8%.  Significantly the ULC was pegged 0.1% lower from an already negative 2.4% pace.

The technical term we apply to the huge fluctuations between quarters is goofiness.  By taking annual figures, a better understanding of the major trends develops.  Year-over-year productivity gained by 0.5%, off a bit from the 0.8% gain recorded in the third quarter.  Unit labor cost rose 1.3% versus 0.5% using the same parameters.  Higher costs are seen as a possible indicator of growing inflationary pressures but there is a silver lining.  An increase in hours worked and compensation combine to put a lot more spending money in the pockets of American labor.  If that increase finds its way into consumption rather than savings we can expect to see it provide positive impetus to many of our other indicators.