Second Quarter Productivity and Costs

Companies were more productive in the second quarter according to the Bureau of Labor Statistics.  This 1.6 percent annualized uptick follows the upwardly revised first quarter contraction of 0.5 percent that was originally thought to be negative 0.9 percent.  To get this level of growth in productivity, output increased by 2.0 percent, and the improvement required 0.4 percent additional hours worked to create the added production.  Unit labor costs moved up 1.7 percent after an upwardly revised increase of 5.6 percent in the first quarter; the original estimate was 1.3 percent.

As illustrated by the revision in labor unit costs, the components of this indicator can swing drastically from quarter to quarter.  This volatility makes it worthwhile to look at the year-over-year changes.  Output is 2.9 percent higher, but it took 1.8 percent more hours, so productivity increased by 1.1 percent.  The unit labor cost has increased by 0.8 percent year-over-year, adding to profitability.  To put it in perspective, unit labor costs were negative during 2009 and 2010 but were up 2.0 percent in 2011.  If the growth rate of unit labor costs is falling again, this may prove to be advantageous to the income statements of American corporations.  It is suggesting that the cost per unit of production is slowing.  If demand for their products continues, profits will increase and that may lead to added hiring.  Maintaining the demand component of such a virtuous cycle is the problem Atlas sees; we anticipate an intermediate period marked by demand constrained by a demographic phenomenon that can only be
remedied with time.  Thus far, the powers that be do not agree with this solution, so they have impatiently resorted to creating more money.  But all this new money has been sitting relatively idle.  It is too bad the Federal Reserve cannot print time.  (by C. Cox)