Business productivity and costs: Will the 2nd estimate prove better?



Productivity and costs estimate

The revised Productivity and Costs news release for fourth-quarter 2013 is scheduled to be released on Thursday, March 6, by the Bureau of Labor Statistics (or BLS). This release is the second estimate issued by the BLS for Q4 2013.

Part 11

How is labor productivity measured?

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. The Bureau of Labor Statistics (or BLS) defines “unit labor costs” as “the ratio of hourly compensation to labor productivity.” Increases in hourly compensation tend to increase unit labor costs, and increases in output per hour tend to reduce labor costs.

What did the Q4 2013 preliminary report indicate?

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Non-farm business sector labor productivity increased at a 3.2% annual rate during the fourth quarter of 2013, according to the U.S. Bureau of Labor Statistics (or BLS). The increase in productivity reflects output increases of 4.9% and 1.7% in hours worked on a seasonally adjusted annual rate (or SAAR). Productivity increased 1.7% year-on-year from Q4 2012 to Q4 2013, as output and hours worked rose 3.3% and 1.6%, respectively. Annual average productivity increased 0.6% from 2012 to 2013.

Why is this report relevant to fixed income investors?

Other factors remaining constant, an increase in labor productivity will imply higher real wages and economic growth. Higher productivity would also not fuel inflationary tendencies in the economy.

To read about one of the most important indicators for consumer financing trends, move on to Part 12 of this series.


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