·
For 3Q '06, nonfarm labor productivity growth of 0.2% was little
revised from the preliminary report. The figure fell short of Consensus
expectations for a larger revision to 0.4% growth. The weak increase
kept y/y growth in productivity at 1.4%, the weakest since 1997.
· Compensation per hour, however, was revised sharply with the 3Q estimate taken down one percentage point to 2.6% growth. Combined with a huge downward revision to 2Q growth to -1.2% from +6.6% (not a typo) it lowered the y/y change to 4.3% which is on a par with the growth during the last several years.
· The revisions to compensation
lowered unit labor costs sharply as well to 2.3% growth last
quarter. Growth during 2Q was lowered to -2.4% versus a previously
estimated 5.4% gain. During the last thirty years there has been an 85%
correlation between labor cost growth the growth in the GDP chain price
deflator, although that correlation has fallen sharply in recent years.
· Factory sector productivity growth last quarter was increased to 6.7% (4.5% y/y) from 5.9% but growth in factory sector compensation per hour was lowered just slightly to 2.4% (2.4% y/y) from 2.9%. The y/y gain in compensation is collapsed versus the previous estimate because of a sharp revision to 2Q growth to -5.8% (2.4% y/y) from +4.0% estimated last month. Unit labor costs as a result fell 4.1% during the third quarter (-2.0% y/y) after an 8.3% decline during the prior period.
· Reported for the first time were 3Q
estimates for the nonfinancial corporate sector. Productivity
there rebounded 5.6% (3.8% y/y) after a 4.3% drop during 2Q that
previously was reported as a 0.2% increase. Compensation grew 2.8% (4.3%
y/y) after a 0.7% decline that was earlier estimated at +6.5%. As a
result, unit labor costs fell 2.7% (+0.5% y/y) last quarter.
· Unit profits for the nonfinancial corporate sector in this productivity report in fact grew 27.6% (19.0% y/y). These figures are in line with the sharp 8.2% (25.8% y/y) gain in nonfinancial corporate profits reported in last week's GDP report. Prices for the sector grew just 0.2% (1.8% y/y), the slowest quarterly increase in four years.
· U.S. Economic Outlook is last Friday's speech by Chicago Fed president Michael H. Moskow and it can be found here.