U.S. Productivity Slightly Higher Than Expected

In 1Q05, non-farm labor productivity rose 2.6% versus Consensus expectations for a 1.9% gain. The gain was the quickest in three quarters yet growth year to year slowed to 2.5% from its peak of 5.5% early last year.

The surprise stemmed from a slowdown in hours worked to 1.0% (1.4% y/y) versus 1.6% in 4Q and 2.8% growth in 3Q04. Output growth of 3.6% compared to 5.3% during all of 2004.

Unit labor costs accelerated to 2.2% versus annual growth of 0.4% last year. Compensation costs held steady at a strong 4.8% versus 4.5% growth during 2004.

A 2.9% rise in the implicit price deflator raised slightly the ratio of prices to unit labor costs, suggesting that profit margins remained firm.

Does Wage Inflation Cause Price Inflation? from the Federal Reserve Bank of Cleveland can be found here.

Initial claims for unemployment insurance rose further last week. The 11,000 increase to 333,000 followed an upwardly revised gain of 23,000 the week prior. Consensus expectations had been for 325,000 claims.

During the last ten years there has been a (negative) 75% correlation between the level of initial claims for unemployment insurance and the monthly change in payroll employment. There has been a (negative) 65% correlation with the level of continuing claims.

The four week moving average of initial claims nevertheless fell to 321,500 (-6.9% y/y).

Continuing claims for unemployment insurance gained back 38,000 of a deepened 80,000 drop the prior week.

The insured unemployment rate held at 2.0%.

The Australian trade deficit widened distinctly in March. The A$2.7 billion gap, reported today by the Australian Bureau of Statistics, is the second largest monthly shortfall ever. In this latest month, both exports and imports moved adversely, with exports down 1.5% and imports up 3.3% from February.

At the same time, longer comparisons suggest that March's trade deficit widening, and the dip in exports in particular, is perhaps not representative of current trends. Exports, in fact, have expanded 12.4% over the past year, encompassing a 17.6% advance in "non-rural goods" shipments. These products appear quite vigorous, recovering markedly from a decline during 2003. Agricultural items, in contrast, have undergone extraordinarily wide cycles in the last several years, and have become less reliable as a prop to the Australian economy.

Imports, as in many countries, are being impacted by the rising cost of energy products, reflected here in the "intermediate goods" line item. Consumers continue to buy foreign products, while demand for capital goods from abroad is beginning to show signs of hesitation. This latter is notable, for, as seen in the second graph, imports of capital goods closely parallel the national accounts measure of investment in machinery and equipment. So the downturn in these imports in the opening months of 2005 may suggest slower investment demand in general in Australia.