More fuzzy numbers

U.S. Q2 productivitiy revised higher, unit labor costs lower (Sept 4 - MarketWatch)


WASHINGTON (MarketWatch) -- The productivity of U.S. nonfarm businesses was revised higher in the second quarter than previously estimated, the Labor Department reported Thursday. Productivity, which is defined as output per hour worked, rose at a 4.3% annual rate in the quarter, revised from 2.2% in the earlier estimate a month ago.

Unit labor costs -- a key inflation gauge - fell 0.5%, revised down from a gain of 1.3%, the biggest decrease since the third quarter of 2007. For the last year, productivity increased to 3.4% from the previously reported 2.8%. This is the fastest annual increase in productivity in four years. Unit labor costs rose 0.6% year-over-year, compared with the previous estimate of 1.5%. Low unit labor costs should dampen concern about wage growth pressure from high oil and commodity prices.

Here is yet another fuzzy number that is so far off the charts as to be unbelievable, or even laughable. The way this works is that productivity equals output divided by input. Leaving aside how tricky it is to gauge output in a service-based economy, this is another case where a too-low inflation reading will boost a key economic statistic. Like GDP, productivity is trying to measure true output, so any underestimation of inflation will skew this reading into more positive territory.

How absurd is a 4.3% rate of productivity growth? If that rate were to continue, it would mean that in sixteen years, one-half as many people could produce just as much as everybody does today. Does that sound reasonable? It shouldn’t, because it is an unreasonably high number, and a simple glance at it says as much.

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