productivity up 9.5%
Posted by WARREN MOSLER on November 5th, 2009
Lower labor costs for the same sales (top lines were relatively flat) mean revenue is being shifted from compensation to profits, which carry a much lower propensity to consume than wages.
This reduces aggregate demand, which is a good thing, as it means, for example, we can cut taxes to sustain incomes, sales, output, and employment.
Unfortunately, our leaders don’t understand the monetary system and take no constructive action in the name of ‘fiscal responsibility,’ while the main stream forecasts project unemployment to linger around the 10% level for an extended period of time:
The Labor Department said non-farm productivity surged at a 9.5 percent annual rate, the quickest pace since the third quarter of 2003. Productivity grew at a 6.9 percent pace in the April-June period.
Hours worked fell at a 5 percent rate in the third quarter, the Labor Department said. Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell 5.2 percent after declining 6.1 percent in the second quarter. Analysts had expected unit labor costs to fall 4 percent in the third quarter. Compensation per hour rose at a 3.8 percent pace and, adjusted for inflation, was up 0.2 percent.
Compared with the July-September quarter of 2008, non-farm productivity rose at a 4.3 percent rate. Unit labor costs fell 3.6 percent year-on-year.
[top]
November 5th, 2009 at 2:01 pm
Yes, but rising profits boost household net worth in the aggregate (via rising stock prices), which contributes to the “wealth effect” and thta tends to influence on consumption (at least for the wealthy).
Reply
warren mosler Reply:
November 5th, 2009 at 5:19 pm
yes, but a lot more demand is lost than gained.
the wealth effect isn’t all that large from the research i’ve read.
as i said, that’s a good thing- allows for lower taxes.
Reply
November 5th, 2009 at 3:25 pm
Mike,
Yup, all part of the “progressive” Obamite’s plan to redistribute wealth upwards…
Reply
Mike S Reply:
November 6th, 2009 at 1:13 pm
I disagree on Obama being any worse than Bush or anyone else. This redistribution is just the result of conventional economic thinking.
They can’t help it. Obama’s team is convinced that their models are best. Obama is listening to his smart people - like he should - on this and most issues. Its just that his smart people are so incredibly wrong on this issue.
Reply
November 5th, 2009 at 5:19 pm
that too…
Reply