As we are more focused on the labor cost in the equation this time around, we will look at what is released as the second reading first. Second-quarter unit labor costs are expected to have risen by 1.6% from for the previous quarter. The range listed by Bloomberg started at a gain of 0.3% and went as high as 7.5%, but that higher number feels like an outlier. The first-quarter unit labor costs were shown to have risen by 5.7%.
Bloomberg predicts the nonfarm business productivity business consensus estimate for the second-quarter will rise 1.4%, but there is a very wide range of estimates from -5.0% to 3.5%. The previous quarter was up 3.2%.
We saw an uptick in labor costs in the previous quarter in the Employment Cost Index by 2%, which caused some concern in the market that wage inflation was finally picking up. When the unit labor costs come out, we will have a better idea on whether wage inflation is something of real concern or just a blip on the radar.
Our idea on this matter is that if the unit labor costs come in above 2%, it would lend more credence to wage inflation and would validate what the Employment Cost Index suggested. If the report comes in closer to only 1%, then the market may suggest that the Employment Cost Index somehow missed the mark.
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