Is Rising Workforce Productivity Actually Bad Right Now?

By Jon C. Ogg Updated Jan 13, 5:29PM EST · Published Nov 5, 2:05PM EST

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Is Rising Workforce Productivity Actually Bad Right Now? — © Thinkstock

Many economists and market watchers have tended to discount the report for productivity and unit labor costs in recent years. After all, it is a quarterly report and much of the segmented data inside has been seen already or represented in other economic reports ahead of time. This report matters on one front, and that is that productivity effectively competes with job creation and unemployment.

As far as why productivity competes, it is rather simple. If businesses can milk out 2% or 4% more from your existing workforce through technology, processes and other means, why on earth would those businesses feel the need to aggressively hire more workers if the economic expansion is roughly the same as or lower than that productivity growth?

A Bureau of Labor Statistics (BLS) report on Thursday showed that nonfarm business sector labor productivity increased at a 1.6% annualized rate during the third quarter of 2015. That is as overall output increased by 1.2% and as hours worked decreased by 0.5%.

The decline in hours worked was the first decline reported since a 4.8% decline was reported in the third quarter of 2009. The BLS said:

From the third quarter of 2014 to the third quarter of 2015, productivity increased 0.4 percent, reflecting increases in output and hours worked of 2.3 percent and 1.9 percent, respectively. … Unit labor costs in the nonfarm business sector increased 1.4 percent in the third quarter of 2015, reflecting a 3.0-percent increase in hourly compensation and a 1.6-percent increase in productivity. Unit labor costs increased 2.0 percent over the last four quarters.

The 1.6% productivity gain in the third quarter was versus only a 0.1% consensus estimate from Bloomberg. Dow Jones had its estimate at -0.3%.

The 1.4% gain in unit labor costs was lower than the 2.2% expected by Bloomberg and even lower than the 2.5% expected by Dow Jones.

There are many things that can be pointed out here. It almost seems as though you could represent either side of a coin with the data when compared to the past and when compared to the estimates. That caveat aside, higher productivity, above the total cost of labor, with a slow growth economy may not all point to the job market remaining so robust ahead.

By the way, did Janet Yellen hint that the payrolls report on Friday would be stronger than expected?

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.