Labor Productivity Dives as Unit Labor Costs Soar

-edited

Worker productivity unexpectedly took a steep dive. As a result, production costs soared.

The BLS report on Productivity and Costs shows nonfarm business sector labor productivity decreased 0.3 percent in the third quarter of 2019.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

The BLS says output increased 2.1% and hours worked increased 2.4% in the third quarter.

Given the GM strike and huge problems at Boeing, I struggle to see output and hours worked are both up, but that is what the reports says.

Missing the Boat

Economists were well off the mark.

  • Economists in the Econoday poll expected a 1% rise in productivity in a range of +0.1% to +1.9% vs. the delivered -0.3%
  • Economists expected labor costs to rise 2.2% in a range of 1.3% to 2.9% vs the delivered 3.6%.

Both results were outside the consensus range.

Mike "Mish" Shedlock

Comments (39)
No. 1-15
Bam_Man
Bam_Man

How can idiot economists NOT expect this, when the economy is supposedly creating 125,000+ new jobs each month, while annualized GDP growth is less than 1%?

Casual_Observer
Casual_Observer

H1B and other labor visas are not being renewed as easily so this explains why labor costs are rising. Productivity has never been that great since 2000. It has basically averaged 1% which explains the flat to declining standard of living in the United States and other developed nations. It describes the electronic paper pushing nature of the world since the internet boom of the 1990s.

numike
numike

The Tyranny of Economists How can they be so wrong, so often, and yet still exert so much influence on government policy? https://newrepublic.com/article/155205/tyranny-economists

Herkie
Herkie

The graph shows ~12.2% labor cost increase in the last 4 quarters. That is literally impossible and a damned lie, we all know there is no such thing as inflation as the Fed/BLS and many of your own posters here incessantly claim. Even though now that I think about it it does match the average price increases in this area over the same period, but never call it by the "i" word, there is no inflation right?

Tony Bennett
Tony Bennett

On Deck (cnbc):

"Large employers predict the total cost of covering health insurance for workers and their families will hit an average of $15,375 in 2020, an increase of 5%, according to a survey by the National Business Group on Health."

Blurtman
Blurtman

Yield curve no longer inverted.

ElPendejoGrande
ElPendejoGrande

We're starting to figure out that working hard and keeping headcount down just makes some rich prick richer. Slow down, tell them you need more people, and drive up your salary by soaking up the labor supply. No union needed... just some good old fashioned monkeywrenching and looking out for your fellow employees.

magoomba
magoomba

Feudalism has it's costs too.

njbr
njbr

Hmmm, not making as many widgets and taking longer to make each widget.

I've seen this before--slowing sales and the labor slows down (work expands to fill the time). The next step is lay-offs when there is no expectation of a quick turn-around in sales.

Take a look at what is going on in the steel business ("rescued" a year or so ago by Trump).....[Tariff were] an instant bonanza for domestic steel producers. With much fanfare, some announced ambitious expansion plans. United States Steel Corp. even fired up a pair of long-idled blast furnaces in Granite City, Ill., and Trump seized the occasion to deliver a rousing speech at the plant about the industry’s resurgence....What a difference a year has made. Benchmark steel prices have fallen well below their level before the tariffs took effect and are now about half their peak in July 2018. The industry has responded with production cutbacks...And while that Granite City smelter is still operating, Pittsburgh-based United States Steel has begun laying off scores of workers at two other old blast furnaces, near Detroit and in East Chicago, Ind. Several other steelmakers are closing mills, idling employees or cutting back work hours, in Louisiana, Kentucky, West Virginia and Pennsylvania. Overall employment at steel mills is little changed from two years ago.

The "less with more" turns into "more with less" in time.

magoomba
magoomba

Poor management causes the most waste of labor.

Tony Bennett
Tony Bennett

"Unexpectedly"

...

That word. Again.

Mish, thanks for teeing it up :-)

Labor costs soaring will mean one thing ... business looking for a way to reduce costs (hint hint: automation) ... if they can pry away $$s devoted to buybacks / dividends.

Tony Bennett
Tony Bennett

Factset latest on earnings:

"Earnings Growth: For Q3 2019, the blended earnings decline for the S&P 500 is -2.7%. If -2.7% is the actual decline for the quarter, it will mark the first time the index has reported three straight quarters of year-over-year earnings declines since Q4 2015 through Q2 2016."

Q4?

"expectations for earnings growth for Q4 2019 have been falling over the past few months. On June 30, the estimated earnings growth rate for Q4 2019 was 5.6%. By September 30, the estimated earnings growth rate had fallen to 2.4%. Today, the earnings decline stands at -0.4%."

mark0f0
mark0f0

Yield curve inversion destroys the ability of the financial sector to create output (as they collect spread between short-term borrowing and long-term investment). This "appears" as lower productivity in the US economy which is dominated by finance and organizations that effectively "borrow-short, lend-long".

As deflation continues to accelerate, look for more of the same. Deflation will unwind excess financialism and the false "productivity" that it has generated. The 'real' economy is in absolute shambles and appears to be worsening.

TimeToTest
TimeToTest

This will be an interesting setup. There is a wave being generated in the pipeline between consumers and consumption. We will call this wave labor. One of them will get soaked.

RonJ
RonJ

"Labor Productivity Dives as Unit Labor Costs Soar"

Especially that of the Chicago teachers union.