Productivity Up - Costs Down

There was a time when the world was concerned that the rise of technology would replace humans in the workplace.   Well, it never actually happened that way but technology, and increases in productivity from it, have created a new and different world that we live in today.   However, along with the benefits of productivity there is a dark side to those increases in output which is lower labor costs.

This morning we saw the release of the 3rd quarter productivity and unit labor costs report.  The good news is that productivity, as measured by the amount of output per hour of all non-farm working persons, rose by 3.1% after dipping slightly in the 2nd quarter. Alot of this was due to the pick up in manufacturing due to the disruption of the Japan earthquake in the second quarter and we likely see productivity moderate back a bit as we go through the end of the year.

However, with the increase in productivity came the bad news.  Due to a very large amount of slack in the labor pool the number of hours worked by those with a job increased at an annual rate of 0.6% and a full 2% rise in the second quarter.   However, working longer hours is okay as long as you are compensated for it but sadly that was not the case as unit labor costs fell 2.4% on an annualized basis with actual compensation growth rising just 0.6%.

While the productivity report is favorable toward a continuation of growth in corporate profits with output up and labor costs down it doesn't bode well for the average consumer struggling to make ends me as we showed in yesterday's post with 46 million Americans on food stamps.   Furthermore, while productivity rises and there is enough slack in the labor pool that people are worried about being able to locate other work there is no pressure on businesses to increase wages or hire.

Please see the attached charts below.