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
“Labor Productivity Dives as Unit Labor Costs Soar”
Especially that of the Chicago teachers union.
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.
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.
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%.”
“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.
Poor management causes the most waste of labor.
I’ve seen a lot of bad management decisions too. Even with managers who do know what they are doing, new product development involves technical complexities that increase risks of making mistakes. And the later the stage of development a mistake is found, the cost becomes exponentially more to fix. With the government as customer, there is less incentive to be more productive.
I always kinda thought that market research for new products was often lacking or non-existent. Did anyone really check the market for wework shared office space? There have been a lot of failed new products since New Coke and Edsel set the standard for making products nobody wanted to buy. Now the failed products (Uber, Beyond Meat) rely on continued investments to stay alive instead of making a profit. Few people are prepared to accept the truth.
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.
Feudalism has it’s costs too.
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.
You don’t think we can’t hire another guy off the street (and I’m talking about the street right our in front and around the world too!)?
Get back in line serf!
The increasing cost of labor says that isn’t so easy any more.
Yield curve no longer inverted.
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.”
Imagine the leadership of a country that for the past quarter century exported its manufacturing sector, imported between 25-50K per year of technical people, but made NO similar provisions for handling the explosion of boomers who will be needing extra healthcare as they hit old age.
Amazing.
That’s what a country gets for having “leadership,” and being stuck with a population dumb and indoctrinated enough to fall for the scam that having such is somehow a good thing.
People self optimize. They don’t someone-else-optimize. “Leaders” are no different, no matter what The Man on TV and public-union teachers are told to mindlessly regurgitate in exchange for government bestowed privileges.
Hence, if you want better governance, you want less opportunity for anyone, “leaders” included, to drag the lives and livelihoods of others, into their perfectly natural, entirely universal, hence unavoidable, attempts at self optimization. Anything else is just children’s fairy tales. For the exclusive consumption of unusually naive children.
Only 5%. Seems lower than expected.
I wonder if that number contains the employee’s portion of the expense along with their co-pays and deductible.
EMPLOYERS only portion.
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?
Rising healthcare costs are reflected in the increase of labor costs.
Your take home pay may be the same, but your boss is paying you more if he doesn’t pass on the healthcare costs to you. He probably is absorbing some of it and passing the rest to you.
How do you like your “raise”?
The numbers are annualized for each quarter – i.e. you can’t add them up.
I was being sarcastic anyway, productivity is the inverse of labor costs. All things being equal a rise in cost = a drop in productivity.
The Tyranny of Economists
How can they be so wrong, so often, and yet still exert so much influence on government policy? link to newrepublic.com
Doesn’t look like they have much influence – the content of Trump’s gut (there’s a horrible thought) are the decision makers policy at the moment, and shit-for-brains has given us such policy successes as steel tariffs, a trade war with China, a collossal waste of Mexico and Canada’s time renaming NAFTA, and more, including the conspiracy-theory driven decision to let Rudy play in idiot in Ukraine.
The purpose of so called “economists” are to justify arbitrary government and government policy. Not to guide it nor reduce it’s scope for arbitrariness. If the latter was the goal, actual economists would be titled just that. Rather than exotic’y, fring’y sounding “Austrian” ones.
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.
It could explain some of the rise, but look at the graph, that is over 12% in the last 4 reported quarters. It seems to me that since the latest data on wages is showing a down tick that the accountants are stuffing labor cost centers in their books with other items.
“It has basically averaged 1% which explains the flat to declining standard of living in the United States and other developed nations.”
The standard of living isn’t flat or declining. Innovation continues apace. The major change in the past couple decades is the level of debt caused by healthcare, higher education, and housing. However, the standard of living is irrespective of debt. We live much better than people of the last century (thanks to the “producing” segment of the economy through the years), but they didn’t have nearly the size debt people have today (thanks to today’s “leaching” segment of the economy).
Also, a declining productivity is to be expected after employment hits a certain peak, as more and more less productive people are drawn up into the employment ranks. The slower folk tend to “slow the system” down.
Of course its better than the last century. It isn’t appreciably better than the 1990s when the last era of productivity growth above 2% occurred. We’ve been bouncing around 1-2% for the better part of almost 20 years now.
I agree with you on the debt picture. The real bottom line is wage increases haven’t been enough to offset the rise in costs of several things.
To me the other reason we see this bouncing around of productivity is that there is very little to improve on in terms of costs outside of the three major items you mentioned. Housing, healthcare and education have proven to be impenetrable to get major productivity improvements to get costs down.
I’ve posted this on here before. Manufacturing is the key area to get any significant productivity gains. So the smaller the portion of the population employed in manufacturing, the lower the overall increase in productivity must be.
Yup.
If your not building, manufacturing, better and better tools and infrastructure, it is very limited how much more efficiently you will be able to employ the ones you already have.
I know of cases of citizens getting 10-20% increases in salary. The outsourcing consulting firms have been forced to give in to citizens and non-visa employees demands. In many cases, their H1B employee is not being renewed at the rate of 90% rejection so there is no net impact on salaries. The rise in wages the last 4 quarters lines up the rejection rates of H1B renewals over the last year. The Trump administration is forcing all H1B holders to justify their position and expertise and rejecting them if they cannot show evidence of why a US citizen or greencard holder could not do their job.
Additionally a lot of companies are assuming their H1B visa holder employees will be rejected at the next renewal and moving on from them as the cost of proving in court to defend a single employee is not worth it. The cost to an employer is already about $7000 per H1B per year in legal fees. I’ve seen multiple cases of H1B visa holders interviewing despite having a job because their last resort is finding a new job to prove to USCIS that their skills are necessary and that their visa should be renewed. This is quite the opposite of the Obama administration where H1B visas were automatically renewed for up to 6 more years.
“The cost to an employer is already about $7000 per H1B per year in legal fees.” — no, the cost of a H-1B visa is a one-time thing, at perhaps $7000 for the application. Whether paid to outside counsel or the efforts of internal HR personnel who process the application. Once the H-1B visa has been obtained, there are no effectively no recurring costs until the Green Card application is lodged. And even then, once that’s done, H-1B is indefinitely renewable until the Green Card application is definitively rejected, which can take years for Indian nationals.
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%?
Didnt you have common core math?
The denominator is hours worked. Not number of jobs. And a lot of new jobs are part time.
Having said that, I have no confidence in either the numerator or denominator being accurate.