GM: Remember that prediction of yours, made when the DOW was at 6,500 that 6,000 was next?
If I remember correctly, I did not disagree
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Non-farm productivity rose at a 2.6% annual rate in Q4 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/3/2011
Non-farm productivity (output per hour) rose at a 2.6% annual rate in the fourth quarter. Non-farm productivity is up 1.7% versus last year.
Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 0.6% annual rate in Q4, but is up 0.3% versus last year. Unit labor costs declined at a 0.6% rate in Q4 and are down 0.2% versus a year ago.
In the manufacturing sector, the Q4 growth rate for productivity (5.8%) was much higher than among non-farm businesses as a whole. The faster pace of productivity growth was due to declining hours. Real compensation per hour was up in the manufacturing sector (+0.2%), but, due to rapid productivity growth, unit labor costs declined at a 2.9% annual rate.
Implications: Productivity beat consensus expectations in the fourth quarter, rising at a 2.6% annual rate, equaling the robust average pace of the past ten years. What’s impressive about the fourth quarter is that the gains in productivity came at the same time that the number of hours worked increased at a healthy 1.8% rate. Oftentimes, once a recovery gets to the point where firms are vigorously increasing hours, the pace of productivity growth slows down. Although that happened in the first half of 2010, in the latter half of the year companies found a way to generate efficiencies while still demanding more hours. Not only are hours up but compensation per hour is up as well. Despite this, productivity is pushing down unit labor costs – how much companies have to pay workers per unit of production. In other words, productivity growth has been rapid enough to both generate pay increases and, at the same time, make it worth more for companies to hire. As a result, we expect private sector hiring to accelerate in 2011. In other news this morning, new claims for unemployment insurance declined 42,000 last week to 415,000. Continuing claims for regular state benefits fell 84,000 to 3.93 million. In other recent news on the job market, the ADP Employment index, a measure of private-sector payrolls, increased 187,000 in January. This is consistent with our forecast that the official Labor Department report, released tomorrow morning, will show an increase of 195,000 in private payrolls.
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The ISM non-manufacturing composite index increased to 59.4 in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/3/2011
The ISM non-manufacturing composite index increased to 59.4 in January from 57.1 in December, easily beating the consensus expected gain to 57.2. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were all higher in January and remain at levels indicating robust economic growth. The new orders index increased to 64.9 from 61.4 and the business activity index rose to 64.6 from 62.9, both multi-year highs. The employment index increased to 54.5 from 52.6 and the supplier deliveries index rose to 53.5 from 51.5.
The prices paid index increased to 72.1 in January, the highest since the collapse of Lehman Brothers, from 69.5 in December.
Implications: The US economy continues to pick up steam and we are now seeing strong economic growth in both the manufacturing and service sectors. Today’s ISM Services report delivered a broad array of data that continued to trace out a V-shaped (possibly a check-mark-shaped) recovery. The overall services index was at 59.4, the highest since 2005. The business activity index, which has an even higher correlation with real GDP growth, hit 64.6, also the highest since 2005. The new orders index was the highest since 2004 and the employment index increased to 54.5, the highest level since 2006. The employment index has been above the key 50 level for five straight months. On the inflation front, the prices paid index increased to 72.1, the highest since the financial panic started in late 2008. The Federal Reserve’s ultra-easy monetary policy is getting increasingly inappropriate. In other recent news, cars and light trucks were sold at a 12.6 million annual rate in January, up 0.6% versus December and up 17.4% versus a year ago. Over the next couple of years, these sales will continue to increase to about a 15-16 million annual rate, the pace that offsets the annual scrappage of autos as well as changes in the driving-age population. The service sector is getting stronger, firms are hiring again, and workers are confident enough about the future to ramp up their purchases of big-ticket items.