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Thursday, March 4, 2010

Inflation is Off the Table

The Business Financial Newswire reports:

Nonfarm business sector labor productivity increased at a 6.9% annual rate during the fourth quarter of 2009, the US Bureau of Labor Statistics reported today (4 March). The gain in productivity reflects a 7.6% increase in output partially offset by a 0.6% increase in hours worked.

From the fourth quarter of 2008 to the fourth quarter of 2009, productivity increased 5.8% as output declined 0.2% and hours fell 5.7%.The annual measure of productivity increased 3.8% from 2008 to 2009.Unit labor costs in nonfarm businesses fell 5.9% in the fourth quarter of 2009, the result of productivity increasing faster than hourly compensation.

So productivity up and real compensation trending down = unit labor declining massively in Q4.
Unit labour costs decreased 4.7% from the same quarter a year ago, the largest four-quarter decline since the series began in 1948.
The relevance? Well, if the past is any indication of the future (in this case I believe it is), then inflation is not a problem (at least in the near future) and the most recent period is simply noise from the whipsawing of commodity prices and massive monetary / fiscal stimulus.

Source: BLS