While much attention this week will be focused on the release of the December jobs report on Friday, do not discount the U.S. labor productivity data for the third quarter, which will be released on Thursday.
That data should show a year-over-year increase in productivity of nearly 5% and a decline in unit labor costs should the first estimate for third-quarter gross domestic product, which came in at a strong 4.3%, prove durable.
This kind of robust GDP report, accompanied by an average of 51,000 jobs created a month in the third quarter, implies a sharp increase in productivity, which has picked up over the past two and a half years following a stagnant decade.
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But another, less rosy, scenario is possible. Inside the GDP data, real private demand from private purchasers increased by 3% while gross domestic income advanced by 2.4% and disposable personal income was flat. That combination suggests the possibility that the strong initial estimate of growth for the third quarter may eventually be revised downward.
One gets the sense that in future benchmark revisions to the data, either income and monthly hiring will have to rise to support such strong gains in GDP, or that the top-line figure will need to be revised down to reflect slower income and hiring activity.
Another alternative is that growth has decoupled from hiring as the economy enters a new era driven by productivity gains linked to the accelerating integration of sophisticated technology.
While we will not know which of the three scenarios is true for some time, a closer look at the quarterly productivity data is in order.
Over the past 10 quarters, productivity has risen by an average of 2.2%, which are solid gains compared with the 1.2% experienced during the first decade of the century.
But the recent increases pale in comparison with the 2.8% gains of the 1960s and 2000s and are well below the “golden age” of 3.3% achieved between 1997 and 2004, which captures the dawn of the internet era.
Given that current equity valuations and the direction of monetary policy in the near term may depend on the composition of what is driving productivity, perhaps we should all be paying much closer attention.
