More fuzzy numbers

Thursday, September 4, 2008, 3:32 PM

U.S. Q2 productivitiy revised higher, unit labor costs lower (Sept 4 - MarketWatch)

WASHINGTON (MarketWatch) -- The productivity of
U.S. nonfarm businesses was revised higher in the second quarter than
previously estimated, the Labor Department reported Thursday.
Productivity, which is defined as output per hour worked, rose at a
4.3% annual rate in the quarter, revised from 2.2% in the earlier
estimate a month ago.

Unit labor costs -- a key inflation
gauge - fell 0.5%, revised down from a gain of 1.3%, the biggest
decrease since the third quarter of 2007. For the last year,
productivity increased to 3.4% from the previously reported 2.8%. This
is the fastest annual increase in productivity in four years. Unit
labor costs rose 0.6% year-over-year, compared with the previous
estimate of 1.5%. Low unit labor costs should dampen concern about wage
growth pressure from high oil and commodity prices.

Here is yet
another fuzzy number that is so far off the charts as to be
unbelievable, or even laughable. The way this works is that productivity
equals output divided by input. Leaving aside how tricky it is to gauge
output in a service-based economy, this is another case where a too-low
inflation reading will boost a key economic statistic. Like GDP,
productivity is trying to measure true output, so any underestimation
of inflation will skew this reading into more positive territory.

How absurd is a 4.3% rate of productivity growth? If that rate were to
continue, it would mean that in sixteen years, one-half as many people
could produce just as much as everybody does today. Does that sound
reasonable? It shouldn’t, because it is an unreasonably high number,
and a simple glance at it says as much.

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