Thursday, November 6, 2014

Unit labor costs flat

 - by New Deal democrat

This morning the BLS reported Unit Labor Costs. This measures how productive labor is, by measuring it per unit of production.  The index rose slightly in the 3d Quarter, but 2nd Quarter ULC were revised downward, making the index essentially flat this year:

Note that over the last few years, however, unit labor costs have risen slowly (which is good for labor).   This is also shown when we measure ULC by their YoY% growth:

(ignore the upward and downward spikes from 4Q 2012 and 2013, which were due to tax strategies by corporations in anticipation of the ending of the Bush tax cuts).

Finally, corporate profits deflated by unit labor costs is a long leading indicator. Here it is measured YoY for the last 65 years:

A negative number doesn't guarantee a recession in the next year or so, but it does most of the time, and further, there has almost never been a recession without being preceded by a negative number.

Finally, let's zoom in on the last 10 years (note this only goes through Q2, but corporate profits have generally been positive, so we should see another positive number when this is reported next month).

This shows ULC growing slightly less than profits for the last several years.  While I'd like to see better improvement in labor's position, this does suggest strongly that 2015 will be another positive year for jobs.

Average weekly earnings and the Employment Cost Index have also risen off their post-recession bottoms.  Tomorrow in the jobs report we will get our first read on how that is carrying over into the 4th Quarter.