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Friday, November 04, 2005

Productivity Up

In my mind the most important economic numbers are the productivity numbers which measure the output per hour of the average worker. The (preliminary) third quarter (2005) productivity numbers are excellent:
U.S. business productivity — measuring worker output per hour — surged at an annual rate of 4.1% in the July-to-September period, the Labor Department reported. It was the strongest increase in more than a year and far surpassed expectations.

Meanwhile, unit labor costs — what it costs businesses to produce a given output for a set amount of labor — declined at an annual rate of 0.5% in the quarter, the department said. It was the first drop in this key indicator of corporate profitability since the second quarter of 2004.
Productivity, especially coupled with the declining labor costs we're experiencing, enables products and services to be produced for less, which usually leads to enhanced profitability (selling the same products at the same price for less cost). Increased profitability stimulates additional business activity which then drives demand for additional labor. The demand for the additional labor eventually drives up wages and compenstation giving everybody more money to spend and invest. The resulting higher demand coupled with additional capital drives the creation of new technology which helps drive productivity. That's the virtuous circle of market economies and the productivity portion of that circle is very virtuous at the moment!

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