So far, despite Fed, congressional actions, inflation remains tame

Posted Feb 5th 2009 12:45PM by Joseph Lazzaro
Filed under: Forecasts, Good news, Economic Data

Inflation -- the bane of earnings -- must always be watched, lest it rob the nation of return on investment.

Further, while the inflation hawks have been out in force, given the U.S.'s likely, record fiscal stimulus package and the Federal Reserve's doubling of its balance sheet, so far inflation remains tame.

Unit labor costs -- a key gauge of inflation, and one the Fed watches closely -- rose at a 1.8% annualized rate in Q4 2008, the U.S. Labor Department announced Thursday. Meanwhile, productivity in Q4 2008 rose at a 3.2% annualized rate.

Productivity measures output per hour worked. Economists say rising productivity usually leads to increases in income, as businesses can increase salaries/wages paid without increasing their per unit costs.

Economists surveyed by Bloomberg News had expected Q4 2008 unit labor costs to increase 2.9% and productivity to rise 1.1%.

Economist Richard Felson told BloggingStocks Thursday the inflation hawks have little ammunition. "Inflation remains tame, very tame, which is what you'd expect given widespread declines in asset prices, wealth, and workforce reductions," Felson said. "Worker productivity also is advancing at a healthy rate, which will give the Fed ample room to maintain its traditional and quantitative easing policies to help the U.S. economy recover."

Further, for all of 2008, productivity increased 2.8% -- the highest increase in productivity since 2003. Unit labor costs increased a scant 0.5% in 2008.

On the downside, in Q4 2008 manufacturing output plunged 16.7%, and hours worked plunged 8.4%.

Economic Analysis: Two pleasant surprises: labor costs pressures are mild, and productivity advanced more than expected. The productivity was skewed slightly higher, due to large layoffs, but the important point is that both indicators point to low inflation, which helps clear the way for much-needed fiscal stimulus and quantitative easing to get the U.S. economy moving again.

Tags: inflation, inthenews, productivity, U.S. economy, U.S. Labor Department, unit labor costs, worker productivity

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Reader Comments (Page 1 of 1)

2-05-2009 @ 3:21PM

BHarrison said...

". . . Treasury in 2008 paid $254 billion and received assets worth about $176 billion . . ." Just another example of our CORRUPT Congressmen assisting the CORRUPT Corporations and ultra-wealthy in further DUPING and DEFRAUDING the American people. . . . Andthe apathetic American people just blindly allow all of this CORRUPTION to continue to decimate our nation and themselves economically. "People HAVE to take actions to protect their OWN BEST INTERESTS . . . Congress is certainly NOT doing that, nor will Congress EVER do that. Nothing will "change" unless the American people rise up and DEMAND change . . . and indictment and punishment of those who orchestrated and perpetuated these FRAUDS. Congress has been the WORST CULPRIT of all.

2-05-2009 @ 8:08PM

william lindblad said...

Mr. Harrison, I don't blame you for getting a bit hot, but you write better when you stay focused. I agree with you but Barney Frank and Chris Dodd don't give a diddly squat. If there is a ray of hope, check out the goings on in Iceland. They have the right idea and if our corrupt morons keep going they are going to be next.
To stay with the blog - Inflation??? I really don't think that you will find too many hawks - at the moment. At this point there is no reason to expect it. HOWEVER, not far down the road it COULD be monumental. The Treasury presses run 24/7 and we owe, we owe, so is this in the cards?
I think yes. Although the vast majority of economists and keepers of statistics would say nay - it is already apparent in certain sectors, one being the supermarket. I hate to tell you fellows, but as the commercial says " you gotta eat", but the way the government computes this is "core" inflation. If you have not looked - oil is basically static, but gas is going back up. Add 1+1. If gas and diesel go up it costs more for the farmer/rancher. It costs more to deliver and consequently, more to eat. It costs more to drive and these are things that people do each day. Fixing you transmission or buying a fridge is the type of list that is used to determine "inflation". We use an ineffective yardstick. It is like using a very standard 25' tape measure which has both U.S. standard and metric measure. a half inch is around 12mm, but they are not the same. The government uses metric to measure inflation and the people get the inch system. Something like getting 6 inches stuck to you!!.