Inflationary Pressures From Wages Lower Than Expected
Inflationary pressures from higher wages are not building as fast as previously thought, according to fresh data from the Labor Department.
The costs of wages and benefits per unit of output increased at an annual rate of 2.3% in the third quarter, a much slower advance than the 3.8% pace first reported a month ago. The slower gain in unit labor costs was likely to be greeted with relief at the Federal Reserve, which is concerned that wage pressures could boost inflation.
The 0.2% growth rate for productivity followed a much stronger 1.2% increase in the spring and was the weakest performance since a 0.1% decline in productivity growth in the final three months of last year, a time when the economy was being buffeted by the effects of a string of Gulf Coast hurricanes.
The 2.3% increase in labor costs followed a 2.4% plunge in the second quarter and a 9% surge in the first quarter this year. The quarterly changes have been skewed by the payment of large bonuses at the beginning of the year.
Productivity, the key ingredient to rising living standards, edged up at an 0.2% annual rate in the July-September quarter. That was better than the zero change that was first reported, but it was below analysts' expectation for a slightly stronger 0.5% increase.
Increases in productivity are the key factor pushing living standards higher because they mean that businesses can pay their workers more because of the increased output without having to raise the price of their products.
While rising wages are good news for workers, the increases could fuel unwanted inflation when productivity, the amount of output per hour of work, is slowing sharply.
However, if labor costs outpace the rise in productivity, it means that businesses either have to raise the cost of their products, which can push inflation higher, or trim profit margins.
Service Sector In Focus
Later, investors will be able to take a glimpse at the service sector. The Institute of Supply Management’s non-manufacturing index, which will be released at 10 am New York time, is expected to show lower levels of activity in November from the previous month, with a drop in housing activity adding to the decline.
The index is expected to move down to 56 in November from 57.1 in October, according to a Reuters poll of 81 economists. Forecasts ranged from 54 to 58.1.
“(The index likely) slipped modestly in November, extending a downward trend that has been in place for the past 18 months,” said Steven Wood, a chief economist at Insight Economist in Boulder, Colo.
“However, the recent weakness is largely due to declines in construction activity because of the ongoing housing correction. Demand conditions eased a bit, employment growth remained sluggish, while price pressures retreated further.”
A report on factory orders will be issued at 10 a.m. Factory orders in October are estimated to have fallen 4.5% after a 2.1% increase in September.
Economists have been watching closely to gauge whether the softness in the housing sector is slipping into other areas of the economy. This concern was heightened by last week’s ISM report on factory activity.
However, Federal Reserve policy makers have stuck to their opinion that inflation still poses a greater risk than any economic sluggishness.
While the market waits for the jobs report due out on Friday. Some may take a quick look at the Challenger, Gray & Christmas survey released earlier today. The report is an anecdotal, non-statistical tally of job-cut announcements that are reported in major medial outlets. The report focuses only on job-cut announcements, not actual layoffs, but it does make some interesting observations.
Jobs Cuts Increase
The number of job cuts announced by U.S. corporations in November rose to 11.0% from the number reported in the prior month for a total of 76,773, the survey said.
Job cuts were 22.7% lower this November than last year, when there were 99,279 job cuts. This was the eighth time this year that job-cut announcements were below their year-earlier level.
The largest totals were centered in the auto industry, which announced 20,318 job cuts last month. The 151,457 auto industry cuts so far this year already shatters the previous record of 133,686 set in 2001.
"Unemployment has dropped this year to 4.9% from 4.4% now," said John Challenger, chief executive of the outplacement firm. "It's been a good year in the job market."
"We have two sectors not firing: automtive and housing," he said, on CNBC's Squawk Box.
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