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Productivity Slowed Sharply in Fourth Quarter While Labor Costs Increased
-Yahoo Finance

Key points that I got from this article are:
1. “Labor costs rose by 2.1 percent in the final three months of the year…”
2. “The Labor Department reported Wednesday that productivity, the amount of output per hour of work, increased at an annual rate of 1.8 percent in the October-December quarter, down from a 6 percent performance in the July-September period”

Everyone knows that the strong job market is a major contributor to what’s supporting this economy right now. As long as Americans have an income they will spend. But, as productivity decreases and labor costs rise, I don’t think corporations will hold on to employees very long in this environment. Already we have seen job cuts by smaller companies like Form Factor (FORM) and major cuts by larger companies like Macy’s. It’s my gut feeling that we are for sure going to see some job cutting in the coming months and such cuts might extend throughout 2008.

I was lucky enough to attend the First Republic Bank, Chapman University Economic Forum just a few months ago and I remember Dr. Adibi predicting that pressures would be felt in the job market and labor costs would in fact be rising. At this point I don’t know how significant this data is because it is still very early, but it is definitely something to keep an eye on. I’m not predicting a significant rise in unemployment yet, but it just may be another threat lurking in the mist of uncertainty clouding this market.
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Hi Marcus,

It's hard to say what this means for the overall economy in the short-term. My personal feeling is that there are areas in the economy that will pick up more soon (mainly exports) and offset future lay-offs somewhat. And remember, it wasn't too long ago that AP was complaining that unemployment was too low and putting a strain on employers. I'm not saying we shouldn't keep an eye on this - we definitely should - but it's important to look at all other areas as well.

Anyway, it will certainly be something to watch going forward.


David K
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Seems to me that the unspoken fact is that when the Federal Reserve says the word "inflation" what they are really talking about is wage demands.

If wage demands were rising sharply we would be seeing strikes in major industries all over the country.

And that would cause the Feds to get very concerned about inflation.

But we do not hear much about strikes these days. That is probably because threats of outsourcing are being used to keep those wage demands down.

Costs are going up but I would question data suggesting labor costs are a major problem. Demands seem to be not out of line.
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