4Q GDP Up 5.7%, Wages/Benes At Record Low

by Dollars and Sense

Brad DeLong thinks that the GDP reading suggests that next week's productivity numbers will be around 7%, adding yet another astonishing number to that series. This is not good news for employment; it suggests that workers can continue to be squeezed, notwithstanding all the sweat and tears of the last year.

On the GDP numbers, here's Calculated Risk:

Any analysis of the Q4 GDP report has to start with the change in private inventories. This change contributed a majority of the increase in GDP, and annualized Q4 GDP growth would have been 2.3% without the transitory increase from inventory changes.

Unfortunately - although expected - the two leading sectors, residential investment (RI) and personal consumption expenditures (PCE), both slowed in Q4.

PCE slowed from 2.8% annualized growth in Q3 to 2.0% in Q4.

RI slowed from 18.9% in Q3 to just 5.7% in Q4.

Note: for more on leading and lagging sectors, see Business Cycle: Temporal Order and Q1 GDP Report: The Good News.

It is not a surprise that both key leading sectors are struggling. The personal saving rate increased slightly to 4.6% in Q4, and I expect the saving rate to increase over the next year or two to around 8% - as households repair their balance sheets - and that will be a constant drag on PCE.

And there is no reason to expect a sustained increase in RI until the excess housing inventory is absorbed. In fact, based on recent reports of housing starts and new home sales, there is a good chance that residential investment will be a slight drag on GDP in Q1 2010.

Read the rest of the post

The Wages/benefits story is from the Wall Street Journal
JANUARY 29, 2010, 4:16 P.M. ET

Wage and Benefit Growth Hits Historic Low

Staff Reporter of The Wall Street Journal

Wage and benefit costs, both before and after adjusting for inflation, grew more slowly in 2009 than in any year since the U.S. government began tracking data in 1982, as double-digit unemployment weakened workers' ability to command higher pay.

In the past 12 months, the cost of wages and benefits received by workers other than those employed by the federal government rose 1.5%, according to the Labor Department's employment cost index. In the same period, consumer prices rose 2.7%.

Adjusted for inflation, wages and benefits fell 1.3%, after rising by 2.8% in 2008, the first year of the recession. The inflation-adjusted cost of wages and benefits at the end of 2009 stood just 1.1% higher than at the end of the previous recession in 2001, the Labor Department said.

The Employment Cost Index measures the cost of labor independent of the influence of changes in compensation caused when high-wage sectors grow more or less rapidly than low-wage sectors. Unlike widely cited data on wages, the index includes the cost of benefits, which account for about 30% of total compensation costs.

Before adjusting for inflation, the index rose 0.5% in the fourth quarter, slightly higher than the 0.4% increase in third quarter. "The weak labor market will help keep inflationary pressures benign," said economist Anika Khan of Wells Fargo Securities. "As such, the Federal Reserve continues to have the flexibility to keep short-term interest rates at the current level."

State and local government workers' compensation in 2009 grew 2.4%, twice the pace of the 1.2% increases in the private sector. State and local government employees' compensation has outpaced private-sector increases for the past several years.

Private employers' health-insurance costs rose 4.4% in 2009, after increasing 3.5% the year before. The 2009 increase, though, was the second-lowest rate of increase in more than a decade, according to the survey. The Labor Department noted that this reflects, in part, employers' reducing their contributions to employees' health insurance or switching to lower-cost health plans. It added that the data in this part of its quarterly survey weren't as reliable as the rest of the report.

Labels: Brad DeLong, Calculated Risk, economic indicators, employment cost index, GDP, health insurance, productivity, wages and benefits

 

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1/29/2010 06:55:00 PM