All aboard the US-data roller coaster
Jake van der Kamp
The up and down roller coaster of what people read into the latest economic statistics from the United States is working as designed once more. Here is the latest in the ride.
First last week we had the big lift. Oh joy of joys, there has been a rise in the overall employment rolls again after a long steady down trend. The unemployment rate has dropped too. Hurrah, hurrah, we're headed back to good times.
You may have noticed that these releases of information conspicuously did not say this time that they covered only non-farm workers as they have invariably done before. This is because they were rescued by a pick-up on the farm in May. The first chart shows you that non-farm employment rolls continued to head straight down. There is also a simple explanation for that decline in unemployment in the figures. Unemployment is defined as the number of people in the labour force who do not have jobs. There are two ways it can come down. Either more people find jobs or fewer people declare that they are looking for jobs.
Yes, you guessed it. There has been a decline in the labour force. More people have given up looking for jobs, which is not surprising when unemployment in manufacturing hovers at 5 per cent. So much for these heralds of a return to the good times.
And then, of course, it is time for the roller coaster to go down again. On Wednesday we had the big plunge. Horror, horror, horror, US productivity growth has fallen sharply in the first quarter and unit labour costs, a key gauge of inflation pressures, have suddenly shot up.
Let us bear in mind here first of all that the overall year on year quarterly growth rate of output per worker was higher in June last year than it had been since March 1976, that's right, more than 24 years.
It is hardly surprising that this would have to come down with a slowdown in the US economy. And, of course, if your workers are not paid on piece rates and you do not start laying them off immediately, they produce a little less for the hourly wages you pay them. This is another way of saying that unit labour costs rise. It is exactly what you expect in such circumstances.
Notice from the second chart, however, that non-labour unit costs have dropped like a stone at the same time. Put it together with labour costs and you will probably find that overall costs of production have gone down, not up.
But then it is only a spoilsport who would want to destroy a roller coaster ride by smoothing it all out to a flat circuit. If you like the headline ride better, it's yours.