December 7, 2005


Productivity Rises, Wages Fall and Inflation Seems in Retreat (VIKAS BAJAJ, 12/07/05, NY Times)

Productivity rose at its fastest pace in two years in the third quarter, far more quickly than was earlier estimated, as output rose and labor costs fell, the government reported yesterday. The report eased some economists' fears of rising inflation.

Productivity, a measure of how much the economy produced per hour of work, rose 4.7 percent outside the farming sector from July to September, compared with an earlier reading of 4.1 percent, the Labor Department said. Real hourly compensation, which adjusts wages and benefits for inflation, fell 1.4 percent.

Also yesterday, the Commerce Department said factory orders bounced back in October, rising 2.2 percent, from a decline of 1.4 percent the month before. And the National Association of Realtors said an index that measures pending sales of existing homes fell 3.2 percent after a decrease of 1 percent in September, providing more evidence of a housing slowdown.

Unit labor costs, which gauge the compensation required to produce one unit of output, fell 1 percent in the quarter, twice as much as previously expected.

Even the notorious Vikas Bajaj didn't bother trying to spin this. Though, that may just because they didn't front page it?

It's All Bad News: . . . Except for the economic reality on the ground. (Irwin M. Stelzer, 12/06/2005, Weekly Standard)

As if to underscore the imperviousness of the economy to the various negative forces abroad in the land, the so-called beige book--the Federal Reserve's monthly summary of business conditions around the country--reported, "Economic activity continued to expand between from mid-October through mid-November. . . . " This, say economists at Goldman Sachs, "foots fairly well with our sense that consumers have managed to work through the earlier increase in energy costs without significant retrenchment."

And we already know that consumers, their confidence buoyed by falling gasoline prices (the driver who took me from a Manhattan hotel to JFK had filled his tank in Jersey with off-brand gasoline at $1.98 per gallon), continued spending in the current quarter: on Black Friday--the bargain-hunters' bonanza that the day after Thanksgiving has become--consumers stormed the electronics and big discount stores, leaving 22 percent more dollars in their wake than the year before. Luxury retailers are also smiling: Tiffany's third-quarter profits exceeded those in the like 2004 period by 37 percent, as affluent consumers stocked up on colored diamonds and platinum jewelry. Only apparel retailers are having a hard time moving merchandise.

Meanwhile, in the important housing market, a bit of cooling has not degenerated into the bubble-bursting that some analysts feared would drag the economy down along with the housing sector, which now provides almost five million jobs, 60 percent more than the once-mighty auto sector. It is true that sales of existing homes in October declined by 2.7 percent from the previous month, pushing inventories of unsold existing homes to the highest level in 19 years. But such sales were nevertheless 3.7 percent above the October 2004 level, and the median price of existing houses that were sold jumped by almost 17 percent, the largest one-month gain in 26 years.

Posted by Orrin Judd at December 7, 2005 10:28 AM

Although not one of my favorites, I thought George Will has an interesting comment this weekend while talking economics with Clinton's dwarf on "This Week...." His point was essentially that there is no such thing as good economic news: you can always spin it badly.

Posted by: Rick T. at December 7, 2005 3:37 PM

You can spin lots of economic developments in more than one way. Here, I think the NYT is holding true to form by mentioning that wages fell...although I don't trust them on that; such figures are too easy to distort. (I know; I'm an economist.) For example, there is a difference between wages, which are hourly compensation, and salaries, which are annual compensation. Maybe salaries rose 10%, for all we're told here.
Of course, if wages had fallen while a Dem was in the White House, the Times would have reported it this way:
"Businesses optimistic as costs fall."

Posted by: Tom at December 10, 2005 9:30 AM


Latest data from the Bureau of Economic Analysis (a subdivision of the Commerce Dept.):

"Personal income increased $42.5 billion, or 0.4 percent, and disposable personal income (DPI) increased $26.4 billion, or 0.3 percent, in October..."

From the Department of Labor Statistics:

Civilian Workers, Compensation

3-month % change (SA) [i.e., seasonally adjusted]
0.8% in 3rd Qtr of 2005

12-month % Change (NSA) [i.e., Non-Seasonally adjusted]
3.1% in 3rd Qtr of 2005

I couldn't find the national wage data, weirdly, so let's be charitable and assume the NYT was being completely truthful about that. Still, total compensation and personal income ROSE.

After all these years, for some reason I'm still surprised at how brazenly dishonest and misleading they are.

Posted by: Tom at December 10, 2005 9:50 AM