24/7 Wall St.

This morning was strange on the economic number cycle as far as firstquarter worker productivity is concerned.  The Labor Departmentreleased a figure of non-farm business worker productivity measured asper-hour output being up by +2.2%.  Economists’ estimates were down at+1.5%, which is actually already pretty high.  Manufacturing saw the biggest gain with productivity up 4.1%, with thenon-durable goods manufacturing productivity being up +7.0% and durablegoods manufacturing productivity up at +2.3%.

Simultaneously, labor cost pressures were less at an increase of +2.2%,lower than a +2.8% gain in Q4-2007.  Worker hours were also down acrossthe board, in all major sectors. 

But one thing stands out here that is very obvious.  If employees areworking fewer hours, wages are no longer rising as fast, andproductivity staying this high, everything here is pointing to theability for companies to make more layoffs.  In theory, a 2%productivity gain and a 2% labor cost rise would allow for roughly a 1%additional cut in workers with the company able to maintain roughly thesame cost structure on a static basis.  The world isn’t static, but that is a general estimate.

If this 1% additional layoffs came, it would be far short of the 7million workers in the U.S. that we pondered could get laid off ifthings get extremely worse from current levels.  At some point it getsharder and harder to get more and more milk from the same cows, but sofar that hasn’t occurred.

Jon C. Ogg
May 7, 2008