Despite revisions, labor productivity is still A-OK

Despite downward revisions to fourth quarter labor productivity numbers, overall productivity is still kicking in high gear.

“One important thing to think about is that even after these revisions, the U.S. has been on a very good productivity run, with a growth of 2%, 3%, and 2.2% over the last three years,” said Seth Benzell, an assistant professor at Chapman University’s Argyros College of Business and Economics.

So, the U.S. is headed in the right direction. That did signal something to Erika McEntarfer, a policy fellow at Stanford’s Institute for Economic Research and, most recently, the former commissioner of the Bureau of Labor Statistics until she was fired by President Trump in August.

“This was entirely driven by downward revisions to output,” McEntarfer said. “Hours remained unchanged, and this revision did also push unit labor costs higher. That means that businesses are paying more per unit of output.”

Meaning labor costs are still rising, and that is something the Federal Reserve will keep a very close eye on as they continue to battle inflationary pressures.

“The Fed is in a very difficult spot right now, with a softening labor market, and, you know, both tariffs and oil price shocks pushing up on inflation,” said McEntarfer. “So output being solid is good news for the economy, and that tends to also be an input into the Fed's decision.”

But in the end, one data point from one quarter won’t make or break this economy. And with the impacts of the U.S-Israel conflict with Iran, this current quarter’s numbers may mean a whole lot more.

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