The BLS released their preliminary Productivity & Cost report and it shows productivity down 4.8 percent and labor UP 10.8 percent for 2nd quarter 2022.
Nonfarm business sector labor productivity decreased 4.6 percent in the second quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output decreased 2.1 percent and hours worked increased 2.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, nonfarm business sector labor productivity decreased 2.5 percent, reflecting a 1.5-percent increase in output and a 4.1-percent increase in hours worked. The 2.5-percent decline in labor productivity from the same quarter a year ago is the largest decline in this series, which begins in the first quarter of 1948. (See table A1.) Unit labor costs in the nonfarm business sector increased 10.8 percent in the second quarter of 2022, reflecting a 5.7-percent increase in hourly compensation and a 4.6-percent decrease in productivity. Unit labor costs increased 9.5 percent over the last four quarters. (See tables A1 and 2.) This is the largest four-quarter increase in this measure since a 10.6-percent increase in the first quarter of 1982. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them.
What does lower productivity and higher labor cost mean? It means more inflation is on the way! We can expect the cost of goods and services to continue to climb. How fast and how steep inflation rises will depend on a variety of factors and we may have a small inflation reprieve temporarily as the cost of energy has gone down but that reprieve will likely just be temporary.
Once again, the best way to deal with high inflation is more income. We have chosen a path of dividend income stocks, rental properties, REITs and other income yielding investments. We’ll update our investment portfolio soon but in the meantime stay tuned and stay solvent…