Worried about inflation -- or profits?
Are the big fat paychecks of American workers threatening a new round of destruction inflation? Economists seem to be sounding the alarm bell. On Wednesday the BLS released its revised second quarter productivity and costs data which showed, according to Reuters,
lower labor productivity and rising wage costs renewed concerns about inflation and the outlook for interest rates. . . . "Today's report on productivity may signal an uptick in inflation," said Ed Yardeni, chief investment strategist at Oak Associates Ltd., in Akron, Ohio.The Dow promptly fell 14 points on the news.
Everybody is looking at the quarterly change in non-farm business unit labor costs, which rose at an annualized 2.5% rate. That's the fastest since 2004Q4. Bloomberg fretted that "U.S. labor costs increased by the most since 2000", but that is a year-over-year measure which is partly the result of unusual falling unit labor costs in 2004Q2.
But let's look at things from the point of view of labor instead of capital, however. Real hourly compensation in the second quarter rose an annualized 0.2%, the slowest pace in a year. The year-over-year figures are a relatively high (for recent times) 3.5%, but that again is built on real hourly compensation declines in 2004Q1 and 2004Q2.
According to BEA statistics, real employee compensation in 2005Q2 rose an annualized 2.7%. Benefits (including social security payments) rose a real annualized 3.5% while real wages and salaries were up a much tamer annualized 2.5%. From the BLS we know that hours in Q2 rose an annualized 2.2% -- and thus we're back to that extremely small real wage/salary gain in April-June of this year.
The real "concern" in these reports is not inflation. It is that capital's profit margin is beginning to shrink. Well after the years and years of record profit gains under Bush, let me cry you a river.