Thursday, February 03, 2011

Inflation Scare Of The Day

From Dow Jones Newswires today:

*DJ US 4Q Unit Labor Costs -0.6%; Consensus +0.1%
Well, there are risks of honest hedonics in statistics ...

Some additional explanations, from Global Data Watch Handbook by J.P.Morgan:
... Unit labor cost is equal to total labor costs (wages and benefits) divided by total output. (Or, equivalently, labor cost per hour divided by output per hour.) Consequently, unit labor cost depends on both productivity and compensation: the rate of increase in unit labor cost is approximately the rate of increase in compensation minus the rate of increase in productivity. For instance, if labor cost inflation is 4% and productivity growth is 1%, unit labor cost inflation is 3%.

Productivity growth outpaces compensation ... errr.

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