Productivity And Costs

Key Takeaways

• Productivity and costs data predict inflation trends affecting wages and economic growth.
• High productivity can lead to higher profits and reduce inflation pressures.
• The Productivity and Costs Report is published quarterly by the Bureau of Labor Statistics.
• Productivity impacts both bond and equity markets by influencing corporate profits and inflation.
• Strong productivity gains have historically contributed to economic expansion and increased incomes.
• Get personalized, AI-powered answers built on 27+ years of trusted expertise.
• Productivity and costs are a data set used to measure future inflationary trends using labor efficiency and unit labor costs. High productivity can boost corporate profit levels and suppress inflationary pressures. The Productivity and Costs Report, released quarterly by the Bureau of Labor Statistics, offers in-depth data on labor efficiency. Productivity growth is key to economic expansion, as it contributes to higher real income and profitability without raising inflation.

The Influence of Productivity and Costs on Financial Markets

Both the bond and equity markets seem to be affected in the same direction by productivity data. Because a more efficient workforce can lead to higher corporate profits, equity markets enjoy seeing good productivity growth. The bond markets, which benefit from a low inflationary situation, also prefer to see high productivity due to their role in keeping inflationary pressures down.

As productivity growth occurs, inflation is stemmed because the economy can sustain higher growth than could be possible with inefficiencies in the labor markets.

Decoding the Quarterly Productivity and Costs Report

The Productivity and Costs Report is released quarterly by the Bureau of Labor Statistics (BLS). It measures output achieved by businesses per unit of labor. In this context, output is measured by using previously released gross domestic product (GDP) figures; input is measured in hours worked and the associated costs of that labor. The unit labor costs that are provided take into account more detail than is provided in the earlier labor reports, including the effects of employee benefit plans, stock options expensing, and taxes.

Changes in percentage, presented in annualized rates, are the key figures released with this report. Separate productivity rates are released for the business sector, non-farm business sector, and manufacturing. Manufacturing is kept separate because, unlike the rest of the data, total volume output is used instead of GDP figures. Moreover, manufacturing also shows the highest volatility of any of the industry groups.

Productivity figures are provided across the economy as a whole, as well as for major industry groups and sub-sectors—it is a very thorough and detailed release, which is the main reason for the long time lag between period end and data release. The BLS will begin with total GDP figures, then remove government production and non-profit contributions to arrive at a GDP component that represents just "corporate America."

The Economic Significance of the Productivity and Costs Report

Strong productivity gains have been one of the main reasons that the U.S. economy has expanded for the past 25 years. Productivity gains have historically led to gains in real income, lower inflation and increased corporate profitability. A company that is increasing output with the same number of hours worked will likely be more profitable, which means that it can raise wages without passing that cost on to customers. This, in turn, keeps inflation pressures down while adding to GDP growth.