A revised Labor Department report on worker productivity and earnings suggests that rising labor costs may not be spurring inflation as much as some economists have thought.þþWhile the new figures are likely to ease concerns about inflation, they showed that workers made considerably less than was first estimated. þþThe report, issued yesterday, said that unit labor costs, a measure of what workers earn that takes into account their productivity, rose 2.3 percent in the third quarter, rather than the 3.8 percent first estimated last month.þþRevisions for the second quarter of 2006 showed a larger difference. Unit labor costs actually fell by 2.4 percent; an earlier report estimated that they had risen 5.4 percent.þþWorker productivity, which the Labor Department initially calculated to be flat, increased 0.2 percent in the third quarter. That increase was still far less than the productivity gains seen in the first half of the year.þþStrong productivity growth helps offset growing labor costs, and in that sense, some economists suggested that the small increase in productivity growth was troublesome.þþPolicy makers at the Federal Reserve, including its chairman, Ben S. Bernanke, have said recently that inflation could increase if employers passed along higher labor costs to consumers. Mr. Bernanke said last week that the Fed would be more inclined to raise interest rates if it saw evidence of that happening.þþIn a research report yesterday, Stuart Hoffman, chief economist with PNC Financial, wrote, “With energy and commodity prices having receded from their peaks, labor costs now represent the most significant source of potential inflation pressures for the U.S. economy.” þþYesterday’s data, he added, “should bring a major measure of relief” to Fed officials.þþNariman Behravesh, chief economist with Global Insight, wrote, “Based on these numbers, the Fed can rest easier about the threat of inflation.” þþMr. Behravesh is one of many economists who predicts that the Fed will cut short-term interest rates next year to bolster growth and prevent the economy from slowing too much. “The only debate now seems to be about when the Fed will cut,” he said. “If the data continue to show weakness in the real economy with no inflation, the Fed could cut as early as March, but no later than May.”þþTwo other reports released yesterday sent mixed signals about the health, and therefore the outlook, for the economy. New orders for manufactured goods in October fell by $19.3 billion, or 4.7 percent, to $390.3 billion, the largest decrease in more than six years, the Commerce Department reported, a sign that businesses were holding back spending. þþBut a gauge of nonmanufacturing activity showed an increase in November. The Institute for Supply Management’s service industry index rose to a score of 58.9 from 57.1 in October, the highest level since May, on growth in businesses like retailing, health care and housing leasing and rental.þþ
Source: NY Times
