This just collapsed to the lowest level in history.
August 9 (King World News) – Peter Boockvar: While old news but with Q3 shaping up to be no better, productivity in Q2 fell 4.6% q/o/q annualized after a 7.4% drop in Q1.
Productivity Collapsed To Lowest Level In History
As I like to look at this figure y/o/y, it was down 2.5% after a .6% drop in Q1 and that is the worst quarterly y/o/y figure since I have data going back to 1948.
Coincident with this was the 9.5% y/o/y rise in unit labor costs after an 8.2% rise in Q1 and that is the highest since 1982.
Labor Cost Spikes 9.5%, Highest Since 1982
Bottom Line: Profits Squeeze
Bottom line, as investors this data point will be most relevant for corporate profit margins and thus earnings and if this trend continues, it is the earnings risk that will be the main new worry and less so Fed policy. You tell me where labor costs go and I’ll tell you where profit margins go. I’ve hijacked a chart from a John Hussman piece he wrote in February that shows unit labor costs and profit margins to show the visual of the tight relationship where they move inversely but the chart inverts the left side for emphasis.
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