It is the economy, dammit!

For what it is worth, I'll put my spin on this within the article.

Productivity slows, wage pressures mount
By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - The productivity of American workers slowed to a standstill in the summer, while wages were rising at the fastest clip in more than two decades — a combination likely to raise inflation concerns at the Federal Reserve.

The Labor Department reported Thursday that productivity, the amount of output per hour of work, showed no change in the July-September quarter, while labor costs rose by 3.8 percent. For the past year, wages and other labor costs are up by 5.3 percent, the fastest increase since 1982.

While rising wages and benefits are good news for workers, they raise concerns about inflation especially at a time when productivity is slowing. If companies decide to pass on their higher payroll costs by boosting the price of their products, that could translate into increased inflation.

The above ‘news' is the problem with reporting averages without analysis of how those averages are created. see below.

In other economic news, orders to factories for manufactured products rose by 2.1 percent in September, the biggest increase in six months, but virtually all of the strength came in a surge in orders for commercial aircraft. The Commerce Department said that orders for long-lasting durable goods were up 8.3 percent, offsetting a 4.6 percent drop in demand for food, gasoline and other nondurable products.

I think this is the key to the perceived problem: I was already aware of the huge aircraft sales by the Boeing company months ago. The fact is that without those sales, the GDP would be very negative - not positive. Of curse, that seems to make the problem even worse.

However, Boeing workers and the workers of Boeing's suppliers all enjoy significantly higher pay multiples than the wages of for example the dying building trades and most certainly immensely more than people plodding along in the retail industry - especially the Wal-Marts and K-Marts.

The end result is that you have a spurt of very high paying jobs and a corresponding loss of medium and low paying jobs. The end result is high incomes coupled with higher unemployment. I don't see the segregated high incomes having much to do with inflation, however, because the incomes are not coming from the production of consumer products. For example, I'd be surprised if the Fed raises interest rates anytime soon - despite some inflation caused by gas prices which have lowered, but not returned to pre-Katrina levels.

Read on to see what I mean.

The increase in durable goods, which was revised up from an initial estimate last week of a 7.8 percent gain, reflecting a huge 189.7 percent surge in demand for commercial aircraft. Excluding airplanes and other transportation products, factory orders would have fallen by 2.4 percent. The drop in nondurable goods was attributed in part to lower prices for petroleum products.

In a third report, the number of newly laid off workers filing claims for unemployment benefits unexpectedly shot up last week to the highest level in more than three months. A total of 327,000 fired employees filed benefit claims, up by 18,000 from the previous week.

The Labor Department said that the total number of jobless claims, which are adjusted for normal seasonal variations, was the highest since early July, raising concerns about whether the slowing economy is finally beginning to push companies to lay off workers.

Meanwhile, reports from the nation's largest retailers indicate that consumers may have taken a breather in October after going on a shopping spree in September. But analysts said significant declines in gasoline prices should boost retail sales in the upcoming holiday season as consumers will have more to spend on other items.

Not if they don't have jobs! Workers ARE the consumers - certainly not those of us who are economically comfortable. Our money goes in a tin can burried in the back yard.

Merchants beating expectations for October included Limited Brands Inc. and Bebe Stores Inc., while retailers reporting disappointing results included Costco Wholesale Corp.

The flat productivity reading in the third quarter was the poorest showing since a 0.1 percent decline in productivity in the final three months of last year. Over the past four quarters, productivity has risen by 1.3 percent, the weakest showing since a 1.1 percent rise in early 1997.

The 3.8 percent rise in the cost of labor per unit of output followed even bigger gains of 9 percent in the first quarter and 5.4 percent in the second quarter. Those increases pushed labor costs up by 5.3 percent for the year ending in September, the biggest gain since late 1982.

The Federal Reserve raised interest rates 17 consecutive times in an effort to slow the economy enough to bring inflation pressures under control. The Fed has left rates unchanged for three straight meetings, hoping that it has done enough to slow economic growth.

However, the significant slowing in productivity growth and the continued rise in wage pressures, if not reversed in coming quarters, could prompt the Fed to resume raising interest rates to fight inflation.

Since 1995, the country has enjoyed a decade of strong gains in productivity, which is the primary ingredient needed to lift living standards. Increased output means that companies can pay their workers more without having to raise the cost of their products — increases that push inflation higher.

The argument here is based upon economic generalizations based upon skewed averages. And I think the above assumption is thus wrong despite the textbook logic. One wonders why the present atypical economy is not obvious to these commentators when they report high unemployment at the same time they report high labor costs - it can't be simply the fact that an average CEO receives a 20% annual raise - at the expense of stockholders.

The concern is that with productivity gains slowing over the past year and the cost of labor rising, these trends could make the Fed's job of keeping inflation under control more difficult.

The rise of 18,000 in the level of jobless claims was far above the 2,000 increase that analysts had been expecting. So far, the slowing economy has prompted companies to trim their plans to hire new workers, but they have resisted laying off current employees. However, the severity of the slowdown could be prompting them to start laying off existing workers.

This is already evident in the building trades and their suppliers nationally.

The government will report on the October jobs picture on Friday. The expectation is that unemployment will remain at a low of 4.6 percent and hiring will rebound to 125,000 new jobs, up significantly from the anemic 51,000 new jobs created in September.

I think they're whistlin' in the dark, here, but we'll see!