The Report Everyone Forgot About

Has anyone at the Fed, or in the frantic crowd of inflation-hysterics, read these BLS reports? Here is the statistical institution’ take-away:  “Unit labor costs in nonfarm businesses decreased 1.6 percent in the fourth quarter of 2013, as the 3.2 percent increase in productivity was larger than a 1.5 percent increase in hourly compensation. Unit labor costs fell 1.3 percent over the last four quarters. “

I have been scrolling around the Internet trying to get a handle on what fraction labor is of total business costs. My memory was that 40 years ago it was about 60 to 80 percent, and that seems to be right today, although I could not find a definitive source, if there is one.

Suffice it to say it would be a strange world in which we had sustained inflation, but sustained deflation in labor costs. According to the St. Louis Fed, unit labor costs are up 1.7 percent since the first quarter…of 2007. (data)

Now six years does not a lifetime make, but we are talking about a nation in which labor costs have been dead in the water for six years, and are now sinking.

Has anyone at the Fed, or in the frantic crowd of inflation-hysterics, read these BLS reports?

What would it take for the Fed to announce they are well undershooting their inflation targets, that we have deflation in unit labor costs—so prospects for higher inflation are shrinking—but corrective action is planned?

Despite ‘forward guidance,” I think the market and economy have correctly read between the lines: The Fed is not targeting 2 percent inflation. They may be targeting 1 percent inflation. Or if FOMC members Richard Fisher and Charles Plosser have their way, zero percent inflation (as measured).

And so the glacial recovery continues….