Recovery Slows, Productivity Plateaus
- Aug 11, 2010
By Dees Stribling, Contributing Editor
“Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months,” the FOMC said to open its statement last week. That sounds like the FOMC has been reading the newspapers–or rather, scanning various web sites, to put it in a 2010 context.
But it’s actually pretty strong Fed-speak language. It’s also a change in thinking from only two months ago, when the FOMC said that the “economic recovery is proceeding.”
In other moves, the committee announced an adjustment in its balance sheet policy, which seems to have been a surprise. It will take the proceeds from the large amount of mortgage-backed securities it owns and reinvest them in Treasuries, especially those with long maturities, which probably means that the central bank wants to keep long-term interest rates down.
U.S. Worker Productivity Plateaus
What do you do when you’re afraid to hire more workers, considering the dodgy state of economy, but you’d still like a healthy bottom line for your business? Squeeze more productivity out of the workers you still employ, counting on the fact that they’ll work more for the same money, since that’s better than no work and no money.
There’s some indication that this strategy is reaching its natural limit, since productivity expansion is not infinite. According a report released Tuesday by the Bureau of Labor Statistics, nonfarm business sector labor productivity decreased at an annualized rate of 0.9 percent during the second quarter of 2010. On the other hand, total hours worked rose 3.6 percent during the same period.
Possibly employees are quietly not working quite as much as they could–a break after five quarters of brisk productivity growth, or maybe a sign of dissatisfaction with the squeeze. Not every worker is going to jump out of an airplane onto the tarmac out of frustration, but many of them probably want to.
Walmart Becomes a Deflation Fighter
Deflation? What deflation? According to a study by J.P. Morgan of 31 items at Walmart supercenters in northern Virginia, grocery prices at the retail giant rose 5.8 percent between June and July (and what is a bank doing studying grocery prices?). But in some ways, the price adjustments only seemed like large jumps: Walmart lowered the prices on many of its grocery items in the spring to compete with the dollar-store segment, and now the retailer is bringing them up again. Rollbacks only last so long.
Walmart, remarkably enough, has been hurting lately, though the pain is probably more like a paper cut than a serious wound. For its latest fiscal quarter ended April 30, the company saw U.S. same-stores sales down 1.1 percent compared with the same period last year.
Wall Street had a down day on Tuesday after the FOMC met, with the Dow Jones Industrial Average losing 54.5 points, or 0.51 percent. The S&P 500 declined 0.6 percent and the Nasdaq lost 1.24 percent.