Thursday, May 3, 2007
What if tonight Dow closed in negative territorry..?
What if the Dow Jones Index closed at negative territory tonight after a series of pro-long result from the productivity growth....( but in a slower trend ) ???
U.S. Economy: Productivity Growth Exceeds Forecasts
U.S. productivity growth was greater than forecast last quarter and labor costs moderated, easing concern that a tight job market will fuel inflation. Productivity, a measure of how much an employee produces for each hour of work, rose at an annual rate of 1.7 percent, the Labor Department said today in Washington, more than twice the pace projected by economists. The price of labor rose 0.6 percent pace after jumping 6.2 percent in the prior three months.
Employers responded to a slowdown in economic growth by shortening the workweek, squeezing out a gain in productivity. The slowdown in labor costs may ease concern companies will have to increase prices and gives credence to the Federal Reserve's forecast that inflation will gradually retreat.
Productivity growth is still slowing. In the fourth quarter, the gain was 2.1 percent. In the 12 months ended in March, productivity rose 1.1 percent, down from a 1.6 percent year-over-year gain the previous quarter. A separate report from the Institute for Supply Management showed service industries expanded faster than anticipated last month. Additional Labor Department numbers showed that the number of people filing claims for unemployment benefits fell to a three-month low of 305,000 last week.
Productivity grew just 1.6 percent last year after expanding 2.1 percent in 2005. Efficiency rose an average 3.2 percent per year from 2000 through 2005. This is ``the reason why the Fed is worried about inflation,'' Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. Lower productivity ``means unit labor costs are facing more upward pressure and perhaps a little inflationary bias. The Fed is going to be sitting on its hands for a while.'' San Francisco Fed President Janet Yellen said last week that she was concerned the long-term trend in productivity growth may have dropped to a range of 2 percent to 2.5 percent. ``A lower trend rate of productivity growth would help explain the sluggishness in business investment and put upward pressure on inflation for a time,'' Yellen said. Fed policy makers are scheduled to next vote on the direction of interest rates on May 9. They held the benchmark overnight lending rate between banks at 5.25 percent for a sixth consecutive time at their last meeting on March 21.