See Item #1. It is my impression that productivity is strongly procyclical, and thus an unreliable measure, at least in many of the purposes for which it is used. Does anyone have specific information on this? Dave ---------- BLS DAILY REPORT, TUESDAY, FEBRUARY 11, 1997 RELEASED TODAY: BLS reported preliminary productivity data -- as measured by output per hour of all persons -- for the fourth quarter and for the full year 1996. In the fourth quarter, productivity advanced 2.4 percent in the business sector as output grew 5.8 percent and hours worked rose less -- 3.4 percent (seasonally adjusted annual rates). In the nonfarm business sector, productivity rose 2.2 percent as output increased 5.9 percent and hours grew 3.7 percent .... The U.S. economy will remain on a moderate-growth path with low inflation, buoyed by consumer spending that is supported by high income growth and consumer confidence, the Economic Report of the President said ....(Daily Labor Report, page A-9)_____The CEA in its annual report to Congress lauded the nation's current combination of low unemployment and low inflation and said that it could continue more or less indefinitely. If the council's analysis is correct, it would mean that the Fed might be able to leave short-term interest rates at their current level for a long time to come, barring some sort of outside shock to the economy ....The key point, the CEA said, is that the unemployment rate associated with a stable inflation rate ... has come down substantially since the 1980s ....(Washington Post, page D1)_____The report contends that the gap between rich and poor in America appears to have stopped widening and may have reversed ....While other reports in the last year, from the Census Bureau and the University of Michigan, have shown a widening disparity between rich and poor Americans, the council found that the poorest 20 percent of households had the biggest income gains of any of the five percentiles between 1993 and 1995 ....Still, the council cautioned that the latest figures might prove to be only a pause rather than the start of a trend ....(New York Times, page D1)_____In its report, the CEA says a plan to put Social Security funds in the stock market "raises concerns about risk" no matter whether the government or individuals are doing the investing ....(Wall Street Journal, page A2)_____A little inflation can be a good thing, the annual report says in an argument that appears aimed at discouraging Fed policymakers from raising interest rates ....(Washington Times, page B10). Obsolete industrial categories are revamped in the U.S. government's recently completed overhaul of the Standard Industrial Classification (SIC) code. An effort to put a $6 trillion economy into a series of orderly boxes, the SIC codes are put to a wide range of uses, from the compilation of key national economic statistics to determining regulatory burdens and tax rates ....The two-year revision was done for two primary reasons, said Jack Triplett, former chief economist for BEA and head of the three-nation committee that designed and approved the changes. The first and most obvious reason was the age and relative uselessness of the old code ....The second reason behind the revision was to match the U.S. code with those in Canada and Mexico in order to meet guidelines outlined in NAFTA. As a result, the new code is called the North American Industry Classification System ((NAICS) The caption for a chart in Business Week (Feb. 10, page 6) says there's a long-running dispute over whether productivity growth is anemic or the government's measures are flawed. So economist Edward Yardeni looked at a proxy for productivity, the inflation-adjusted growth of sales per employee at companies in the Standard & Poor's 500 index. By that measure, productivity is booming. Trouble ahead in the battle to contain labor costs -- companies can no longer rein in benefits to offset pay raises, says an article in Business Week (Feb. 10, page 29) ....If wages climb, so will benefits. That's because about 60 percent of all benefits -- including paid leave, overtime pay, defined contributions to pension plans, and social security payments -- are tied to wages. In fact, every dollar increase in hourly pay lifts the bill for these benefits alone by about a quarter. Moreover, the tab for health care is beginning to outpace overall benefits growth. According to a survey by benefit consultant Foster Higgins Inc., health-care costs may rise 4 percent in 1997, after a 2.5 percent increase in 1995. In the past, businesses cut health-care costs by switching to health-maintenance organizations ....But with the market now saturated, HMOs will have a harder time attracting new customers. So, premiums for existing members will start to rise, says the article .... The Advisory Council on Social Security's consensus that a deficit is inevitable rests on gloomy growth assumptions about population and labor force growth that aren't shared by other government forecasters, says Business Week (Feb. 10, page 92) ....The projections used by the council are based on calculations by the Social Security Board of Trustees, a government oversight body ....They're also difficult to square with historical trends, says the article. Howard Fullerton, described by Business Week as an economist in charge of long-range forecasting at BLS, is quoted as saying, "The trustees are paid to be pessimistic, but the effect is to make people believe that Social Security isn't viable" ....Of course no one can forecast 75 years out, and the trustees may well turn out to be right ....Fullerton thinks labor force growth won't sink as dramatically as the trustees foresee .... DUE OUT TOMORROW: Major Work Stoppages, 1996
