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Productivity Matters

August 11, 2009 – 8:22 am

The Fed is having its two day meeting this week as economic statistics keep coming while earnings reports drop off sharply. There will be no change in the Fed’s interest rate policy, but of course everyone will be studying what the chairman says rather than what the Fed does.

This morning productivity numbers for the most recent quarter were released and the increase was better than expected at 6.4%. The experts were predicting a rise of 5.5%. Productivity always goes up sharply coming out of a recession as employers are still in the middle of their cost cutting while business starts to pick up. Obviously, when productivity rises inflation is contained. Unit labor costs fell which is one of the reasons productivity rose. Hourly compensation for the quarter went up a fraction but once you factor in inflation real labor costs shrank.

This is good news for the economy. It will not take much in the way of sales increases to bring profits to the bottom line. We need profits to increase for the stock market to go higher so productivity matters greatly.

Good Trading
Steve Peasley

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