Productivity Report

By Ryan Barnes

Release Date:	Approximately five weeks after previous quarter's end
Release Time:	8:30am Eastern Standard Time
Coverage:	Quarterly; revisions about eight weeks after quarter's end
Released By:	Bureau of Labor Statistics (BLS)
Latest Release:	http://www.bls.gov/news.release/prod2.toc.htm

Background
The Productivity and Costs Report is a quarterly release from the Bureau of Labor Statistics (BLS) that measures the level of output that is achieved by businesses per unit of labor. In this context, output is measured by using previously-released gross domestic product (GDP) figures; input is measured in hours worked and the associated costs of that labor. The unit labor costs that are provided take into account more detail than is provided in the earlier labor reports, including the effects of employee benefit plans, stock options expensing and taxes.

Percentage changes, presented in annualized rates, are the key figures released with this report. Separate productivity rates are released for the business sector, non-farm business sector and manufacturing. Manufacturing is kept separate because unlike the rest of the data, total volume output is used instead of GDP figures, and it also shows the highest volatility of any of the industry groups.

Productivity figures are provided across the economy as a whole, as well as for major industry groups and sub-sectors - it is a very thorough and detailed release, which is the main reason for the long time lag between period end and data release. The BLS will begin with total GDP figures, then remove government production and non-profit contributions to arrive at a GDP component that represents just "corporate America".

What It Means to Investors
Increased productivity is the ability of a company to achieve more output with the same workforce level. Strong productivity gains have been one of the most important reasons that the U.S. economy has expanded for the past 25 years. Productivity gains have historically led to gains in real income, lower inflation and increased corporate profitability. A company that is increasing output with the same number of hours worked will likely be more profitable, which means that it can raise wages without passing that cost on to customers, which keeps inflation pressures down, while adding to GDP growth.

The productivity report does not give investors any new data sets; its value is in the calculations and derivations the BLS computes on previously-released data.

Productivity is not labeled as a leading, lagging, or coincident indicator, as the figures are derived from the components of previous indicators, including GDP, the Consumer Price Index (CPI) and the employment cost reports.

The release will rarely be a big mover of the markets; GDP and labor reports will have already been released, and gains in GDP tend to be a fairly accurate indicator of productivity gains. The revised Productivity & Cost Report (released about one month after the initial release) will often show a marked change from the initial release, as any revisions to the GDP or labor reports will change the function used to calculate productivity.


Productivity rates are volatile, not only quarter to quarter, but also within the various stages of the business cycle. A big challenge for economists and investors is separating out short-term changes in productivity due to cyclical factors from the independent long-term rate of productivity.

Strengths:

• Presents the results of many complex calculations that are difficult for investors to compute on their own
• Productivity gives good insight into inflationary pressures, and how much GDP can grow without causing concurrent gains in inflation.
• Jumps in productivity tend to make their way to corporate bottom lines quickly via margin expansion.
• Release shows results with and without the effects of inflation
• Detailed productivity measures at the industry and sector level allow investors to analyze the relative productivity performance of many of their holdings.
• One of very few indicators that shows results compared to other advanced economies; shows how the U.S. stacks up against the world in terms of productivity gains.
• Productivity results represent the lion's share of total GDP (about 75%); only government results and nonprofit groups are removed from calculations.

Weaknesses:

• Not a timely indicator; first report comes five weeks after the quarter, and the revised report nearly two months
• No new series of data is released, only derivations of previous data sets
• Can be very volatile quarter to quarter; long-term measurements are the most effective use of this indicator when analyzing sustainable, long-term rates of productivity growth

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