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Jun 4th, 2008, 12:45 pm
You wouldn’t know it by looking at the early morning stock market numbers, but the encouraging news from the U.S. Labor Dept. that worker productivity increased at a faster-than-expected pace, should help technology stocks down the road.
It’s kind of complicated but the skinny is this. In the first three months of 2008, worker productivity rose, while wage pressures declined. So companies are getting a better bang for their buck, so to speak.
The Labor department had expected productivity to rise by 2.2% for the period, but it rose at a rate of 2.6% for the January-through-March timeframe. Labor costs, which rose 4.7% in the last three months of 2007, rose by only 2.2% at a measure annual rate for the first three months of 2008.
When wages are on the rise, that’s obviously good news for employees. But if they’re stagnant, or falling, as they seem to be now, then inflation isn’t as big an issue. With rising wages, companies are usually forced to hike the cost of their products or services to keep their financial ledgers in the black.
For technology companies, that means they can funnel more money into research and development, marketing, sales, or online content development – in short, any area a tech outfit thinks it needs shoring up.
Inflation is always the variable with productivity and wages. The Federal Reserve has long maintained that its primary goal is to keep inflation in check. One of the key benchmarks it uses in measuring inflation is wage pressures. Why? Because rampant payroll hikes are one of the biggest triggers (if not the biggest) indicators of inflation. As I said, once payrolls go up, so do prices, and so does the cost of living. We’ve been seeing some of that in 2008, with food and energy prices rising to keep up with both wage pressures (remember that 4.7% hike in the last few months of 2007) and to keep up with increased consumer demand.
But with wages lower, and productivity up, inflation isn’t as big a deal. That’s why U.S. technology companies, along with the Fed, can exhale for a little while, at least.
The Associate Press cites Nigel Gault, chief economist with Global Insight, to back that point up. "There is plenty to worry about on the inflation front. Soaring prices for energy, food and other commodities are pushing up input costs for companies and raising the cost of living for consumers, but labor costs remain subdued," said Gault.
But Gault and other analysts tell the AP that the news on productivity and labor costs should be welcomed by the Fed, which has started to worry more about inflation pressures in the face of the relentless surge in energy and food costs.
So, where does all this leave us? Using the telecom sector as a peg, the productivity/wage numbers seem to be a balm for the industry. Both Verizon and Qwest are trading up this morning, although AT&T didn’t get my memo about the “plan” – it’s down 15 cents in Wednesday morning trading.
Still, keep an eye on the telecom sector this week, if not the entire tech sector. If history is any guide, lower payrolls and higher productivity usually translates into higher stock prices.
It’s kind of complicated but the skinny is this. In the first three months of 2008, worker productivity rose, while wage pressures declined. So companies are getting a better bang for their buck, so to speak.
The Labor department had expected productivity to rise by 2.2% for the period, but it rose at a rate of 2.6% for the January-through-March timeframe. Labor costs, which rose 4.7% in the last three months of 2007, rose by only 2.2% at a measure annual rate for the first three months of 2008.
When wages are on the rise, that’s obviously good news for employees. But if they’re stagnant, or falling, as they seem to be now, then inflation isn’t as big an issue. With rising wages, companies are usually forced to hike the cost of their products or services to keep their financial ledgers in the black.
For technology companies, that means they can funnel more money into research and development, marketing, sales, or online content development – in short, any area a tech outfit thinks it needs shoring up.
Inflation is always the variable with productivity and wages. The Federal Reserve has long maintained that its primary goal is to keep inflation in check. One of the key benchmarks it uses in measuring inflation is wage pressures. Why? Because rampant payroll hikes are one of the biggest triggers (if not the biggest) indicators of inflation. As I said, once payrolls go up, so do prices, and so does the cost of living. We’ve been seeing some of that in 2008, with food and energy prices rising to keep up with both wage pressures (remember that 4.7% hike in the last few months of 2007) and to keep up with increased consumer demand.
But with wages lower, and productivity up, inflation isn’t as big a deal. That’s why U.S. technology companies, along with the Fed, can exhale for a little while, at least.
The Associate Press cites Nigel Gault, chief economist with Global Insight, to back that point up. "There is plenty to worry about on the inflation front. Soaring prices for energy, food and other commodities are pushing up input costs for companies and raising the cost of living for consumers, but labor costs remain subdued," said Gault.
But Gault and other analysts tell the AP that the news on productivity and labor costs should be welcomed by the Fed, which has started to worry more about inflation pressures in the face of the relentless surge in energy and food costs.
So, where does all this leave us? Using the telecom sector as a peg, the productivity/wage numbers seem to be a balm for the industry. Both Verizon and Qwest are trading up this morning, although AT&T didn’t get my memo about the “plan” – it’s down 15 cents in Wednesday morning trading.
Still, keep an eye on the telecom sector this week, if not the entire tech sector. If history is any guide, lower payrolls and higher productivity usually translates into higher stock prices.
This blog entry was written by Brian.oco. It has been filed under the Internet Marketing category. It has received 467 views, 0 comment(s), and 0 linkbacks.
