For Immediate Release
Chicago, IL – September 3, 2010 – Zacks.com Analyst Blog features: Wal-Mart (WMT), Big Lots (BIG), Ford (F), Whirlpool (WHR), Altria (MO) and Heinz (HNZ).
Here are highlights from Thursday’s Analyst Blog:
Initial and Total Jobless Claims Fall
Clearly it is not good to have so many people unemployed, but it is better that people are getting benefits rather than being left with no income at all. Unemployment generally (it varies a bit by state) pays 60% of what people were earning before they got laid off, up to a cap of about $400 per week, or $21,000 per year. If we assume that the average benefit is $300 per week, then it means that $2.6 billion a month more is being pumped into the economy. It is going to people who will spend that money right away.
That means more business for Wal-Mart (WMT) and Big Lots (BIG). It means that these people are able to continue paying their mortgage or rent and don’t become homeless. It means that their electricity is not shut off. It means that they still can have an internet connection from which they can continue looking for work.
It is not just the humanitarian benefit of making sure that our fellow citizens do not slip into third world style poverty, it is that the money gets pumped into the economy and as it is, it keeps other people working. It is for that reason that the non-partisan CBO has found that extended unemployment benefits is among the most effective programs around at stimulating the economy on a job saved per dollar spent basis. Moody’s Analytics has come to similar conclusions.
2Q Productivity Falls 1.8%
Non-Farm Business Productivity in the second quarter was revised down to a decline of 1.8% from the previous estimate of a 0.9% drop (seasonally adjusted annual rate). This is a very significant slowdown from the 3.9% rate in the first quarter. That, in turn, was down from a 6.0% growth rate in the fourth quarter.
In fact, the rate of productivity growth has slowed in each quarter since the second quarter of 2009, when it was running at 8.4%. The string of increases from the second quarter of 2009 through the first quarter of 2010 had resulted in the highest rate of productivity growth in over 50 years.
The decline in productivity appears to be coming all from the service side of the economy, which is not measured directly. However, the numbers are presented for manufacturing. Manufacturing productivity actually accelerated to 4.1% growth from 1.6% growth in the first quarter. While that was revised down from the initial read of 4.6% growth it is still pretty impressive, especially in the context of overall productivity falling at a 1.8% rate.
Durable Goods Productivity Increasing
The increase in productivity has been particularly impressive in the Durable Goods side of manufacturing. Companies like Ford (F) and Whirlpool (WHR) were able to increase output in the second quarter by 13.6% but were able to do so with only a 3.4% increase in hours worked. That resulted in a 9.9% increase in productivity.
While the durable goods productivity was revised down from the previous estimate of 11.2% growth, it is still a very impressive showing, and far better than the 2.4% increase in durable goods manufacturing productivity in the first quarter. The acceleration in productivity came from both an acceleration in output — it climbed at an annual rate of 13.6% in the second quarter, up from an already impressive 9.3% gain in the first quarter. It also came because they were able to generate that gain in output with only a 3.4% increase in hours worked (a.k.a. employment) rather than the 6.8% increase in employment (annual rate) in the first quarter.
Relative to the first read, output was revised down from 14.1% growth while hours worked were revised up from 2.7% growth. Year over year, durable goods manufacturing productivity is up at a staggering 11.4% rate.
Non-Durables Not So Good
The news was not nearly as good on the non-durable goods manufacturing side, which is about twice the size of the durable goods side as a share of the economy and employment. Firms like Altria (MO) and Heinz (HNZ) were able to increase output in the second quarter by 2.8%, which was actually revised up from a 2.2% increase in the first read on the numbers. However, it took a 5.3% increase in hours (revised from 5.1%) worked to generate that increase.
As a result, non-durable manufacturing productivity growth fell at an annual pace of 2.4% in the second quarter, although that is better than the 2.8% decline in the original report. It is down from the first quarter productivity growth of 1.4% on a 4.6% increase in output and a 3.1% increase in hours. Year over year, non-durable manufacturing growth is 3.2% on a 4.5% increase in output and a 1.2% increase in hours worked.
Importance of Productivity Growth
Over the long term, productivity growth is probably the single most important economic statistic there is. It is productivity growth that governs the rise in GDP per capita. GDP per capita is the best shorthand measure around for determining how wealthy a country is (yes, I know that there are serious flaws with GDP as the be-all and end-all of economic happiness, but for a single number it does a pretty good job). After all, the GDP of China under Mao was significantly larger than the GDP of Sweden at the time, but nobody (other than perhaps some extremely delusional Marxists) thought that the Chinese were better off that the time economically than were the Swedes.
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