Looking At U.S. Unit Labor Costs

A Benjamin Cole post

From the fourth quarter of 2008 to the fourth quarter of 2014 (the last measure), unit labor costs in the United States have increased by 1.39%.

No, that is not annually compounded. That is it. In six years, unit labor costs have barely budged, while the monetary myrmidons moaned inflation every moment.

Yet, the St. Louis Fed informs us the nonfarm business unit labor cost index hiked from 103.479 to 104.913 in that time frame (no, I do not know why the St. Louis Fed publishes indices three places past the decimal point).

But is that six-year period a “cherry pick”? After all, it marks the worst recession in postwar history.

Okay, let go back a full 10 years. In that period, unit labor costs have increased by 11.4%, or a little more than 1% annually compounded.

Egads. Unit labor costs are dead. They are not contributing to overall price inflation, which is nearly dead.

The Fed

Yet we have Fed Chair Janet Yellen telling the world that the Fed is “highly accommodative.” We have pundits—and some FOMC members—in sweat-drenched hysterics about inflation or even hyperinflation.

The quiet observer must conclude monetary policy makes no sense.

By the lights of many, monetary policy was way too loose thus prompting the 2008 real estate boom-bust, and has been way-way too loose ever since. For a decade, monetary policy has been ultra-loose, hyper-accommodative—and yet unit labor costs are nearly dead flat for 10 years.

Judging from results, I guess the U.S. needs to go to a “ginormous super-duper king-size loose, XXXL” monetary growth model.

Long-term, the “hyper-accommodative” monetary stance is just too tight.

Well, judging from results. Maybe we should judge by a theory instead.

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