What is 'Productivity And Costs '

Productivity and costs refer to an economic data set that measures future inflationary trends with two indicators. Productivity is the indicator that measures labor efficiency in producing goods and services in the U.S. economy. Costs is the indicator that measures the unit labor costs of producing each unit of output in the U.S. economy. Together, productivity and costs monitors inflationary trends in wages, which usually affect trends of inflation in other areas.

BREAKING DOWN 'Productivity And Costs '

Both the bond and equity markets seem to be affected in the same direction by productivity data. Because a more efficient workforce can lead to higher corporate profits, equity markets enjoy seeing good productivity growth. The bond markets, which enjoy a low inflationary situation, also prefer to see high productivity due to its role in keeping inflationary pressures low. As productivity growth occurs, inflation is stemmed, because the economy can sustain higher growth than could be possible with inefficiencies in the labor markets.

The Productivity and Costs Report

The Productivity and Costs Report is released quarterly by the Bureau of Labor Statistics (BLS). It measures output 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.

Changes in percentage, 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."

Importance of the Productivity and Costs Report

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.

RELATED TERMS
  1. Labor Productivity

    Labor productivity is a term for the output of a country's economy ...
  2. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services ...
  3. Demand For Labor

    The demand for labor describes the amount and market wage rate ...
  4. Cost of Labor

    The cost of labor is the total of all employee wages plus the ...
  5. Real Gross Domestic Product (GDP)

    Real gross domestic product is an inflation-adjusted measure ...
  6. Output Gap

    An output gap is an economic measure of the difference between ...
Related Articles
  1. Insights

    One Reason Jobs Shrink: Superstar Companies

    Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
  2. Insights

    The GDP and its Importance

    GDP is an accurate indication of an economy's size. Few data points can match the GDP and its growth rate's conciseness.
  3. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  4. Insights

    Why GDP Is Not an Accurate Measure of the Economy

    Is gross domestic product (GDP) an accurate measure of the strength or weakness of the U.S. economy?
  5. Insights

    Deadly Flaws in Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect.
  6. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  7. Insights

    The Top Ten Economic Indicators In The UK

    We list below ten key economic indicators for the United Kingdom, the world’s 6th-largest economy.
  8. Investing

    3 Emerging Markets With Bright Prospects

    Learn about emerging and developed Asian markets, their economic machines, and which key factors contribute to real and per capita GDP growth.
RELATED FAQS
  1. What is GDP and Why Is It So Important To Investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. What does ... Read Answer >>
  2. How is productivity calculated?

    Learn about productivity, what it measures and how to compute a company's productivity level by measuring its outputs relative ... Read Answer >>
  3. How does the United States government measure economic growth?

    Find out how the Bureau of Labor Statistics and the Bureau of Economic Analysis measure economic growth in the United States ... Read Answer >>
  4. What Are the Best Measurements of Economic Growth?

    Learn how economists and statisticians track economic growth and why GDP might not be the best measurement of real economic ... Read Answer >>
  5. When do economists use real GDP instead of GDP?

    Learn about the purposes for which economists rely on real GDP. Find out how real GDP is calculated and how it is important ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center