It feels like fall

Slacking

Productivity for the third quarter came in at a really dismal -5%, which was much worse than expectations and actually the biggest quarterly drop since the summer of 1981. When you combine this with the fact that hourly labor costs increased 2.9%, the total unit labor costs increased 8.3%. This basically means that it cost 8.3% more (from a time and money perspective) to produce the exact same thing – hello inflation.

Moral of the story: A big part of this productivity loss was associated with the delta wave that hit us in the third quarter. It’s largely expected that companies will be able to go back to investing money into their businesses to make them more efficient. Technology has been a massive driver of productivity in the last decade and should help, at least in the long-term, keep inflation under control as we find more efficient ways of doing things.

Back on track

The much-anticipated October jobs report came in hot Friday morning to close out the week, reporting 531k new jobs for the month, handily outpacing expectations for 450k. At this point, we’ve recovered all by 4.2m jobs that were lost during the pandemic. This brought the employment rate down to 4.6%, which the lowest since the start of the pandemic. Wage inflation was abundant in this report as well with wages up 0.4% for the month and 4.9% for the year. As expected, the leisure and hospitality sector continued to lead from a job creation perspective.

Moral of the story: After the last few jobs numbers that were impacted by the delta wave, this is a welcome change of pace and hopefully more indicative of what the labor market recovery will look like in a world where COVID cases are under control.

Fed speak

The Fed finally announced this week that it’s going to start taking its foot off the gas pedal of their easy monetary policy. Remember two of the big tools used by the central bank are asset purchases from the open market (basically adds cash into the economy and keeps rates low on bonds) and managing the federal funds interest rate (easier to borrow and spend). Of the Fed’s dual mandates of full employment and price stability, the price stability piece is currently under pressure given the level of inflation we’re seeing – so the bank decided to ease off on asset purchases. Because they’re still waiting on employment to bet back to however they define “full,” there is still no talk on increasing that interest rate.

Moral of the story: Fed Chairman Powell’s remarks around these decisions were still very indicative of a central bank that wants to continue supporting an economic recovery. The markets seemed pleased, not only with this announcement, but also with other economic data points we saw throughout the week, as stocks ended the week strong.

Sign up for the weekly digest