More Economic News

Getting a late start on things as I came back home and slept for a while after getting the kids off this morning.

On the economic front today, we have a wonderful announcement from the Labor Department that worker productivity grew by 9.4% last quarter, the highest since Q3 of 1983 when it grew at 9.7%. I believe that if this sort of growth (meaning positive productivity growth, not necessarily at 9%+) then we might be seeing the beginning of a good, strong labor market again.

In a way, the economy is like a person. When you know that you have to make a extraordinary effort in order to pull something off, you almost always have a reserve of capability that you can call on. No one does, or can, perform at a 100% effort level all the time. It would simply wear you down.

The economy is the same. We always have a short term burst capacity in the economy, but the higher productivity cannot be sustained indefinitely. Right now, employers are paying overtime instead of hiring new employees. The current employees are responding with higher productivity, but if this level of output is attempted to be sustained at current employment levels, eventually companies are going to find their productivity tanking due to higher absenteeism and higher turnover. At some point, and probably sooner rather than later, real hiring has got to start or else the recovery will fail.

The higher productivity numbers are certainly not an immediate improvement for the unemployed, but they are a sign of hope for the future.

Unless, of course, you read the Reuters take on this story. They take a story that should engender at least a base level of optimism and try to downplay it with the following quote:

But while already strong productivity was revised even higher in the third quarter, the news was tempered by a drop in U.S. mortgage applications for the week ended Nov. 28.

Sounds scary, huh? So what did the Mortgage Bankers Association have to say about it?

"As expected, last week was a slow week for mortgage application activity. After adjusting the mortgage indices for the impact of the Thanksgiving holiday and other seasonal factors, the purchase index was down only 3.9 percent” said Michael Cevarr, MBA's manager of member surveys. (emphasis mine)

Hmm. The people that make their money selling mortgages don't seem to be too concerned with this at all. Maybe it had something to do with the fact that the week of 11/28 was Thanksgiving weekend. Maybe they realize that all the refinancings that could be done are pretty much done. Refi's are now down to 50% of the mortgage market. That means that more often now, mortgages are being originated for real wealth building purposes (home purchases) rather than for simply saving a few dollars. Again, this is another good sign for the economy. Home purchases lead to other purchases (like furniture, appliances, and so on), which helps to lead the economy into a more stable footing.

To be sure, things still aren't where they need to be. But with every report coming out, we're beginning to find more reason for optimism than pessimism. If this trend continues, I expect to see a much better economic climate including more jobs and higher consumer confidence.

9.4% is a great number, not for what it means now, but for what it potentially means down the road.