Long Term Perspective
While accelerating wage gains could lead to consumer price increases, it is important to look at the missing link -- productivity. Productivity gains allow wage increases without generating inflationary pressures. Note how sharp productivity increases since 1992 were associated with only modest gains in unit labor costs.

Short Term Perspective
Nonfarm productivity increased at a 5.1 percent rate in the third quarter of 2002, surpassing the modest 1.7 percent pace recorded in the second quarter, but still less than the shopping 8.6 percent spurt posted in the first quarter. Looking at the yearly percent change tends to smooth out fluctuations; productivity increased 5.6 percent in the third quarter, 4.9 percent in the second quarter, and 4.4 percent in the first quarter. Productivity typically spurts in the early stages of recovery because employers have picked up production but have not increased the number of workers on staff. Productivity is bound to moderate through the year, but nevertheIess, the productivity figures remain encouraging since productivity growth is associated with dampening inflationary pressures and allowing wages to grow more rapidly.

At the same time, unit labor costs fell at a 0.2 percent rate in the third quarter after declining in three of the four previous quarters. On a year-over-year basis, unit labor costs decreased 2.2 percent, the fourth quarterly decline. Lower labor costs mean higher profitability for corporations.

Alternative Inflation Measures   •   Gold Prices   •   Employment Cost Index   •   Civilian Unemployment Rate

Pool of Available Labor   •   Nonfarm Productivity   •   Treasury Yields   •   Stock Prices   •   Fed Monetary Policy Summary