The labor market may look gloomy to many workers, but not to U.S. corporations. Though unemployment is rising, productivity is improving...

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The labor market may look gloomy to many workers, but not to U.S. corporations. Though unemployment is rising, productivity is improving, while unit labor costs are rising at a slow pace.

Employees are not demanding higher wages, even though they’re paying more for energy, food and other goods.

Productivity, which measures the amount an employee produces per hour, rose 2.8 percent in the second quarter from a year ago, according to U.S. Department of Labor data.

Based on an analysis of gross domestic product, output per hour rose more than 3 percent during the past year, well above a 40-year average of 1.9 percent, says David Kelly, Chief Market Strategist of JPMorgan Funds.

Unit labor costs, or how much employers pay for every unit of output, advanced a modest 1.5 percent in the second quarter from a year ago.

“A surge in labor costs would threaten a 1970s-style wage-price spiral,” writes Global Insight economist Patrick Newport in a note. In that period, workers demanded higher pay due to inflation. This, in turn, caused companies to raise prices, which further goosed inflation.

“So far, labor costs have been well-behaved, which is good news for the Federal Reserve,” writes Newport.

Low interest rates can contribute to inflation. If inflation stays in check, the central bank is more likely to keep rates low, giving the economy time to pick up. The central bank’s benchmark rate is at 2 percent.

Rising productivity and restrained labor costs can also boost profit margins. “An environment of low inflation and rising profit margins would clearly be a positive one for stocks,” says Kelly.