It's Official: Demand Needs To Accelerate, Or Business Profits Are Toast

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Photo: Sonny Side Up! via Flickr

It’s confirmed. The age of squeezing blood out of a stone to keep hiking business profits is over.The latest lok at productivity numbers from the BLS confirms it:

Nonfarm business sector labour productivity decreased at a 1.8 per cent annual rate during the second quarter of 2010, the U.S. Bureau of labour Statistics reported today as hours increased 3.5 per cent and output
increased 1.6 per cent. (All quarterly per cent changes in this release are seasonally adjusted annual rates.) The second-quarter gain in hours worked was the largest since the first quarter of 2006. From the second quarter of 2009 to the second quarter of 2010, productivity and output both grew 3.7 per cent and hours were unchanged (tables A and 2). Nonfarm business  productivity increased at an average annual rate of 2.5 per cent from 2000 through 2009.

Unit labour costs in nonfarm businesses rose 1.1 per cent in the second quarter of 2010, as the 1.8 per cent decline in productivity was partially offset by a 0.7 per cent decline in hourly compensation. Unit labour costs decreased 2.8 per cent over the last four quarters, as output per hour increased faster than hourly compensation (tables A and 2).

Get it? If demand doesn’t increase and bring up revenues, that the profit picture crumbles.

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