Why QE3 Just Got A Little Bit Less Likely

printing money

Photo: By Paul Nicholson on flickr

From BTIG’s Dan Greenhause, a quick rundown of this morning’s data on productivity:

  • Productivity declined by 0.3% in the second quarter after falling by 0.6% in the first quarter
  • Productivity is an excellent leading indicator, falling in front of a recession and bouncing early in a recovery
  • Unit labour costs (the difference between compensation costs and productivity) rose by 2.2% after jumping by a much larger than expected 4.8% in the first quarter
  • ¬†Unit labour costs are a very important determinant for inflationary pressures in the economy. If consumers see price increases of a significant amount, they will demand more from employers who, in response to paying more for labour, raise prices.
  • Today’s report contains revisions that go back, in some cases, as far as 1947

Bottom line. QE3 will come when inflation is no longer a worry. We’re not there yet.

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