Why QE3 Just Got A Little Bit Less Likely

printing money

[credit provider=”By Paul Nicholson on flickr” url=”http://www.flickr.com/photos/paulnich/5147197277/sizes/o/in/photostream/”]

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.