5 November 2001, 08:54 OUTLOOK: US data to show unusually solid productivity growth for recession
WASHINGTON (AFX) - US economic indicators to be released in the
coming week are expected to show that productivity growth was unusually
solid for recessionary conditions, while consumer sentiment dropped
early in the month due to the deteriorating job market, analysts said.
"Productivity is seen holding up remarkably well in the face of
economic recession," Bear Stearns economists said in a research note.
Productivity usually declines in a recession, as output drops, then
bounces back as GDP growth resumes.
However, economists said the third quarter productivity report
should show a gain of 1.7 pct.
Ian Morris, economist at HSBC Securities, said: "Even though the
economy is cyclically damaged, productivity has still improved."
This supports Federal Reserve Chairman Alan Greenspan's view that
the US economy's underlying productivity growth has risen over the past
half-decade, thanks to higher rates of investment.
The expected increase in productivity last quarter is still above
the 1.5 pct average which existed before labor productivity began to
rise in the mid-1990s, noted Rick MacDonald, economist at Standard &
Poors' MMS.
Greenspan said last month that productivity will likely suffer a
one-time drop in order to incorporate the costs associated with
increasing security, in the wake of the Sept 11 attacks.
"But once the adjustment is completed, productivity growth should
resume at rates in excess of those that prevailed in the
quarter-century preceding 1995", Greenspan said.
Bank One economists said the rise in third-quarter productivity is
consistent with "the premise of improved long-term productivity
trends."
Some economists cautioned that the main reason for the rise in
productivity last quarter is that jobs and hours worked declined even
faster than output in the third quarter.
Morris said this, in turn, shows the competitiveness level of US
companies, which have been "very savage and quick in responding to
falling output," by cutt ing jobs and working hours.
Consumer sentiment is seen declining in the University of
Michigan's report for early November, due to the rout in the US labor
market reported in the October employment release, which showed a
415,000 decline in non-farm payrolls.
Price indexes to be released in the week will show declining import
and producer prices.
Some economists have warned that the US could fall into
deflationary conditions, as has occurred in Japan.
Most analysts said the expected declines in the PPI and import
prices are a reflection of strong counter-inflationary conditions in
the economy, but not outright deflation.
Mike Carey, economist at Credit Lyonnais said it would be "very
difficult" for the US to fall into outright deflation, as the service
sector is highly unlikely to see declines in the price level.
He added, however, that "I'm sure it's in the back of their (the
Fed's) minds."
Declining producer and import prices are being caused by falling
demand, Mac Donald explained.
The focus of next week is likely to be on the Federal Open Market
Comittee meeting on Tuesday to decide any changes in interest rates.
A growing number of analysts forecast a 50 basis point rate cut in
the FOMC's key federal funds rate target, following a sharp drop in the
National Association of Purchasing Management report for October, and
the sharp rise in last month's unemployment rate, to 5.4 pct.
Following are the consensus forecasts of Wall Street economists for
data to be released this week.
NAPM NON-MANUFACTURING INDEX, Monday (10.00 AM): The consensus
forecast of Wall Street economists is for the NAPM non-manufacturing
index to fall to 45.9 in October from 50.2 in September. The index rose
in September from 45.5 in August.
The NAPM manufacturing index plunged to 39.8 in October from 47.0
in September, the fifteeth month-long manufacturing recession.
As was the case in the October employment report, the NAPM
non-manufacturing index will illustrate that recessionary conditions
have moved beyond manufacturing, and into the service sector of the
economy, said Robert McGee, chief economist at Tokai Bank.
US Q3 NON-FARM LABOR PRODUCTIVITY, Wednesday (8.30 AM) Wall Street
analysts expect labor producitivy to rise at a 1.7 pct annual rate. In
the second quarter, productivity rose at a 2.1 pct rate.
Unit labor costs are expected to rise 2.4 pct after rising 2.7 pct
in the second quarter.
"Nonfarm productivity growth apparently was solid again last
quarter, even as real GDP declined slightly. However, the year-to-year
change in unit labor costs is estimated to have stayed firm, crimping
corporate profit margins," Goldman Sachs analysts said said.
US SEPT WHOLESALE INVENTORIES, Wednesday (10.00 AM): Wholesale
inventories are expected to fall 0.3 pct in September after falling 0.1
pct in the previous month. This would be the fourth consecutive monthly
decline.
US SEPT CONSUMER CREDIT, Wednesday (3.00 PM): Analysts expect
consumer credit to fall 0.7 bln usd in September, after rising 2.3 bln
in August, which was the first rise since May.
"Consumers probably resumed paying down installment debt during
September, as the bulk of tax rebate checks were saved and personal
spending plunged after the Sept 11 terror attacks," Goldman Sachs
economists said.
US WEEKLY JOBLESS CLAIMS, Thursday (8.30 AM): The consensus
forecast of Wall Street economists is for jobless claims to rise 4,000
to 503,000 in the week ended Nov 3 after falling 10,000 to 499,000 in
the previous week.
US OCT IMPORT PRICES, Thursday (8.30 AM): Import prices are
expected to drop 0.8 pct in October after rising 0.3 pct in September,
which was the first increase in four months.
US OCT PPI, Friday (8.30 AM): Wall Street analysts expect the Oct
PPI to drop 0.4 pct and the core rate to fall 0.1 pct. In September,
the PPI rose 0.4 pct and the core rate rose 0.3 pct.
Sharply lower energy prices likely will lead the PPI down, Bear
Stearns economists said.
US NOV U. OF MICH CONSUMER SENTIMENT, Friday (9.45 AM): The
University of Michigan's consumer sentiment index is expected to weaken
to 78.3 in November, after it dropped to 82.7 in the final October
reading, from the 83.4 initial reading for the month.
A sharper than expected decline "could provide a boost to the
Treasury market, as it would raise the specter of considerable erosion
in consumer spending in the fourth quarter," Bank One economists said
in a research note.
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