The Jobs Report That Will Cost Bernanke Sleep

The December employment report showed more jobs than most economists (including me) had expected. The flip side of the goods news on jobs is some potentially very bad news on productivity. Hours worked grew at more than a 2.0 percent annual rate in the 4th quarter. (There was very strong growth in the number of people reported as self-employed. This is unusual, since self-employment tends to grow most rapidly in a weak labor market.) The high end of the 4th quarter GDP forecasts is 2.4 percent, which implies that productivity growth will be very close to zero for the quarter. If the forecasts prove right, then productivity growth will be under 0.4 percent for the quarter. This will mean that productivity growth will have been very weak over a 5 quarter period dating back to the 4th quarter of 2005. The current numbers are already bad, but they will be revised downward when the Bureau of Labor Statistics factors in 810,000 additional jobs as of March 2006 in its benchmark revision and it incorporates the 0.4 percentage point reduction in growth in the non-farm business sector reported in the final 4th quarter report (compared to the preliminary report). Here's the picture: