Unit Labor Costs, Real Bad Data

I was asleep at the wheel earlier in the week when I let news reports about the downward revisions to unit labor costs pass without comment. According to several articles (see the NYT, for example) downward revisions to unit labor costs in 2nd and 3rd quarter in the release of the preliminary productivity data for the 3rd quarter alleviated concerns about inflation. Well, I am not as concerned about inflation as many economists, but my fears were not alleviated by the new data. Quarterly data on unit labor costs are about as inaccurate as any data in the government's arsenal. While the Fed may be relieved to know that labor costs only rose at a 2.9 percent annual rate in the 3rd quarter, after falling at a 1.4 percent rate in the 2nd quarter, surely it was terrified by the fact that unit labor costs rose at a 13.6 percent annual rate in the first quarter. The moral of this story is that serious people do not take quarterly data on unit labor costs seriously.

--Dean Baker