BLS DAILY REPORT, MONDAY, MAY 1, 2000
Personal income rose 0.7 percent in March, outpacing consumer spending,
which gained 0.5 percent, the Commerce Department reports. The last time
income rose more than spending was in October, when it was up 1.2 percent
compared with a 0.5 percent pickup in consumer expenditures. Analysts
warned, however, not to read too much into the slower spending number
because it followed a very strong 1.4 percent rise in February and was
brought down in March by weaker auto sales. Consumer spending accounts for
about two-thirds of economic activity. It surged 8.3 percent at an annual
rate in the first quarter of the year. ... (Daily Labor Report, page
D-3)______Personal income, which includes wages, interest, and government
benefits, increased 0,7 percent in March, the fastest pace since January.
Income growth was slightly stronger than the 0.6 percent increase many
analysts were predicting. At the same time, spending rose 0.5 percent,
right on target with many analysts' expectations. Americans' wages rose by
a strong 0.7 percent in March, following a 0.3 percent increase the month
before. ... (Washington Post, April 29, page E2)_____Americans' personal
incomes rose paced by wage gains and census hiring. Incomes in February
were bolstered by stronger growth in hourly earnings and in jobs, including
hiring by the Census Bureau which has added almost 500,000 temporary workers
for its count of the population. Census hiring alone added $1.3 billion at
an annual rate to federal civilian payrolls. ... (New York Times, April 29,
page B18)_____After months of spending first and worrying about it later,
U.S. households took a different approach in March. It remains unclear
whether the torrid pace of consumer demand is likely to wane. The report
also offered further alarming news on the inflation front, adding to a
recent array of data suggesting that prices have begun to climb after years
of dormancy. Inflation, as measured by the personal consumption
expenditures index, increased 0.4 percent in March, matching February's
gain. The index is now 2.9 percent higher than it was a year earlier, with
higher energy prices accounting for most of the increase. ... (Wall Street
Journal, page A4).
Key reports released during April provided a starkly clear picture of a U.S.
economy driven by vigorous consumer and business spending, with inflation
gaining momentum, analysts say. Wage acceleration and strong labor demand
are likely to prompt the Federal Reserve to raise interest rates again in
May, most economists predict. ... Analysts say they will closely study the
productivity report due out May 4, to see if the rebound in productivity
continues to offset wage increases, even as they move to a higher level. ..
(Pam Ginsbach, Daily Labor Report, page D-1).
In the third and fourth quarters of 1999, the productivity of American
nonfarm labor rose at annual rates of 5 and 6.4 percent, the fastest in
years. Expectations are running strong that the next productivity report,
to be released on Thursday, will be just as brilliant. It will be a miracle
if it is, says James Grant, editor of Grant's Interest Rate Observer, on the
op. ed. page of The New York Times. If the strength of the recent
productivity reports seems unbelievable, it is perhaps because they are.
James Medoff, a Harvard economics professor, and Andrew Harless, an economic
consultant in Needham, Mass., have uncovered deep-rooted flaws in the data.
Their conclusion is that the numbers were distorted in the melee associated
with the run-up to the year 2000. If they are right, the "New Economy" is
about to lose some of its luster. ... On the eve of the new millennium,
harried workers were replacing computers and software that might go haywire
once the ball was dropped in Times Square. The looming crisis of the
computer clocks caused two important distortions in the government's
statistics, Professors Medoff and Harless have found. The number of hours
that Americans worked were minimized, and the volume of output produced by
their labor was exaggerated. Innocently, the government assumed that
nonproduction workers clocked an average of 37.6 hours per week in the
months during which everybody who had anything to do with the maintenance
and smooth running of a computer system was sleeping on the floor of his or
her office in full crisis mode. By underestimating the number of hours
worked, the government flattered the efficiency with which the work was
performed. This work was the substitution of new computers and software for
the non-Y2K compliant kind. In the government statistics, a step up in
computing power registers not only as a rise in quality, but also as an
increase in output. So the high-tech preparation for the new year created a
kind of statistical boom. ...
The Wall Street Journal's "Tracking the Economy" feature (page A16)
forecasts a productivity increase of 3.0 percent for the first quarter, to
be released Thursday, according to the Thomson Global Forecast, in contrast
to the previous rise of 6.4 percent. The unemployment rate for April, to be
released Friday, will be 4.0 percent, according to the forecast, in contrast
to 4.1 percent for March. Nonfarm payrolls are projected to have risen
315,000 in April, compared with 416,000 in March.
Manufacturing companies, faced with higher energy, raw material, and labor
costs, are starting to push through price increases to customers. Higher
oil prices triggered much of the push for price increases. But demands for
higher wages are now having an impact as well. Last week, the Labor
Department said first-quarter pay and benefits rose at the fastest rate in
10 years. In response, manufacturers said they have begun boosting prices,
and that more price increases are ahead. But other companies said they
can't pass on enough of their costs and that profits are bound to suffer in
the coming quarters. ... An April survey of 109 businesses by the National
Association of Business Economists found that nearly one-third boosted
prices in the first quarter, to make up for higher material costs. The
percentage of companies reporting price increases was the highest in 4
years. ... Accompanying graphs show that profit margins are falling, as
employment costs rise and component prices climb. Source of the data is
given as BLS, BEA, and RFA Dismal Sciences (Wall Street Journal, page B10).
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