RBC economist Tom Porcelli is such a curmudgeon these days. Still, given that he was one of the few economists that accurately predicted the possibility of a negative reading on fourth quarter GDP, maybe it’s not a bad idea to listen to what he has to say.
This week, he expressed concern about a rapid decline in U.S. productivity – and that was before data showing U.S. nonfarm productivity fell in the fourth quarter by the most in nearly two years.
Productivity declined at a 2 percent annual rate, the sharpest drop since the first quarter of 2011 and a larger fall than the 1.3 percent forecast in a Reuters poll.
For Porcelli, this could spell trouble for the U.S. labor market:
Declining productivity tends to portend softening employment gains at the margin – with firms subsequently aiming to regain productivity and protect the bottom line. Recall that the decline in Q1 2012 led to a discernible slowing in NFP growth – from an average of 262K in Q1 to 108K the following quarter. Bottom line is that a sharp contraction in productivity should be viewed as a cautionary tale for the jobs backdrop. Something that could be exacerbated if the consumer pulls back enough in Q1 that it has real negative reverberations to Q1 corporate earnings.
Not to mention the prospect of sharp spending cuts set to kick in next month that could deal a heavy blow to the economy.