With all of the problems I have been having with my internet connection I may have missed it, but the revisions to second quarter productivity did not seem to have been covered very well.

But nonfarm productivity growth is slowing sharply. It was actually negative in the first and second quarter —0.6% and -0.7% in the first and second quarters, respectively — and the year over year change is now only 0.7%

Moreover, productivity lagged two quarters is a great leading-concurrent indicator of real GDP growth. Productivity growth now implies that the second half will be weak. This is in sharp contrast to the still consensus expectations of a stronger second half.

With weak productivity growth, unit labor costs is moving up sharply. Moreover, the increase is due almost exclusively to the weak productivity, not rising compensation.

Unit labor cost is now rising more faster than the nonfarm deflator. The spread between unit labor cost growth and price growth is a primary determinate of profits growth and it is saying
that profits expectations are still too high– Standards and Poors, for example, is still carrying
a bottoms up forecast of some 20% EPS growth for 2011. The recent stock market volatility
— it’s interesting that stock market is only volatile when it is declining, not rising — appears to stem largely from investors revising their earnings expectation down. Moreover, the productivity data implies that this downward revision is not over.