Morning Report: Productivity Falls

Vital Statistics:


  Last Change
S&P futures 3831 8.3
Oil (WTI) 56.07 0.34
10 year government bond yield   1.14%
30 year fixed rate mortgage   2.84%

Stocks are higher this morning on no real news. Bonds and MBS are down small.


Initial Jobless Claims fell to 779,000 last week. While the numbers are going in the right direction, we are still super-elevated, and above the days of the Great Recession.


Announced job cuts rose to 79,552 in January, according to outplacement firm Challenger, Gray and Christmas. “While cuts were higher than average last month, we are seeing a leveling off of announcements, which may bode well for recovery in the coming months. Companies may be reassessing their staffing levels and waiting on the impact of the relief bill before making any additional workforce decisions,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.


Productivity fell 4.8% in the fourth quarter as output increased 5.3% and hours worked increased 10.7%. Unit labor costs increased 6.8% driven by a 1.7% increase in compensation and the 4.8% decline in productivity. Unit Labor Costs have been rising steadily for the past year, although I wonder if COVID is introducing some statistical noise here. Note that manufacturing productivity is up, so this is a service sector phenomenon.


Janet Yellen has summoned regulators to discuss stock market volatility and the Gamestop phenomenon. This is similar to the pools that were operating 100 years ago, except the floor traders aren’t in on it any more (since they don’t exist). If you read Reminiscences of a Stock Operator you will read about a similar phenomenon. By the way, IMO Reminiscences is THE treatise on momentum trading (though he didn’t call it that).

I am not sure what regulators can do about this situation. Ultimately, you don’t have big, controllable institutions behind it, and the market-maker adult supervision of the markets disappeared a long time ago. NYSE floor specialists don’t control the flow any more, and NASDAQ market-makers have been eliminated as trading commissions are so low that it doesn’t make sense to take risk any more. The Gamestop situation may simply be nothing more than the unintended consequence of lowering transaction costs to the floor.


Zillow has a report out on suburban versus urban housing markets. The punch line:

  • Suburban homes sold faster than urban homes by the end of 2020, but home value growth, sales volume and Zillow web traffic in urban areas has kept pace with or exceeded levels in suburban areas.
  • Urban home value growth outperformed the suburbs in much of the Midwest, where homes are typically less expensive near city centers. In some of the most-expensive markets, including New York and San Francisco, urban housing demand softened relative to the surrounding suburbs. 
  • Urban rent growth fell behind growth in the suburbs in 2020, but Zillow expects urban rents to quickly recover as the pandemic subsides.


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