Payroll, GDP and Productivity
The pace of job creation appears to be accelerating, based on latest employment report. Historically, a faster pace of hiring hint a faster pace of economy growth, such as in the years of 1980s and 2001-2007. A almost 353,000 increase in November put unemployment rate down to 5.6 per cent from 6.7 per cent a years earlier and a concern that whether this improvement will indicate Fed confidence to hike the rate has circulated around Wall Street.
Although I certainly share the optimistic of US economy forecast, I am more concern what metric might be a better indicator.
In general GDP per cap is the most commonly used metric. However, since the GDP here is mixed with deflator the effect of inflation and temporary policy effect is not negated and the result is somewhat chaotic.
An improved version would be the real GDP per cap which can fairly well capture the knowledge aspect of productivities but the political effect and particular structure effect of economic mechanism can not be express freely. A good example would be Japan's past 50 years real GDP pre cap. Also de to the fact that capital is not linearly transmitted into productivities, this monetary effect is still somewhat mysteries.
In Bloomberg brief, a recent report use the gap between real GDP and payroll to represent the productivities. It is a very interesting way and somewhat innovative. It used the basic concept that productivities is output per labor. In a micro level this make a lot of sense however in a aggregate macro view, it become less obvious and even misleading. Also, since the labor intensity and productivities tend to inverse correlated, this measure unavoidably distorted data and thus conclusion.