FORECASTS

By Staff -- Purchasing, 9/7/2000

Worker wages creep up...

For the 12 months ending in July, average wages for production workers rose 3.5%, representing a gradual acceleration from the 3.3% annual growth rate seen at the beginning of 2000. With unemployment as low as it is, it's hardly surprising that growth in worker wages should be accelerating. But now that manufacturing is showing small signs of stress, it's likely that 3.5% will be a peak rate. Forecast: Wages continue to rise, but the pace slacks off. For the year all told, wages rise 3.4%. In 2001, they gain 3.2%, on average.

...but ULCs stay low..

Despite the documented rise in production workers' wages, other data from the BLS suggest that unit labor costs (ULCs) in manufacturing fell at an annual rate of 0.7% in quarter two, a third consecutive decline. ULCs fell 5.3% in durable goods manufacturing (as productivity rose at a 9.6% annual rate), but rose 5.1% in nondurable goods manufacturing (as the annual rate of growth in productivity was zero in second quarter 2000). Forecast: As it derives from wage and productivity forecasts, current outlook for manufacturing ULCs is -1.3% this year, +0.6% in 2001.

...as productivity rises

Manufacturing productivity (output/ hour) grew at a pleasing 5.1% annual rate in second quarter 2000, allowing producers to easily absorb rising wage costs without raising prices. There's still some debate as to how much of the productivity growth trend is sustainable over the longer term, but the population of "New Economy" skeptics is becoming increasingly sparse. Forecast: So long as capital spending remains strong and the emphasis remains on technology, productivity will advance 6.1% this year and another 4.7% in 2001.