Labor Stats Likely Efect on Interest Rates

The Bureau of Labor Statistics reported today (June 6th) on Productivity, which was down about .7 (Business previously at 1.3, revised down to .0.5 and Non-Farm Business previously reported at 1.7 and revised down to 1.0) and the number of hours worked was down.  More troublesome though, were the BLS' revisions to previously reported unit labor costs which were up revised upward significantly (Business from 0.7 to 1.9 and Non-Farm Business from 0.6 to 1.8).  Although the productivity numbers for Manufacturing were only revised from 2.7 to 2.4, the unit labor costs shot up from 2.7 to 4.5.

As wall Street eschews this data (lower productivity and higher labor costs) that will most assuredly negatively affect corporate profits, it is likely that we may see investors retreating from equities (stocks).  Bonds will then become their safe-haven.

So the conundrum is that the Fed will likely see the BLS Manufacturing report as quite inflationary and will add lots of fuel to the fire for raising short term interest rates, which will reduce stock values and corporate profits further.  But the flip-side is that as Bonds increase in investor attractiveness, long term interest rates should begin a downward trend.

For "Real Estate," Long Term Rates should become increasingly more attractive and short-term (ARM) rates and indexed loans are likely to continue to rise.

CLICK HERE TO READ THE BUREAU OF LABOR STATISTICS REPORT