A productivity gain of whopping 2% from the prior Quarter’s 0.2% can be bearish for Employment Reports in the next several months – bullish for bonds
Sam Adelton
Feb. 6, 2007

The Ten Year Note has formed a long tem bullish pattern. Even for the short term it seems something is cooking right for it to go higher. On 2/7/07 the Government will report the productivity report for the fourth quarter on 2006. Some spectacular gains in productivity report are waiting to greet the bond market bulls. The data will show a 2% rise in productivity in the fourth quarter of 2006 versus a meager 0.2% growth in productivity for the third quarter of 2006.

Productivity gain is the root cause of lower wage inflation. The higher the productivity, lower is the requirement on the labor force. The sharp rise in productivity shows disinflation and may be deflation in the wage sector.

While stock market is confused over all these, the bond market will rejoice the data. One of the main reasons for low long bond yields is the lack of inflation pressures on the wage front. The outsourcing and higher productivity has kept a tight lid on the wage inflation. The data will show the trend is alive and well.

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