These days Q3 seems like ancient history, so I took a shot at forecasting Q4 productivity from the monthly data. In particular, I took personal income and deflated by the PCE-deflator and the BLS's monthly aggregate hours index. I formed a quarterly dataset:
- BLS hourly productivity for the quarter -- released early in the next quarter
- hourly real personal income (that is, personal income deflated as explained above) averaged for the first two months of the quarter -- available in the last month of the quarter
For the years 2000-8, I regressed log BLS productivity on its lag, a linear time trend, and the log of the personal income variable for the first two months. The last variable had a positive, economically significant, and statistically significant coefficient. That is -- if this relationship holds up -- today we can expect Q4 BLS productivity (not released yet) to be higher because hourly personal income is high for Oct and Nov.
Here is a graph of the two series since 2005. The graph is monthly, so the BLS productivity measure is centered on the middle month of the quarter. The last 3 personal income data points are September (part of Q3), Oct (Q4), and Nov (Q4).
Here's a version with transfers subtracted out of personal income.
As you've likely figured out, I'm an economics dummy. This post generates a (stupid?) question on whether productivity refers only to manufacturing in the U.S. or also productivity in the health sector.
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Those cuts seem excessive and likely to influence both productivity and quality of productivity of services. Any comments?
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