The four key figures for understanding the current situation in each of the United States and the euro zone

We look at four key figures in each of the United States and the euro zone in the most recent period. The first figure is per capita wage growth: 3% per year in the United States and 2.2% per year in the euro zone. The second is labour productivity growth: 2.5% per year in the United States and 0% per year in the euro zone. The third is the resulting growth in unit labour costs: 0.5% per year in the United States and 2.2% per year in the euro zone. The first message is that in the United States, the acceleration in wages (albeit weak) on the back of declining unemployment is offset by an acceleration in productivity, leading to very low growth in unit labour costs; this is not the case in the euro zone. Fourth, we then compare this growth in unit labour costs with that in the GDP deflator (again over the most recent period): 1.8% per year in the United States and 1.5% per year in the euro zone. The second message is that US companies have pricing power but euro-zone companies do not (they are unable to pass on their costs to their prices). This shows that the absence of inflation in the euro zone, despite the lack of productivity gains, is linked to declining profit margins. In the United States, in contrast, there is both low inflation and a rise in profit margins thanks to productivity gains.