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Economy in Brief

U.S. Productivity Decline Lifts Unit Labor Costs
by Tom Moeller  February 4, 2016

Nonfarm output per hour declined 3.0% at an annual rate (+0.3% y/y) during Q4'15 following a 2.1% Q3 increase. A 1.8% decline had been expected in the Action Economics Forecast Survey. It was the third decline in the last five quarters and left growth during all of last year at 0.6%, roughly the same as in 2014. The decline occurred as output nudged 0.1% higher (1.9% y/y) while hours worked gained 3.3% (1.5% y/y). Compensation grew 1.3% and 3.0% for the full year, up from 1.1% in 2013. Weakness in productivity and strength in compensation combined to raise unit labor costs 4.5% (2.8% y/y), the quickest growth in a year. During all of 2015, unit labor cost growth of 2.4% was the strongest since 2007.

In the manufacturing sector, the story was much the same. Productivity eased 0.4% last quarter (+1.5% y/y). For the full year, productivity growth was steady at 1.3%. Output edged 0.5% higher in Q4 (1.1% y/y) and hours worked grew 0.9% (-0.4% y/y). Compensation growth weakened, however, to 3.2% versus much stronger growth in the earlier two quarters. The combination of weaker productivity and moderate compensation growth raised unit labor costs by 3.6%, the fastest rise in a year. For the full year, growth in unit labor costs was steady at 1.3%.

The productivity & cost figures are available in Haver's USECON database. The expectations figures are from the Action Economics Forecast Survey and are found in the AS1REPNA database.

Productivity & Costs (SAAR, %) Q4'15 Q3'15 Q2'15 Q4 Y/Y 2015 2014 2013
Nonfarm Business Sector
Output per Hour (Productivity) -3.0 2.1 3.5 0.3 0.6 0.7 0.0
Compensation per Hour 1.3 4.1 5.6 3.1 3.0 2.7 1.1
Unit Labor Costs 4.5 1.9 2.0 2.8 2.4 2.0 1.1
Manufacturing Sector
Output per Hour (Productivity) -0.4 5.0 2.2 1.5 1.3 1.3 0.7
Compensation per Hour 3.2 7.4 5.5 3.4 2.6 2.7 0.2
Unit Labor Costs 3.6 2.3 3.2 1.9 1.3 1.4 -0.5
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