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Economy in Brief

U.S. Productivity Decline is Lessened and Cost Pressures Build
by Tom Moeller  June 7, 2016

Nonfarm output per hour during Q1'16 fell 0.6% at an annual rate (+0.7% y/y), revised from -1.0%, following an unrevised 1.7% Q4'15 shortfall. The decline matched expectations in the Action Economics Forecast Survey. The latest decline occurred as output rose 0.9% (2.3% y/y) and hours worked gained 1.5% (1.6% y/y). Compensation per hour increased 3.9% (3.7% y/y), revised from 3.0%. In Q4, compensation also was revised up to 3.6% from 0.9%. The combination of faster compensation growth and declining productivity raised unit labor costs 4.5% (3.0% y/y), revised from 4.1%. Growth during Q4 was revised up to 5.4% from 2.7%. A revised 4.0% increase in unit labor costs during Q1 had been expected.

In the manufacturing sector, cost pressures strengthened to a greater extent. Productivity rebounded 1.3% (1.5% y/y), revised from 1.9%, following a 1.2% decline. Output improved 0.6% both q/q and y/y, while hours worked declined 0.7% q/q and y/y. Compensation growth was strengthened to 2.5% (5.0% y/y) from 0.6%. The larger revision, however, was to Q4 where growth was raised to 7.9% from 2.5%. Revisions caused unit labor costs to increase 1.1% last quarter, rather than decline 1.2%. The increase in Q4 was pushed up to 9.2% from 3.6%.

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.

Housing's Role in the Slow  Economic Recovery from the Federal Reserve Bank of Philadelphia is available  here.

Productivity & Costs (SAAR, %) Q1'16 Q4'15 Q3'15 Q1'16 Y/Y 2015 2014 2013
Nonfarm Business Sector
Output per Hour (Productivity) -0.6 -1.7 2.0 0.7 0.7 0.8 0.0
Compensation per Hour 3.9 3.6 2.3 3.7 2.8 2.8 1.1
Unit Labor Costs 4.5 5.4 0.4 3.0 2.1 2.0 1.1
Manufacturing Sector
Output per Hour (Productivity) 1.3 -1.2 3.7 1.3 0.2 -0.1 0.7
Compensation per Hour 2.5 7.9 4.0 5.0 2.2 2.7 0.2
Unit Labor Costs 1.1 9.2 0.3 3.6 1.9 2.8 -0.5
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