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Economy in Brief

U.S. Productivity Gain Moderates; Unit Labor Costs Pick Up
by Tom Moeller  February 2, 2017

Growth in nonfarm output per hour during Q4'16 increased at a 1.3% rate (1.0% y/y) following a 3.5% rise in Q3, revised from 3.1%. A 1.0% increase had been expected in the Action Economics Forecast Survey. These latest two increase followed three consecutive quarters of decline. During all of 2016, productivity increased 0.2%, the weakest rise since 2011. Output rose at a 2.2% rate (2.2% y/y) while hours-worked improved 0.9% (1.1% y/y). The gain in productivity was accompanied by a 3.0% increase in compensation, which was weaker than the 3.7% gain during Q3. The 2.9% y/y increase left it roughly equal to the gains during all of 2015 and 2014. Adjusted for price inflation, compensation fell 0.4% (+1.1% y/y). Unit labor costs increased 1.7% (1.9% y/y) following a 0.2% increase in Q3, revised from 0.7%. A 2.1% rise had been expected. During all of last year, unit labor costs increased 2.6%, the strongest gain since 2007.

In the manufacturing sector, productivity increased 0.7% (0.4% y/y) following no change in Q3, revised from 0.4%. During all of last year, productivity increased 0.6% after a 0.3% rise in 2015. Factory output rose 0.8% (0.2% y/y) and hours-worked remained steady (-0.2% y/y). Compensation improved at a 4.1% rate (2.6% y/y) following a downwardly revised 3.4% increase. The gain in compensation lifted unit labor costs by a steady 3.3% (2.2% y/y). During all of last year, unit labor costs increased 2.6%, up from the 2.2% gain in 2015.

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, %) Q4'16 Q3'16 Q2'16 Q4'16 Y/Y 2016 2015 2014
Nonfarm Business Sector
Output per Hour (Productivity) 1.3 3.5 -0.2 1.0 0.2 0.9 0.8
Compensation per Hour 3.0 3.7 6.1 2.9 2.8 2.9 2.8
Unit Labor Costs 1.7 0.2 6.2 1.9 2.6 2.0 2.0
Manufacturing Sector
Output per Hour (Productivity) 0.7 0.0 -0.5 0.4 0.6 0.3 0.1
Compensation per Hour 4.1 3.4 8.0 2.6 3.3 2.5 2.8
Unit Labor Costs 3.3 3.3 8.5 2.2 2.6 2.2 2.7
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