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Economy in Brief

U.S. Productivity Increase Slows; Unit Labor Costs Accelerate
by Tom Moeller  March 8, 2017

Growth in nonfarm output per hour during Q4'16 increased at an unrevised 1.3% rate (1.0% y/y) following a 3.3% Q3 rise, revised from 3.5%. A 1.5% increase had been expected in the Action Economics Forecast Survey. These latest two increases followed three consecutive quarters of decline. During all of 2016, productivity increased 0.2%, the weakest rise since 2011. Output rose at a 2.4% rate (2.2% y/y) while hours-worked improved 1.0% (1.2% y/y). The gain in productivity was accompanied by a 3.0% increase in compensation, which was weaker than the upwardly revised 4.1% rise during Q3. The 3.0% y/y increase left it roughly equal to the gains during all of 2015 and 2014. Adjusted for price inflation, compensation fell 0.4% (+1.2% y/y). Unit labor costs increased 1.7% (2.0% y/y) following a 0.7% increase in Q3, revised from 0.2%. A 1.5% 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 2.0% (0.5% y/y), revised from 0.7%, following an unrevised no change in Q3. During all of last year, productivity increased 0.3% after a 0.2% rise in 2015. Factory output rose 1.6% (0.5% y/y) and hours-worked eased 0.4% (0.0% y/y). Compensation improved 4.4% (2.6% y/y) following an upwardly revised 4.1% increase. The gain in compensation lifted unit labor costs by a reduced 2.4% (2.1% y/y). During all of last year, unit labor costs increased 2.7%, 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 3.3 -0.1 1.0 0.2 0.9 0.8
Compensation per Hour 3.0 4.1 6.1 3.0 2.9 2.9 2.8
Unit Labor Costs 1.7 0.7 6.2 2.0 2.6 2.0 2.0
Manufacturing Sector
Output per Hour (Productivity) 2.0 0.0 -0.5 0.5 0.3 0.2 0.1
Compensation per Hour 4.4 4.1 7.6 2.6 3.0 2.4 2.8
Unit Labor Costs 2.4 4.1 8.5 2.1 2.7 2.2 2.7
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