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Economy in Brief

U.S. Productivity Picks Up While Cost Pressures Ease
by Tom Moeller  August 9, 2017

Output per hour in the nonfarm business sector improved at a 0.9% annual rate in the second quarter following a 0.1% uptick in the first quarter. A 0.7% rise had been expected in the Action Economics Forecast Survey. Output rose 3.4% (2.7% y/y) while hours worked increased 2.5% (1.5% y/y). The modest gains during the last two quarters left y/y growth in productivity at 1.2%. During all of last year, however, productivity declined 0.1%, revised from the earlier estimate of a 0.2% advance. Growth during 2015 was revised up to 1.0% from 0.8%. On average, during the last five years there has been 0.7% growth in worker productivity, slower than 1.8% growth during the prior five years and reduced from 2.8% in the five years before that.

Unit labor costs increased 0.6% last quarter following a 5.4% Q1 rise. A 1.5% gain had been expected. During the last four quarters, unit labor costs declined 0.2%, down from last year's 1.0% rise. During the last five years, annual growth increased an average 1.5% per year. Compensation costs increased 1.6% last quarter after a 5.5% rise. Four quarter growth of 1.0% compared to 0.9% last year and 2.2% during the last five years.

In the manufacturing sector, productivity rose 2.5% last quarter following a 0.3% rise. Growth during the last four quarters of 1.0% was improved from the 0.2% gain in 2016. During the last five years, however, growth averaged 0.3%, down sharply from the 3.9% advance during the prior five years and from 5.3% in the five years before that.

Unit labor costs in the factory sector eased 0.3% last quarter following a 3.9% rise. During the last four quarters, growth of 0.1% compared to last year's 0.6% rise. It was down from 1.3% during the last five years, but up from a 0.9% decline in the five years before that. Compensation per hour grew 2.2% during Q2 following a 4.2% rise. The four-quarter increase of 1.1% was above a 0.7% advance in 2016 but below the 1.6% gain averaged in the last five years. During the prior five years, however, compensation growth averaged 2.7% and averaged 3.7% in the five years before that.

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, %) Q2'17 Q1'17 Q4'16 Q2'17 Y/Y 2016 2015 2014
Nonfarm Business Sector
Output per Hour (Productivity) 0.9 0.1 1.3 1.2 -0.1 1.3 1.0
Compensation per Hour 1.6 5.5 -5.1 1.0 0.9 3.2 2.9
Unit Labor Costs 0.6 5.4 -6.3 -0.2 1.0 1.9 1.8
Manufacturing Sector
Output per Hour (Productivity) 2.5 0.3 2.0 1.0 0.2 -0.6 0.1
Compensation per Hour 2.2 4.2 -4.2 1.1 0.7 2.5 2.8
Unit Labor Costs -0.3 3.9 -6.1 0.1 0.6 3.1 2.7
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