·
Non-farm labor productivity growth for 3Q was revised higher to 4.7%
versus the initial estimate of a 4.1% gain. Consensus expectations had
been for a revision to 4.5%. The strength of these increases is
impressive given that three hurricanes hit the Gulf Coast last quarter.
Further evidence of strength is the comparison to the five year average
of 3.4% growth. The recent trend rate of increase is the strongest since
the mid 1960s.
· Notable is that the trend in
productivity exceeds average output growth of 2.9% during the last five
years. For 3Q, output growth was revised up to 4.8% (4.4% y/y) from 4.2%
reported initially. The estimate of hours worked last quarter was
unrevised at 0.1% (1.2% y/y).
· Compensation costs were little revised for 3Q at 3.7% (5.0 y/y) but the 2Q gain was revised sharply lower to 0.9%. As a result, unit labor costs fell 1.0% following a revised 1.2% decline in 2Q.
· Factory sector productivity growth was revised lower for 3Q to 3.4% (4.5% y/y) from 4.5%. Compensation growth was little revised at 3.1% (6.2% y/y) and the 0.3% (+1.7% y/y) decline in unit labor costs followed a revised 2Q drop.
· Productivity in the nonfinancial
corporate sector for 3Q, reported for the first time, grew 3.2% (4.7%
y/y) versus 4.3% growth in 2Q which was revised down. In fact, the
estimate of y/y productivity growth through 2Q was lowered substantially
to 4.3% from 6.3% due to a lowered estimate of output, however,
compensation growth was lowered as well. Unit labor costs rose 1.3% in
3Q (0.7% y/y) as output grew 4.0% (6.0% y/y). Nonfinancial
corporate sector output is gleaned from the income side of the National
Income & Product Accounts (NIPA) as opposed to the non-farm output
figures which are derived from the output side of the NIPA. Factory
sector output is derived from the industrial production measures
compiled by the Federal Reserve Board.
· The implicit price deflator for nonfarm business was little revised at 3.1% (2.8% y/y). The increase lifted the ratio of prices to unit labor costs to its highest since 1997. During the last ten years there has been a 60% correlation between the ratio and the y/y growth in operating corporate profits.