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Economy in Brief

U.S. Productivity & Unit Labor Cost Growth Revised Down, Corporate Costs Up
by Tom Moeller September 2, 2004

Non-farm labor productivity growth last quarter was revised lower to 2.5% from 2.9% estimated last month. Consensus expectations for 2.7% growth.

The downward revision reflected slower output growth, now set at 3.5% (5.8% y/y) versus 3.8% estimated earlier. Growth in hours worked by all persons (employment times hours) was revised up slightly to 1.0% 91.2% y/y) from 0.8%.

Despite the revision to productivity, growth in unit labor costs was revised down slightly to a still-elevated 1.8% from 1.9%. Compensation growth was lowered to 4.3% from 4.9%.

In the nonfinancial corporate sector, productivity grew just 1.4% (3.9% y/y) following a slim 0.2% gain in 1Q and 6.6% growth in 2003. Compensation grew 4.0% (4.1% y/y). Slower productivity growth raised unit labor costs by 2.6% (0.2% y/y) following a 2.1% gain in 1Q and several quarters of decline. During the last ten years there has been an inverse 87% correlation between the y/y growth unit labor costs and the growth in nonfinancial corporate profits.

Productivity in the manufacturing sector was revised lower to 6.9% (5.8% y/y) from 7.5%. Unit labor costs in the factory sector were, however, revised to a 3.5% (-2.5% y/y) decline versus the 2.2% reported initially.

Non-farm Business Sector (SAAR) 2Q '04 (Revised) 2Q '04 (Prelim) 1Q '04 (Final) Y/Y 2003 2002 2001
Output per Hour 2.5% 2.9% 3.7% 4.6% 4.5% 4.3% 2.6%
Compensation 4.3% 4.9% 4.0% 4.2% 4.0% 3.2% 4.1%
Unit Labor Costs 1.8% 1.9% 0.3% -0.3% -0.3% -1.1% 1.5%
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