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Economy in Brief

U.S. Productivity Slightly Higher Than Expected
by Tom Moeller May 5, 2005

In 1Q05, non-farm labor productivity rose 2.6% versus Consensus expectations for a 1.9% gain. The gain was the quickest in three quarters yet growth year to year slowed to 2.5% from its peak of 5.5% early last year.

The surprise stemmed from a slowdown in hours worked to 1.0% (1.4% y/y) versus 1.6% in 4Q and 2.8% growth in 3Q04. Output growth of 3.6% compared to 5.3% during all of 2004.

Unit labor costs accelerated to 2.2% versus annual growth of 0.4% last year. Compensation costs held steady at a strong 4.8% versus 4.5% growth during 2004.

A 2.9% rise in the implicit price deflator raised slightly the ratio of prices to unit labor costs, suggesting that profit margins remained firm.

Does Wage Inflation Cause Price Inflation? from the Federal Reserve Bank of Cleveland can be found here.

Non-farm Business Sector (SAAR) 1Q '05 4Q '04 Y/Y 2004 2003 2002
Output per Hour 2.6% 2.1% 2.5% 4.1% 4.4% 4.3%
Compensation 4.8% 3.8% 5.0% 4.5% 4.0% 3.2%
Unit Labor Costs 2.2% 1.7% 2.5% 0.4% -0.4% -1.1%
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