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Economy in Brief

U.S. Productivity Revised Higher But Compensation Strong
by Tom Moeller June 2, 2005

Non-farm labor productivity growth about matched Consensus expectations and was revised higher to 2.9%. A surprise, however, was that compensation costs were revised up in 1Q to 6.3% and up sharply to 10.4% in 4Q04.

As a result of revisions to compensation, unit labor cost growth accelerated to 4.3% versus 1Q '04 versus an upwardly revised 0.8% during 2004.

Productivity in the nonfinancial corporate sector rose 2.7% (4.9% y/y) following 9.0% growth during 4Q '04. Compensation, however, rose 6.8% after a 10.2% 4Q rise and caused unit labor costs to rise 4.1% (2.0% y/y). The ratio of prices to unit labor costs fell to the lowest level in a year, confirming the crimp on 1Q profits.

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

Non-farm Business Sector (SAAR) 1Q '05 (Revised) 1Q '05 4Q '04 Y/Y 2004 2003 2002
Output per Hour 2.9% 2.6% 2.3% 2.6% 4.0% 4.3% 4.3%
Compensation 6.3% 4.8% 10.2% 7.0% 4.8% 4.0% 3.2%
Unit Labor Costs 3.3% 2.2% 7.7% 4.3% 0.8% -0.3% -1.1%
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