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Economy in Brief

2Q U.S. Productivity As-Expected, Revisions Down
by Tom Moeller August 9, 2005

Non-farm labor productivity increased 2.2% last quarter and about matched Consensus expectations for a 2.0% rise. Downward revisions to output growth from 2002 to 2004 (mostly due to upwardly revised estimates of inflation) lowered average growth in productivity during the period to 3.7% from 4.2%.

Unit labor costs slowed in 2Q to 1.3% from a 3.6% rate of growth in 1Q. The average rate of growth during the prior three years was revised up to 0.3% from -0.2%. Compensation costs decelerated to 3.5% from 6.9% growth in 1Q and the average during the prior three years was unchanged at a 4.0% rate of growth.

In the factory sector, productivity held steady at 4.1% (4.7% y/y) versus 4.2% growth in 1Q. The average rate of growth during the prior three years was unrevised at 6.0%.

Unit Labor costs in manufacturing rose 2.3% (3.7% y/y) following 2.8% growth in 1Q. The average of the prior three years was lowered to -0.1% from 0.7% mostly due to a much sharper decline during 2004 of 2.9% versus a 0.5% decline estimated earlier.

The implicit price deflator for nonfarm business rose 2.3% (2.3% y/y) and raised the ratio of prices to unit labor costs to the highest level since 3Q04, suggesting higher profit margins. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in operating corporate profits.

Long-Term Yields Fall as Industrial Output Decelerates from the Federal Reserve Bank of Dallas is available here.

Non-farm Business Sector (SAAR) 2Q '05 1Q '05 Y/Y 2004 2003 2002
Output per Hour 2.2% 3.2% 2.3% 3.4% 3.8% 4.0%
Compensation 3.5% 6.9% 6.7% 4.5% 4.0% 3.5%
Unit Labor Costs 1.3% 3.6% 4.3% 1.1% 0.2% -0.5%
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