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Economy in Brief

U.S. Productivity Unchanged
by Tom Moeller November 2, 2006

Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This year, however, the y/y increase dropped to 1.3% as a result of the decline, the weakest since 1997.

The weakness fueled the growth in unit labor costs. A 3.8% gain lifted the y/y increase in costs to 5.3%, the strongest since 1990. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.

Compensation grew a much diminished 3.7, but here again the y/y growth remained elevated near 7%.

Factory sector productivity growth remained quite firm last quarter at 5.9% (4.3% y/y. Growth in factory sector compensation per hour slowed to 2.9% (5.1% y/y) from 4.0% during 2Q and 13.3% during 1Q and that fostered a decline in unit labor costs. The 2.9% (+0.8% y/y) decline was the first this year.

Freedom, Trade, and Growth from the Federal Reserve Bank of St. Louis can be found here

Non-farm Business Sector (SAAR) 3Q '06 2Q' 06 Y/Y 2005 2004 2003
Output per Hour 0.0% 1.2% 1.3% 2.3% 3.0% 3.7%
Compensation per Hour 3.7% 6.6% 6.7% 4.4% 3.6% 4.0%
Unit Labor Costs 3.8% 5.4% 5.3% 2.0% 0.6% 0.3%
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