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Economy in Brief

Q2 Productivity Revised Up, But So Was Compensation
by Carol Stone September 6, 2007

Nonfarm labor productivity was revised to 2.6% in Q2 from 1.8% reported a month ago. The revision was marginally above market forecasts, which called for 2.5%, based on the most recent revision to GDP.

Compensation per hour last quarter was a bit higher than the original 3.9% increase, and is now estimated at 4.1%.

Despite the upward move in compensation, unit labor costs are revised here to just 1.4%, compared to the originally reported 2.1% and modestly lower even than the 1.6% forecast growth.

Factory sector productivity growth was also revised higher, but just slightly to 1.8% from 1.6% in the last report. Compensation in manufacturing is now seen up 3.4% in the quarter compared with 2.8% reported last month. This makes the year/year rate 6.8%, up from 6.2% in the prior report; these are both stronger than anytime since Q4 2003. Year-to-year changes in manufacturing unit labor costs were minimal from mid-2001 until Q1 this year, but in Q2, the compensation and productivity numbers yielded a 3.7% rise. Granted, the quarter-to-quarter growth was greatest in Q4 2006 and Q1 2007, but productivity in factories has been sluggish for three consecutive quarters, suggesting that unit labor costs are still subject to upward pressure presently, not relief.

Non-farm Business Sector (SAAR) Q2 '07 (Rev) Q2 '07 (Old) Q1 '07 Y/Y 2006 2005 2004
Output per Hour 2.6% 1.8% 0.7% 0.9% 1.0% 1.9% 2.7%
Compensation per Hour 4.1% 3.9% 5.9% 5.8% 3.9% 4.0% 3.6%
Unit Labor Costs 1.4% 2.1% 5.2% 4.9% 2.9% 2.0% 0.9%
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