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Economy in Brief

Q3 Productivity Stronger, Unit Labor Costs Fell
by Tom Moeller November 7, 2007

Nonfarm labor productivity surged 4.9% last quarter, more than double the rise during the second quarter. The increase was the quickest since the third quarter of 2003 and it lifted the y/y gain in productivity to its highest since early 2005. Consensus estimates had been for a 3.0% rise,

Responsible for the surge was just a modest increase in the gain in output to 4.3% from a 4.2% rise during 2Q. An outright decline in hours worked, at a 0.5% rate, provided most of the oomph. The decline followed 2.0% growth during 2Q and it was the largest quarterly drop in over four years.

Moving with the gain in productivity was a q/q acceleration in compensation per hour last quarter growth to 4.7%. The modest acceleration from 2Q was sufficient to jump the annual gain in compensation to 6.7%, its fastest since 2000.

As a result of the productivity surge, unit labor costs posted the first decline in over a year. As a result of that decline the y/y increase moderated, but just a bit, to 4.3% from 5.1% in 2Q.

Productivity in the factory sector showed similar improvement with a 4.6% gain. It was about double the 2Q increase but like the nonfarm total, the rise came more from a decline in hours worked than from a quicker gain in output. Compensation growth in the factory sector actually cooled a bit to 2.3% q/q but that did not prevent the annual gain from accelerating to 7.2%, its fastest since late 2003. Unit labor costs in the factory sector dropped 2.2%, the first decline in a year, but the annual increase rose to 4.4%.

As Boomers Slow Down, So Might the Economy from the Federal Reserve Bank of St. Louis is available here.

This morning's testimony by Fed

Governor Frederic S. Mishkin on the Availability of Credit to Small Businesses can be found here

Non-farm Business Sector (SAAR) Q3 '07 Prelim. Q2 '07 Y/Y 2006 2005 2004
Output per Hour 4.9% 2.2% 2.4% 1.0% 1.9% 2.7%
Compensation per Hour 4.7% 4.4% 6.7% 3.9% 4.0% 3.6%
Unit Labor Costs -0.2% 2.2% 4.3% 2.9% 2.0% 0.9%
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