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Economy in Brief

Q3 Productivity Revised Up, Unit Labor Costs Revised Down
by Tom Moeller December 5, 2007

Due mostly to an upward revision in output, nonfarm labor productivity growth last quarter was revised up to 6.3% from 4.9%. The revised gain matched Consensus estimates and it was the quickest quarterly rise in four years.

The largest factor behind the revision came from output growth to 5.7% from the preliminary 4.3%. More output from fewer hours worked. Hours worked were revised little and now are estimated to have fallen 0.6%, the largest quarterly drop in over four years.

Revised in the opposite direction, compensation per hour last quarter was taken down to 4.2%. Despite that revision, as well as a deceleration in compensation growth from outsized gains during 1Q & 4Q '06, the annual gain in compensation of 5.8% was its quickest since 2000.

The combination of more productivity and less compensation lowered unit labor cost growth to -2.0% from -0.2%, again the weakest since 2004.That was enough to drop the y/y gain to its lowest in a year.

Released for the first time with this report were figures for the nonfinancial corporate sector. Output per hour there rose 4.2%, its quickest since 2004. The gain was accompanied by a moderate 4.4% rise in compensation and that left unit labor costs about flat as they were in 2Q. Raising costs, however, were two large increases during 1Q and 4Q '06. They raised the y/y gain in unit labor costs to 3.6%, its fastest in two years.

Productivity in the factory sector also was revised up, but to a lesser extent, to 5.0% from a preliminary 4.6% gain. It was double the 2Q increase and it still owed to a slight decline in hours worked accompanied by a swift 4.5% gain in output. Compensation growth in the factory sector made up for a 2Q decline with a 1.5% rise. That left the y/y gain stable at 5.6%, its fastest since early 2005. Unit labor costs in the factory sector fell a revised 3.3%, about as they did in the initial report. The annual increase was lowered a bit 2.8%, still the quickest since late 2000.

How well do wages follow productivity growth? from the Federal Reserve Bank of St. Louis can be found here.

Non-farm Business Sector (SAAR) Q3 '07 Revised Q3 '07 Prelim. Q2 '07 Y/Y 2006 2005 2004
Output per Hour 6.3% 4.9% 2.2% 2.7% 1.0% 1.9% 2.7%
Compensation per Hour 4.2% 4.7% 4.4% 5.8% 3.9% 4.0% 3.6%
Unit Labor Costs -2.0% -0.2% 2.2% 3.0% 2.9% 2.0% 0.9%
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