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Economy in Brief

U.S. Productivity Growth Firm, Unit Labor Costs Contained
by Tom Moeller May 7, 2008

Nonfarm labor productivity rose 2.2% last quarter after 1.8% growth during 4Q07. The latest gain was slightly stronger than the expected 1.8% figure and at 3.2%, the year-to-year rise in productivity was the firmest since early 2004.

Productivity's strength stemmed from a 1.8% (-0.6% y/y) decline in total hours worked which was the fourth decline in the last five quarters. That decline was accompanied by a 0.4% (2.6% y/y) rise in output which was hardly improved from the 0.2% increase during 4Q07.

Compensation per hour rose a firm 4.4% rate last quarter. The year-to-year growth decelerated, however, to 3.4% from 4.9% during all of last year. Outsized quarterly growth in compensation late in '06 and early in '07, between 6% and 12%, drove the growth in 2007 compensation up.

Unit labor costs growth was contained, as a result of the firm productivity gain, to 2.2% versus 2.8% growth during 4Q'07. Year-to- year, the growth in costs fell to a meager 0.2%, the slowest rate of growth since a slight decline early in 2004. Unit nonlabor payments (which account for roughly one third of total costs) did rise 2.2% (3.5% y/y) after a slight decline in 4Q.

In the factory sector, productivity rose at a steady 4.1% (4.1% y/y) rate. Unit labor costs did rise 2.5% on a quarterly basis but earlier quarterly declines held the annual change to a negative -1.3%.

Productivity, Energy Prices, and the Great Moderation: a New Link is from the Federal Reserve Bank of Atlanta and it can be found here .

Nonfarm Business Sector (SAAR, %) Q1 '08 Q4 '07 Y/Y 2007 2006 2005
Output per Hour 2.2 1.8 3.2 1.8 1.0 1.9
Compensation per Hour 4.4 4.6 3.4 4.9 3.9 4.0
Unit Labor Costs 2.2 2.8 0.2 3.1 2.9 2.0
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