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Economy in Brief

U.S. 2Q Productivity Growth Weakened, Costs Still Under Control
by Tom Moeller August 8, 2008

Labor productivity in the nonfarm business sector rose 2.2% at an annual rate last quarter. The increase fell short of Consensus expectations for a 2.5% rise while growth during 1Q and for all of last year was revised down.

Output growth last quarter did nearly double from 1Q to a still-modest 1.7% but the y/y rate of increase fell by roughly one percentage point to 1.8%. That was accompanied by a drop in total hours worked at a 0.5% annual rate (-1.0% y/y) which was one-third the 1Q rate of decline.

Growth in compensation per hour did slow to 3.6% from gains during the prior two quarters that were revised up. However, the y/y gain picked up moderately to 4.3% and that exceeded the accelerated rate of increase for all of last year.

Unit labor cost growth fell to 1.3% after the 2.5% gain during 1Q. Year-to-year growth in costs did pick up modestly, however, to 1.5% but that remained down compared to recent years.

In the factory sector, productivity fell at a 1.4% rate during 2Q (2.6% y/y) and the decline lowered year-to-year gain to its weakest since 1Q of last year. The deceleration occurred as y/y output growth slowed to roughly zero. As a result, unit labor costs rose at a 6.1% rate (1.9% y/y) and that q/q increase was the fastest since late 2006.

Multinationals Make the Most of IT from the Federal Reserve Bank of St. Louis is available here.

Creative Destruction, Documented from the Federal Reserve Bank of Richmond can be found here.

Nonfarm Business Sector (SAAR, %) 2Q '08 1Q '08 4Q '07 Y/Y 2007 2006 2005
Output per Hour 2.2 2.6 0.8 2.8 1.4 1.0 1.7
Compensation per Hour 3.6 5.2 5.4 4.3 4.1 3.8 4.0
Unit Labor Costs 1.3 2.5 4.5 1.5 2.7 2.8 2.2
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