Recent Updates

  • Euro area: Flash Consumer Confidence (Apr)
  • Ireland: Producer & Wholesale Price Indexes (Mar)
  • UK: Capital Issuance (Mar)
  • Spain: Trade in Constant Prices, Trade in Goods (Feb)
  • Germany: Federal Budget, PPI, Monthly Tax Revenue (Mar), Short-term Indicator (Feb), Public Sector Finance (Q4)
  • Colombia: Imports (Feb); Brazil: IPCA-15 (Apr)
  • Turkey: Non-Domestic PPI, House Sales, Central Government and Domestic Debt by Instrument, External Debt by Lender, Domestic
  • more updates...

Economy in Brief

U.S. Worker Productivity Increase Stronger, But Underlying Cost Pressures Mount
by Tom Moeller June 4, 2009

Labor productivity in the nonfarm business sector was revised higher for last quarter to 1.5% (AR) from the initial estimate of a 0.8% increase. The Consensus expectation was for revision to 1.2% growth. (Earlier figures also were revised slightly.) Productivity growth has weakened sharply with the current economic downturn. During the last nine months productivity has risen just 0.8% which is the weakest performance since early-2007. Nevertheless, any positive growth during a recessionary period contrasts with the declines in during the downturns of the 1950s through the 1980s.

Though productivity growth has slowed dramatically, businesses were quick in responding to the output shortfall by cutting employment and hours-worked. Output fell at a 7.6% annual rate last quarter after falling 8.8% during 4Q '08. These declines marked the quickest back-to-back since early 1958. However, businesses responded quickly by cutting employment & hours worked at a 9.0% rate last quarter and by 8.3% during 4Q.

The drop in productivity growth has hurt corporations' bottom lines due to the fact that growth in compensation costs has remained firm. It rose an upwardly revised 4.6% last quarter and that left y/y growth at 4.1%. Annually, growth in compensation has been roughly stable near the 4% level since 2001.

The combination of recently diminished productivity growth and stable, firm gains in compensation has increased costs. However, for last quarter growth in unit labor costs was revised down slightly to 3.0% following the 5.1% jump during 4Q. The increases raised the six-month growth in costs to a downwardly revised 4.0% versus just 0.9% during all of last year.

In the factory sector, the pressure on corporations' bottom lines has been more intense. Worker productivity was revised up slightly but it still fell 2.7% during 1Q (-3.2% y/y), down for the fourth consecutive quarter. Year-to-year, the drop in productivity came as output fell faster (-13.9%) than hours worked (-11.0%). That decline in productivity growth has outpaced firms' ability to cut compensation costs. In fact, there's been no cut at all. Compensation growth of 13.4% last quarter lifted the y/y gain to 8.4%, nearly double last year's 4.1% advance. As a result, unit labor cost growth in the factory sector surged again. The 1Q increase of 16.6% lifted the annual gain to 12.0% which compares to just a 3.2% gain during all of last year.

The productivity & cost figures are available in Haver's USECON database.

Today's remarks at the Federal Reserve Board Conference on Financial Markets and Monetary Policy by Fed Chairman Ben S. Bernanke are available here.

Nonfarm Business Sector (SAAR, %) 1Q '09 (Revised) 4Q '08 Y/Y 2008 2007 2006
Output per Hour 1.6 -0.6 1.9 2.8 1.4 0.9
Compensation per Hour 4.6 4.5 4.1 3.7 4.1 3.8
Unit Labor Costs 3.0 5.1 2.2 0.9 2.7 2.8
close
large image