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Economy in Brief

Jump In 2Q U.S. Worker Productivity Revised Up Slightly & Cost Pressures Eased
by Tom Moeller September 2, 2009

Revisions to the figures on 2Q worker productivity were small and as a result cost pressures continue to show a sharp easing. Labor productivity growth in the nonfarm business sector was revised up slightly to 6.6% (AR) from the initial report of a 6.4% surge. It was the strongest increase since the third quarter of 2003 and the gain beat Consensus expectations for no change in estimated growth.

Compensation costs, however, were revised down sharply. They barely rose at a 0.3% rate after a 4.7% 1Q decline. It was revised down versus the initial report of a 2.4% drop. The recent weak figures leave the y/y increase at just 0.7% which continues the downtrend from roughly 4.0% growth back to 2001.

Last quarter, the surge in productivity and the moderation in labor cost growth combined to drop unit labor costs. The 5.9% q/q decline was slightly deeper than reported initially and lowered the y/y change to -1.2%, the first material negative reading since early-2004.

Worker productivity growth in the factory sector was, however, revised down somewhat to 4.9% and that still was the first quarterly increase in over one year. A benefit to workers was seen in a 5.1% rise in 2Q compensation but downward revision to earlier figures lowered the y/y growth to 5.2% from 6.0% reported initially. Nevertheless, the y/y gain was the strongest since late-2003. The combination of strong productivity and firm compensation left the quarterly increase in unit labor cost at a downwardly-revised 0.2%. Still, year-to-year, growth of 6.7% y/y remains a multiple of last year's 2.2% growth.

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

Growth Accounting, Potential Output and the Current Recession from the Federal Reserve Bank of San Francisco is available here.

Nonfarm Business Sector (SAAR, %) 2Q '09 1Q '08 Y/Y 2008 2007 2006
Output per Hour 6.6 0.3 1.9 1.8 1.9 0.9
Compensation per Hour 0.3 -4.7 0.7 2.8 4.2 3.8
Unit Labor Costs -5.9 -5.0 -1.2 1.0 2.3 2.8
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