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Economy in Brief

3Q U.S. Worker Productivity Surges -- Strongest Since 2003
by Tom Moeller November 5, 2009

The U.S. labor market is clearly signaling that the recession is over. The magnitude of the 9.5% jump in nonfarm worker productivity during 3Q'09 wasn't unprecedented for this early in a recovery. Its size is noteworthy because the rise in output was moderate. The 3Q gain in productivity followed a similarly firm 6.9% 2Q rise which was little-revised. It was the strongest since 3Q'03 and outpaced Consensus expectations for a 6.4% increase.

The gain in productivity occurred as output posted its first increase in over a year. The moderate 4.0% rise was accompanied by a continuation of the sharp decline in hours-worked (employment times hours), which has been so much a part of this recession. The 5.0% (-7.5% y/y) decline in hours-worked followed a 7.5% 2Q drop.

Compensation costs, however, improved with the gain in output per hour. The 3.8% quarterly increase was the first gain in a year though it left costs up just 0.5% y/y. That gain was nearly the weakest since 1949.

The surge in productivity combined with a moderate increase in compensation combined to further drop unit labor costs. The 5.2% q/q decline was the third consecutive quarterly fall and it lowered the y/y change to -3.6%, the sharpest since early-1950.

Surging worker productivity growth in the factory sector led the overall gain in output-per-hour. The 13.6% (AR) quarterly increase was a record and it lifted y/y growth to 3.1%, the highest since early last year. The increase came as output rose at a 7.7% rate (-10.8% y/y) and hours worked fell at a 5.2% rate (-13.5% y/y). Compensation rose 5.5% (5.5% y/y), therefore unit labor costs in the factory sector fell at a 7.1% annual rate (+2.3% y/y).

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

Nonfarm Business Sector (SAAR, %) 3Q '09 2Q '09 1Q '08 Y/Y 2008 2007 2006
Output per Hour 9.5 6.9 0.3 4.3 1.8 1.9 0.9
Compensation per Hour 3.8 0.3 -4.7 0.5 2.8 4.2 3.8
Unit Labor Costs -5.2 -6.1 -5.0 -3.6 1.0 2.3 2.8
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