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Economy in Brief

U.S. Worker 1Q Productivity Growth Moderates, But Still Looks Strong Y/Y
by Tom Moeller May 6, 2010

Growth in worker productivity in the nonfarm business sector slowed last quarter to 3.6% from 6.3% during 4Q. A near-halving of output growth did not prompt as much of a cutback in aggregate hours-worked (employment times hours worked). Nevertheless, the 6.3% surge in U.S. worker productivity growth during the last four quarters was the strongest since early-1962 (no typo). New technologies, improved work techniques and an improved labor skill-sets have paid off. Productivity last quarter exceeded Consensus expectations for a 2.5% rise.

The slowdown in 1Q productivity occurred as real output growth slowed to 4.4% (3.1% y/y) from 7.0% during 4Q. That was met by a slight acceleration in hours worked to 0.8% (-3.0% y/y) from 0.7%.Growth in compensation costs also accelerated to 1.9% (2.3% y/y). Four-quarter growth in compensation was nearly the slowest since 1995.

The rate of decline in unit labor costs eased during 4Q '09 as compensation picked up slightly. Regardless, the four-quarter decline in costs of 3.7% was the largest on record. That enabled corporate profits to jump by nearly one-third last year.

In the factory sector alone, worker productivity growth also slowed sharply to 2.5% (7.5% y/y) from 6.5% during 4Q '09. The slowdown occurred as output rose an accelerated 7.5% (3.3% y/y) compared to the pickup in hours-worked to 4.9% (-3.9% y/y) following a slight 4Q decline. Compensation fell 1.2% but the y/y change of 0.9% was the weakest since 2006. The combination of lower compensation and the rise in productivity dropped unit labor costs by 3.7%.

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

Nonfarm Business Sector(SAAR,%) 1Q '10 4Q '09 3Q '09 1Q Y/Y 2009 2008 2007
  Output per Hour (Productivity) 3.6 6.3 7.8 6.3 3.7 2.1 1.8
  Compensation per Hour 1.9 0.4 -0.4 2.3 1.9 3.1 4.2
  Unit Labor Costs -1.6 -5.6 -7.6 -3.7 -1.7 1.0 2.3
Manufacturing Sector
  Output per Hour 2.5 6.5 14.8 7.5 1.8 1.1 3.4
  Compensation per Hour -1.2 -0.3 -1.0 0.9 4.4 3.2 4.3
  Unit Labor Costs -3.7 -6.4 -13.7 -6.1 2.5 2.1 0.9
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