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Economy in Brief

U.S. Worker Productivity Revised Down But Cost Decline Still near Record
by Tom Moeller June 4, 2010

Slower growth in real GDP last quarter accompanied more of a slowdown in worker productivity than reported last month. Nonfarm business sector grew 2.8% (AR) versus the initial estimate of 3.6%, down from 6.3% during 4Q. Nevertheless, the 6.1% surge in U.S. worker productivity during the last four quarters matched the strongest since early-1962. New technologies, improved work techniques and improved labor skill-sets have paid off. Productivity last quarter fell short of Consensus expectations for a 3.4% rise.p

The slowdown in 1Q productivity occurred as real output growth slowed to 4.0% (3.0% y/y) from 7.0% during 4Q. That was met by an upwardly-revised gain in hours worked of  1.1% (-3.0% y/y) from 0.7% in 4Q. Growth in compensation costs also accelerated to 1.5% (1.6% y/y) after declines in three of the prior four quarters. Four-quarter growth in compensation was nearly the slowest since 1995.

The rate of decline in 1Q unit labor costs eased to 1.3% as compensation picked up. Regardless, the four-quarter decline in costs of 4.2% was near the largest on record.

In the factory sector alone, worker productivity growth also slowed sharply to a downwardly-revised 1.5% (7.2% y/y) versus 6.5% during 4Q '09. The slowdown occurred as output rose an accelerated 7.2% (3.2% y/y) but growth in hours-worked picked up to 5.6% (-3.8% y/y) following a slight 4Q decline. Compensation fell negligibly but the y/y change of 1.8% was stronger than reported initially. It remained, however, near the weakest since 2006. The combination of the rise in productivity and the slip in compensation dropped unit labor costs by a lessened 1.5%.

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

Yesterday's comments by Fed Chairman Ben S. Bernanke on Small Business Financing can be found here.

Nonfarm Business Sector (SAAR,%) 1Q '10 4Q '09 3Q '09 1Q Y/Y 2009 2008 2007
Output per Hour (Productivity) 2.8 6.3 7.8 6.1

3.7 2.1 1.8
Compensation per Hour 1.5 -1.9 -0.4 1.6

1.8 3.1 4.2
Unit Labor Costs -1.3 -7.8 -7.6 -4.2

-1.9 1.0 2.3
Manufacturing Sector
Output per Hour 1.5 6.5 14.8 7.2 1.8 1.1 3.4
Compensation per Hour -0.0 2.0 -1.0 1.8 4.5 3.2 4.3
Unit Labor Costs -1.5 -4.2 -13.7 -5.1 2.7 2.1 0.9
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