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Economy in Brief

U.S. Labor Productivity Q2 Decline Revised Deeper
by Tom Moeller September 2, 2010

Revised labor productivity growth last quarter was reduced, as expected, based on last week's lowered estimate of real GDP growth. Nonfarm business sector productivity fell 1.8% (AR) after the initial estimate of a 0.9% decline. It was the first productivity decline since 4Q08. Nevertheless, productivity's 3.7% rise during the last four quarters remained up from growth rates during the last seven years. New technologies, improved work techniques and improved labor skill-sets continue to pay dividends.

Last quarter's decline in productivity was the function of the sharp drop in output growth to 1.6% (revised from 2.6%) and a little-revised tripling to 3.5% (-0.0%) in growth in hours worked. The combination overwhelmed the modest, unrevised, quarterly decline in compensation costs of 0.7% and caused unit labor costs to rise a stronger 1.1% (initially 0.2%) following three consecutive quarterly declines. The unrevised four-quarter decline in costs of 2.8% still was nearly the largest on record.

The factory sector figures were little revised. Worker productivity growth remained robust at 4.1% (7.5% y/y), up from a 1.6% gain during 1Q. The pickup occurred as output rose at an accelerated 8.4% rate (8.4% y/y) and growth in hours-worked rose just 4.1% (0.8% y/y) following a 5.3% 1Q increase. Compensation fell for the second consecutive quarter (-0.3% y/y). The combination of the rise in productivity and the slip in compensation lowered unit labor costs at a 5.9% rate (-7.3% y/y), the largest drop on record.

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

Nonfarm Business Sector (SAAR,%) Q2'10 Q1 '10 Q4 '09 Q2 Y/Y 2009 2008 2007
Output per Hour (Productivity) -1.8 3.9 6.0 3.7 3.5 1.0 1.6
Compensation per Hour -0.7 -0.9 1.5 0.8 1.9 3.3 4.0
Unit Labor Costs 1.1 -4.6 -4.2 -2.8 -1.6 2.2 2.4
Manufacturing Sector
Output per Hour 4.1 1.6 8.1 7.5 2.0 -0.7 3.4
Compensation per Hour -2.0 -6.5 4.4 -0.3 5.2 4.0 3.3
Unit Labor Costs -5.9 -8.0 -3.5 -7.3 3.1 4.7 -0.1
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