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Economy in Brief

U.S. Labor Productivity Improves And Lowers Unit Costs
by Tom Moeller   November 04, 2010

Along with an improvement in output last quarter, labor productivity also improved. Labor productivity in the nonfarm business sector rose 1.9% (AR) and recouped its 2Q decline. The rise exceeded Consensus expectations for a 0.9% increase. Nevertheless, y/y growth decelerated to 2.5% following it upward surge following last year's recession.

Last quarter's rise in productivity reflected a 3.0% quarterly gain (4.1% y/y) in output which was double the 2Q increase. Conversely, the gain in hours worked decelerated to 1.1% (1.6% y/y) from 3.5%.

Since the improvement in productivity outpaced a 1.8% gain in compensation after two quarters of decline, unit labor costs ticked down 0.1%; a 0.7% decline had been expected. The decline from last year amounted to 1.9% following a 1.6% drop during all of 2009. These declines were behind the improvement in U.S. nonfinancial corporate profits which have risen for four consecutive quarters and, as of 2Q, were up 43.9% y/y.

Despite the improvement in overall productivity, the factory sector's increase was limited to 0.4% after a 5.4% 2Q surge. The small rise slowed the y/y increase to a still-strong 3.9% from its height of 8.1% in Q1. Real output gained 4.0% (7.0% y/y) while hours worked increased 3.6% (3.0% y/y). The productivity gain lowered unit labor costs by 0.3% and by 4.6% y/y as compensation ticked up just 0.1% following two quarters of decline.

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

Productivity & Costs (SAAR,%) Q3'10 Q2'10 Q1'10 Q3 Y/Y 2009 2008 2007
Nonfarm Business Sector
  Output per Hour (Productivity) 1.9 -1.8 3.9 3.5 3.5 1.0 1.6
  Compensation per Hour 1.8 -0.6 -0.9 0.5 1.9 3.3 4.0
  Unit Labor Costs -0.1 1.3 -4.6 -1.9 -1.6 2.2 2.4
Manufacturing Sector
  Output per Hour 0.4 5.4 1.7 3.9 2.0 -0.7 3.4
  Compensation per Hour 0.1 -1.3 -6.5 -0.9 5.2 4.0 3.3
  Unit Labor Costs -0.3 -6.4 -8.1 -4.6 3.1 4.7 -0.1
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