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Economy in Brief

U.S. Labor Productivity Growth Is Worse Than Reported Earlier
by Tom Moeller  September 1, 2011

Revised figures for Q2'11 labor productivity in the nonfarm business sector paint a dimmer picture of growth. The revised number fell 0.7% (AR) after the earlier report of a 0.3% slip. The decline matched that in Q1. The figures compare to 8.0% growth at the end of the last recession. Productivity is calculated by dividing an index of real output by an index of hours worked by all persons. And when output growth slows, as it has, and hours worked improves as it has, productivity suffers. During Q2, real output rose at a modest 1.3% rate (2.4% y/y), while hours worked rose an improved 2.0% (1.6% y/y).

Accompanying the slow productivity growth was, not surprisingly, a slowdown in compensation. The 2.7% q/q increase (revised up slightly) was half that in Q1 and left the y/y change roughly stable at 2.7%. Together, the productivity and compensation figures raised unit labor costs at a 3.3% rate (1.9% y/y). The figure was up from the quarterly declines of 2010 and 2009.

Factory sector productivity also suffered the effects of slower output growth last quarter. In fact, productivity declined at a little-revised 1.5% annual rate, down for the first time since Q1 2009 due to a negligible 1.2% increase in output (4.6% y/y) while hours worked rose 2.7% (2.1% y/y). As compensation costs rose at a 3.1% rate, unit labor costs jumped 4.6% (0.4% y/y), the strongest gain since Q4 2008.

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

Productivity & Costs (SAAR,%) Q2'11 Q1'11 Q4'10 Q2 Y/Y 2010 2009 2008
Nonfarm Business Sector
Output per Hour (Productivity) -0.7 -0.6 2.2 0.7 4.1 2.3 0.6
Compensation per Hour 2.7 5.6 0.6 2.7 2.1 1.6 3.3
Unit Labor Costs 3.3 6.2 -1.6 1.9 -2.0 -0.7 2.8
Manufacturing Sector
Output per Hour -1.5 4.2 4.9 2.4 5.9 -0.4 -0.4
Compensation per Hour 3.1 4.1 2.3 2.8 1.6 4.5 4.3
Unit Labor Costs 4.6 -0.1 -2.5 0.4 -4.2 4.0 4.8
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