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Economy in Brief

U.S. Worker Productivity Declines; Output is Depressed
by Tom Moeller  May 7, 2014

Worker productivity declined last quarter at the same time that adverse winter weather held down economic activity. Nonfarm business sector productivity fell at a 1.7% annual rate (+1.4% y/y) during Q1'14 following 2.3% growth during Q4, revised from last month's estimate of a 1.8% rise. Real output growth of 0.3% (3.2% y/y) was accompanied by a 2.0% increase (1.7% y/y) in hours worked. Compensation increased 2.4% (2.3% y/y) but when adjusted for inflation it increased 0.5% (0.9% y/y). This combination of firm compensation and reduced productivity caused unit labor costs to surge 4.2% (0.9% y/y), the swiftest growth since Q4'12. The rise followed two quarters of decline. The drop in Q1 productivity disappointed expectations for a 0.3% rise in the Action Economics Forecast Survey. A 2.3% rise in unit labor costs was expected.

In the aggregate, Q1's productivity decline occurred outside of manufacturing. In the factory sector, worker productivity increased at a 3.3% rate (2.2% y/y), the quickest rise since Q2'13. Output improved 1.8% (2.4% y/y) after a 4.7% gain, while hours worked declined 1.4% (+0.2% y/y) following a 3.4% jump. Worker compensation increased at a 3.3% rate (2.0% y/y), the strongest rise since Q4'12. Adjusted for price inflation, compensation moved 1.4% higher (0.6% y/y) after little change during Q4. Unit labor costs edged up 0.1% (-0.2% y/y) and have been roughly unchanged for over a year.

The Economic Outlook is the title of today's testimony by Fed Chair Janet L. Yellen and it is available here.

The productivity & cost figures are available in Haver's USECON database. The expectations figure is from Action Economics and is the AS1REPNA database.

Productivity & Costs (SAAR,%) Q1'14 Q4'13 Q3'13 Q1 Y/Y 2013 2012 2011
Nonfarm Business Sector
Output per Hour (Productivity) -1.7 2.3 3.5 1.4 0.5 1.5 0.5
Compensation per Hour 2.4 1.9 1.3 2.3 1.6 2.6 2.5
Unit Labor Costs 4.2 -0.4 -2.1 0.9 1.1 1.2 2.0
Manufacturing Sector
Output per Hour (Productivity) 3.3 1.3 0.5 2.2 1.8 1.8 1.0
Compensation per Hour 3.3 1.3 0.5 2.0 0.9 1.9 1.3
Unit Labor Costs 0.1 0.1 -0.1 -0.2 -0.9 0.1 0.4
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