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Economy in Brief

U.S. Worker Productivity Decline is Deepened thus Raising Unit Labor Costs
by Tom Moeller  March 5, 2015

Nonfarm productivity slipped at a 2.2% annual rate last quarter, revised from -1.8%. The decline followed a 3.9% 3Q rise. For all of last year, worker productivity rose 0.7% on average. Real output increased at a downwardly revised 2.6% rate last quarter (2.9% y/y) while hours worked gained 4.9% (3.0% y/y). Compensation per hour increased a 1.9% rate (2.5% y/y) but when adjusted for lower prices, it improved 3.1% (1.3% y/y). The decline in productivity caused unit labor costs to jump at an upwardly-revised 4.1% rate (2.6% y/y) after declines during the prior two quarters. The Q4 productivity decline compared to expectations for a 2.4% drop in the Action Economics Forecast Survey. A 3.3% rise in unit labor costs was expected.

Manufacturing sector worker productivity slipped at a 0.1% rate (+2.4% y/y), revised from +1.3%, after a 3.5% rise. For all of last year, productivity grew 2.2% after a 1.9% increase in 2013. Output grew 4.3% last quarter (4.5% y/y) after a 4.9% gain, while hours worked improved 4.4% (2.0% y/y) following a 1.4% Q3 increase. Worker compensation per hour increased at a 1.4% rate (2.4% y/y). Adjusted for price inflation, compensation gained 2.7% (1.2% y/y). Unit labor costs increased an upwardly-revised 1.5% (0.0% y/y) following two quarters of sharp decline.

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,%) Q4'14 Q3'14 Q2'14 Q4 Y/Y 2014 2013 2012
Nonfarm Business Sector
Output per Hour (Productivity) -2.2 3.9 2.9 -0.1 0.7 0.9 1.0
Compensation per Hour 1.9 2.8 -0.9 2.5 2.5 1.1 2.7
Unit Labor Costs 4.1 -1.0 -3.7 2.6 1.8 0.3 1.7
Manufacturing Sector
Output per Hour (Productivity) -0.1 3.5 3.7 2.4 2.2 1.9 1.0
Compensation per Hour 1.4 2.1 -1.9 2.4 2.3 0.5 1.8
Unit Labor Costs 1.5 -1.3 -5.4 0.0 0.1 -1.4 0.8
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