Output per hour in the nonfarm business sector grew at a healthier-than expected 2.9% seasonally adjusted annual rate in Q2'18 (1.3% year-on-year), following a slightly downwardly revised 0.3% gain in Q1. In Q4'17 productivity declined at a 0.3% pace (was +0.3%). The consensus in the Action Economics Forecast Survey looked for an increase of 2.5% in Q2. As a result of last month's benchmark revisions to GDP, productivity was revised for previous years, with 2017 slightly lower (1.1% vs. 1.3%) and 2016 and 2015 a touch higher (0.1% vs. unchanged and 1.3% vs 1.2%).

Unit labor costs fell at a weaker-than expected 0.9% rate in Q2'18 (1.9% y/y) following an upwardly revised 3.4% gain in Q1 (was 2.9%). The Action Economics Survey expected an unchanged reading in the second quarter. Costs were revised meaningfully higher in 2017 (2.2% vs. 0.4%), slightly lower in 2016 (0.9% vs. 1.1%) and remained at 1.8% in 2015. Compensation increased 2.0% in Q2'18 (3.2% y/y), following an upwardly revised 3.7% gain in the first quarter (was 3.3%).

In the manufacturing sector, productivity grew at just a 0.9% pace in Q2'18 (-0.2% y/y) following a 1.0% decline in Q1 (was -1.2%). The fourth quarter's advance was revised slightly higher to 4.4%. Output increased at a 1.9% rate in Q2 (1.8% y/y) matching Q1's upwardly revised gain of 1.9%. Hours worked grew 1.0% in Q2 following 2.9% growth in Q1.

Unit labor costs in the factory sector rose at a 0.6% rate in Q2 (2.7% y/y), after an upwardly revised 5.5% increase in Q1 (was 5.2%). While output in the manufacturing sector was unaffected by the benchmark revisions, compensation was updated. As a result, unit labor costs in 2017 were revised meaningfully higher (2.6% vs. 1.0%). Costs in 2016 were revised slightly lower (0.3% vs. 0.4%), while 2015 remained at 4.1%.

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