Minor revisions in Productivity growth coupled with continued increases in unit labor costs

Productivity in the nonfarm business sector grew at a seasonally adjusted annual rate of 2.3% during Q2'19 (1.8% year-on-year) unchanged from the mid-August preliminary report. The gain in Q1'19 stood unrevised at 3.5% (1.7% year-on-year). The gain in productivity in Q2 reflected a 1.9% (2.6% year-on-year) rise in real output coupled with a 0.4% decline (+0.9% y/y) in hours worked.

Unit labor costs grew 2.6% (2.6% y/y) in Q2, reflecting a strong 4.9% (4.4% y/y) rise in compensation costs per hour. Q2 unit labor costs were revised up from a rise of 2.4% (2.5% y/y), and compensation costs from a rise of 4.8% (4.3% y/y) reported in mid-August. The Q2 advance in compensation follows a 9.4% jump in Q1, revised from 9.2% -- the fastest rate since the end of 2012 -- raising unit labor cost growth to a revised 5.7% (was initially -1.6% and revised in mid-August to 5.5%) and 1.6% y/y (was -0.8% and then 1.5%). Importantly, last month's revisions to productivity and compensation resulted in the reversal of the downward trend in unit labor costs that had prevailed prior to these revisions.

In the manufacturing sector, productivity fell 2.2% last quarter (0.0% y/y), revised from a 1.6% decline (+0.2% y/y) and following a slight upwardly revised 1.2% rise during Q1'19 (from 1.1%). The decline in Q2 productivity reflected a 3.0% drop (+0.2% y/y) in real output accompanied by a 0.8% decline (+0.1% y/y) in hours worked. The declines in real output and hours worked were revised from a 2.1% drop (+0.4% y/y) in real output and a 0.5% decline (+0.2% y/y) in hours worked reported last month. Productivity declined by 0.6% in the durable manufacturing sector and by 4.4% in the nondurable manufacturing sector.

Unit labor costs in the factory sector rose a strong 6.7% (4.5% y/y -- the fastest growth since Q3'15) during Q2 following the strong 6.9% gain in Q1. Q2 unit labor costs were revised from the 5.8% (4.3% y/y) jump reported earlier. Compensation per hour increased 4.3% (4.5% y/y) in Q2 following an 8.2% surge during Q1'19. Compensation was previously reported as having risen 4.1% (4.5% y/y) in Q2.

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