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Economy in Brief

U.S. Productivity Weakness Revised Little; Unit Labor Costs Still Firm
by Tom Moeller  December 10, 2019

Productivity growth in the nonfarm business sector last quarter was revised to -0.2% at an annual rate (+1.5%) y/y from -0.3%, following a 2.5% Q2 rise. It was the first decline in productivity since Q4'15. Expectations had been for a 0.1% easing in the Action Economics Forecast Survey. The decline in productivity reflected a 2.3% rise (2.3% y/y) in real output that was accompanied by a 2.5% gain (0.9% y/y) in hours-worked.

Compensation growth was revised significantly to 2.3% (3.7% y/y) from 3.3% reported last month. Growth during Q2 also was sharply reduced to 2.5% from 4.9%. The weakness in productivity combined with less compensation growth lessened the rise in unit labor costs to 2.5% from 3.6%. During the second quarter, the revision reduced the gain to 0.1% from 2.4%. A 3.4% increase had been expected for the third quarter.

In the manufacturing sector, some revisions were notable. Productivity rose 0.1% (-0.1% y/y), revised from -0.1%. That followed a 2.5% Q2 fall which was revised from -2.4%. The decline reflected a 1.3% rise (-0.5% y/y) in real output that was accompanied by a 1.2% gain (-0.4% y/y) in hours-worked. Unit labor costs in the factory sector strengthened 3.0% (4.4% y/y). That was revised from 3.6% (4.3% y/y) after a 5.2% jump in Q2, revised from 6.9%. Compensation in the factory sector rose 3.1% (4.3% y/y), revised from 3.5%. The Q2 increase of 2.6% was revised from 4.4%.

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

Productivity & Costs (SAAR, %) Q3'19 Q2'19 Q1'19 Q3'19 Y/Y 2018 2017 2016
Nonfarm Business Sector
Output per Hour (Productivity) -0.2 2.5 3.5 1.5 1.3 1.3 0.3
Compensation per Hour 2.3 2.5 9.4 3.7 3.1 3.5 1.1
Unit Labor Costs 2.5 0.1 5.7 2.2 1.8 2.1 0.8
Manufacturing Sector
Output per Hour (Productivity) 0.1 -2.5 1.2 -0.1 0.7 1.2 -0.1
Compensation per Hour 3.1 2.6 8.2 4.3 2.2 3.5 0.5
Unit Labor Costs 3.0 5.2 6.9 4.4 1.4 2.3 0.6
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