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Economy in Brief

U.S. Productivity Grows As Unit Labor Cost Increase Slows in Q4
by Tom Moeller  February 6, 2020

Productivity in the nonfarm business sector during Q4'19 increased 1.4% (SAAR) following an unrevised 0.2% Q3 slip. The gain matched expectations in the Action Economics Forecast Survey. It raised productivity by 1.8% during the last four quarters.

Accompanying the improvement was a 2.8% (4.2% y/y) rise in compensation. It was the largest increase in three quarters and raised y/y growth to 4.2%, its quickest since Q4 2012. Adjusted for price changes, compensation rose 0.3% and a quickened 2.1% y/y. Unit labor costs increased 1.4% during Q4'19 after a 2.5% rise. A 1.1% increase was expected. The gain pulled the y/y rise to 2.4% which was the strongest gain since early-2018, up from 1.0% in Q4'18.

In the manufacturing sector, productivity declined at a 1.2% rate, off for the third straight quarter. The decline lowered factory sector productivity by 0.7% during the last four quarters, the weakest performance since Q3'17.

Compensation in the factory sector strengthened 4.6% both q/q and y/y. It was the quickest four quarter rise since Q2'09, and up from little change in 2016. Adjusted for price inflation, compensation rose 2.0% q/q and a strong 2.5% y/y. The compensation increase combined with the decline in productivity raised unit labor costs in the factory sector by 5.9%. The 5.3% y/y increase was the strongest four quarter rise in just over 10 years.

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

Productivity & Costs (SAAR, %) Q4'19 Q3'19 Q2'19 Q4'19 Y/Y 2019 2018 2017
Nonfarm Business Sector
Output per Hour (Productivity) 1.4 -0.2 2.5 1.8 1.7 1.3 1.3
Compensation per Hour 2.8 2.3 2.5 4.2 3.8 3.1 3.5
Unit Labor Costs 1.4 2.5 0.1 2.4 2.0 1.8 2.1
Manufacturing Sector
Output per Hour (Productivity) -1.2 -0.3 -2.4 -0.7 0.0 0.3 -0.5
Compensation per Hour 4.6 3.1 2.6 4.6 3.8 2.2 3.5
Unit Labor Costs 5.9 3.3 5.1 5.3 3.8 1.8 4.0
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