• Output per hour fell as recessionary forces emerge.

• Unit labor costs rise and set one-year high.

Productivity in the nonfarm business sector during Q1'20 fell 2.5% (SAAR) after an unchanged 1.2% Q4'19 rise. A 5.2% decline had been expected in the Action Economics Forecast Survey. The decline lowered the y/y rise in productivity to 0.3%, its weakest gain since a slight decline in Q3'16. Output was off 6.2% (+0.1% y/y) while hours-worked fell 3.8% (-0.2% y/y).

Compensation increased 2.2% (1.7% y/y). The gain followed a similar rise during Q3. Adjusted for price changes, compensation rose 0.9% (-0.4% y/y). Unit labor costs jumped 4.8% during Q1, the largest increase in four quarters. The gain left the y/y increase steady at 1.5%. A 2.1% rise had been expected.

In the manufacturing sector, productivity declined at a 3.3% annual rate (-1.7% y/y), the largest of four consecutive quarterly shortfalls. Output weakened 7.1% (-2.4% y/y) while hours worked fell 3.9% (-0.7% y/y.

Compensation in the factory sector edged 0.2% higher (1.1% y/y). Adjusted for price inflation, compensation fell 1.0% both q/q and y/y. The compensation rise, combined with the shortfall in productivity, lifted unit labor costs in the factory sector by a 3.6% annual rate (2.9% y/y).

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