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Economy in Brief

U.S. Productivity's Decline Lessened in Q4'20; Reverses Q3 Increase
by Tom Moeller  March 4, 2021

• Nonfarm worker productivity remains deepest drop in forty years.

• Compensation increases moderately.

• Unit labor costs surge shaved.

Revisions to nonfarm business sector productivity indicated a 4.2% decline during Q4'20 (SAAR, +2.4% y/y) versus the 4.8% weakening reported initially. The decline followed a 4.2% rise during Q3, revised from 5.1%. That followed an 11.1% Q2 increase, revised from 10.6%. A 4.6% decline had been expected in the Action Economics Forecast Survey. The latest remained the largest quarterly decline since Q2 1981. Annual productivity growth of 2.5% was the strongest for any year since 2010. Real output improved a little-revised 5.5% last quarter (-2.6% y/y) following an unchanged 44.1% Q3 surge. Hours-worked strengthened 10.1% last quarter (-4.9% y/y), revised from 10.7%, after increasing 38.3% in Q3. The decline in productivity raised unit labor costs by 6.0% (4.2% y/), revised from 6.8%. It offset a 9.6% Q3 decline, revised from -7.0%. A 6.5% rise had been expected for Q4. Hourly compensation rose a little-revised 1.5% (6.7% y/y) after falling 5.8%, revised from -2.2%.

Factory sector productivity increased 5.0% during Q4 (2.8% y/y), revised from 3.0%, following a record 20.7% Q3 gain, revised from 20.2%. Durable manufacturing productivity rose 6.4% (3.3% y/y) after surging 48.2% while nondurable manufacturing productivity rose 2.8% (1.6% y/y). Total manufacturing unit labor costs declined 8.8% (-0.1% y/y), revised from -2.4%, following a 27.4% drop, revised from -12.4%, during the third quarter. Compensation fell 4.2% last quarter (+2.7% y/y), revised from +0.5%, after a 12.4% Q3 shortfall, revised from +5.3%.

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

Productivity & Costs (SAAR, %) Q4'20 Q3'20 Q2'20 Q4'20 Y/Y 2020 2019 2018
Nonfarm Business Sector
Output per Hour (Productivity) -4.2 4.2 11.1 2.4 2.5 1.8 1.4
Compensation per Hour 1.5 -5.8 24.3 6.7 6.4 3.7 3.3
Unit Labor Costs 6.0 -9.6 11.9 4.2 3.8 1.9 1.9
Manufacturing Sector
Output per Hour (Productivity) 5.0 20.7 -13.3 2.8 0.3 0.3 0.4
Compensation per Hour -4.2 -12.4 25.0 2.7 4.8 3.1 2.1
Unit Labor Costs -8.8 -27.4 44.3 -0.1 4.4 2.8 1.7
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