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Economy in Brief

U.S. Productivity Rebounds in Q4'21, Holding Down Unit Labor Costs
by Carol Stone, CBE  February 3, 2022

• Nonfarm productivity advances at strong 6.6% annual rate in Q4.

• Compensation also strong, yet again.

• Gains in productivity and unit labor costs almost exactly offsetting.

Nonfarm business sector productivity advanced at a 6.6% (SAAR) pace in Q4'21 following its drop at a 5.0% rate in Q3. A 3.5% increase in Q4 had been expected in the Action Economics Forecast Survey. The actual Q4 amount was 2.0% above Q4'2020, and for all of 2021, productivity gained 1.9% after a rise of 2.4% in 2020.

Nonfarm business output surged at a 9.2% annual rate in Q4, following Q3's modest 2.0% increase. The Q4 amount was 7.0% above a year ago. For all of 2021, output expanded 7.4%, rebounding from the 4.4% drop in 2020. Hours worked increased at a 2.4% annual rate in Q4 (4.9% y/y), less than the 7.3% pace in Q3; for all of 2021, they gained 5.4% after dropping by 6.6% in 2020.

Compensation per hour rose at a 6.9% annual rate in Q4 (5.1% y/y), following Q3's 3.9% rate of increase. For all of 2021, it was up 5.2% from 2020, when it grew 7.0%.

In Q4, the advances in compensation and in output per hour combined to yield a very modest 0.3% annualized increase in unit labor costs (3.1% y/y); that followed a notably stronger 9.3% advance in Q3. The Q4 amount was close to the Action Economic forecast consensus of a 1.0% pace of advance. The overall increase in unit labor costs for 2021 was 3.3%, less than the 4.5% in 2020.

In the manufacturing sector, productivity edged downward at a 0.8% annual rate in Q4 (1.0% y/y), following Q3's 2.6% rate of decline, that was revised from a 1.0% rate of decline reported before. For all of 2021, manufacturing productivity gained 3.1% after 2020's marginal 0.1% increase. Output itself rose at a 4.8% annual rate in Q4 (4.4% y/y) after Q3's 4.1% increase. For all of 2021 it was up 6.5%, reversing 2020's 6.5% decrease. Hours worked in manufacturing increased at a 5.6% annual rate in Q4 (3.4% y/y) after 6.9% in Q3; the 2021 total was up 3.3% after a 6.6% drop in 2020.

Factory sector compensation gained 3.4% in Q4 (4.2% y/y), somewhat stronger than the 2.7% in Q3. For the year, it gained 4.5%, following 6.8% in 2020. Unit labor costs rose at a 4.2% rate in Q4 (3.2% y/y), following 5.5% in Q3. The annual amount increased 1.4%, markedly slower than the 6.6% advance in 2020.

Compensation and labor costs figures are available in Haver's USECON database. The expectations figure is in the AS1REPNA database.

Productivity & Costs (SAAR, %) Q4'21 Q3'21 Q2'21 Q4'21 Y/Y 2021 2020 2019
Nonfarm Business Sector
   Output per Hour (Productivity) 6.6 -5.0 2.4 2.0 1.9 2.4 2.0
   Compensation per Hour 6.9 3.9 8.4 5.1 5.2 7.0 3.8
   Unit Labor Costs 0.3 9.3 5.9 3.1 3.3 4.5 1.8
Manufacturing Sector
   Output per Hour (Productivity) -0.8 -2.6 8.5 1.0 3.1 0.1 -1.4
   Compensation per Hour 3.4 2.7 10.2 4.2 4.5 6.8 2.8
   Unit Labor Costs 4.2 5.5 1.6 3.2 1.4 6.6 4.3
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