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Economy in Brief

U.S. Productivity Declines and Drives Labor Costs Higher in Q1
by Tom Moeller  May 5, 2022

• Productivity drop is greater-than-expected.

• Compensation gain weakens.

• Unit labor costs surge.

Nonfarm business sector labor productivity declined 7.5% (-0.6% y/y) in Q1'22 following a 6.3% gain in Q4'21, revised from 6.6%. The Action Economics Forecast Survey expected a 4.5% decline.

Output fell 2.4% (+4.2% y/y) last quarter following a 9.0% increase while hours rose 5.5% (4.8% y/y) after gaining 2.5% in Q4.

Compensation rose 3.2% (6.5%) last quarter after a 7.4% Q4 rise, revised from 7.5%. The combination of falling productivity and higher compensation propelled the rise in Q1 unit labor costs to 11.6% (7.2% y/y) following a 1.0% Q4 rise. The Action Economics Forecast Survey expected an 8.4% rise.

In the manufacturing sector, Q1 productivity rose 0.7% (1.7% y/y) after a 0.6% easing in Q4, revised from -0.1%. Output rose 5.7% (5.2% y/y) and hours-worked rose 5.1% (3.5% y/y).

Manufacturing compensation rose 2.8% (3.5% y/y) after a 1.1% rise. Unit labor costs rose 2.1% (1.8% y/y) after increasing 1.7% in Q4'21.

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

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