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Economy in Brief

U.S. Productivity Revised to Show Slightly Smaller Decrease in Q1, as Compensation Higher
by Carol Stone, CBE  June 2, 2022

• Nonfarm productivity fell at 7.3% annual rate in Q1.

• Compensation growth revised up meaningfully, especially in manufacturing.

• Unit labor cost growth revised up on upward compensation revision.

Nonfarm business sector productivity fell at a 7.3% annual rate in Q1, revised from -7.5% in the advance report published in early May. The Action Economics Forecast Survey looked for a 7.5% drop. Compared with a year ago, productivity decreased 0.6%.

Nonfarm business output growth was revised slightly to -2.3% Q/Q annual rate (+4.2% y/y) from the -2.4% reported before. Growth of hours worked was marginally reduced to a 5.4% annual rate in Q1 (+4.8% y/y) from 5.5% initially reported.

Hourly compensation was revised up to 4.4% q/q saar growth from 3.2% in the advance report. Compensation was also revised for Q4 2021 to a 10.5% annual rate of increase from 7.4% reported previously. In Q1, the combination of the 4.4% advance in compensation and the high rate of inflation meant that the Labor Department calculated a decline in real compensation of 4.4%. With the decline in productivity, that meant unit labor costs surged at a 12.6% annual rate (+8.2% y/y), revised from 11.6% initially reported. The Action Economics Forecast Survey had expected no revision in unit labor cost growth. New data for compensation in Q4 showed a 10.5% rate of advance, up from 7.4% reported previously; this led to a 3.9% increase in unit labor costs versus just 1.0% previously reported.

In the manufacturing sector, Q1 output growth was revised to 5.1% from the initial 5.7%. Growth in hours worked was reduced modestly to a 4.9% annual rate (3.4% y/y) from 5.1% initially. This combination led to a moderated reduction in the growth of output per hour to 0.2% (+1.5% y/y) from the previously reported 0.7%. Compensation in manufacturing was revised markedly higher, to a 5.9% rate of increase from 2.8% reported before; also, the Q4 advance in hourly compensation was revised to 9.6% from just 1.1% before. That meant that unit labor costs surged at a 10.3% rate in Q4, well above the 1.7% pace previously reported.

The productivity and labor cost data are available in Haver's USECON database. The expectations figures are in the AS1REPNA database.

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