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Economy in Brief

U.S. Productivity Declines in Q2, Pushing Unit Labor Costs Higher
by Tom Moeller  August 9, 2022

• Annual decline in nonfarm productivity posts record.

• Compensation growth remains strong.

• Unit labor cost growth is highest since 1982.

Nonfarm business sector productivity fell 4.6% (AR) during Q2'22 following a 7.4% Q1 decline, revised from 7.3%. The 2.5% decline during the last four quarters was a record for the series which dates back 1948. The quarterly decline matched expectations in the Action Economics Forecast Survey.

Nonfarm business output declined 2.1% (+1.5% y/y) after a little-revised 2.5% drop in Q1. Hours-worked rose 2.6% (4.1% y/y) after increasing 5.3% in Q1.

Hourly compensation strengthened 5.7% last quarter after increasing an unrevised 4.4% in Q1. As the labor markets tightened, forcing bidding wars to fill job positions, the y/y gain in hourly compensation remained strong at 6.7%. Adjusted for a 9.4% surge in price inflation, real hourly compensation fell 4.4% last quarter, down 1.7% y/y.

The combination of falling productivity and strength in compensation raised quarterly nonfarm business sector unit labor cost growth to 10.8%. It followed a 12.7% gain Q1. The 9.5% y/y increase was increased from a 0.9% low in decline in Q3'19. A 9.8% in costs had been expected in the Action Economics survey.

In the manufacturing sector, output per hour grew 5.5% last quarter (0.4% y/y) following a 1.0% decline in Q1. Hourly compensation increased 4.9% (4.8% y/y) after a 5.8% Q1 increase. Real hourly compensation fell 5.1% (-3.5% y/y). That produced a dip in factory unit labor costs of 0.5% (+4.4% y/y), following a 6.9% Q1 rise.

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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