1Q Productivity Up

Nonfarm labor productivity last quarter grew slightly less than expected, up 1.6% versus a Consensus estimate for 2.0% growth.

Productivity growth, though slow, accelerated versus 4Q despite slower growth in output. Output rose 1.4% last quarter and 1.7% in 4Q02. Hours worked fell 0.1% after a 0.9% 4Q gain.

Unit labor cost growth decelerated to 1.9% from 3.2% in 4Q. Growth in compensation remained relatively firm at 3.5% versus 3.9% in 4Q. During the last ten years there has been a 60% (inverse) correlation between the year-to-year growth in unit labor costs and after tax operating corporate profits.

Manufacturing sector productivity growth recovered to 2.1% (2.8% y/y) following a 0.5% decline in 4Q. The rise lowered the gain in unit labor costs to 2.7% from 5.9% in 4Q.

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Initial claims for unemployment insurance last week fell less than Consensus expectations. Initial claims fell 2.8% w/w to 448,000. That reversed a 3.1% rise the week earlier which was revised up.

The four-week moving average of initial claims rose to 442,000 (2.3% y/y), the highest level since April of last year.

During the last ten years there has been a 66% correlation (inverse) between the level of initial claims and the month to month change in nonfarm payrolls. The latest claims figures are consistent with a slight decline in April payrolls, to be released tomorrow.

Continuing claims for unemployment insurance rose 3.1% w/w to the highest level since early-October. The prior week's figure was revised down.

The insured rate of unemployment rose to 2.9%, the highest level since early October.

The ISM Composite Index of manufacturing sector activity fell to 45.4 last month. It was the second month the index was below 50 since October and thus indicated another decline in factory sector activity.

Consensus expectations were for a reading of 47.0.

During the last ten years there has been a 51% correlation between the level of the ISM index and the month to month change in factory sector industrial production.

Three of the five composite index's component series declined last month. New orders, employment and the vendor delivery index were down. Production and inventories each rose but just slightly to levels that still suggested contraction.

The separate index of inflation pressure fell for the first month since November. This index is not seasonally adjusted.

The value of construction put in place fell a sharp 1.0% in March versus consensus expectations for a slight rise. The slight decline in February spending was revised to a slight rise.

Lower levels of public and of nonresidential construction recently accounted for much of weakness in total construction spending.

In constant 1996 dollars, overall construction spending fell 1.1% (-2.0% y/y) in March. Real public spending fell 3.6% (-2.9% y/y). Real nonresidential activity fell 0.2% (-11.8% y/y).

In addition to those declines, growth in residential building expenditures slowed appreciably. In March, real residential spending was unchanged following a 0.2% February gain. Year-to-year growth fell to 5.0% from a high of 8.5% at the end of last year.