U.S. Worker Productivity Declines and Drives Up Costs

Nonfarm business sector productivity for Q4'12 declined 2.0% (SAAR, +0.6% y/y) and reversed virtually all of the 3.2% increase during Q3, revised from 2.9%. A 1.0% decline has been expected. That left the 1.0% gain for all of last year down sharply from the roughly 3.0% annual increases during the two years immediately following the last recession. Lower productivity growth last quarter was accompanied by a quickened 2.4% rise (2.6% y/y) in compensation per hour. Nevertheless, for all of last year compensation growth slowed to 1.7%, its weakest since 2009. This combination of lower productivity and high compensation caused unit labor costs to jump at a 4.5% annual rate (1.9% y/y). Declines during the prior two quarters, however, left the full year increase at a modest 0.7%.

In the factory sector, the productivity picture was more encouraging. The modest 0.5% rise (1.3% y/y) in productivity reversed the Q3 decline. Nevertheless, the 2.0% full year increase was down from 2.5% in 2011 and 6.4% in 2010. Compensation growth decelerated to 1.0% (4.7% y/y) but the four quarter increase surged to 4.7%, its fastest since Q2'09. The full year 2.4% rise followed a 2.6% gain in 2011, both of which were slower than the 8.0% increase in 2003. The improvement in productivity dropped the gain in unit labor costs to 0.4%, its weakest in a year. As a result, the full year gain in costs was a modest 0.4%.

The productivity & cost figures are available in Haver's USECON database.