U.S. Productivity Declines in Q2, Pushing Unit Labor Costs Higher
by:Tom Moeller
|in:Economy in Brief
Summary
- 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.
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
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