U.S. Q1 Productivity and Unit Labor Cost Growth Revised Down
by:Sandy Batten
|in:Economy in Brief
Summary
- Q1 output per hour growth was revised down to 0.3% q/q saar in the second estimate from 0.8% in the first, reflecting a downward revision to output.
- However, longer-term productivity growth remained solidly well above trend.
- Compensation growth was revised down meaningfully, resulting in a downward revision to unit labor cost growth to 1.8% from 2.3% previously.
Growth of nonfarm business productivity (output per hour) was revised down more than expected in Q1 to 0.3% q/q saar from 0.8% previously and 1.6% in Q4. The Action Economics Forecast Survey expected a 0.7% quarterly increase in productivity. Compared to a year ago, productivity rose 2.8% y/y in Q1 (revised down from 2.9% previously), up from 2.5% in Q4. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.6% annual rate, likely a reflection of AI and other technology advances. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures.
Growth in nonfarm business output (not quite the same as real GDP) was revised down to 1.0% q/q saar in Q1 from 1.5% in the previous estimate. This was in line with the previously announced downward revision in Q1 real GDP growth to 1.6% from 2.0% in the first estimate. Growth in hours worked was not revised at 0.7%. However, compensation growth was revised down markedly in both Q1 and last year’s Q4. For Q1, compensation growth was revised down to 2.1% from 3.1% in the first estimate. The revision for Q4 was even larger with compensation growth revised to 3.7% from 6.3% previously. These revisions in compensation led to similarly large downward revisions to growth of unit labor costs. Unit labor costs rose 1.8% in Q1 versus 2.3% in the first estimate and 2.1% in Q4 versus 4.6% in the previous estimate. Accordingly, the annual rate of growth of unit labor costs slowed to 0.5% y/y in Q1, the slowest annual pace since Q3 2019 and generally supports what former Fed Chair Powell has noted several times: that the labor market is not a source of the recent rise in US inflation.
Manufacturing productivity growth in Q1 was also revised down, to 3.2% q/q saar from 3.6% in the first estimate. However, in contrast to the revision to nonfarm productivity, the downward revision to manufacturing productivity was due to an upward revision in hours worked with no revision to manufacturing output (up 3.3% in both estimates). Hours worked were revised to unchanged from a 0.4% decline in the first estimate. Growth in manufacturing compensation was also revised down to 5.5% from 6.1%. The larger downward revision to compensation than to productivity resulted in the growth in manufacturing unit labor cost being revised down to 2.2% from 2.4% previously. This was down sharply from 8.8% unit labor cost growth reported for Q4, revised down 9.8%.
The productivity and labor cost data are available in Haver’s USECON database. The Action Economics expectations figures are in the AS1REPNA database.
Sandy Batten
AuthorMore in Author Profile »Sandy Batten has more than 30 years of experience analyzing industrial economies and financial markets and a wide range of experience across the financial services sector, government, and academia. Before joining Haver Analytics, Sandy was a Vice President and Senior Economist at Citibank; Senior Credit Market Analyst at CDC Investment Management, Managing Director at Bear Stearns, and Executive Director at JPMorgan. In 2008, Sandy was named the most accurate US forecaster by the National Association for Business Economics. He is a member of the New York Forecasters Club, NABE, and the American Economic Association. Prior to his time in the financial services sector, Sandy was a Research Officer at the Federal Reserve Bank of St. Louis, Senior Staff Economist on the President’s Council of Economic Advisors, Deputy Assistant Secretary for Economic Policy at the US Treasury, and Economist at the International Monetary Fund. Sandy has taught economics at St. Louis University, Denison University, and Muskingun College. He has published numerous peer-reviewed articles in a wide range of academic publications. He has a B.A. in economics from the University of Richmond and a M.A. and Ph.D. in economics from The Ohio State University.
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