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Economy in Brief

U.S. Labor Productivity Decline The First Since 2008
by  Tom Moeller August 10, 2010

Labor productivity fell last quarter. A modest uptick had been expected, but the drop is a natural result of slower output growth coupled with a faster increase in labor hours worked. Nonfarm business sector productivity fell 0.9% (AR) following an upwardly revised 3.9% 1Q increase. It was the first productivity decline since 4Q08 and was accompanied by modest, downward annual revisions back to 2007. Nevertheless, productivity's 3.9% rise during the last four quarters remained up from growth rates during the last seven years. New technologies, improved work techniques and improved labor skill-sets continue to pay dividends.

Last quarter's decline in productivity was the function of a halving in output growth to 2.6% (3.9% y/y) and a tripling to 3.6% (-0.0%) in growth in hours worked.The combination overwhelmed the modest quarterly decline in compensation costs of 0.7% and caused unit labor costs to rise a slight 0.2% after three consecutive quarterly declines. The four-quarter decline in costs of 2.8% still was near the largest on record.

In the factory sector alone, worker productivity growth remained robust at 4.5% (7.2% y/y), up from a 1.2% gain during 1Q. The pickup occurred as output rose at an accelerated 8.3% rate (8.3% y/y) and growth in hours-worked rose just 3.6% (0.8% y/y) following a 5.7% 1Q increase. Compensation fell for the second consecutive quarter (+0.1% y/y). The combination of the rise in productivity and the slip in compensation lowered unit labor costs to a 6.1% rate (-6.9% y/y), the most on record.

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

Future Recession Risks from the Federal Reserve Bank of San Francisco can be found here.

Nonfarm Business Sector (SAAR,%) Q2'10 Q1 '10 Q4 '09 Q2 Y/Y 2009 2008 2007
Output per Hour (Productivity) -0.9 3.9 6.0 3.9 3.5 1.0 1.6
Compensation per Hour -0.7 0.0 1.5 1.0 1.9 3.3 4.0
Unit Labor Costs 0.2 -3.7 -4.2 -2.8 -1.6 2.2 2.4
Manufacturing Sector
Output per Hour 4.5 1.2 8.1 7.5 2.0 -0.7 3.4
Compensation per Hour -1.9 -5.0 4.4 0.1 5.2 4.0 3.3
Unit Labor Costs -6.1 -6.2 -3.5 -6.9 3.1 4.7 -0.1
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