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Economy in Brief

U.S. Productivity's Decline in Q4 Reverses Q3 Strength
by Tom Moeller  February 4, 2021

• Nonfarm worker productivity posts deepest drop in forty years.

• Compensation increases moderately.

• Unit labor costs surge.

Nonfarm business sector productivity declined 4.8% (SAAR, +2.5% y/y) during Q4'20 following a 5.1% Q3 surge, revised from 4.6%. That followed a 10.6% Q2 increase. A 2.8% decline had been expected in the Action Economics Forecast Survey. It was the largest quarterly decline since Q2 1981. The volatility left annual productivity growth at 2.6%, the biggest increase for any year since 2007. Real output improved 5.3% (-2.7% y/y) following a 44.1% Q3 surge, revised from 56.2%. Hours-worked strengthened 10.7% (-5.0% y/y) after increasing 37.1% in Q3, revised from 30.3%. The decline in productivity raised unit labor costs by 6.8% (5.2% y/y) which offset a 7.0% Q3 decline, revised from -6.6%. A 3.7% rise had been expected. Hourly compensation rose 1.7% (7.8% y/y) after falling a little-revised 2.2%.

Factory sector productivity increased 3.0% (2.1% y/y) following a record 20.2% Q3 gain, revised from 19.9%. Durable manufacturing productivity rose 5.3% (2.7% y/y) after surging 48.1% while nondurable manufacturing productivity held steady (0.8% y/y). Total manufacturing unit labor costs declined 2.4% (+6.5% y/y) following a 12.4% drop during the third quarter, revised from -12.1%. Compensation edged 0.5% higher (8.7% y/y) following four quarters of strong growth.

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

Productivity & Costs (SAAR, %) Q4'20 Q3'20 Q2'20 Q4'20 Y/Y 2020 2019 2018
Nonfarm Business Sector
Output per Hour (Productivity) -4.8 5.1 10.6 2.5 2.6 1.7 1.4
Compensation per Hour 1.7 -2.2 24.3 7.8 7.0 3.6 3.4
Unit Labor Costs 6.8 -7.0 12.3 5.2 4.3 1.9 1.9
Manufacturing Sector
Output per Hour (Productivity) 3.0 20.2 -13.7 2.1 -0.2 0.1 0.4
Compensation per Hour 0.5 5.3 24.5 8.7 7.2 2.9 2.1
Unit Labor Costs -2.4 -12.4 44.3 6.5 7.4 2.8 1.7
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