Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends. Why Investors Care
| Released on 5/3/07 For Q1 2007 | |||||||||||||||||||||||||
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Highlights
Productivity and labor costs came in better than expected. First quarter productivity came in at an annualized 1.7 percent, down from the fourth quarter pace of 2.1 percent. Productivity came in notably above the market consensus projection for a 0.5 percent annualized increase. The slower growth in productivity reflected a deceleration in output. For the first quarter, output rose an annualized 1.4 percent after a 2.9 percent boost in the prior quarter. Meanwhile hours worked edged down 0.3 percent annualized, following a 0.8 percent rise in the fourth quarter. Year-on-year, productivity dropped to up 1.3 percent in the first quarter from up 3.4 percent the prior quarter.
Unit labor costs decelerated sharply to an annualized 0.6 percent increase, following a 6.2 percent spike in the fourth quarter. The consensus had expected a 3.9 percent rise in unit labor costs for the first quarter. Year-on-year, unit labor costs are down to up 1.3 percent, compared to up 3.4 percent in the fourth quarter.
Compensation eased sharply in the first quarter to a 2.3 percent annualized gain from an 8.5 percent surge in the fourth quarter. Year-on-year, compensation is down to up 2.4 percent, compared to up 5.0 percent in the fourth quarter.
Today's report is very favorable to bonds and equities. Interest rates eased immediately on news of the improvement in unit labor costs and better than expected productivity. The Fed will like the numbers but will still be in a wait and see mode. Notably, initial jobless claims improved today - highlighting the fact that the labor market is still tight - a key concern for the Fed.
Nonfarm productivity in the fourth quarter rebounded a modest 1.6 percent annualized after declining 0.5 percent in the third quarter. Little improvement is likely in the first quarter given the very modest 1.3 percent rise in first quarter GDP. Many of the output components in productivity come from the same sources as for real GDP. Also, employment has been fairly healthy in the first quarter - pointing to a notable rise in the hours portion of productivity. Nonetheless, the market's focus is likely to be on unit labor costs. Unit labor costs increased an annualized 6.6 percent in the fourth quarter - sharply higher than the 1.1 percent rise in the third quarter.
Nonfarm Productivity Consensus Forecast for initial/revised Q1 07: +0.5 percent
Range: 0.0 (flat) to +2.0 percent rate
Unit Labor Costs Consensus Forecast for initial/revised Q1 07: +3.9 percent rate
Range: 0.0 (flat) to +5.0 percent rate
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Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates. |
| 2007 Release Schedule | ||||||||||||||||||
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