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 6/6/07 For Q1 Revised 2007 | |||||||||||||||||||||||||
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Highlights
First quarter productivity was revised down to an annualized 1.0 percent from the initial estimate of 1.7 percent. Productivity matched the market consensus projection for a 1.0 percent annualized increase and followed the fourth quarter pace of 2.1 percent. The downward revision in productivity reflected a the sharp downward revision to first quarter GDP from an initial 1.3 percent annualized gain to a nearly flat 0.6 percent. Output in the productivity numbers has many-but not all-components in common with GDP.
For the first quarter, output rose an annualized 0.6 percent after a 2.9 percent increase in the fourth quarter. Meanwhile hours worked edged down 0.4 percent annualized, following a 0.8 percent rise in the fourth quarter. Year-on-year, productivity dropped to up 1.0 percent in the first quarter from up 1.6 percent the prior quarter.
Unit labor costs were revised up sharply to 1.8 percent from the initial estimate of 0.6 percent annualized. First quarter unit labor costs still were down from the 8.9 percent spike in the fourth quarter. The consensus had expected a revision to a 1.5 percent rise in unit labor costs for the first quarter. Year-on-year, unit labor costs are down to up 2.2 percent, compared to up 4.0 percent in the fourth quarter.
Compensation slowed sharply in the first quarter to a 2.8 percent annualized gain from an 11.2 percent surge in the fourth quarter. Year-on-year, compensation is down to up 3.2 percent, compared to up 5.6 percent in the fourth quarter.
Today's report is largely old news but does remind the markets that unit labor costs can bump up in a hurry in a tight labor market. The actual numbers were either on or close to expectations and should have no impact except that the reminder effect could have an impact--especially after yesterday's reminder comments by Fed Chairman Bernanke and the unexpectedly strong non-manufacturing ISM report. If so, rates could nudge up and equities could be under some selling pressure.
Nonfarm productivity in the first quarter came in at an annualized 1.7 percent, down from the fourth quarter pace of 2.1 percent. Unit labor costs decelerated sharply to an annualized 0.6 percent increase, following a 6.2 percent spike in the fourth quarter. With the downward revision to first quarter GDP - from 1.3 percent annualized to 0.6 percent - we can expect a similar downward revision to productivity. Productivity is the ratio of output to hours worked.
Nonfarm Productivity Consensus Forecast for revised Q1 07: +1.0 percent
Range: +0.9 to +1.4 percent
Unit Labor Costs Consensus Forecast for revised Q1 07: +1.5 percent rate
Range: +1.0 to +1.7 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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