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 9/6/07 For Q2 Revised 2007 | |||||||||||||||||||||||||
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Highlights
Second quarter productivity was revised up to an annualized 2.6 percent from the initial estimate of 1.8 percent. Productivity came in just above the market forecast for a 2.5 percent annualized increase and followed the first quarter rise of 0.7 percent. The upward revision in productivity reflected the upward revision to second quarter GDP to an annualized 4.0 percent from the initial estimate of 3.4 percent. Output in the productivity numbers has many-but not all-components in common with GDP.
For the second quarter, output rose an annualized 5.0 percent, after a 0.3 percent increase in the prior quarter. Hours worked rebounded 2.3 percent annualized, following a 0.3 percent dip in the first quarter.
Year-on-year, productivity rose to up 0.9 percent in the second quarter from up 0.4 percent the prior quarter.
Second quarter unit labor costs were revised down to 1.4 percent from the initial estimate of 2.1 percent annualized. Second quarter unit labor costs were down from the 5.2 percent boost in the first quarter. The consensus had expected a revision to a 1.5 percent gain in unit labor costs for the second quarter. Year-on-year, unit labor costs are down to up 4.9 percent, compared to up 4.3 percent in the first quarter.
Compensation growth came in at 4.1 percent in the second quarter, following a 5.9 percent boost in the first quarter. Year-on-year, compensation stands at up 5.8 percent, compared to up 4.7 percent in the first quarter.
Today's report is favorable toward inflation trends and seems to fly in the face of tight labor markets. The Fed will be mulling the good current productivity and unit labor cost numbers versus both the still high year-on-year unit labor costs and the still low initial claims at its September 18 FOMC monetary policy meeting. Both the bonds and equity markets will like the productivity numbers but will worry about the claims data.
Nonfarm productivity and unit labor costs for the second quarter showed modest improvement. Second quarter productivity posted a 1.8 percent annualized increase, up from 0.7 percent in the first quarter. Unit labor costs moderated somewhat, rising 2.1 percent annualized in the second quarter, following a 3.0 percent increase in the first quarter. More recently, second quarter real GDP was revised up significantly to a 4.0 percent annualized pace from the initial 3.4 percent estimate. The upward revision to GDP will likely carry over to an upward revision to productivity and downward revision to unit labor costs since the output portion in these numbers depend heavily on the same source data as GDP.
Nonfarm Productivity Consensus Forecast for revised Q2 07: +2.5 percent
Range: +1.0 to +2.6 percent
Unit Labor Costs Consensus Forecast for revised Q2 07: +1.5 percent rate
Range: +1.0 to +2.0 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. |
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