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 8/8/08 For Q2 2008 | |||||||||||||||||||||||||
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Highlights
Productivity and labor costs in the second quarter were mixed but still point to cost cutting by companies and an easing in labor cost pressures. Second quarter productivity slowed to an annualized 2.2 percent increase, following a 2.6 percent gain in the first quarter. The second quarter increase was below the market forecast for a 2.7 percent annualized boost. Unit labor costs continued to ease with a 1.3 percent annualized increase, following a 2.5 percent rise in the first quarter. The second quarter number matched the consensus expectation. The weaker gain in productivity was due to less of a drop in hours worked. Hours worked fell an annualized 0.5 percent, following a 1.6 percent drop in the first quarter. Output posted an annualized 1.7 percent advance after rising 0.9 percent in the prior quarter.
Compensation per hour only moderated with a 3.6 percent annualized boost in the second quarter, following a 5.2 percent boost the prior quarter.
Year-on-year, productivity was up 2.8 percent in the second quarter, compared to up 3.3 percent the previous quarter. Year-on-year, unit labor costs in the second quarter stood at up 1.5 percent, up from up 0.3 percent in the first quarter. Year-on-year, compensation per hour in the second quarter was up 4.3 percent, compared to up 3.5 percent in the first quarter.
While the year-on-year rates are not as good as the second quarter numbers, this is primarily due to a somewhat adverse baseline with second quarter numbers in 2007. Recent gains in output have been sluggish but headed in the right direction. The trend on the margin for unit labor costs is a good one in terms of reduced inflation pressures. The bond and equity markets should look on the numbers as favorable but attention initially is focused on the rebound in the dollar - which also should lift equities and bond prices.
Today's report contains annual revisions going back through 2005 but the revisions are very minor and have no impact on productivity trends. For the first quarter of 2008 there was no net change in nonfarm productivity as an upward revision to hours offset an upward revision to output, and productivity increased at the same 2.6 percent rate reported June 4. For 2007, output was revised down from 2.3 percent to 2.0 percent; hours were unrevised at 0.5 percent; and productivity was revised down from 1.8 percent to 1.4 percent. For 2006, output, hours, and productivity were essentially unrevised. For 2005, output growth was revised down marginally while hours were unrevised, leaving productivity revised down slightly from 1.9 percent to 1.7 percent.
Nonfarm productivity has risen recently despite sluggish economic growth as companies have been cutting labor costs. First quarter productivity came in at an annualized 2.6 percent while unit labor costs rose an annualized 2.2 percent. Year-on-year, productivity was up 3.3 percent in the first quarter while unit labor costs stood at up 0.7 percent on a year-ago basis. Second quarter productivity and unit labor costs are likely to follow these trends as output growth has risen (as reflected in Q2 GDP being at 1.9 percent annualized versus 0.9 percent in the first quarter) and labor costs have remained soft.
Nonfarm Productivity Consensus Forecast for initial Q2 08: +2.7 percent annual rate
Range: +2.0 to +3.0 percent annual rate
Unit Labor Costs Consensus Forecast for initial Q2 08: +1.3 percent annual rate
Range: -1.2 to +2.0 percent annual 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. |
| 2008 Release Schedule | ||||||||||||||||||
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