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 11/6/08 For Q3 2008 | |||||||||||||||||||||||||
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Highlights
Productivity and labor costs in the third quarter deteriorated, reflecting a drop in output and jump in compensation. Third quarter productivity slowed to an annualized 1.1 percent increase, following a 3.6 percent gain in the second quarter. The third quarter rise was above the market forecast for a 0.8 percent annualized gain. The stronger-than-expected positive number was due to hours worked falling more than output. Meanwhile, unit labor costs rebounded to a 2.3 percent annualized increase, following a modest 0.8 percent rise in the second quarter. The third quarter cost figure was higher than the consensus projections for a 2.8 percent boost.
Compensation per hour jumped 4.7 percent, after a 3.5 percent hike in the second quarter.
Year-on-year, productivity was up 2.0 percent in the third quarter, following a 3.2 percent increase the prior quarter. Year-on-year, unit labor costs in the third quarter stood at up 2.3 percent, compared to up 0.8 percent for the second quarter. Compensation rose 4.3 percent on a year-ago basis - up from 4.0 percent in the second quarter.
The latest productivity and costs numbers largely reflect businesses adjusting to the current recession. Hours worked are being but back as output falls. The jump in compensation is good for consumers but that growth is not likely to last. Overall, the numbers are not good for either equities or bonds.
Nonfarm productivity most recently was revised to an annualized 4.3 percent increase for the second quarter while unit labor costs were revised to a 0.5 percent annualized decline. But the third quarter is likely to not be nearly as good. The advance figure for third quarter GDP was a minus 0.3 percent and this strongly suggests that the output component of productivity will be flat to slightly negative. But employers have been cutting back on jobs and worker hours and that may keep productivity from slowing too much.
Nonfarm Productivity Consensus Forecast for initial Q3 08: +0.8 percent annual rate
Range: -0.1 to +2.2 percent annual rate
Unit Labor Costs Consensus Forecast for initial Q3 08: +2.8 percent annual rate
Range: +0.3 to +4.8 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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