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Q4 Productivity & Costs: Steady Gains in Compensation

May 4, 2017
Bottom Line: Productivity fell, according to the preliminary reading for the 1st Quarter. However, there strong upward revisions to the prior quarter. Year-on-year growth in productivity is holding steady just over 1%, while unit labor costs and overall compensation continues to accelerate modestly. Unit labor costs have increased by 2.6% annualized over the last eight quarters.

Nonfarm Business Productivity FELL by 0.6% in 2017 Q1, compared with market expectations for a decrease of 0.1%. Productivity is now 1.1% ABOVE its year ago level; as recently as 2009 Q4, productivity was a robust 5.6% ABOVE its year earlier level. This is a typical post-recession pattern with productivity soaring in the late recession/early recovery period before settling back to a more sustainable pace as the expansion lengthens.

Output ROSE by 1.0%, in line with the Q1 increase in nonfarm business GDP. With its recent gains, output is now 2.4% ABOVE its year ago level.

Hours Worked ROSE by 1.6% because of the solid/modest gains in private employment and a steady workweek. Hours worked are now 1.3% ABOVE their year ago level.

Compensation ROSE by 2.4% and is now 3.9% ABOVE its year ago level. Quarterly compensation has been quite volatile recently but the trend has been flat to slightly higher over the past couple of years.

Unit Labor Costs ROSE by 3.0%, compared with market expectations for an increase of 2.7%. Unit labor costs accelerated sharply between 2009 Q4 and 2011 Q1 to 2.8% and then decelerated and are now 2.8% ABOVE their year ago level.