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Productivity: Higher Even In the Recovery

November 5, 2020

Bottom Line: Productivity was higher in the 3rd Quarter, though slightly lower than expected, as output and hours worked soared as the economy rebounded from the shutdowns for the novel coronavirus. Compensation and unit labor costs slipped as many businesses rehired lower-wage earners who were laid-off during the shutdown. Overall, the economy still produced more per hour worked even during the recovery. Longer-term, the trend rate of productivity may reset modestly higher as the pandemic forced businesses to automate and operate with leaner workforces.

Nonfarm Business Productivity ROSE by 4.9% in 2020 Q3, compared with market expectations for an increase of 5.6%. Productivity is now 4.1% ABOVE its year-ago level.

Output ROSE by 43.5%, in line with the Q3 increase in nonfarm business GDP. With its recent gains, output is still 3.4% BELOW its year-ago level.

Hours Worked ROSE by 36.8% because of the solid gains in private employment and a steady workweek. Hours worked are still 7.2% BELOW their year-ago level.

Compensation FELL by 4.4% and is now 6.7% ABOVE its year-ago level.

Unit Labor Costs FELL by 8.9%, compared with market expectations for a decrease of 11.0%. Unit labor costs are now 2.5% ABOVE their year-ago level.

Article by Contingent Macro Advisors