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Productivity: Rebound in 4Q

March 3, 2022
Bottom Line: The final reading of productivity and costs for the 4th Quarter confirmed a sharp increase of 6.6% as hours worked increased just 2.4% but output rose over 9%. This follows a one-off decline in 3Q due to strong hiring. Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons. Thus, it's even more impressive that output and hours worked increased for the sixth consecutive Quarter after the historic declines in the early days of the pandemic. Overall, the trend in productivity continued to move higher in the 4th Quarter after a brief downtick as businesses brought back employees in the 3rd Quarter.
Nonfarm Business Productivity was unchanged, up 6.6% in 2021 Q4, compared with market expectations for a downward revision to an increase of 3.9%. This revision lifted the year-on-year growth rate of labor productivity to 1.9%.     
Output was revised slightly lower, from 9.2% to 9.1%, reflecting the recent adjustment in 2021 Q4 nonfarm business GDP.
Hours Worked was revised down to 2.4% from 2.4%, reflecting the recent revisions to employment.
Compensation was revised modestly higher, from 6.9% to 7.5%. Over the past year, compensation has risen by 5.5%.  As a result of these adjustments, Unit Labor Costs were REVISED UP from 0.3% to 0.9%. Over the past year, unit labor costs have increased by 3.5%.
Article by Contingent Macro Advisors