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Productivity: Decline As Labor Costs Jump

May 5, 2022
Bottom Line: The preliminary reading of productivity and costs for the 1st Quarter showed a sharp drop in productivity as output fell but hours worked, and wages continue to increase. Output fell 2.4%, while hours worked increased 5.5%. 1st Quarter marked the first quarterly decline in output since the historic drops in 2020, but hiring and hours worked continued to grow. To a large extent, the negative output calculation, primarily due to lower inventories and trade, skews the productivity artificially lower. Real final domestic demand grew in the 1st Quarter, and thus businesses continued to hire and increase hours. Looking through these anomalies and the pandemic volatility, the labor productivity index was 2.6% higher in 1Q22 than in 4Q19, corresponding to an annual labor productivity growth rate of 1.1% during that period.
Nonfarm Business Productivity
FELL by 7.5% in 2022 Q1, compared with market expectations for a decrease of 5.3%. Productivity is now 0.6% BELOW its year-ago level.

FELL by 2.4%, in line with the Q1 increase in nonfarm business GDP.  With its recent losses, output is now 4.2% ABOVE its year-ago level.
Hours Worked ROSE by 5.5% because of the solid gains in private employment and a steady workweek. Hours worked are now 4.8% ABOVE their year-ago level.
Compensation ROSE by 3.2% and is now 6.5% ABOVE its year-ago level.
Unit Labor Costs ROSE by 11.6%, compared with market expectations for an increase of 10.0%.  Unit labor costs are now 7.2% ABOVE their year-ago level.
Article by Contingent Macro Advisors