Productivity Slows At Fastest Pace In A Year As Labor Costs Soar
Non-Farm productivity fell most in a year at 1.7% in Q1 - notably worse than the 1.2% drop that was expected. Output growth slowed dramatically and real compensation also fell.
However, unit labor costs surged 4.2% (its most since Q4 2012) as unit non-labor costs tumbled 2.7% (its worst since Q4 2012).
From the report:
Unit labor costs in nonfarm businesses increased 4.2 percent in the first quarter of 2014, due to both the decline in productivity and a 2.4 percent increase in hourly compensation. Unit labor costs increased 0.9 percent over the last four quarters. (See chart 2 and tables A and 2.)
BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.
Curiously, the Manufacturing sector did not see the collapse in productivity or the spike in compensation as productivity increased 3.3 percent in the first quarter of 2014, while output increased 1.8 percent and hours worked decreased 1.4 percent. (See chart 3.) Productivity increased 3.6 percent in the durable goods sector and increased 2.5 percent in the nondurable goods sector. Over the last four quarters, manufacturing productivity increased 2.2 percent, as output increased 2.4 percent and hours increased 0.2 percent. Unit labor costs in manufacturing increased 0.1 percent in the first quarter of 2014 and declined 0.2 percent from the same quarter a year ago. (See chart 4 and tables A and 3.)
As for the spin, why - who better to give it than LaVorgna:
— Joseph A. LaVorgna (@Lavorgnanomics) May 7, 2014
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