Productivity Slows At Fastest Pace In A Year As Labor Costs Soar

Tyler Durden's picture

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:

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LawsofPhysics's picture

Let me guess, it's the weather.

GetZeeGold's picture



I'll take Obamacare for a thousand Alex.

fonzannoon's picture

I posted this last night but it is worth the repost. Someone emailed me this, pretty good summary of where things are really at.

""In the last 10 years, the number of industrial robots is up 72%, while the number of US manufacturing jobs is down 16%."

Corporate America is done with the middle class. They have only the politicians now but they dont realize it yet. 60 years ago we reached the peak and end of the industrial revolution- at that time workers were very important to making this current new age happen and they had a lot of bargaining power on how much to get paid from the 1% in order to create the robot class that would replace them soon enough. And then about 30 years ago we created the service economy as a gentle way of absorbing all these people in a way that was convenient for everyone while the robots did all the backbreaking labor. 2008 was the end of the service economy era because from now on we are gearing up for robots to be doing even those jobs. 

And everyone is attached to the idea that they have some kind of bargaining power with society on how much their labor is worth but in reality its only those whose jobs can probably never be done by robots. Corporate america is done with it though, the service economy handout is over. There is not going to be anything else, corporate america is no longer a holistic part of society which people give to and take from, it is now a separate entity staffed by a small ownership/manager/innovator class of society to meet the consumer needs of the welfare class. So people are on their own and all they have is their meaningless vote. If only they knew they had the all the bargaining power in the world because their faith in their FRNs is what keeps the world turning. Imagine what leverage that is..."

LawsofPhysics's picture

Yes, yes, many of us have been saying this for quite some time...

"Full faith and credit"

As in no more faith means no more credit for you motherfucker.

fonzannoon's picture

You know the only thing that makes my days enjoyable lately are posts that end with motherfucker. Still gets me to crack a smile.

LawsofPhysics's picture

It is what it is.  I know you have PMs like most around here.

Just hang in there and wait for the new "fiat du jour" to be announced.  I doubt that you will have any problems exchanging PMs for it one way or another.

GetZeeGold's picture



Now you understand the need for Common Core math.

Falconsixone's picture

Yes. Feel free to work for 8.75hr. You just need to cut back on your "I have a dreams"and stop eating. Better buy a sleeping bag too.

Bangin7GramRocks's picture

All true, but the eternal question is this. Who will have money to buy the shit made by and served by these robots?

plane jain's picture

Race to the bottom.  I thought this way when I first started working around 1990.  

If businesses don't employ people and pay them, who will be left to buy their products? If production is offshored, functions are outsourced, and skilled workers are imported all in pursuit of lowest costs/highest profits and all parties pursue this, by choice or by necessity, doesn't the market for goods and services shrink in proportion? 

The US consumer market has been propped up with consumer debt and government spending/debt.  I don't know what the ultimate limit is on that, but it sure seems like we must be getting close.  Then OTOH there are finite limits to physical resources.

What can't continue won't continue.

I'm all for raising the minimum wage.  It is apparent that businesses (especially big ones on the government dole) will spend as little as possible on wages.  The idea that more people get to have jobs when wages are low doesn't mean much when the employees of those low wage employers (and therefore the employers themselves) are subsidised by government.  Why not put more of our funny munny in the hands of workers until the party is over?


daveO's picture

In 1992, Ross Perot was running against 'free-trade' with Mexico. My granddad, a sixth grade graudate, understood it. He said, 'how many Mexicans are going to be able to buy US goods?'. Look at the deficits we've run since then, not including all the illegal immigrants who took the jobs that are paying below welfare! It was all for the corporations' bottom line.  

James_Cole's picture

All true, but the eternal question is this. Who will have money to buy the shit made by and served by these robots?

The wrong way to look at it, economics is a system made up by humans and it doesn't apply to future systems. People get so anxious about the idea of robots taking their jobs and no doubt that's justified. But software / hardware will replace everyones job - the sooner this is recognized as a good thing the better.

Capitalism is a march toward efficiency but too much efficiency is a major problem to its function, a fatal flaw but so what? Get a new system. 

Do you use much software that replaced a job of days goneby where you think, damn the old way was so much more efficient!

daveO's picture

We don't have Capitalism. Artificially low interest rates steal future growth. Rates have been too low for most of the last 40 years. This is the same time period  most jobs have been offshored.  An example is how corporations are now pumping their stocks instead of investment. The debt has gotten so far out of control that it is has created a positive feedback loop for the buzzards on top, and a negative one for everyone else. That's a recipe for revolt. Let them eat cake!

James_Cole's picture

Sure, whatever you want to call it. I just mean there's no economic system currently on hand which really addresses the above issue. 

Comte d'herblay's picture

The other day our local radio talk show person was bemoaning the lack of Veteran's Administration attention to the Veterans. Chastising who knows who. Veterans called in about waiting 3-4 years to get benefits started. 

When I submitted an e-mail to him that there is a simple solution to this problem with grossly negligent employees and managers (who themselves come from former soldiers veterans themselves) he couldn't guess what it is.

These issues have been known for 40 years about the appalling treatment veterans have been subjected to when they get any at all.

So what is the solution going forward and for those still in good health in the armed forces?

It's the same solution, roughly,  that can be employed by those living in the desert who have no water. 

Hint:  If only they knew they had the all the bargaining power in the world....

When an 18 yr old decides to sign up for the armed forces he/she/it has every opportunity do the one thing that would turn the Veteran's Admenstruation into a top notch medical facility, the envy of Johns Hopkins.  

Don't Fucking Volunteer!!!!!

Once that happens en masse by thinking potential warriors, watch how fast their post military life changes for the better, if not the ideal.

Human beans do not understand how a fraction of them, say a couple million have, to effect meaningful change. 


Gaius Frakkin' Baltar's picture

Easier said than done. Many of these young people have no choice. They have their brains baked for 13+ years in the socialist education camps and when they get out they have no real skills or opportunities. It's either physical servitude to Uncle Sam (boot camp), financial servitude to Uncle Sam (“higher education”) or "Would you like fries with that?" At 18, much of the blame still falls on the parents.

James_Cole's picture

They have their brains baked for 13+ years in the socialist education camps and when they get out they have no real skills or opportunities. It's either physical servitude to Uncle Sam (boot camp), financial servitude to Uncle Sam (“higher education”) or "Would you like fries with that?" At 18, much of the blame still falls on the parents.

Sounds well grounded in facts and not at all something you just pulled out of your ass. 

Comte d'herblay's picture

I don't understand how blame falls on parents for everything that a child does. Surely, somewhere along the line a student knows he's getting a fifth rate education or worse.  And then doing something about it. 

Arguably, that kid would be better off in a 'Fries with that situation' than being injured, maimed, incapacitated, and then having to enter the V.A. 

Ditto, Financial servitude, and owing money for school loans.  

There's  really only one economic solution to anything:  Cut the Supply while demand is stable or rising.  All sorts of good stuff happens when the supply is turned down or off.

A tool that is sorely lacking in the Military and practically every other venue. 

daveO's picture

The FED has financed this takeover. End the FED. 

Falconsixone's picture

It just dried up. Sorry. I don't know what happened, It was so busy a minute ago. We're going to have to lay you off. One bright spot though in that the people at the top are working hard on it and will retain their jobs to get to the bottom of this problem. See ya

Sudden Debt's picture

Actually, LACK OFF!

Now that it finally stopped snowing, people want to enjoy their free time!

Why work?

Remember, next year it could snow again so why miss out on the fun now?

Zirpedge's picture

"Weather" my good man, this drop in productivity is due to the ingendered resentment of the American working class. They are so sick and tired of being sick and tired that they don't even know why they show up to work anymore. That when we can all just get face tattoo's and qualify for disability. This frees up time to pursure our real passion for knitting and making handcrafts on the sidewalks of our dilapidated downtown.

plane jain's picture

On productivity: too much stick, not enough carrot.  How many people are since the downturn doing their job pluse one or two more piled onto them after layoffs?  At first one is likely to buckle down and be glad to still be employed, but wages are flat, so how long will you willingly carry that kind of workload?  Because you know by now that your employer isn't going to refill those shed positions.

Zirpedge's picture

Yes, first the carrot and then show them the stick. The lack of productivity is a sign of bloat at the top with fewer and fewer working trying to pull the same bloated cart. If you want to cut the fat, start at the top, it's motivational for middle management.

AdvancingTime's picture

After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. The article below delves deeper into some of the ways inflation hides away.

Comte d'herblay's picture

The seeds have grown like Squash and corn, you can actually hear their cells multiplying like cancer.

"Appears"  is the operative word in that post.

To those without rose colored glasses, the 'appearance' of tame inflation vanishes like a mirage the closer you look at it. 

youngman's picture

The reason labor costs went up per unit is that they had to shovel all the snow off the product before they could manufacture it..

Seasmoke's picture

Why would you hire a new worker ???

GetZeeGold's picture



To spread the wealth around?

Sudden Debt's picture

In a way yes.

Look, if you feed a horse some grain, some of the grain will end up in the horse shit.

And that grain is for the birds.

It's called trickle down effect.

oh... and we're the birds...

Ignatius's picture

See the language there?  We're not citizens and workers but 'units of labor'.

"Back to work, units" takes on a whole new meaning, though in my time it was a more vulgar reference.

MFL8240's picture

How about we get rid of this bum and try to fix our country?  This man and his team of anti-Americans have tried their best to destroy American along with the help of the Federal Reeserve and the Wall Street and Corporate whores  so,  how about we say enough and replace and retool our country for our families with real leaders and real jobs?  Lets get back to being the best and buying only American when we can!!  This goverment is no longer by and for the people its time we replace them and find people like Rand Paul and Ted Cruz to help put things back into  constitutional and free America!

Billy Sol Estes's picture

Yeah lets put one of them goddang Republicans in office, they'll fix shit right up!

GetZeeGold's picture



Nost of those guys are progressives.....hows that gonna work?

Zirpedge's picture

Vote Republican because Obama. Is Sheldon Adelson going to back Rand Paul or Ted Cruz? Both are neocons btw...just sayin.

blabam's picture

"This goverment is no longer by and for the people" no shit. 

GetZeeGold's picture



You gotta think George Washington is in heaven spiking the football.

Sach Mahoney's picture

Well, if we are to believe these numbers at all, are we also to believe the revisions? The idea of looking at today's economic data released by any Gov't and Gov't agency as credible data is absolutely laughable. Gov'ts worldwide are making this shit up as they go.   There is no way with so much unemployment worldwide that things are as good as the "numbers" suggest.  What a crock.  

HardAssets's picture

Some morons will probably blame this on 'lazy American workers'.

Productivity is a function of the investment in real capital.

How much of that has been going on in America ?  (Shipping it offshore ain't working, is it ?)

As with many other things, you can lay blame for this on the banksters' fiat theft system. It destroys capital & real economies.

ms8172's picture

And GOLD get's smashed down.  (of course)  what am i thnking.

blabam's picture

Prior to this news of course.

SheepDog-One's picture


Uncle Remus's picture

Pretend to pay, pretend to work.

AdvancingTime's picture

This all comes back to what is really happening within the economy. How do we reconcile the April jobs report that showed 288,000 jobs being created and 806,000 people dropping from the work force with economic reality? The question then arises as to how this will spill over to economic policy.

My take on the recent jobs report is that as spring comes upon us ever optimistic and more desperate Americans are being pushed into making a decision as to whether to leave the work force or take a lower paying job that is often part time. Yes, people are busy scurrying around, but it should be clarified not at a fast pace. More on why we should not be overly excited about this report in the article below.