2016 Was Just Revised Down To The Worst Year For US Productivity Since 1982

US non-farm productivity rose 0.9% QoQ in Q2, slightly better than the 0.7% growth expected and a notable bounce off the 'zero' in Q1.This rebound was largely due to disappointment in the growth of unit labor costs (which rose just 0.6% in Q2), but saw an outrageous upward revision in Q1 (from +2.2% to +5.4% QoQ).

And while there was no market reaction to the data, the most surprising facet in today's productivity and labor cost report was not the latest, Q2, data which came in slightly stronger than expected on productivity at 0.9% vs the 0.7% expected, and slightly weaker on labor costs at 0.6%, half the 1.2% expected, but the dramatic revisions to the prior quarter data, which pushed Q1 labor costs from 2.2% to a whopping 5.4%, even as productivity remained relatively subdued at -0.1%, down from the original 0.0%.

Normally, the sharp upward revision to labor costs would have been enough to prompt a bounce in yields and the dollar, suggesting hotter than expected all-in comp (including bonuses and benefits in addition to wages), but today the market has bigger things to worry about.

Meanwhile, going back to the elephant in the room, America's moribund productivity growth, as Bloomberg writes, paltry productivity has been a disappointing characteristic of the current economic expansion that’s managed about 2 percent growth on average over the past eight years. Without more gains in efficiency, the economy’s so-called speed limit -- the pace at which it can expand without stoking inflation -- is reduced. Weaker output per hour has its roots in less corporate investment in equipment and a slower pace of innovation. Subdued productivity also helps explain why companies have been slow to boost worker pay that would boost the standard of living.

Other Details

  • Productivity rose 1.2 percent from the second quarter of 2016; unit labor costs, which are adjusted for efficiency gains, were down 0.2 percent from a year earlier

  • Adjusted for inflation, hourly earnings rose at a 1.9 percent rate last quarter, after increasing at a 2.3 percent pace in the first quarter
  • Output rose at a 3.4 percent rate, the fastest since the first quarter of 2015, following a 1.8 percent gain
  • Hours worked rose at a 2.5 percent pace, the most in more than a year, after a 1.6 percent gain; compensation for each hour worked rose at a 1.6 percent annual pace following 5.5 percent
  • Latest rise in productivity compares with the 1.2 percent average over the period spanning 2007 to 2016
  • Among manufacturers, productivity rose at a 2.5 percent rate in the second quarter on gains at durable-goods factories, after a 0.3 percent gain
  • Annual average productivity change for 2016 revised to 0.1 percent decline from 0.2 percent increase, marking first annual decrease since 1982; productivity gains revised upward for 2014 and 2015 to 1 percent and 1.3 percent, respectively.

Now that's a legacy.