Worker Productivity Rises Slightly, Costs Move Higher

An upgrade for fourth-quarter output, first indicated by last week's second estimate for fourth-quarter GDP, gave productivity a lift and brought down unit labor costs. But productivity is still in the contraction column, at an annualized rate of minus 2.2 percent vs an initial estimate of minus 3.0 percent, while labor costs rose at annualized 3.3 percent vs an initial estimate of 4.5 percent. Output as measured in this report rose at an annualized 1.0 percent in the quarter vs an initial estimate of only plus 0.1 percent. Compensation was revised lower, down 2 tenths to an annualized plus 1.1 percent which also brought down revised labor costs. The fourth quarter was a weak one and early indications on first-quarter growth are much more positive. Further strength in growth would help improve productivity and help bring down costs.

Recent History Of This Indicator:
Pulled down by low output and a rise in hours worked, non-farm productivity fell into annualized contraction of minus 3.0 percent in the first estimate for the fourth quarter. Forecasters expect productivity to be revised only slightly to minus 3.2 percent in the second estimate. Weak output together with a 1.3 percent rise in compensation lifted unit labor costs to plus 4.5 percent with the second estimate seen at plus 4.7 percent. The lack of output during the fourth quarter gave this report a very weak baseline and relative strength in the first quarter points to ongoing improvement for productivity and ongoing easing in labor costs.