Lack Of New Equipment Investment Sends Productivity Down

Productivity remains a key weakness of the economy and is especially evident during the low output of the first quarter. The second estimate of first-quarter nonfarm productivity came in at a quarter-to-quarter annualized decline of 0.6 percent. Output during the quarter rose 0.9 percent but the increase was outmatched by a greater increase for hours worked, up 1.5 percent. Not only did hours exceed output, compensation rose at the same time, up 3.9 percent to lift unit labor costs by 4.5 percent.

Trends in the data show less weakness with year-on-year productivity up 0.7 percent and unit labor costs up 3.0 percent. Here output, up a year-on-year 2.3 percent, exceeds hours worked, up 1.6 percent. Compensation is up a year-on-year 3.7 percent with unit labor costs up 3.0 percent.

American workers did not perform well in the first quarter, reflecting to a significant decline lack of business investment in new equipment.

Recent History Of This Indicator:
Helped by a small upgrade to otherwise very weak output growth, the second estimate for non-farm productivity is expected to be revised to minus 0.6 percent vs minus 1.0 percent in the first estimate. Low output combined with rising compensation inflate unit labor costs which are expected to come in unchanged, at a revised rise of 4.1 percent. Troubles for productivity, described last month as "miserable" by Fed Chair Janet Yellen, reflect weak investment in new machinery and are a stubborn and central negative of the current economic cycle.