Productivity Drops, Output Rises

Output picked up in the second quarter but not quite as much as hours worked or compensation. Productivity fell 0.5 percent in the quarter for the third decline in a row. This is the longest negative streak in the history of this report which goes back to just after WWII.

Unit labor costs rose 2.0 percent but, in a plus, were revised sharply lower in the first quarter which now shows a rare decline at minus 0.2 percent. But most readings in this report are not positive including the year-on-year rate for productivity which is down 0.4 percent for the first decline since second-quarter 2013. In an unfavorable contrast, year-on-year unit labor costs are up 2.1 percent.

Lack of business investment is unfortunately a central negative of this cycle and it results in weakening productivity for the nation. Americans are working more hours but production isn't keeping up.

Recent History Of This Indicator:
First estimate for second-quarter non-farm productivity is expected to improve from a very weak first quarter with the consensus pointing at a plus 0.5 percent annualized rate and benefitting from a slightly higher but still weak rate of output. An improvement in output would hold down unit labor costs which are forecast to rise 1.8 percent, far lower than the 4.5 percent and 5.4 percent surges of the prior two quarters.