Labor Costs Rise, Productivity Flat

Compensation for the second quarter is now revised sharply higher, to an annualized 3.7 percent from an initial 1.5 percent which makes for a doubling in unit labor costs from their initial estimate, to 4.3 percent from 2.0 percent.

Other readings in the second estimate are steady with productivity down 0.6 percent as expected. Output rose 1.1 percent but it took a 1.7 percent rise in hours worked to accomplish the gain.

Higher wages are a plus for the consumer and for consumer spending but wage gains without productivity gains are a negative for the economy and also point to lack of available slack in the workforce, a point that won't be missed by Federal Reserve policy who meet later this month to consider a rate hike. Productivity has declined for three quarters in a row in one of the worst streaks for this reading in the history of the U.S. economy, weakness that can ultimately be blamed on lack of investment in new equipment.

Recent History Of This Indicator:
Second estimate for second-quarter non-farm productivity is expected to hold little changed, at a minus 0.6 percent annualized rate with unit labor costs also little changed, at plus 2.1 percent. Workers are producing more but it's taking them longer and longer to do it, largely reflecting reluctance among businesses to invest in new equipment. Expectations for faster GDP growth point to improvement in productivity for the third quarter.