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2008 Economic Calendar |
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Resource Center » U.S. & Intl Recaps | Release Dates | Why Investors Care | Today's Calendar
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Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends. Why Investors Care
| Released on 9/6/06 For Q2 Revised 2006 | |||||||||||||||||||||||||
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Highlights
Nonfarm productivity in the second quarter was revised up to 1.6 percent from the initial estimate of a 1.1 percent rise annualized and was in line with the consensus projection of a 1.5 percent annualized increase. This upward revision largely reflects the upward revision to second quarter GDP from 2.5 to 2.9 percent but showing up in the nonfarm business sector. Output in the nonfarm business sector rose a revised 3.1 percent while hours worked increased 1.5 percent annualized in the second quarter.
Second quarter unit labor costs were revised up sharply to a 4.9 percent increase from the initial 4.2 percent estimate and the 9.0 percent jump in the first quarter. Real compensation (inflation adjusted) rose at a 1.6 percent rate - a little higher than the original 0.4 percent annualized estimate. Nominal compensation costs were revised up sharply - to an annualized 6.6 percent from the initial 5.4 percent and compared to the first quarter's annualized 13.7 percent spike. The recent gains in nominal compensation costs are the most disconcerting part of the report.
On a year-on-year basis, productivity still edged down to 2.5 percent in the second quarter from 2.7 percent in the first quarter. Unit labor costs continue to worsen with a surge to 5.0 percent year-on-year from 3.6 percent in the first quarter. Nominal compensation costs are up 7.7 percent year-on-year from 6.4 percent in the first quarter.
Today's report was mixed for equities and bonds with the upward revision to productivity being favorable but the upward revision to unit labor costs being a negative. Overall, the negatives outweighed the productivity gain. For equities, the wage pressures are a problem. Either compensation gains are passed along to the consumer - putting pressure on the Fed to resume interest rate hikes - or the labor costs eat into profits.
The Fed continues to rely upon productivity gains to help contain inflation. In the initial estimate for the second quarter, nonfarm productivity slowed to a 1.1 annualized percent rise from a revised 4.3 percent jump in the first quarter. With the upward revision to second quarter GDP we should see a modest upward revision in the productivity figure. Even so, unit labor costs are still quite high with an initial estimate of 4.2 percent annualized in the second quarter and this is not likely to be revised down dramatically.
Nonfarm Productivity Consensus Forecast for revised Q2 06: 1.5 percent
Range: 1.3 to 2.0 percent
Unit Labor Costs Consensus Forecast for revised Q2 06: 4.0 percent rate
Range: 3.2 to 4.9 percent rate
![[Chart]](chart.gif)
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Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates. |
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