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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 11/2/06 For Q3 2006 | |||||||||||||||||||||||||
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Highlights
Nonfarm productivity growth came to a halt in the third quarter while labor costs remained at a strong pace. Nonfarm productivity in the third was flat (no change), down from 1.2 percent in the second quarter. The consensus had expected a 1.0 percent rise for third quarter productivity. Output in the nonfarm business sector rose 1.6 percent while hours worked also increased 1.6 percent annualized in the third quarter.
Third quarter unit labor costs came in at a strong annualized 3.8 percent, following an upwardly revised 5.4 percent surge in the second quarter. Second quarter unit labor cost had previously been estimated at 4.9 percent. The consensus had projected a 3.4 percent boost in the third quarter for unit labor costs. Real compensation (inflation adjusted) slowed to a 0.7 percent gain, compared to 1.6 percent in the second quarter. Nominal compensation costs posted a still strong 3.7 percent increase, following a robust 6.6 percent hike in the second quarter.
On a year-on-year basis, productivity fell to a 1.3 percent increase in the third quarter from 2.4 percent in the second quarter. Unit labor costs edged up to 5.3 percent year-on-year gain from 5.1 percent in the second quarter. Nominal compensation costs slipped to 6.7 percent year-on-year from 7.7 percent in the second quarter.
Today's report is a condensed version of the issues facing the economy. Output growth is slowing while costs are still strong. This is not a good combination. Even the strong nominal compensation numbers are not that great after inflation adjustment. But some of these problems have already been set aside by declining energy costs and forecasts by some for a rebound in housing and the consumer sector. Clearly, real compensation costs will improve next quarter due to lower energy costs. Output will improve if the optimistic forecasts come true and productivity will rebound. But the strong labor costs remain an issue - keeping in mind that changes in labor costs lag the rest of the economy in the business cycle. But there is not a strong consensus that the economy will improve without help from the Fed. Basically, we are seeing remaining balanced risks for weak economic growth yet possibly too high inflation. This report likely keeps the Fed on hold.
Nonfarm productivity in the second quarter slowed to 1.6 percent from 4.3 percent in the first quarter. Unit labor costs in the second quarter remained very strong at a 4.9 percent annualized increase even though it was notably down from the 9.0 percent annualized spike in the first quarter. These kinds of numbers cannot continue without putting a squeeze on profits.
Nonfarm Productivity Consensus Forecast for initial Q3 06: 1.0 percent
Range: 0.0 to 1.5 percent
Unit Labor Costs Consensus Forecast for initial Q3 06: 3.4 percent rate
Range: 2.1 to 4.0 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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