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Productivity Up, Unit Labor Costs Down

August 11th, 2009 Michael McDonough

Productivity rose 6.4% in 2Q09 compared to a consensus forecast of 5.5%. This is the biggest gain since 2003.  The drop was due to the amount of hours worked declining faster than output. At the same time, unit labor costs fell -5.8% versus a consensus forecast of -2.8%. In face the of lay-offs and reduced capital expenditures, higher productivity has been one of the few forces helping to support corporate profits.  What higher productivity boils down to is that companies are able to get more for less.  Productivity should remain elevated for at least the next several quarters.  Higher productivity along with lower unit labor costs should also help to reduce any potential inflationary pressure over the coming month’s given the fed’s lax monetary policy.

From BLS:

%Change previous Quarter
Productivity Output Hours Hourly
Comp.
Real Hourly
Comp.
Unit Labor
Costs
Business 6.3 -1.8 -7.5 0.1 -1.2 -5.8
Nonfarm business 6.4 -1.7 -7.6 0.2 -1.1 -5.8
Manufacturing 5.3 -9.9 -14.4 5.8 4.4 0.5
Durable 3.9 -16.5 -19.6 8.7 7.3 4.7
Nondurable 2.0 -3.4 -5.3 2.0 0.7 0.0
%Change from a year ago
Productivity Output Hours Hourly
Comp.
Real Hourly
Comp.
Unit Labor
Costs
Business 1.9 -5.4 -7.1 1.1 2.1 -0.7
Nonfarm business 1.8 -5.6 -7.3 1.3 2.2 -0.6
Manufacturing -1.3 -15.0 -13.9 6.0 7.0 7.4
Durable -5.0 -21.1 -16.9 7.1 8.1 12.7
Nondurable -0.2 -8.9 -8.6 4.9 5.9 5.1
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