Revised First Quarter Productivity and Unit Labor Cost
Submitted by Atlas Indicators Investment Advisors on June 18th, 2018
Productivity gains were slightly less than initially thought during the first quarter of 2018 according to the Bureau of Labor Statistics (BLS). With more complete information available, it now appears output-per-labor-hour increased 0.4 percent on an annualized basis (originally 0.7 percent). Additionally, unit labor costs were higher than first estimated, rising 2.9 percent (originally 2.7 percent) from 2.5 percent in the fourth quarter of 2017.
Output slowed for a second consecutive quarter and was even slower than first tallied. America’s economy grew 2.7 percent on an annualized basis according to the BLS, falling from 3.7 percent in the fourth quarter and 4.1 percent in the third quarter of 2017. The most recent period’s growth was partially offset by an increase in the revised number of hours worked which climbed 2.3 percent (originally 2.1 percent). When combined, these two components net the 0.4 percent gain in productivity.
Wage increases put upward pressure on unit labor costs. Remember, the BLS calculates unit labor costs by comparing changes in productivity to hourly compensation. Labor productivity gains lead to lower unit labor costs while wage gains cause them to rise. Since productivity rose just 0.4 percent (downwardly revised from 0.7 percent) while hourly wages rose 3.3 percent (originally 3.4 percent), unit labor costs increased more than first calculated, 2.9 percent (originally 2.7 percent).
Productivity was even more lackluster than first thought. Slow improvements in this output-per-labor-hour have plagued the American economy for the entire duration of the current expansion thus far; look at the graph above which does not rise above 2.0 percent on a year-over-year basis after the Great Recession except during the initial rebound. Additional investments in capital equipment by companies could help remedy the lack of productivity. Look for our future notes on durable goods orders to see if additional outlays start to accelerate. A sustained increase in equipment could put the economy into a higher gear.
