| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Nonfarm Productivity - Annual Rate | 0.2% | -0.1% to 1.1% | 0.2% | 0.3% |
| Unit Labor Costs - Annual Rate | 4.7% | 2.4% to 5.0% | 4.0% | 4.7% |
Highlights
The revisions for the first quarter data on nonfarm productivity show the index up 0.2 percent after previously being reported up 0.3 percent. The change matches the consensus in the Econoday survey of forecasters. The revision reflects small downward revisions in output and hours worked. First quarter nonfarm productivity is the slowest since down 0.3 percent in the first quarter 2023.
The change in the unit labor costs index in the first quarter is revised down to up 4.0 percent after previously being reported at up 4.7 percent. The change is below the consensus of up 4.7 percent in the Econoday survey. The revision is due to a downward revision in hourly compensation and the revision lower in labor productivity. The increase in unit labor costs is the highest quarterly change since up 7.1 percent in January 2023.
Softer productivity is consistent with the slowdown in growth in the first quarter 2024, while upward pressure on wages has abated only somewhat.
The change in the unit labor costs index in the first quarter is revised down to up 4.0 percent after previously being reported at up 4.7 percent. The change is below the consensus of up 4.7 percent in the Econoday survey. The revision is due to a downward revision in hourly compensation and the revision lower in labor productivity. The increase in unit labor costs is the highest quarterly change since up 7.1 percent in January 2023.
Softer productivity is consistent with the slowdown in growth in the first quarter 2024, while upward pressure on wages has abated only somewhat.
Market Consensus Before Announcement
The second estimate for first-quarter nonfarm productivity is expected to rise 0.2 percent versus a 0.3 percent annualized increase in the first estimate. Unit labor costs are expected to hold at the first estimate increase of 4.7 percent.
Definition
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.
Description
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.
Productivity and labor cost trends have varied over the decades. In the late 1990s, some economists asserted that dramatic productivity advances (based on new technologies) were then allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, some Fed officials expressed skepticism but later decided that productivity gains had helped boost economic growth and potential GDP growth during the 1990s. That is, the economy could grow faster than previously believed without igniting inflation.
Determining the source of productivity gains has become trickier over the last decade as new technology continues to be incorporated into production - not just in the U.S. but overseas also. Similarly, retraining U.S. workers has been sporadic. Not just low skill jobs are outsourced but now many highly skilled jobs such as programming and accounting are as well. Nonetheless, highly skilled professional jobs have been increasingly difficult to fill during times of high demand. Despite the cross currents in labor market trends, long-term productivity gains are important for maintaining growth in labor income and keeping inflation low.
But in the short-term, output and hours worked can shift sharply just due to cyclical swings in the economy. During the onset of recession, output typically falls before hours worked. This can result in a temporary drop in productivity and a spike in unit labor costs. So, while long-term productivity determines the"speed limit" for long-term growth, one should not be misled by short-term cyclical gyrations in productivity numbers as reflecting the true, underlying trend.
Productivity and labor cost trends have varied over the decades. In the late 1990s, some economists asserted that dramatic productivity advances (based on new technologies) were then allowing the economy to sustain a much faster pace of growth than previously thought possible. Initially, some Fed officials expressed skepticism but later decided that productivity gains had helped boost economic growth and potential GDP growth during the 1990s. That is, the economy could grow faster than previously believed without igniting inflation.
Determining the source of productivity gains has become trickier over the last decade as new technology continues to be incorporated into production - not just in the U.S. but overseas also. Similarly, retraining U.S. workers has been sporadic. Not just low skill jobs are outsourced but now many highly skilled jobs such as programming and accounting are as well. Nonetheless, highly skilled professional jobs have been increasingly difficult to fill during times of high demand. Despite the cross currents in labor market trends, long-term productivity gains are important for maintaining growth in labor income and keeping inflation low.
But in the short-term, output and hours worked can shift sharply just due to cyclical swings in the economy. During the onset of recession, output typically falls before hours worked. This can result in a temporary drop in productivity and a spike in unit labor costs. So, while long-term productivity determines the"speed limit" for long-term growth, one should not be misled by short-term cyclical gyrations in productivity numbers as reflecting the true, underlying trend.
