Unit Labor Costs and Productivity Very Mixed, With Crazy Revisions

factoryEconomists and market watchers want to know if labor costs are truly rising or not. After all, there has been very mixed data. Now a report on second quarter non-farm productivity and unit labor costs is signaling even more mixed data - with crazy first quarter revisions that just make the numbers seem wishy-washy.

We had already seen a higher GDP report for the second quarter and saw a much higher Employment Cost Index report, and non-farm productivity followed suit. Productivity rose 2.5% versus a 1.4% consensus expected by Bloomberg. Here is the problem - the first quarter reading was revised from a dismal -3.2% down to an even worse -4.5%. While these numbers are quarter-over-quarter and are very volatile, this means that the higher than expected report for the second quarter was negated by a negative revision in the first quarter.

Unit labor cost implications were our biggest concern, and now they remain our biggest concern due to a massive revision. Second quarter unit labor costs were up by only 0.6%, a full point shy of the 1.6% gain expected by Bloomberg. The problem here is the first quarter revision - rising from a preliminary hot 5.7% up to a massively higher 11.8% gain.

Component readings were as follows:

  • non-farm output rose by 5.2%in Q2;
  • compensation rose by 3.1% in Q2, but that was versus 6.8% in Q1;
  • and hours worked rose 2.7% in Q2.

The final verdict for the second quarter labor costs and productivity is one of confusion. The second quarter reports were mixed on a standalone basis, but then the revisions to the first quarter only added more confusion. We would signal that this seems to feel as though the economy remains on a path of a return to normal growth with only a very moderate cost pressure scenario.

Filed under: Economy
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