MW: U.S. productivity revised higher in second quarter
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — U.S. workers were more productive in the second quarter than initially thought and inflation remained tame, the Labor Department reported Wednesday.
Productivity of the U.S. nonfarm business sector rose at a 2.2% annual rate in the second quarter, stronger than the 1.6% pace estimated a month ago.
Output was revised up to a 2.4% increase from 2.0%. The increase in hours worked was revised down to 0.1% from 0.4%. This is the smallest gain in hours since the third quarter of 2009.
Productivity fell at a 0.5% rate in the first quarter.
Unit labor costs — a gauge of wage push inflationary pressures — were revised lower to a 1.5% annualized gain from a 1.7% increase. Unit labor costs are the costs paid to workers to produce one “unit” of output.
Economists expected productivity to be revised to a 1.9% annual pace, based on revisions to output and hours worked already reported in the gross-domestic-product data. But unit labor costs came in slightly higher than the 1.4% expected by economists surveyed by MarketWatch.
The Commerce Department raised its second-quarter GDP estimate to a 1.7% growth rate from the previous estimate of a 1.5% pace.
Because the quarterly data are so volatile, most economists take a longer view of a year or more when analyzing productivity.
The upward revision in the second quarter pushed productivity growth in the past four quarters up to 1.2%, compared with the earlier estimate of a 1.1% gain. This is down from a 3.1% gain in calendar year 2010.
The annual rate of growth of unit labor costs was 0.9%, a sign of low inflation.
Productivity, defined as output per hour worked, is perhaps the most important long-term variable in economics. Higher productivity can mean higher profits, wages and living standards and can keep inflationary pressures at bay. But the concept is difficult to measure, especially in financial services where the concept of a “unit” of output is murky.
In the nonfinancial sector, productivity increased 2.1% in the second quarter after a 1.6% gain in the prior three months. Nonfinancial productivity is considered by policy makers to be the cleanest read on productivity, because productivity in financial services appears impossible to measure. For the last four quarters, nonfinancial productivity is up 1.1%, down from a 1.6% rate in the prior three months.
In the nonfinancial sector, unit labor costs fell 1.3% for the second quarter and rose only a slight 0.1% over the past four quarters.
In the manufacturing sector, productivity increased at a 0.1% annual pace in the second quarter while unit labor costs rose 0.8%. Manufacturing productivity is up 2.9% in the past year while unit labor costs are down 2.4%.
Greg Robb is a senior reporter for MarketWatch in Washington.
