The only important information on the U.S. economy released this morning is a report from the Bureau of Labor Statistics (BLS) which showed that nonfarm business sector labor productivity (employee output per hour) decreased at an annual rate of 0.6 percent during the first quarter of 2016. This is an improvement from the initial estimate of a 1.0 percent decline and definitely better than the than the 1.7 percent loss seen in Q4 2015. The upward revision is not too surprising since U.S. gross domestic product (GDP) growth, which the productivity measure is derived from, for the first quarter was also revised slightly higher. Despite the improvement, productivity on a year-over-year basis grew by only 0.7 percent in the first quarter of 2016, well below the post-World War II average and a troubling sign since Federal Reserve Chair Janet Yellen earlier last year described productivity growth as the “most important factor determining continued advances in living standards.” Elsewhere in the report, output expanded by 0.9 percent during the first three months of 2016 and hours worked increased by 1.5 percent. The decline in productivity combined with a 3.9 percent jump in hourly compensation helped cause unit labor costs to rise by 4.5 percent in Q1, well above the initial 4.1 percent estimate and perhaps suggesting that U.S. companies’ profit margins are under pressure. Moreover, real hourly compensation climbed 4.2 percent in the first quarter instead of the previously reported 3.4 percent increase.
Sources: Econoday, Twitter, Bloomberg, ZH, WSJ, U.S. BLS, FRBSLPost author: Charles Couch