Implications: In the past year, productivity – output per hour – is up at a 6.3% annual rate, the fastest pace in almost 50 years. This gain was about evenly split between increases in total output and reductions in the number of hours worked. Some may see this fact as a sign that productivity gains will not persist. However, hours worked have increased in each of the past two quarters, while productivity has still grown at an incredible 4.9% annual rate. In other words, we don't think recent productivity gains are purely an artifact of businesses cutting their workforces; instead, much of the gains have staying power even as the nascent labor market recovery continues. As a result of rapid productivity growth, unit labor costs – how much companies have to pay workers per unit of production – are down 3.7% in the past year and have fallen to levels first reached in 2006. This means it is getting more profitable for companies to expand operations and boost hours worked. Notice that in Q1, hours worked and "real" (inflation-adjusted) compensation both increased. As a result, total real compensation for workers in the non-farm business sector increased at a 1.2% annual rate. Look for these gains to accelerate in the year ahead.
In other news this morning, new claims for unemployment insurance fell 7,000 last week to 444,000. Continuing claims for regular state benefits fell 59,000 to 4.59 million.
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Posted on Thursday, May 6, 2010 @ 9:49 AM
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