Nonfarm Business Productivity Gains 2.3%, Costs Gain 2.6%

Revised Productivity and Costs for Q2 Largely Unchanged from Preliminary Estimates

Nonfarm business labor productivity gained 2.3% in the second quarter (Q2) of 2019, while unit labor costs increased 2.6%, meeting and beating forecasts.

For productivity, forecasts ranged from a low of 2.0% to a high of 2.8%. The consensus was 2.3%. For unit labor costs, forecasts ranged from a low of 2.1% to a high of 2.6%. The consensus was 2.4%.

Productivity

The increase in labor productivity reflects an increase in output of 1.9% and a 0.4% decrease in hours worked.

From Q2 2018 to Q2 2019, productivity rose 1.8%, reflecting a 2.6% gain in output and a 0.9% gain in hours worked. The four-quarter increase in hours is the lowest estimate since the second quarter of 2010, when it was -0.3%.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

Unit Labor Costs

Unit labor costs have increased 2.6% over the last four quarters. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity.

Increases in unit labor costs indicate gains in hourly compensation, while decreases indicate an increase in output per hour.

Manufacturing

Manufacturing sector labor productivity fell 2.2% in Q2 2019, as output declined 3.0% and hours worked fell 0.8%. That marks the second consecutive quarter with declines in both output and hours for the sector.

In Q1 2019, output fell 1.8% and hours fell 2.9%.

Worth noting, 2017 and 2018 saw a resurgence in the manufacturing sector not seen since since the 1990s.

That said, unit labor costs in the manufacturing sector rose 6.7% in the Q2 2019 and by 4.5% from the same quarter a year ago. That indicates a rise in worker compensation and benefits.