Friday, June 4, 2010

Labor Productivity Up 2.8%; Unit Labor Costs Fall 1.3%

Labor productivity grew 2.8% in the first quarter at a seasonally adjusted annualized rate. This follows three consecutive quarters of growth in excess of 6%. It is typical that in the early stages of economic recovery that productivity rates grow very quickly as firms find ways to utilize their existing labor force before hiring new workers. This is why there is generally a lag between GDP growth and employment growth. The slowdown in productivity growth may now be signaling the need for firms to begin to start hiring at a brisker pace in order to keep up with stronger demand.

Therefore this is a good sign for future payroll growth; however, it brings back into the equation that inflationary pressures from the labor market could come back moving forward. For the time being though, this is not occurring. Output per hour of labor rose by 2.8% annualized over the quarter. This is compared to compensation per hour, which rose by a lesser 1.5%. Therefore, the cost per unit of output fell 1.3%. There is still deflationary pressure in the labor market, though at a lesser rate than the previous two quarters where cost of output per unit fell by over 7% annualized.

10.06.03 (Source: Bureau of Labor Statistics)

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