2Q2018 (Final): Headline Productivity Improves -

2Q2018 (Final): Headline Productivity Improves

Sep 06, 2018Jeremy ParkinsonFinance0

A simple summary of the headlines for this release is that productivity improved while the labor costs declined. However, year-over-year analysis shows labor costs rising faster than productivity.

Analyst Opinion of Productivity and Costs

I only look at year-over-year data – the headline compounding distorts the view. I have issues with the way productivity is determined – see the end of this analysis.

The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity improved 1.3 % year-over-year, and unit labor costs were up 1.9 % year-over-year [note this was a significant year-over-year increase over last month’s final published 1.3% – but unchanged from this month’s preliminary. Bottom line: the year-over-year data is saying that labor costs are outpacing productivity improvements.

The market was expecting:

seasonally adjusted quarter-over-quarter at annual rate Consensus Range Consensus Preliminary Actual Final Actual Nonfarm productivity +2.8 % to +3.2 % +3.0 % +2.9 % +2.9 % Unit labor costs -1.1 % to -0.7 % -1.0 % -0.9 % -1.0 %

Please note that the following graphs are for a sub-group of the report nonfarm > business.

Seasonally Adjusted Year-over-Year Change in Output of Business Sector

Seasonally Adjusted Year-over-Year Change of Output per Hour for the Business Sector

All this is happening while business sector unit labor costs increased.

Seasonally Adjusted Year-over-Year Rate of Change of Unit Labor Costs

The headlines from the press release:

Nonfarm business sector labor productivity increased 2.9 percent during the second quarter of 2018, the U.S. Bureau of Labor Statistics reported today, as output increased 5.0 percent and hours worked increased 2.0 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the second quarter of 2017 to the second quarter of 2018, productivity increased 1.3 percent, reflecting a 3.5-percent increase in output and a 2.2-percent increase in hours worked.

Unit labor costs in the nonfarm business sector decreased 1.0 percent in the second quarter of 2018, reflecting a 1.9-percent increase in hourly compensation and a 2.9-percent increase in labor productivity. Unit labor costs increased 1.9 percent over the last four quarters.