Econoday Economic Report: Productivity and Costs May 3, 2012

2012 Economic Calendar

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Productivity and Costs

Released On 5/3/2012 8:30:00 AM For Q1, 2012

	Prior	Prior Revised	Consensus	Consensus Range	Actual
Nonfarm productivity - Q/Q change - SAAR	0.9 %	1.2 %	-0.4 %	-1.5 % to 1.1 %	-0.5 %
Unit labor costs - Q/Q change - SAAR	2.8 %	2.7 %	2.5 %	1.1 % to 3.5 %	2.0 %

Highlights
Productivity declined in the first quarter on slower output and more hours worked. Compensation is not a problem for now. Nonfarm business productivity dipped an annualized 0.5 percent in the first quarter after rising 1.2 percent in the previous quarter. Analysts expected a 0.4 percent decline for the first quarter. The output component slowed to 2.7 percent from 3.7 percent in the fourth quarter. Hours worked grew to an annualized 3.2 percent in the first quarter from 2.4 percent the prior period. But compensation slowed to 1.5 percent from 3.9 percent in the fourth quarter. In turn, unit labor costs eased to an annualized increase of 2.0 percent, following a 2.7percent gain in the fourth quarter. The consensus forecast was for a 2.5 percent boost.

Productivity and labor cost numbers can have sharp quarterly swings that are not related to medium-term trends. For the latest quarter, a temporary slowing in output weighed on productivity. Unit labor costs benefitted from a soft rise in compensation. This is good for immediate term profits but not for the consumer.

Year-on-year, productivity was up 0.5 percent in the first quarter, compared to 0.4 percent in the prior quarter. Year-ago unit labor costs were up 2.1 percent, compared to a rise of 3.1 percent in the fourth quarter.

Markets are happy that labor costs grew less than expected but the big focus is that initial jobless claims fell more than expected in a separate report at the same release time.

Market Consensus before announcement
Nonfarm business productivity for the fourth quarter's final estimate was bumped up slightly to an annualized 0.9 percent in the fourth quarter, compared to the initial estimate of 0.7 percent and compared to 1.8 percent in the previous quarter. Unit labor costs were revised up notably to an annualized 2.8 percent increase versus the initial figure of 1.2 percent, and following a 3.9 percent jump in the third quarter.

Definition
Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends. Why Investors Care

Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates.
Data Source: Haver Analytics

2012 Release Schedule

Released On: 2/2 3/7 5/3 6/6 8/8 9/5 11/1 12/5

Release For: Q4 Q4r Q1 Q1r Q2 Q2r Q3 Q3r