A simple summary of the headlines for this release is that the growth of unit labor costs is lower than the previous quarter, whilst the rate of growth of productivity has improved. If one looks at the year-over-year data – it is saying the growth of unit labor costs is higher than the growth of productivity,

[note that this post is a markup of the preliminary post] The market was expecting:

quarter-over-quarter change – seasonally adjusted Consensus Range Consensus Prelim Report Actual Nonfarm productivity  1.8 % to 2.9 %  2.4 %  +2.0%  +2.3 % Unit labor costs  -0.9 % to 0.5 %  -0.1 %  +0.3%  -1.0%

The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, productivity was up  0.9% 1.0% year-over-year, and unit labor costs was up 2.4% 1.2% year-over-year. Bottom line: the year-over-year data is saying that costs are rising faster than productivity increases.

Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvement are productivity improvements. [read more on this statement]  Further, the productivity being measured is “capital productivity” – not “labor productivity”. [read more on this statement here]

Even though a decrease in productivity to the BLS could be considered an increase in productivity to an industrial engineer, this methodology does track recessions. [The current levels are well above recession territory.

Please note that the following graphs are for a sub-group of the report nonfarm > business. Business sector real productivity is growing slower year-over-year than last quarter (see graph below).

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