Productivity and Cost Shine

By TJ Kim

September 05, 2012

Today, Bureau of Labor Statistics released Productivity and Cost for the second quarter. Nonfarm business sector labor productivity rose at a 2.2% annual rate, outpacing the consensus by 0.3%. The improved readings from the data were consistent with the slow growing GDP but largely attributed to a downward revision to hours worked. Due to the revision to hours worked, unit labor cost also increased 1.4 percent from the previous quarter.

Productivity is highly associated with the employment and consumption. While the increase in the second quarter’s data may signal that businesses are moving forward again, it does not seem to point to a rebound in employment, given that hours worked decreased. Moreover, Ex-Transportation Durable Goods Orders declined in the second quarter, indicating that the increase in output in the second quarter appears to have a seasonal factor that temporarily boosted the number.

Having said this, the trend for the productivity may remain soft for the next quarters. Especially, consumer spending and government spending have not been supporting manufacturing activities. If productivity were to mean legitimate good news, the growth in productivity should be mainly derived from an increase in output, not from a decline in hour worked.However, it will be

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