US Productivity Falls for a Second Quarter, Labor Costs Surge

[mahatmakanejeeves]

Source: Bloomberg

Markets
Economics

US Productivity Falls for a Second Quarter, Labor Costs Surge

-- Consecutive declines in output per hour worst back to 1947
-- Unit labor costs jumped nearly 11% in second quarter

By Reade Pickert
August 9, 2022 at 8:32 AM EDT * Updated onAugust 9, 2022 at 9:21 AM EDT

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@readep https://twitter.com/readep

US productivity slumped for a second-straight quarter as the economy shrank, driving another surge in labor costs that risks keeping inflation elevated and further complicates the Federal Reserve's efforts to tame price increases.

Productivity, or nonfarm business employee output per hour, decreased at a 4.6% annual rate in the second quarter after falling at a 7.4% pace in the previous three months, Labor Department figures showed Tuesday. ... That marked the weakest back-to-back readings in data back to 1947. On a year-over-year basis, output per hour fell by the most on record.

With the drop in productivity, unit labor costs jumped at a 10.8% rate in the second quarter from the prior three months. The increase from a year earlier was the biggest since 1982.

Labor costs are the biggest expense for many businesses, so firms often adopt new technologies and upgrade equipment to make their workers more productive, helping blunt the inflationary impact of higher wages.

{snip}

Read more: https://www.bloomberg.com/news/articles/2022-08-09/us-productivity-falls-for-a-second-quarter-labor-costs-surge

---

https://www.bls.gov/news.release/prod2.nr0.htm

Productivity decreases 4.6% in Q2 2022; unit labor costs increase 10.8% (annual rates)

Productivity decreased 4.6 percent in the nonfarm business sector in the second quarter of 2022; unit labor costs increased 10.8 percent (seasonally adjusted annual rates). In manufacturing, productivity increased 5.5 percent and unit labor costs decreased 0.5 percent.

{snip}

-- -- -- -- -- --

https://www.reuters.com/markets/us/us-productivity-drops-second-quarter-annual-decline-largest-ever-2022-08-09/

August 9, 2022
9:16 AM EDT
Last Updated 12 min ago

U.S. productivity posts biggest ever annual drop in second quarter
Reuters

Aug 9 (Reuters) - U.S. worker productivity in the second quarter fell at its steepest pace on an annual basis since 1948, the Labor Department said on Tuesday, while growth in unit labor costs accelerated, suggesting strong wage pressures will continue to help keep inflation elevated.

Reporting by Dan Burns and Lindsay Dunsmuir; Editing by Mark Porter and Paul Simao

[turbinetree]

1. Well when you don't really have a industrial base and you are shipping in lets say computer chips...

because after all back in the day it was all about being a "service economy"....just saying....

[progree]

2. From previous quarter: Hourly compensation +5.7%. Real hourly compensation: MINUS 4.4%

both above numbers are annual rates. "Real" is synonymous with "inflation-adjusted"

https://www.bls.gov/news.release/prod2.nr0.htm

Over the past year (Q2 2022/Q2 2021) : Hourly compensation +6.7%. Real hourly compensation: MINUS 1.7%.

This and more is all summarized in the first 2 rows of Table A1 at the link (scroll down a bit after all the paragraphs of mixed and tossed word salad). ALL numbers in Table A1 are percents at an annual rate.

Actually, the MINUS 1.7% in purchasing power (that's what real hourly compensation is) over a year isn't too bad -- I've seen worse from other reports, like MINUS 3.5% over the year from the Employment Cost Index report July 29.)

As for unit labor costs (which is kind of productivity-adjusted compensation),

They increased 10.8% in Q2 over Q1 (annualized rate again), and 9.5% over the past year. That's the increase in compensation per unit of output -- that's the labor inflation from the corporate perspective -- the labor cost to make a widget increased 9.5% over the past year.

More on inflation coming up:
Wednesday, the CPI report (consumer price index)
Thursday, the producer price index

[mahatmakanejeeves]

3. Thanks. I'll have to post that later today.

And good morning.

[Alexander Of Assyria]

6. "Productivity" is Orwellian speech for worker fleecing rate...business upset the Fleecing is down!

[barbaraann]

7. Yes! Yes! Yes!

Last edited Tue Aug 9, 2022, 03:06 PM - Edit history (1)

IMHO, all of the "economic" terms used in the MSM are Orwellian. "Labor costs surge" should read "workers deservedly earn more" or something similar.

[progree]

10. Workers are getting more greenbacks, but those greenbacks buy less. Seems like its the workers

who are getting fleeced.

Real (meaning inflation-adjusted) average compensation fell 1.1% (actual, unannualized) in Q2, and fell 1.7% over the past year.

Please see #2 above where I lay it out the best I can.

[mahatmakanejeeves]

11. Note to self: never mind that you're still at work. It's okay to start drinking now.

IMHO, all of the "economic" terms used in the MSM are Orewellian.

I didn't have that on my bingo card.

[progree]

13. Competitive Enterprise Institute. Hmmm. Aren't they a RW greedbanger organization?

There's a rule here about posting RW talking points, which most / all of these are. That the Competitive Enterprise Institute is a RW libertarian think tank is inarguable.

Anyway, a lot of what is in the article is arguable, but with some truth to it too. Unfortunately, its one linkless assertion after another, which is disappointing, given how much this fucker is being paid.

There's just a couple of things I want to point out that are wrong or way misleading.

"Yet the official inflation rate excludes food and energy. "

Linkless assertion of opinion as fact. I'm not sure there is an "official inflation rate", but the one that gets the most attention and cited the most often is the CPI, which includes food and energy. It's also the one the BLS uses to calculate "real earnings" where "real" is synonymous with inflation-adjusted. The CPI-W (essentially the same as the CPI-U but with a different weighting of the baskets to reflect what workers rather than urban consumers proportionally buy) likewise includes food and energy and is being used to adjust Social Security payments.

https://www.bls.gov/news.release/cpi.nr0.htm

You can see what's included, and yes, food and energy is too.

Google "what is the U.S. official inflation rate?"
All of them that popped up in the first dozen or so were all CPI (CPI-U specifically).

There is also a "core rate" that is the CPI without food and energy, but it isn't used for anything and rarely headlined or talked about in the media, and if it is, it's almost always as an "also". Unless it breaks a multi-decade record or something.

The PCE index is the same -- it includes food and energy. There is also a core PCE without food and energy which is favored by the Federal Reserve FOR FORECASTING PURPOSES. (They look at all the inflation measures actually). Anyway, over the long run food and energy has been increasing at the same rate as the rest of it.

God forbid we should invest our Social Security “accounts” in the stock market, which can go down, when we can entrust our “savings” to Congress, who has stolen them altogether.

They are invested in treasury securities and by law must be used to pay SS benefits when payroll taxes are not sufficient to meet benefits. That is already happening. Starting in 2010, interest earned by the trust fund has been drawn on to help pay benefits. Starting in 2021, the principal is being drawn down as well.

I own some Treasury securities. So does Bill Gates and Warren Buffet and yada. As I desire a portion of my portfolio to be in a stable investment that is widely considered the safest.

The star word of this silly season is “fair.” The top 10% of tax filers pay 70% of all income taxes while the bottom half collectively pay almost no income tax. Yet we are in a huge debate about increasing taxes on those already paying the most in order to decrease taxes on those already paying the least. And it’s all in the name of “fairness.” That was a pretty neat trick. Think how different the debate would sound if instead of “fair” we used the words “stick ‘em up!”

Perhaps this greedbanger linkless assertion is true, but the key is that it is ONLY DISCUSSING INCOME TAXES, and this bozo was hoping people wouldn't notice that. The other taxes we pay are mostly or entirely regressive.

For example, every worker pays FICA (Social Security plus Medicare taxes) of 7.65%, and so do their employers (cutting down on what the employers are able to pay to workers in a competitive environment). These taxes are paid on the first $147,000 in income. There is no tax on income above $147,000.


And then, as far as "fair", there is the every-growing inequality issue. Where almost all the gains from increased worker productivity in the past several decades have gone to the top few percent.

[barbaraann]

14. Drat! I was in too much of a hurry!

I'll try to do better when I have more time.

[True Blue American]

4. Tanks to the blanking cable media I had to turn on CSPAN

To watch the speeches when the President signed the Chips bill. They showed him signing and rushed right back to Trump!

I am finished with the corrupt corporate media!

[mahatmakanejeeves]

5. From the source, the BLS report:

Productivity decreases 4.6% in Q2 2022; unit labor costs increase 10.8% (annual rates)

Economic News Release USDL 22-1624

Productivity and Costs, Second Quarter 2022, Preliminary


Transmission of material in this release is embargoed until 8:30 a.m. (ET) Tuesday, August 9, 2022

Technical information: [phone] • [e-mail] • www.bls.gov/productivity
Media contact: [phone] • [e-mail]

PRODUCTIVITY AND COSTS
Second Quarter 2022, Preliminary

Nonfarm business sector labor productivity decreased 4.6 percent in the second quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output decreased 2.1 percent and hours worked increased 2.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, nonfarm business sector labor productivity decreased 2.5 percent, reflecting a 1.5-percent increase in output and a 4.1-percent increase in hours worked. The 2.5-percent decline in labor productivity from the same quarter a year ago is the largest decline in this series, which begins in the first quarter of 1948. (See table A1.)

Unit labor costs in the nonfarm business sector increased 10.8 percent in the second quarter of 2022, reflecting a 5.7-percent increase in hourly compensation and a 4.6-percent decrease in productivity. Unit labor costs increased 9.5 percent over the last four quarters. (See tables A1 and 2.) This is the largest four-quarter increase in this measure since a 10.6-percent increase in the first quarter of 1982. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers. The second quarter of 2022 is the second consecutive quarter in which output decreased while hours increased. The resulting productivity declines over these two quarters reduced the average annual productivity growth rate since the fourth quarter of 2019–the last quarter not affected by the COVID-19 pandemic–to 0.6 percent in the nonfarm business sector. Output and hours worked in the nonfarm business sector are now 2.9 percent and 1.5 percent above their fourth-quarter 2019 levels, respectively.

Hourly compensation increased 5.7 percent in the nonfarm business sector in the second quarter of 2022. Real hourly compensation, which takes into account changes in consumer prices, decreased 4.4 percent in the second quarter of 2022, which followed a 4.4-percent decline in the first quarter of 2022. The consumer price series which is used to estimate real hourly compensation grew 10.5 percent in the second quarter of 2022, the largest increase since an 11.6-percent increase in the first quarter of 1981 (seasonally adjusted annual rates). See Footnote 2 for more information.

Manufacturing sector labor productivity increased 5.5 percent in the second quarter of 2022, as output increased 4.3 percent and hours worked decreased 1.1 percent. In the durable manufacturing sector, productivity increased 6.1 percent, with a 6.0-percent increase in output and a 0.1-percent decrease in hours worked. Nondurable manufacturing sector productivity increased 5.4 percent, as output increased 2.6 percent and hours decreased 2.6 percent. Total manufacturing sector productivity increased 0.4 percent from the same quarter a year ago. (See tables A1, 3, 4, and 5.)

Manufacturing sector output is now 3.6 percent above its level in the fourth quarter of 2019, the last quarter not affected by the COVID-19 pandemic. Hours worked in manufacturing remain 1.3 percent below the fourth-quarter 2019 level. The manufacturing labor productivity index is 4.9 percent higher in second-quarter 2022 than in fourth-quarter 2019, corresponding to an annual labor productivity growth rate of 1.9 percent during that period.

Unit labor costs in the total manufacturing sector decreased 0.5 percent in the second quarter of 2022, reflecting a 4.9-percent increase in hourly compensation and a 5.5-percent increase in productivity. Manufacturing unit labor costs increased 4.4 percent from the same quarter a year ago. (See tables A1 and 3.)

The concepts, sources, and methods used for the manufacturing output series differ from those used in the business and nonfarm business output series; these output measures are not directly comparable. See the Technical Notes for a more detailed explanation.

Revised measures

Regular updates of source data published in June and July by the BLS and the Bureau of Economic Analysis (BEA) are reflected in data for the first quarter of 2022; data published by BLS August 5, 2022 have not been incorporated. Quarterly measures of manufacturing output and all related measures--including labor productivity--were revised historically to incorporate revised monthly Indexes of Industrial Production (IIP) published by the Board of Governors of the Federal Reserve System on June 28, 2022. Annual manufacturing output measures for 1987 to 2020 were not revised; the annual average percent change for 2021 reflects changes in IIP.

Table B1 presents revised and previous labor productivity and related measures for the nonfarm business, business, and manufacturing sectors for the first quarter of 2022. Table A2 presents these measures for the nonfinancial corporate sector.

Nonfarm business sector productivity was revised down slightly to a decrease of 7.4 percent in the first quarter of 2022; output was revised down to a decrease of 2.5 percent and hours worked were revised down to an increase of 5.3 percent. (See table B1.) A slight upward revision to first-quarter unit labor costs, to a rate of 12.7 percent, reflected a slight downward revision to productivity; hourly compensation was not revised.

Manufacturing sector productivity was revised down 1.2 percentage points to a decline of 1.0 percent in the first quarter of 2022, primarily reflecting a downward revision to output; hours were revised up slightly. Productivity was revised down in the durable manufacturing subsector and the nondurable manufacturing subsector. In the first quarter of 2022, total manufacturing unit labor costs increased 6.9 percent rather than increasing 5.7 percent as reported June 2, reflecting a 1.2-percent downward revision to productivity; hourly compensation was revised down 0.1 percentage point. Annual average manufacturing productivity growth in 2021 was revised down to an increase of 2.6 percent from the 3.2-percent reported previously due to a downward revision in output. (See tables B1 and 3.)

Nonfinancial corporate sector productivity decreased 4.6 percent in the first quarter of 2022, a smaller decline than the previously published estimate of 5.0 percent, reflecting an upward revision to output and a downward revision to hours. Productivity in nonfinancial corporations decreased 0.1 percent from the first quarter of 2021 to the first quarter of 2022. Unit labor costs in the nonfinancial corporate sector were revised down to an increase of 9.3 percent in the first quarter of 2022, as an upward revision to productivity was larger than an upward revision to hourly compensation. (See table A2.) Unit labor costs increased 8.2 percent from the same quarter a year ago. Unit profits were revised up in the first quarter to a smaller decline than previously reported, decreasing 2.1-percent in first-quarter 2022. (See table 6.)

Complete quarterly and annual data series can be found on the Productivity and Costs home page: www.bls.gov/productivity/data-overview.htm.
______________
The revised Productivity and Costs news release for second-quarter 2022 is scheduled to be released on Thursday, September 1, 2022 at 8:30 a.m. (ET).

{snip}

* * * * *

[center]Facilities for Sensory Impaired[/center]

Information from these releases will be made available to sensory impaired individuals upon request. Voice phone: [phone], Federal Relay Services: 1-800-877-8339.

-- -- -- -- -- --

[Hekate]

8. Does "labor costs" mean wages rose? Because that's, you know, a good thing if so. nt

[progree]

9. Yes, wages and compensation rose, but not as much as the cost of living. That's not good. Not good

at all.

Real (meaning inflation-adjusted) hourly compensation FELL 4.4% in Q2 at an annualized rate, or about 1.1% unannualized. Meaning in just one quarter, the purchasing power of the average paycheck and benefits FELL 1.1%.

Over the past year, it fell 1.7%.

Please see #2 above where I lay it out the best I can.

Hopefully, inflation will cool a bit so that real wages can catch up and even get ahead. I expect the Wednesday (tomorrow) CPI report to show a bit of an uptick in real earnings.

[chuluma]

15. Things will get better

Some good economic signs were seen last week.

[progree]

16. Ugh, brace yourself - I read an article saying the CORE CPI is more important

than the regular CPI. Guess why?

Blah blah blah, less volatile, blah blah.

Real reason: because the regular (all-items) CPI is expected to drop a bit from the June 9.1% figure (to about 8.7%)

But the core CPI is expected to increase slightly (the core CPI is the CPI excluding food and energy).

The CPI report is Wednesday 830am ET so be prepared for blah blah the core rate blah blah the core rate blah blah the core rate this the core rate that the core rate the core rate the core core rate. Conclusion: inflation is getting worse!

My canned boilerplate on the two CPI's:

CPI-U, Seasonally Adjusted: http://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_1mth

Core CPI-U, Seasonally Adjusted: http://data.bls.gov/timeseries/CUSR0000SA0L1E&output_view=pct_1mth (this is the CPI-U stripped of food and energy. It's also "the Core CPI" )

To see the index values as well as the 1-month changes: at the upper right of the page, click the "More Formatting Options" link, and then in the data box at the top far left side, click the "Original Data Value" checkbox. Leave the "1-Month Percent Change" box checked as well. That way you will get a page with both series.