US labor productivity suffers biggest slump on record, labor costs rise the most since 1982

Productivity has plummeted over the past year as the economy added workers at a rapid pace even as economic output slowly increased, Labor Department data showed on Tuesday.

Business-sector productivity fell 2.5% from a year ago, the biggest decline ever in data dating back to the first quarter of 1948, the Bureau of Labor Statistics said Tuesday. The decline stems from a 1.5% increase in economic output and a 4.1% increase in the total number of hours worked.

Productivity declined at a seasonally adjusted annual rate of 4.6% in the second quarter. This is a slower decline than the 7.6% contraction recorded in the first three months of the year, but slightly below economists’ expectations for a 4.5% drop.

Economic output in the business sector fell 2.1% and hours worked rose 2.6%.

The data does not include work done on US farms or in the public sector.

Unit labor costs jumped 10.8% in the second quarter of 2022, reflecting a 5.7% increase in hourly compensation and a 4.6% drop in productivity. Economists had forecast labor costs to rise 9.3%. In the first quarter, unit labor costs increased by 12.6%.

Unit labor costs rose 9.5% over the past four quarters, the largest four-quarter increase in this measure since a 10.6% increase in the first quarter of 1982. Unit costs are the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity to reduce them.

The decline in productivity came from the service sector, which is still recovering from the pandemic. Labor productivity in the manufacturing sector rose 5.5% in the second quarter of 2022, with a 4.3% increase in output and a 1.1% drop in hours worked. In the durable manufacturing sector, which produces goods intended to last three years or more, productivity rose 6.1%, with a 6.0% increase in output and a 0.1% decrease in output. Hours worked. Non-sustainable manufacturing productivity increased by 5.4%,
production increased by 2.6% and hours decreased by 2.6%. Total manufacturing productivity rose 0.4% from the same quarter a year ago.

Manufacturing output is now 3.6% above its pre-pandemic level. Hours worked in the manufacturing sector remain 1.3% below the level of the fourth quarter of 2019. The labor productivity index in the manufacturing sector is 4.9% higher than in the fourth quarter of 2019, corresponding to an annual labor productivity growth rate of 1.9% over this period.

Unit labor costs in the manufacturing sector as a whole fell 0.5% from April to June. Hourly compensation increased by 4.9%, but productivity increased by 5.5%. Compared to 12 months earlier, unit labor costs increased by 4.4%.


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