US Labor Productivity Suffers Biggest Crash Ever Recorded, Labor Costs Soar Most Since 1982

Productivity crashed over the past year as the economy added workers at a rapid clip even as economic output grew slowly, data from the Department of Labor showed on Tuesday.

The productivity of the business sector fell 2.5 percent compared with a year ago, the largest decline ever recorded in data going back to the first quarter of 1948, the Bureau of Labor Statistics said Tuesday. The decline comes from a 1.5 increase in economic output and a 4.1 percent increase in total hours worked.

Productivity declined at a seasonally adjusted annual rate of 4.6 percent in the second quarter. That’s a less rapid decline than the 7.6 percent contraction recorded in the first three months of the year but slightly below economist expectations for a 4.5 percent decline.

The economic output of the business sector fell 2.1 percent and hours worked increased 2.6 percent.

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

Unit labor costs jumped 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. Economists had forecast labor costs to be up by 9.3 percent. In the first quarter, unit labor costs were up 12.6 percent.

Unit labor costs increased 9.5 percent over the last four quarters, the largest four-quarter increase in this measure since a 10.6-percent increase in the first quarter of 1982. Unit labor costs are 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.

The decline in productivity came from the services sector, which is still rebounding from the pandemic. Manufacturing sector labor productivity increased 5.5 percent in the second quarter of 2022, with a 4.3 percent increase in output and a 1.1 percent decline in hours worked. In the durable manufacturing sector—which produces goods meant to last three years or more—productivity increased 6.1 percent, with a 6.0-percent increase in output and a 0.1-percent decrease in hours worked. Non-durable 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.

The manufacturing sector’s output is now 3.6 percent above its pre-pandemic level. Hours worked in manufacturing remain 1.3 percent below the fourth-quarter 2019 level. The manufacturing labor productivity index is 4.9 percent higher than in the fourth quarter of 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 April through June period. Hourly compensation rose 4.9 percent but productivity rose 5.5 percent. Compared with 12 months earlier, unit labor costs were up 4.4 percent.

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