U.S. Labor Productivity Hits the Biggest Ever Recorded Crash, Labor Costs Rise Most Since 1982

Productivity fell over the last year, as the economy gained workers at an accelerated pace even though economic output was growing slowly. Data from the Department of Labor on Tuesday showed this.

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. This is due to a 1.5 percent rise in economic output, and an increase of 4.1 per cent in hours worked.

Productivity fell at an annual seasonally adjusted rate of 4.6 per cent in the second quarter. This is a slower decline than the 7.6 per cent contraction in the first three-months of this year, but it’s still below the economist’s expectations for a decline of 4.5 percent.

The economic output for the business sector declined by 2.1 percent, while hours worked rose by 2.6 percent.

The data doesn’t include work performed on U.S. farm or public sectors.

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. Labor costs were expected to rise by 9.3 per cent, according to economists. 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. The ratio of labor productivity to hourly pay is called unit labor cost. Unit labor costs are affected by changes in hourly pay. However, productivity increases tend to decrease them.

The decline in productivity was caused by the services industry, which continues to recover from the pandemic. The second quarter of 2022, saw a 5.5% increase in labor productivity in the manufacturing sector, with an output rise of 4.3 percent and an hourly decline by 1.1 percent. Durable manufacturing, which produces products that last for three years or longer, saw productivity rise 6.1 percent. There was a 6.0% increase in output and an 0.1% decrease in hours. Nondurable manufacturing sector productivity increased 5.4 percent, as
Production increased by 2.6 percent, while hours fell by 2.6 percent. The total manufacturing sector productivity rose by 0.4% compared to the previous quarter.

The manufacturing sector is producing 3.6 percent more than its preandemic levels. The fourth quarter 2019 average hourly rate for manufacturing is still 1.3 percent lower than the previous quarter. Manufacturing labor productivity index is now 4.9% higher than it was in fourth-quarter 2019,, which corresponds to an annual growth rate for labor productivity of 1.9% during this period.

Unit labor cost in total manufacturing decreased by 0.5 percent between April and June. The hourly wage rose by 4.9 percent, but productivity rose by 5.5 percent. Compared with 12 months earlier, unit labor costs were up 4.4 percent.

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