Implications: Productivity was revised down slightly for the first quarter, consistent with last week’s slight downward revision for real GDP growth. Output was revised down while the number of hours worked were revised up, which means less output per hour. Productivity is up only 0.4% in the past year, versus an average annual growth rate of about 2% over the past couple of decades. However, we do not think this means the productivity revolution has come to an end. It is not unusual for productivity to surge at the very beginning of a recovery (productivity grew 6.1% in the year ending in Q1 2010) and then temporarily slow down as hours worked increase more sharply. Including both the surge early in the recovery and the tepid growth in productivity since then, it is still up at a 2.5% annual rate in the past three years. Manufacturing continues to be the bright spot of the economy and today’s report shows why. Output in the manufacturing sector grew at a 10% annual rate in Q1. Even with hours rising at a 4.6% rate, manufacturing productivity boomed growing at a 5.2% annual rate. We believe the long-term trend in productivity growth will remain strong, due to a technological revolution centered in computer and communications advances.
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