Implications: Productivity fell 0.3% at an annual rate in the second quarter, but came in better than the consensus expected decline of 0.9%. It's important to remember that when GDP growth slows (as it did in Q1 and Q2), so does productivity growth. Growth in hours worked came in at a healthy 2.0% annual rate in Q2, although real compensation per hour fell at a 2.1% rate. Oftentimes, once a recovery gets to the point where firms are vigorously increasing hours, the pace of productivity growth slows down. Productivity grew at a rapid 4.4% rate in the year ending in the second quarter of 2010. In the past four quarters, productivity has grown at a 0.8% rate. On the manufacturing side, productivity fell for the first time since the first quarter of 2009. This can be attributed to lower output mostly due to the earthquake that rocked Japan and caused parts shortages over here in the US. Unit labor costs (how much companies have to pay workers per unit of production) came in at the highest level since Q4 2008. Over the next few quarters productivity will start to increase again as the soft patch continues to dissipate and stronger growth in the economy resumes.
Click here for the entire report.