Productivity Revised Higher for 2Q; Wage Costs Rise
Wednesday, September 06, 2006 (Fox News)
WASHINGTON — U.S. business productivity grew at a 1.6 percent annual rate in the second quarter, higher than first estimated, the government said Wednesday in a report that also showed worker compensation up much more this year than initially thought.
The increase in nonfarm business productivity was a touch stronger than the 1.5 percent gain expected on Wall Street and a quicker advance than the 1.1 percent the Labor Department reported a month ago.
However, the report also contained revisions to first quarter data that showed hourly worker compensation shot up at a 13.7 percent rate, well ahead of the previously reported 6.9 percent gain. In the second quarter, compensation rose at a more subdued, but still strong, 6.6 percent pace.
Those gains helped push unit labor costs — a gauge of inflation and profit pressures — up 5 percent over the past year, the largest gain since a matching rise in the period ended in the third quarter of 2000.
In the first quarter, unit labor costs rose at a 9 percent pace and they were up at a 4.9 percent rate in the April-June period, well ahead of the 3.8 percent gain economists had expected.
Prices for U.S. government bonds fell and the dollar rose as the data sparked some concern that the Federal Reserve, which held interest rates steady at its last meeting on Aug. 8, may not yet been finished tightening credit. The U.S. stock market open lower, partly on the news about higher labor costs.
"You have a very pronounced acceleration in (unit labor costs) and the people at the Fed who are concerned about entrenched inflation will regard this as a very grave development," said Pierre Ellis, senior economist at Decision Economics in New York.
Still, some economists view the compensation figures that accompany the government's productivity data with some caution, and believe the exercise of stock options — rather than more fundamental pressures stemming from a tight labor market — could be a factor behind the first quarter's out-sized gains.
"We're guessing the Q1 leap reflects better estimates of bonuses and stock options, in which case it does not represent the trend," Ian Shepherdson, chief U.S. economist at High Frequency Economics, Valhalla, New York.
The report showed U.S. productivity, a measure of worker output per hour and the key building block to rising living standards, has risen 2.5 percent over the past year, a solid increase in line with the gains seen since the mid-1990s.
While some economists have worried U.S. productivity growth might slow, imparting further upward pressure on inflation, Fed Chairman Ben Bernanke said last week the trend seen since the mid-1990s looks likely to stay in place.
Two separate reports showed U.S. chain store sales holding up well, with sales last week 3.9 percent higher than a year ago. The International Council of Shopping Centers and UBS said in a joint report that the gain was the strongest since June.
Separately, the Mortgage Bankers Association said applications for U.S. home mortgages edged higher last week as lower loan rates helped encourage more home purchases for the first time since early August.
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