U.S. Labor Productivity, Costs Increase Less Than Previously Estimated In Q1

Revised data released by the Labor Department on Thursday showed U.S. labor productivity increased by slightly less than previously estimated in the first quarter of 2024. Unit labor costs also jumped by less than previously estimated during the quarter.

The Labor Department said labor productivity crept up by 0.2 percent in the first quarter compared to the previously reported 0.3 percent increase. Economists had expected the uptick in productivity to be downwardly revised to 0.1 percent.

The slight downward revision to the increase in productivity, a measure of output per hour, came amid downward revision to both output and hours worked.

The report said output climbed by 0.9 percent compared to the previously reported 1.3 percent surge, while hours worked rose by 0.6 percent compared to the previously reported 1.0 percent jump.

The modest increase in labor productivity in the first quarter came on the heels of a 3.5 percent spike in the fourth quarter of 2023.

“Our baseline forecast is that productivity growth moderates from here, but an upside risk to our forecast is that productivity growth remains elevated, which would boost the odds of a soft landing,” said Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics.

He added, “All else equal, stronger productivity means inflation can decline further than we thought without weakness in the real economy, which would allow the Fed to cut interest rates sooner and more aggressively.”

Meanwhile, the Labor Department said the spike in unit labor costs in the first quarter was also downwardly revised to 4.0 percent from the previously reported 4.7 percent.

The downward revision came as a surprise to economists, who had expected the surge in unit labor costs to be upwardly revised to 4.9 percent.

Unit labor costs jumped less than previously estimated as the spike in hourly compensation was downwardly revised to 5.0 percent from 4.2 percent.

The growth in real hourly compensation, which takes changes in consumer prices into account, was also downwardly revised to 0.4 percent from 1.1 percent.

The substantial increase in unit labor costs in the first quarter came after labor costs plunged by a revised 2.8 percent in the fourth quarter of 2023.

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