On a quarter-over-quarter basis real output per hour improved to miserable. Compared to a year ago, this is the worst productivity dating to 1948.

Labor Productivity and Cost from BLS, chart by Mish

Please consider the BLS report on Productivity and Costs, Second Quarter 2022, Preliminary.

Labor Productivity and Cost chart from BLS, annotations by Mish

Productivity

Nonfarm business sector labor productivity decreased 4.6 percent in the second quarter of 2022, the U.S. Bureau of Labor Statistics reported today, as output decreased 2.1 percent and hours worked increased 2.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, nonfarm business sector labor productivity decreased 2.5 percent, reflecting a 1.5-percent increase in output and a 4.1-percent increase in hours worked. The 2.5-percent decline in labor productivity from the same quarter a year ago is the largest decline in this series, which begins in the first quarter of 1948.  

Only the 11.7 percent decline in 1947 was worse than the 7.4 percent quarterly decline in 2022 Q1. 

Unit labor costs 

Unit labor costs in the nonfarm business sector increased 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. Unit labor costs increased 9.5 percent over the last four quarters. This is the largest four-quarter increase in this measure since a 10.6-percent increase in the first quarter of 1982. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them. Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers. The second quarter of 2022 is the second consecutive quarter in which output decreased while hours increased. The resulting productivity declines over these two quarters reduced the average annual productivity growth rate since the fourth quarter of 2019–the last quarter not affected by the COVID-19 pandemic–to 0.6 percent in the nonfarm business sector. Output and hours worked in the nonfarm business sector are now 2.9 percent and 1.5 percent above their fourth-quarter 2019 levels, respectively. 

Manufacturing productivity 

Manufacturing sector labor productivity increased 5.5 percent in the second quarter of 2022, as output increased 4.3 percent and hours worked decreased 1.1 percent. In the durable manufacturing sector, productivity increased 6.1 percent, with a 6.0-percent increase in output and a 0.1-percent decrease in hours worked. Nondurable manufacturing sector productivity increased 5.4 percent, as output increased 2.6 percent and hours decreased 2.6 percent. Total manufacturing sector productivity increased 0.4 percent from the same quarter a year ago. 

Long-term chart

The long-term chart of the entire data series dating to 1947 puts the huge 7.4 percent decline in 2022 Q2 into proper perspective.

Why the decline?

fxsoriginal

The Fed's decade's-long effort to produce sustained inflation was a remarkable "success". 

The Fed never bothered to take a bow. Instead, it's chasing its tail.

The next CPI report: Expect hot rent, Tame energy, rent matters more

On Wednesday, the BLS releases the CPI report for July. 

I expect rent to be on the hot side, energy to be neutral to cool. 

For discussion, please see The Next CPI Report: Expect Hot Rent, Tame Energy, Rent Matters More.

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

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