U.S. Labor Productivity Tumbles In Q1, Unit Labor Costs Spike

The Labor Department released a report on Thursday showing U.S. labor productivity tumbled by much more than expected in the first quarter of 2023.

The report said labor productivity plunged by 2.7 percent in the first quarter after jumping by a revised 1.6 percent in the fourth quarter.

Economists had expected labor productivity to slump by 1.8 percent compared to the 1.7 percent surge that had been reported for the previous quarter.

The sharp pullback in productivity, a measure of output per hour, came as output crept up by 0.2 percent, while hours worked shot up by 3.0 percent.

Meanwhile, the Labor Department said unit labor costs skyrocketed by 6.3 percent in the first quarter after surging by a revised 3.3 percent in the fourth quarter.

Economists had expected unit labor costs to soar by 5.5 percent compared to the 3.2 percent spike that had been reported for the previous quarter.

A 3.4 percent jump in hourly compensation contributed to the surge in unit labor costs along with the steep drop in productivity.

Real hourly compensation, which takes changes in consumer prices into account, fell by 0.3 percent in the first quarter after climbing by 0.7 percent in the fourth quarter.

“The decline in productivity in Q1 and continued strong growth in unit labor costs is another sign that inflation will prove stickier than markets anticipate,” said Michael Pearce, Lead U.S. Economist at Oxford Economics.

He added, “Even though the Fed signaled yesterday they may be finished raising interest rates, high inflation will delay rate cuts until next year.”

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