The Q2 nonfarm productivity number printed +1.6% and Unit Labor Costs +1.7%, both higher than expectations, but still showing the normal slight slowing as the economic expansion continues.
Q1 productivity was revised to -0.5% and ULC revised to +5.6% (now the fastest since Q1:2011), reflecting GDP revisions and additional salary income that the Commerce Department reported and was incorporated into this derivative report.
Output was estimated at +2.0% and hours worked at +0.4% in Q2. That is a surprise since overall GDP growth was slower in Q2 (+1.5% versus +2.0% in Q1) and some measures of hours worked in the employment report slowed.
Productivity, really output per hour, is the ratio of output to hours worked. The latter includes hours of proprietors and unpaid family members that could have boosted productivity if they were estimated on the light side.
The report is favorable but still suggests a slowing in productivity as the expansion continues; this could be a result of less capital being invested in this expansion as tax uncertainty continues ahead of the fiscal cliff.
Productivity for nonfarm business in 2012 is up 0.7% over the 2010-11 year. The average annual pace in 2000-10 was +2.4% and in 1995-2000 was +2.8%. That illustrates that overall productivity is no ball of fire for this recovery.
Manufacturing productivity is another story as that sector outperforms. Manufacturing productivity, while just +0.2% in Q2, is up 2.9% over the year and up a stronger +2.5% from 2010-11. Manufacturing productivity is maintaining an almost 2-point spread to the overall number, its best since the 1990s.