EmailFor the first time since Q3 and Q4 2008, nonfarm productivity declined for two consecutive quarters. Productivity fell 0.3% in Q2 2011 after declining a negatively revised 0.6% (from +1.8%) in the first quarter. The Briefing.com consensus expected nonfarm productivity to fall 0.6%.
Unit labor costs increased 2.2% in the second quarter, in-line with consensus expectations, after increasing an upwardly revised 4.8% (from +0.7%) in the first quarter. Like the productivity levels, this was the first time since Q3 and Q4 2008 that unit labor costs increased in consecutive quarters.
The current productivity and unit cost trends are indicative to actual payroll declines. While we do not believe that payroll growth will contract over the next several months, it is no wonder that labor growth has stalled substantially over the past few months. As productivity slips and costs go up, employers have no reason to add more workers to their payrolls.
Since employment growth is a lagging indicator, these productivity levels suggest that payroll growth may not grow above the 100,000 jobs per month needed to support normal labor force growth and a stable unemployment rate, let alone the 200,000 needed to support any discouraged workers reentering the labor force, over the second half of the year.
