US Productivity Rises in Q2, Labour Costs Revised Down

Productivity’s Up, and That’s Good News

• The latest update for Q2 shows US nonfarm productivity rising by 3.3% (annualised), a decent step up from the 2.4% we saw in the first estimate. It’s the strongest quarterly jump since the end of last year and puts a bit more distance between this and the weak start we had in Q1.

• The revision came from both sides, output was stronger (up 4.4%), and hours worked were revised slightly lower (to 1.1%). Even though wage growth came in a little higher than first thought, it wasn’t enough to outweigh the productivity lift. In the end, unit labour costs rose just 1% in Q2, a big drop from the 6.9% spike we saw in Q1.

Labour Market Still Warm

• Wages are still rising, but not by too much. Compensation grew 4.3% over the quarter, slightly above the earlier estimate, but softer than Q1’s 5.0%. That’s a good sign, the labour market still looks solid without showing signs of pressure. What’s more encouraging is that productivity is picking up at the same time, which helps ease inflation risks without needing a rise in unemployment.

• On a year-over-year basis, productivity is now running at 1.5%, while unit labour costs are up 2.5%. That’s manageable, and not something that’s likely to scare the Fed just yet.

Factory Sector Remain Steady

• In manufacturing, productivity was also revised up, 2.5% for Q2. That’s down a bit from Q1’s 3.1%, but still solid. Output was stronger and hours dipped slightly, helping push productivity higher. Wages in the sector also picked up, with compensation growing 4.5%, which pushed unit labour costs to 2%. That’s a little higher than first reported, but still far from worrying levels.

What We’re Watching at Cordoba

• We’re closely tracking how the next few data points come in, wages, inflation, and job growth in particular. Right now, the current fundamentals look healthier: productivity is improving, labour costs are manageable, and the broader economy seems to be holding its ground.

• We’ll continue to monitor how this evolves and provide updates as this develops.