As Expected, 2nd Qtr Productivity Revised Higher and ULC Revised Lower

Higher GDP output helped raise non-farm productivity in the second quarter by more than forecast to +2.6% (consensus 2.4% , prior estimate +1.8%). This is the best productivity level in almost two years. Even with this improvement, the five year trend in productivity growth continues to slow. Last year productivity grew at the slowest pace since 1995 at +.9% YoY, down from a high of 4.1% YoY in 2002.

Productivity at manufacturers (12% of economy) rose to +1.8% in the second quarter from the original estimate of +1.6%. Durable goods productivity was +4.7% in the second quarter. Non-financial corporate productivity rebounded to +3.5% in the second quarter, from +.7% in the first quarter, as output rose +4.6% and hours worked rose a slower +1%.

Unit Labor Costs (ULC) also improved more than expected, increasing only +1.4% in the second quarter versus an initial estimate of 2.1% and a consensus of +1.5%. Second quarter hourly compensation gains were revised up only slightly to +4.1% from +3.9% previously. The annual increase in ULC for the second quarter of 2007 was +5.1% YoY, the largest four quarter gain since 1990. Unit labor costs reflect changes in hourly compensation and productivity.

As expected, ULC for the first quarter were revised higher to 5.2% annualized, a substantial increase from the 3% original estimate. Compensation in the first quarter was revised up to 5.9% from 3.7% originally quoted.

The improvements in productivity and ULC are both positive for the economy, showing that worker efficiency improved and inflation pressures have eased.

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Jobless claims fell -19k from the previous week to 318k (consensus 330k), but the four week average held steady at 326k. This level indicates moderate job growth, and breaks the steady increase in new claims over the past month.