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First-Quarter US Labor Costs Marked Down on Weaker Output, Hours
– Annual unit labor costs rose at slowest pace in three years
– Real hourly compensation marked lower, productivity tepid
By Vince Golle and Matthew Boesler
US labor costs increased in the first quarter by less than previously reported, reflecting downward revisions to economic output and hours worked and consistent with other signs of moderating activity. Unit labor costs, or what a business pays employees to produce one unit of output after taking into account changes in productivity, rose at a revised 4% annual rate, down from an initially reported 4.7%, according to Bureau of Labor Statistics figures published in early June. From a year earlier, unit labor costs were up just 0.9%, the slowest pace in three years.

While the Federal Reserve would like to see lower unit labor costs, they ideally like to see that through greater productivity — which can be the result of efficiency gains or technological enhancements. The report, however, showed labor costs rose at a slower pace than the first estimate as workers churned out less output. Real hourly compensation was also marked lower.

Productivity, or the output per hour of nonfarm employees, barely rose in the first three months of the year, revised down slightly to a 0.2% pace. On the whole, quarterly productivity figures are volatile. That said, a sustained slowdown would represent another hurdle for the Fed’s quest to tame inflation.

Many companies are undertaking efforts to improve efficiency — including through the use of artificial intelligence — but high interest rates have forced businesses to be selective about capital investments.

Though unit labor costs were marked lower, the pace still represents a swift pickup from the stabilization seen in the second half of 2023 when the nation saw strong productivity gains. It is not uncommon for labor costs to jump in the first quarter. They tend to moderate in the subsequent periods.

The productivity report showed output rose at a 0.9% pace in the first quarter, the smallest advance since 2022. Real hourly compensation climbed just 0.4%, compared to an initially reported 1.1%. Hours worked rose at about half the originally reported pace.

Separately, initial applications for unemployment benefits increased by 8,000 to 229,000 in the latest week. The data can be prone to swings around holidays and the period included Memorial Day.

A report from Challenger, Gray & Christmas, Inc. indicated hiring intentions this year through May were down 50% from the same period last year. So far in 2024, companies announced plans to hire 50,833 workers, the fewest for that period in a decade. “Job cuts remained flat in May as companies assess performance and make plans for Q3 and Q4,” said Andrew Challenger, the firm’s senior vice president. “Meanwhile, hiring announcements are at their lowest levels in a decade. The typical churn in a healthy labor market appears to be stalling.”

Did You Know…

  • A comet’s tail always points away from the sun.
  • If you get into the bottom of a well or a tall chimney and look up, you can see stars, even in the middle of the day.
  • Everything weighs 1% less at the equator.
  • In ancient times strangers shook hands to show that they were unarmed.
  • Strawberries and cashews are the only fruits whose seeds grow on the outside.
  • Mickey Mouse is known as “Topolino” in Italy.

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George Eliot

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