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The trend in productivity growth has improved over the past year, even if Q1’s 3.6% surge overstates the extent, explained analysts at Wells Fargo.  

Key Quotes:  

“Productivity leaped 3.6% in the first quarter as output strengthened and growth in hours worked slowed. That was the strongest quarterly gain since Q3-2014, and while overstating the trend, offers further evidence that productivity has picked up from the dismal performance earlier this cycle.”

“We expect productivity to moderate in the coming quarters but to remain stronger than earlier in the cycle at around 1%.”

“The pickup in productivity has provided businesses an outlet from rising compensation costs as the labor market has tightened. Unit labor costs (ULCs) declined nearly 1% in Q1. The overall trend in ULCs remains comfortably under 2% and suggests rising labor costs are not about to drive inflation up above the FOMC’s target.”