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Productivity & Labor Costs Mixed, Move Forward

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Tuesday, August 10, 2021

Ahead of the opening bell this morning, we discover some new bricks to put into our economic wall through the first half of 2021. Q2 Productivity and Unit Labor Costs, reports that are released in tandem from the U.S. Bureau of Labor Statistics (BLS), came in mixed from expectations, but do add some nuance to our burgeoning labor market.

Preliminary, non-farm Productivity in Q2 reached +2.3%, below the +3.2% expected from analysts. Both Output and Hours Worked gained notably — +7.9% and +5.5%, respectively — but not enough to get us to where economists thought labor productivity should be by the end of June. Unit Labor Costs were better than expected: +1.0% (representing a +3.3% increase in hourly compensation minus +2.3% in productivity) versus +0.8% expected.

Since Q3 2020, the first quarter that demonstrated we had begun to dig out of the pandemic hit to the U.S. labor market, Productivity is +15.8%. This represents a +1.2% gain from Q4 2019, often considered the last “relevant” quarter pre-pandemic. Hours worked, on the other hand, grew +13.6% since Q320 but are still -2.8% from Q419. So better productivity on fewer hours worked? This would be a positive trend in ways not directly connected to full employment.

Into this data we may also rope yesterday’s record Job Openings of 10.07 million for June. Since the Great Reopening began in early 2021, job openings have grown by nearly 3 million. In fact, the trend line on job openings going back 5 years now shows a steep incline recently — either despite of or partly because of the huge crater the pandemic created — by roughly half a million job openings. How many of these can be expected to be filled, and how soon?

Anyway, even though we’ve seen plenty of hiccups in this Great Reopening scenario — including Delta-variant Covid outbreaks in many parts of the U.S. and now around the world, as well — we can see from this data that advances in labor, both in output and wage increases, are making meaningful strides. Of course, another massive Covid outbreak when school starts and cooler weather prevails is a clear danger to this scenario, but for now we are plugging along.

Market futures are up slightly a half-hour before normal trading starts today: the Dow and Nasdaq are both hovering around +10 points while the S&P 500 is flat to green. We’ve now passed through a majority of sectors reporting earnings for calendar Q2, although we have some significant companies yet to report, like Disney (DIS - Free Report) this week. Now we’ll start focusing on Q3 results in development as our overall recovery continues.

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