US productivity decline driven by Q1 output weakness

US productivity, as measured by the change in nonfarm business output per hour, fell 3.1% q/q saar in Q1. This was broadly in line with consensus expectations (-3.0%). Output for the nonfarm business sector was revised down to -1.6% (previously -0.2%), in line with the downside revisions to final Q1 GDP. 

Employee hours grew 1.6%, little changed from previous estimates, thus leading to a sharper decline in productivity. Compensation per hour rose 3.3% in Q1 (after 3.4% in Q4) leading unit labor costs, a measure of how much faster compensation is growing relative to output, to rise 6.7%. On a y/y basis productivity grew 0.3% and unit labor costs were up 1.8%, showing a slight improvement in the underlying dynamics. 

The large fall in productivity growth was largely driven by the decline in output during Q1. To the extent that the Q1 growth weakness was driven by one-off factors (e.g., weather, West Coast port closures and residual seasonality in the data), once output growth returns to its underlying trend in Q2 so should productivity growth. 

"However, we would point out that productivity growth has been particularly subdued in recent years, and we do not see evidence in the data that it is about to break through from that trend in the near term." said Barclays Capital