US Productivity Slows, Inflation-Adjusted Wage Growth Revised Lower: Labor Statistics Bureau

City workers powerwash the sidewalks of the Tenderloin District of San Francisco, Calif., on May 16, 2024. John Fredricks/The Epoch Times

Labor productivity and unit labor costs rose less than estimated in the first quarter, reflecting revised economic output and hours-worked data from the Bureau of Labor Statistics (BLS) on June 6.

In the first three months of 2024, non-farm worker productivity, a measurement of hourly output per work, edged up at an annualized pace of 0.2 percent. That was down from last month’s initial forecast of 0.3 percent.

The final estimate was down from the 3.5 percent growth in worker productivity reported in the fourth quarter of 2023.

According to the federal agency, the final estimate showed an annualized increase of 4 percent in unit labor costs, adjusted downward from the first 4.7 percent reading.

By comparison, unit labor costs were up 0.9 percent from a year earlier, the slowest growth in three years. Additionally, they were down 2.8 percent in the final three months of 2023, a revision from the initial 0 percent.

For the two quarters, the Labor Department revised various numbers across the board, with wage growth figures capturing most of the attention.

Real (inflation-adjusted) hourly compensation was revised from 1.1 percent to 0.4 percent in the first quarter. In the manufacturing sector, real wage growth was adjusted lower from negative 0.4 percent to negative 0.6 percent.

In the October to December period, the gains in real hourly compensation were wiped out, shifting from 0.8 percent growth to negative 2 percent.

Overall, inflation-adjusted hourly compensation has been down 4.4 percent since January 2021.

Real median weekly earnings also have been down about 2 percent over the past three years, and real personal income has tumbled nearly 6 percent.

Other Labor Data

Ahead of the May jobs report on June 7, other labor metrics have been released this week.

Initial applications for unemployment benefits swelled by 8,000 to 229,000 for the week ending June 1, higher than the consensus estimate of 220,000.

Continuing jobless claims inched higher to 1.792 million, while the four-week average, which strips the week-to-week volatility, dipped to 222,250.

A hiring sign at a mall in Marietta, Ga., on Feb. 22, 2024. Madalina Vasiliu/The Epoch Times

U.S.-based companies announced intentions to cut 63,816 jobs in May, down 20.3 percent compared to the same time a year ago, “as companies assess performance and make plans” for the third and fourth quarters, according to a new report from Challenger, Gray & Christmas Inc.

Hiring announcements reached a decade low of 4,326, the firm noted.

Year-to-date, employers have announced 385,859 layoffs, down 7.6 percent from the year-earlier period.

“Job cuts remained flat in May as companies assess performance and make plans for Q3 and Q4. Meanwhile, hiring announcements are at their lowest levels in a decade. The typical churn in a healthy labor market appears to be stalling,” Andrew Challenger, senior vice president of Challenger, Gray & Christmas, said in the report.

“Cuts in the Technology sector dominated announcements last year. While the sector continues to make cuts, it isn’t nearly at the same pace.”

ADP reported that private businesses hired 152,000 workers in May, a four-month low and short of the market forecast of 175,000. Most job creation was concentrated in the services sector, contributing 149,000 positions to the final tally.

Annual pay gains for job-changers slipped for the second straight month to 7.8 percent, and pay growth for job-stayers was unchanged at 5 percent, the payroll processor noted.

“Job gains and pay growth are slowing going into the second half of the year,” Nela Richardson, the chief economist at ADP, said. “The labor market is solid, but we’re monitoring notable pockets of weakness tied to both producers and consumers.”

Economists forecast that the economy created 185,000 new jobs last month. The unemployment rate is expected to stay at 3.9 percent.

Implications for the US Economy

Various indicators suggest the U.S. economy is slowing, says Shernette McLeod, an economist at TD Bank.

“The downward revision to Q1 consumer spending and lackluster start to Q2 add to the collection of evidence pointing to a slowing U.S. economy,” Ms. McLeod said in an analyst note.

“Expectations that labor demand will continue to soften combined with decelerating wage growth should also exert further downward pressure. As such, consumer spending, while not grinding to a halt, is expected to continue losing some momentum as the year progresses.”

Personal income eased to 0.3 percent in April, down from 0.5 percent in March. Real personal disposable income, accounting for inflation and taxes, slipped 0.1 percent.

First-quarter consumer spending was adjusted down in the Bureau of Economic Analysis’ second GDP estimate.

The Atlanta Fed GDPNow Model estimates second-quarter growth at 2.6 percent, although the outlook has repeatedly been revised up and down.

A slowdown in economic conditions could be the good news the Federal Reserve has been searching for in the current tightening cycle.

However, the next step toward cutting interest rates may depend on next week’s Consumer Price Index (CPI) report.

Progress on inflation has slowed this year, with the annual inflation rate sitting above 3 percent.

According to the Cleveland Fed’s Inflation Nowcasting model, the CPI is anticipated to remain unchanged at 3.4 percent.

Core CPI, which omits the volatile energy and food sectors, is projected to remain flat at 3.6 percent.

Fed officials have repeatedly expressed that they will wait for further inflation data to be convinced they are closer to achieving their 2 percent target.

However, considering that the Bank of Canada and the European Central Bank pulled the trigger on a quarter-point rate cut before touching that level, there could be speculation that the Federal Reserve could follow suit.

For now, the futures market is penciling in the first 25-basis-point reduction at the September policy meeting, according to the CME FedWatch Tool.