Productivity is often noted as a key economic indicator, and an essential component of measuring potential inflation. The technical equation is the ratio of economic output to input. I’m looking to gain a fuller understanding, but from what I gather, even though productivity is up, the components of the metric may yield an alternative picture for growth.

Real Hourly Compensation was down 2.6% quarter on quarter, and down 0.2% year over year. Inputs decreasing would obviously drive an increase to productivity. The increasing output as a consequence of technological or process improvements did not drive the overall number.

The full BLS report follows:

PRODUCTIVITY AND COSTS
                        First Quarter 2011, Revised

Nonfarm business sector labor productivity increased at a 1.8 percent annual
rate during the first quarter of 2011, the U.S. Bureau of Labor Statistics
reported today. The gain in productivity reflects increases of 3.2 percent
in output and 1.4 percent in hours worked. (All quarterly percent changes in
this release are seasonally adjusted annual rates.) From the first quarter
of 2010 to the first quarter of 2011, output increased 3.2 percent while
hours rose 1.9 percent, yielding an increase in productivity of 1.3 percent.
(See tables A and 2.) 

Labor productivity, or output per hour, is calculated by dividing an index
of real output by an index of hours worked of all persons, including
employees, proprietors, and unpaid family workers. 

Unit labor costs in nonfarm businesses rose 0.7 percent in the first quarter
of 2011, as a 2.5 percent increase in hourly compensation outpaced the 1.8
percent gain in productivity. Unit labor costs also rose 0.7 percent from the
same quarter a year ago. (See tables A and 2.) In the first quarter of 2011,
the consumer price series increased at a 5.3 percent annual rate, resulting
in a decline of 2.6 percent in real hourly compensation. 

BLS defines unit labor costs as the ratio of hourly compensation to labor
productivity; increases in hourly compensation tend to increase unit labor
costs and increases in output per hour tend to reduce them. Real hourly
compensation is equal to hourly compensation divided by the consumer price
series.

Manufacturing sector productivity grew 4.2 percent in the first quarter of
2011, as output and hours worked increased 7.7 percent and 3.3 percent,
respectively. Over the last four quarters, manufacturing productivity
increased 4.1 percent. Unit labor costs in manufacturing declined 1.4 percent
in the first quarter of 2011 and 0.7 percent over the last four quarters. 

Productivity increased 7.5 percent in the durable goods sector and 2.6
percent in the nondurable goods sector in the first quarter of 2011. In
durable goods industries, a 14.0 percent jump in output outweighed
a 6.1 percent increase in hours worked. Nondurable goods production rose
1.5 percent while hours fell 1.1 percent.  (See tables A, 3, 4 and 5.) 

The data sources and methods used in the preparation of the manufacturing
output series differ from those used in preparing the business and nonfarm
business output series, and these measures are not directly comparable.
See Technical Notes for further information on data sources. 

Preliminary first quarter 2011 measures of productivity and costs were
announced for the nonfinancial corporate sector.  Productivity increased
4.1 percent in the first quarter of 2011 as output and hours rose 6.2
percent and 2.0 percent, respectively. (See tables C and 6.)

Revised measures

The measures released today were based on more recent source data than were
available for the preliminary report. Table B presents previous and revised
productivity and related measures for the major sectors: business, nonfarm
business, and manufacturing, for the first quarter of 2011 and the fourth
quarter of 2010.

In the first quarter of 2011, nonfarm business productivity growth was revised
up to 1.8 percent from the 1.6 percent preliminary estimate, reflecting an
upward revision to output. Unit labor costs increased 0.7 percent in the first
quarter, a slightly smaller gain than reported May 5. In the manufacturing
sector, productivity growth in the first quarter was revised down to 4.2
percent from 6.3 percent due to a downward revision to output. Unit labor
costs declined 1.4 percent rather than falling 3.5 percent as
previously reported.

In the fourth quarter of 2010, nonfarm business productivity was unrevised,
while a 1.8 percentage point downward revision to hourly compensation resulted
in a larger decline in unit labor costs (-2.8 percent) than was previously
reported. In the manufacturing sector, a downward revision to productivity
and an upward revision to hourly compensation resulted in a smaller decline
in unit labor costs than was reported on May 5. In the nonfinancial corporate
sector, productivity growth was revised down to 1.6 percent from a previous
estimate of 2.6 percent.
___________

The preliminary Productivity and Costs press release for second-quarter 2011
is scheduled to be released on Tuesday, August 9, 2011 at 8:30 a.m. (EDT).

======================================================================================================
Table A. Revised first-quarter 2011 measures: percent change from previous quarter, annual rate
(Q to Q) and from same quarter a year ago (Y to Y)

Sector                    Nonfarm                                        Durable         Nondurable
                          Business         Business      Manufacturing   Manufacturing   Manufacturing
                       Q to Q   Y to Y  Q to Q  Y to Y  Q to Q  Y to Y  Q to Q  Y to Y  Q to Q  Y to Y
------------------------------------------------------------------------------------------------------
Productivity             1.8    1.3      0.9     1.1     4.2     4.1     7.5     6.4     2.6     2.6
Output                   3.2    3.2      2.6     3.1     7.7     6.6    14.0    10.6     1.5     2.5
Hours                    1.4    1.9      1.7     2.0     3.3     2.4     6.1     3.9    -1.1    -0.1
Hourly
 compensation            2.5    2.0      2.3     2.0     2.8     3.4     2.9     3.7     2.1     2.3
Real hourly
 compensation           -2.6   -0.2     -2.8    -0.2    -2.4     1.1    -2.3     1.5    -3.0     0.1
Unit labor
 costs                   0.7    0.7      1.5     0.9    -1.4    -0.7    -4.3    -2.5    -0.5    -0.3

======================================================================================================
Table B. Revised and previous measures: first quarter 2011 and fourth quarter 2010

Sector            Nonfarm                                             Durable           Nondurable
                  Business         Business         Manufacturing     Manufacturing     Manufacturing
              Revised Previous  Revised Previous  Revised Previous  Revised Previous  Revised Previous
------------------------------------------------------------------------------------------------------
                               Percent change, annual rate, first quarter 2011

Productivity    1.8     1.6       0.9     0.7       4.2     6.3       7.5       9.8     2.6     4.5
Output          3.2     3.1       2.6     2.4       7.7     9.7      14.0      16.4     1.5     3.3
Hours           1.4     1.4       1.7     1.7       3.3     3.3       6.1       6.1    -1.1    -1.2
Hourly
 compensation   2.5     2.6       2.3     2.4       2.8     2.6       2.9       2.4     2.1     2.2
Real hourly
 compensation  -2.6    -2.5      -2.8    -2.7      -2.4    -2.6      -2.3      -2.7    -3.0    -2.9
Unit labor
 costs          0.7     1.0       1.5     1.7      -1.4    -3.5      -4.3      -6.7    -0.5    -2.2
------------------------------------------------------------------------------------------------------

                               Percent change, annual rate, fourth quarter 2010

Productivity    2.9     2.9       2.7     2.7       4.9     5.1       5.4       5.5     5.3     5.4
Output          4.4     4.4       4.2     4.2       3.9     4.0       5.8       5.9     1.9     2.0
Hours           1.5     1.5       1.5     1.5      -1.0    -1.0       0.4       0.4    -3.2    -3.2
Hourly
 compensation   0.1     1.9      -0.1     1.7       3.3     2.7       3.3       2.6     2.7     2.5
Real hourly
 compensation  -2.6    -0.8      -2.7    -0.9       0.6     0.0       0.6      -0.1     0.0    -0.2
Unit labor
 costs         -2.8    -1.0      -2.7    -0.9      -1.6    -2.3      -2.0      -2.8    -2.4    -2.8

======================================================================================================
Table C. Nonfinancial corporations: Preliminary first-quarter 2011 measures, and revised and previous
fourth-quarter 2010 measures
                                                        Real
                                           Hourly       hourly        Unit                    Implicit
             Produc-                       compen-      compen-       labor       Unit        price
             tivity    Output     Hours    sation       sation        costs       profits     deflator
------------------------------------------------------------------------------------------------------
                           Percent change, annual rate, first quarter 2011

Q to Q        4.1       6.2        2.0      2.4         -2.7          -1.6         15.4         0.1
Y to Y        0.7       3.2        2.6      2.0         -0.2           1.3          6.6         1.4

                           Percent change, annual rate, fourth quarter 2010

Revised       1.6       3.4        1.8      0.4         -2.2          -1.1         -7.6        -1.5
Previous      2.6       4.5        1.8      2.1         -0.6          -0.5         -8.6        -1.5

======================================================================================================

Obama has not gone so far as to change all key metrics for economic growth, just those of unemployment which are the most visible to the public.  Looking into the numbers, the actual labor hours has also increased 1.9% year over year.  This does not sound like good things are coming up in the next few quarters.  The picture being painted is a squeezed labor force, working additional hours to compensate for both decreasing compensation and fewer potential employees.

Decreasing compensation will diminish the consumer, impacting a significant segment of the economy.  Confirmation of a continued downward trend will be a bad jobs number tomorrow.  Anything below 100,000 will initiate a massive sell-off.

Of course, we could also be in the scenario where the jobs number is under 100,000 but the rate actually goes down.  How do we keep generating fewer jobs for an increasing work force and at the same time lower the overall rate?  If more newbies, or experienced-bies can’t find a job, how does the rate go down?

Remember the fuzzy math Bush talked about?  Well, it’s like deja-vu all over again.