Will American Workers Lift the Economy in 2013?

Non-Farm Business Productivity

Source: Bureau of Labor Statistics

Non-farm business sector labor productivity increased at an annual rate of 0.7 percent in the first quarter of 2013, according to preliminary data released by the U.S. Bureau of Labor Statistics on Thursday. This compares against a 1.7 percent annualized rate of decline in the fourth quarter, and falls short of expectations for quarter-to-quarter growth of 1.3 percent. On the year, productivity increased 0.9 percent.

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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. Productivity is a highly-watched metric because it allows for economic growth without adding inflationary pressures. Ostensibly, higher productivity leads to higher real wages, both of which increase the overall wealth of an economy.

The Bureau of Labor Statistics 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.

The Bureau reports that labor costs in non-farm businesses increased 0.5 percent in the first quarter of 2013, as an increase in hourly compensation was greater than the increase in productivity. Unit labor costs rose 0.6 percent over the last four quarters.

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Non-Farm Business Sector Output Per Hour

Source: Bureau of Labor Statistics

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