Nonfarm Productivity Rises 2.4% as Output Gains Outpace Labor Hours
In the second quarter, U.S. nonfarm business labor productivity rose 2.4% quarter-on-quarter, driven by a 3.7% increase in output against a 1.3% rise in hours worked. This productivity acceleration follows a downwardly revised 1.8% decline in Q1 and offers bullish signals for cost efficiency across equities—particularly in the tech and industrials sectors that benefit from scalable output.
Unit Labor Costs Up 1.6%, Eased by Productivity Gains
Despite a 4.0% increase in hourly compensation, the 2.4% rise in productivity helped cap unit labor cost growth to 1.6% for Q2. Over the past year, unit labor costs are up 2.6%, showing manageable wage inflation—likely reducing immediate upward pressure on producer prices. Real hourly compensation increased 2.3% quarter-on-quarter, suggesting workers’ income is outpacing inflation modestly.
Manufacturing Sector Posts Broad Gains—Durables Lead
Manufacturing productivity climbed 2.1% in Q2, led by a 3.3% rise in durable goods productivity, which benefited from a 4.1% jump in output and moderate labor input. Nondurable manufacturing lagged, with a smaller 1.2% productivity gain. Importantly, durable goods unit labor costs declined by 0.2%, underscoring efficiency improvements—a supportive backdrop for capital goods and industrials equities.
Outlook: Bullish Bias, But Watch for Labor Strain and Fed Signals
The combination of rising productivity and subdued unit labor cost growth signals improved corporate efficiency, a generally bullish input for equity markets. However, the uptick in jobless claims and persistent wage gains may restrain the Federal Reserve from easing policy soon. Traders should watch for upcoming inflation and consumer demand data to assess if productivity gains can offset labor cost pressures further. The current bias remains modestly bullish, with manufacturing and productivity-driven sectors best positioned for outperformance.
