US: Underlying pace of productivity growth to remain subdued – Nomura

Slow rate of US labor productivity growth continued in Q1 as nonfarm labor productivity was flat, slowing from a 1.8% q-o-q saar increase in Q4, points out the research team at Nomura.

Key Quotes

“The flat reading in Q1 was unsurprising, considering solid improvements in hours aggregate worked but only modest growth in real GDP. Its y-o-y growth rate was at 1.2% following 1.1% in Q4, much below the average pace before last recession. Unit labor costs rebounded by 2.2% q-o-q saar in Q1 as real output growth slowed while compensation per hour increased steadily.”

“We have previously looked at reduced dynamism in the economy (e.g., the rate of new business formation, churn within existing businesses, and workers changing jobs) as a major factor that slows productivity and wage growth. Dynamism has been trending lower over a long time. The declines have been broad-based across industries, firm sizes, and firm ages. JOLTS data also suggest that labor market turnover has slowed across all cohorts. Our analysis suggests that dynamism may remain subdued in the medium term. We think the low level of dynamism will continue to impede with productivity growth. We may see some q-o-q rebound in Q2, considering strong gains in aggregate hours and a slight acceleration in real GDP growth in Q2 (2.6% q-o-q saar) relative to Q1 (1.2%). However, we think the underlying pace of productivity growth to remain subdued considering these structural reasons for slow productivity growth.”