US: Gains in productivity should help with rising compensation costs - Wells Fargo

Today’s data showed that productivity rose at a  0.7% rate during the first quarter in the US. According to analysts from Wells Fargo, stronger investment in recent quarters has boosted labor productivity and should help firms cope with rising compensation costs. 

Key Quotes: 

“Nonfarm labor productivity rose at a 0.7 percent annualized pace in the first quarter. This was a bit below expectations, but the unchanged reading for Q4 was revised up to 0.3 percent.”

“Compensation costs rose at a 3.4 percent pace, but unit labor costs (ULCs)—a better gauge of inflation pressure—rose at a more modest 2.7 percent clip. ULCs are up just 1.1 percent from a year ago, but have picked up the past few quarters.”

“We expect labor productivity to continue to strengthen this year as capital spending has picked up and payroll gains slow due to employers having difficulty finding workers. That should help keep unit labor costs in check even as compensation costs rise amid the tighter labor market.”