Nonfarm business productivity (output per hour) slowed more than expected in Q1 to 0.8% q/q saar from a downwardly revised 1.6% in last year’s fourth quarter (previously 1.8%). The Action Economics Forecast Survey expected a 1.6% quarterly increase in productivity. Compared to a year ago, productivity rose 2.9% y/y in Q1, up from 2.5% in Q4. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.6% annual rate, likely a reflection of AI and other technology advances. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures.

Nonfarm business output (not quite the same as real GDP) increased 1.5% q/q saar in Q1 versus a downwardly revised 1.3% in Q4 (previously 1.5%). By contrast, real GDP grew 2.0% q/q in Q1. Hours worked rebounded in Q1, rising 0.7% after falling an unrevised 0.2% in Q4. Compensation growth slowed to 3.1% in Q1 from an unrevised 6.3% in Q4. Compared to a year ago, compensation growth slowed to 4.2% y/y from 5.0%. On a quarterly basis, compensation growth slowed much more than did productivity growth. Consequently, growth of unit labor costs slowed markedly to 2.3% q/q in Q1 from 4.6% in Q4. The y/y rate of advance for unit labor costs also slowed, to 1.2% y/y, its slowest annual pace since Q3 2023, from 2.4% in Q4. READ MORE