Big Expansion In Productivity

The Q1 Productivity and Costs report was very impressive. It’s great news for economic growth. Annualized productivity growth rose from -3.8% to 5.4% which beat estimates for 5.4% despite the 0.4% positive revision to Q4 results. Output growth was 8.4% and hours worked were up 2.9%. Unit labor cost growth was -0.3% which was above estimates for -0.6%. This was down from 5.6% growth in Q4. Compensation growth of 5.1% was offset by the high productivity growth we mentioned earlier. It’s amazing for corporations if productivity can grow quicker than wages. That offsets the big cost increase that’s coming this summer now that we are seeing labor shortages.

Now let’s look at results compared to Q4 2019 because that was the last quarter not impacted by the pandemic. Business output is down 0.6%. Hours worked were down 4.3% which makes sense because we don’t have as many people working. Productivity is up 3.9% which makes sense anecdotally. There has been a large increase in software spending which is supposed to make workers more efficient. Compensation is up 8.1% and unit labor costs are up 3.9% from before the pandemic. It’s fun to see just how much the pandemic re-worked the economy. We will finally see the long-term impact after it’s over.

Q1 Was A Winning Earning Season

With Q1 earnings season 85% over as of May 6th, we can look at the almost final results. This quarter was amazing. EPS growth has average 41.02%. The average EPS beat was 19.07% and 88% of firms beat estimates (3-year average is 76%). The 3-year average beat is 8.14%. Keep in mind the past few quarters are pushing that average higher than it is usually.

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