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The BLS measures of Productivity and Costs for the first-quarter of 2025 will give the Fed some additional headaches.

Nonfarm Business Sector Labor Productivity

Nonfarm business sector labor productivity decreased 1.5 percent in the first quarter of 2025, as output decreased 0.2 percent and hours worked increased 1.3 percent.

This is the first decline in nonfarm business sector labor productivity since the second quarter of 2022. From the same quarter a year ago, nonfarm business sector labor productivity increased 1.3 percent in the first quarter of 2025.

Manufacturing Sector Labor Productivity

Manufacturing Sector Labor Productivity increased 4.4 percent in the first quarter of 2025, as output increased 4.8 percent and hours worked increased 0.4 percent.

This is the largest increase in productivity since the second quarter of 2021, when the measure increased 5.3 percent. In the durable manufacturing sector, productivity increased 7.2 percent, reflecting a 7.9-percent increase in output and a 0.6-percent increase in hours worked.

Nondurable manufacturing sector productivity increased 1.7 percent, as output increased 1.7 percent and hours worked saw no growth. Total manufacturing sector productivity increased 1.4 percent from the same quarter a year ago.

For overall productivity to decline 1.5 percent while manufacturing productivity rose 4.4 percent, service sector productivity was a disaster.

Unit Labor Costs

Unit labor costs in the nonfarm business sector increased 6.6 percent in the first quarter of 2025, reflecting a 5.0-percent increase in hourly compensation and a 1.5-percent decrease in productivity.

The BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, increased 1.2 percent in the first quarter of 2025, and increased 0.5 percent over the last four quarters.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers.

Revisions

In the first quarter of 2025, nonfarm business sector productivity decreased 1.5 percent, a 0.7- percentage point downward revision from the previously reported decrease of 0.8 percent.

Output was revised up 0.1 percentage point to a decrease of 0.2 percent and hours worked were revised up 0.7 percentage point to an increase of 1.3 percent.

Unit labor costs increased 6.6 percent rather than increasing 5.7 percent as previously reported, reflecting a 0.2-percentage point upward revision to hourly compensation and a 0.7-percentage point downward revision to labor productivity.

Sinking output and steeply rising labor costs is another measure that will give the Fed headaches.

Jobs Report Tomorrow

The BLS reports jobs tomorrow. The Bloomberg consensus is 129,000 nonfarm payrolls.

It’s a total crapshoot because BLS data is terrible. However, at the risk of looking silly, I will go out on a limb and suggest 30,000.

Q: Why?
A: The BLS and ADP ping-pong over time. For 3 months the BLS reported more jobs than ADP. I think a reversion to the mean will soon happen.

No apologies if wildly wrong.

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