The Most Important Thing Today (8/8/23)

• After labor costs surged in the first quarter, dampening productivity, productivity surged at a 3.7% annual rate in the second quarter, beating expectations of a 2.2% rise. While labor costs still increased in the second quarter, the rise slowed down to 1.6%, versus 3.3% in the first quarter.
• It was the largest productivity gain seen since the depths of the pandemic in Q2 and Q3 of 2020. While quarterly productivity figures can be volatile, the second quarter report dampens fears of a productivity slump that came out of the prior quarter’s report. If sustained, higher productivity could further help limit the inflationary impact of higher wages.
• The overall wage picture is complex, with real hourly wages rising 2.7%, after adjusting for inflation, which was the first increase in nearly a year. On the other side, there was the first decline in overall hours since 2020, and the employment cost index (ECI) rose in the second quarter at the slowest rate since 2021.

Source: Helios Quantitative Research, Bloomberg, Bureau of Economic Analysis