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A Surprise Boost in Productivity

The nonfarm productivity data reported today revealed the expected revisions in the output measure signalled by the GDP report. But additional revisions in the hours-worked and compensation data provided unexpected excitement.

Productivity growth reached a surprisingly strong 2.5% in the second quarter following a sharp upward revision in the first quarter to a 0.1% gain from -1.2%. Sharp downward revisions in the 2000 data partly adhered to expectations, though these figures were even weaker than expected due to upward revisions in hours-worked, which were sharply unwound in the first quarter and second quarter to leave a net upward impact on productivity for these two quarters.

In addition, hourly compensation was revised sharply higher in 2000, culminating in a huge 8.9% surge in the fourth quarter before slowing to an unrevised 5.1% rate in the first quarter, and then a 4.7% rate in the second quarter. Though the recent figures were in line with expectations, these data now constitute a more dramatic downward trend, which is of dubious support for bonds. Unit labor costs followed this same pattern, with extra help in the second quarter from the strong productivity gain. From Standard & Poor's Global Markets

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