First-Quarter US Labor Costs Marked Down on Weaker Output, Hours

US labor costs increased in the first quarter by less than previously reported, reflecting downward revisions to economic output and hours worked and consistent with other signs of moderating activity.

Unit labor costs, or what a business pays employees to produce one unit of output after taking into account changes in productivity, rose at a revised 4% annual rate, down from an initially reported 4.7%, according to Bureau of Labor Statistics figures published Thursday.

From a year earlier, unit labor costs were up just 0.9%, the slowest pace in three years.

US unit labor costs

While the Federal Reserve would like to see lower unit labor costs, they ideally like to see that through greater productivity — which can be the result of efficiency gains or technological enhancements.

Thursday’s report, however, showed labor costs rose at a slower pace than the first estimate as workers churned out less output. Real hourly compensation was also marked lower.