Productivity High, Unit Labor Costs Decelerate, Labor Market Healthy

- Preliminary 1Q Non-farm Productivity rose 3.2% versus estimates of a 3.0% rise and a .3% decline in 4Q.
- Preliminary 1Q Unit Labor Costs rose 2.5% versus estimates of a 1.2% increase and a 3.0% increase in 4Q.
- Initial Jobless Claims for last week rose to 322K versus estimates of 310K and 317K the prior week.
- Continuing Claims rose to 2462K versus estimates of 2450K and 2441K prior.

BOTTOM LINE: Productivity gains failed to keep pace with rising wages and benefits in the first quarter, Bloomberg reported. Unit labor costs have risen 1.4% over the past 12 months versus a 2.5% increase in all of 2005. Productivity growth has averaged 3.5% since the expansion started in November 2001 versus a 2.1% increase during the 90s expansion. I continue to believe productivity will remain at elevated levels and unit labor costs, which account for two-thirds of inflation, will remain subdued over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits edged higher last week to a level that’s still consistent with an improving job market, Bloomberg said. This was the first time jobless claims exceeded 320,000 since the effects of the hurricanes in late 2005. However, the timing of spring break for schools this year may have led to the up-tick. Companies are expected to have added 200,000 jobs in April, capping the best six months of hiring since the peak of the stock market bubble in 2000. I still expect the labor market to remain healthy over the intermediate-term, but hiring will likely slow from recent rates as economic growth recedes to more average levels.