Productivity Up 2.9% - Real Hourly Earnings Down: Thank You Fed!


Productivity for the second quarter rose 2.9%. Year-over-year inflation-adjusted hourly earnings are down.

The BLS report on Productivity and Costs for the Second Quarter 2018 shows that despite productivity increase, real wages are declining.

Nonfarm business sector labor productivity increased 2.9 percent during the second quarter of 2018, the U.S. Bureau of Labor Statistics reported today, as output increased 4.8 percent and hours worked increased 1.9 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

From the second quarter of 2017 to the second quarter of 2018, productivity increased 1.3 percent, reflecting a 3.5-percent increase in output and a 2.2-percent increase in hours worked.

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

Unit labor costs in the nonfarm business sector decreased 0.9 percent in the second quarter of 2018, reflecting a 2.0-percent increase in hourly compensation and a 2.9-percent increase in productivity. Unit labor costs increased 1.9 percent over the last four quarters.

Real Hourly Earnings

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The data series for total private wages started March 2007. As per BLS procedure, I deflated earnings for all employees by CPI-U and nonsupervisory workers by CPI-W.

Both measures of CPI dramatically understate actual CPI by failure to properly factor in housing. The result has been devastating for anyone wishing to buy a house, and more generally, anyone not owning assets (stocks, bonds, real estate).

Want to buy a starter home? Forget about it.

Related Articles

  1. Year-Over-Year Core CPI Jumps Most Since 2008
  2. Mortgage Purchase Applications Decline 4th Week, Refinancing Lowest Since 2000
  3. Existing Home Sales Decline Third Month Despite Rising Inventory
  4. Housing Starts Unexpectedly Plunge 12.3% in June, Permits Down 2.2%

Placing the Blame

Looking for someone to thank (for the bubble) or blame (for inability to buy a house)?

Look no further than the Fed for its bubble-blowing policies.

Mike "Mish" Shedlock

Comments (9)
No. 1-5

And 90% of the voters have no clue or are happy about it cause they own stocks, bonds, or real estate.


more money for buybacks....


Once again, you blame the Fed, instead of Congress, who approves all of the deficit spending, that often lands in the hands of donors. What bank is going to turn down a loan to the US govt?

The other branch that deserves more blame than the Fed is the Judicial system that has destroyed the rule of law. Without an unbiased rule of law, and maximum freedom, you cannot have free-market capitalism, and the USA as the Constitution intended.

This is NOT the fault of the Fed. Who took away and never returned the charter of the Fed, to lend to corporations during economic contractions instead of the Federal govt? Yea, that's also CONgress!


It's easy to blame everything on the FED, but the money supply has to keep growing. Otherwise, money would become scarce as the population increases. The money supply has to increase in accordance with interest rates also, otherwise if would be very difficult to repay the majority of debts that charged interest. If we had a fixed money supply, everything in aggregate would be in deflation, which would be devastating for asset holders and would greatly decrease any incentive to invest.

Is it bad for the FED to bail out bad actors? Yes. But that doesn't mean everything they do is bad.


While my heart agrees with Mish on home prices being ridiculous, I do believe that OER is the right measure because (1) including house prices would overstate CPI for people like me who own homes, and (2) house prices in many areas are high because they embed a speculative component of appreciation, which does result in a truly better deal (ie, not understated) rent CPI for renters. That minor point aside, I think the Fed's low interest rate policy is indefensible.

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