Profound Productivity

In 21Q1, non-farm hourly compensation rose at an inflation-inducing annualized rate of 7.2%. However, in 21Q1, non-farm labor productivity grew at an annualized rate of 5.5%. Thus, unit labor costs increased by a very manageable annualized rate of 1.7%. Thinking about this differently, in 21Q1 output increased at an 8.6% rate, but hours worked rose just 3%. With the capital-to-labor ratio obviously rising, wage inflation is well contained.