US labor costs rise more slowly than expected in second quarter

US labor productivity picked up during the second quarter of 2017, helping to keep a lid on unit labor costs.

Productivity growth rose to a 0.9% quarter-on-quarter (consensus: 0.8%) pace after an increase of 0.1% over the previous three quarters, according to the Department of Labor.

In parallel, unit labor cost growth slowed to a gain of 0.6% (consensus: 1.0%) for the three months to June after a 5.4% spurt over the prior three-month stretch.

The latter followed a sharp 6.3% fall in the last three months of 2016.

Labor costs cooled down as rising productivity combined with a lower rate of increase in real hourly compensation, with the rate of growth down from 2.3% to 1.9%.

"On a y/y basis, productivity was up 1.2%, unchanged from Q1 but a clear improvement from the very slow growth throughout 2016. But despite the recent pickup, productivity growth remains subdued by historical standards. By contrast, unit labor cost growth has been more buoyant.

"Slow growth in output prices, disappointing productivity trends, and fast-rising unit labor costs have depressed unit profits for companies in recent years and have been one factor preventing wages from picking up at a faster pace, in our view. However, unit profits have improved somewhat over the past two quarters and are now in positive territory for the first time since the start of 2015," said Blerina Uruci at Barclays Research.