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Rampant ULC Growth But Some Respite In Manufacturing

US DATA
  • Nonfarm labour productivity was roughly as expected in the preliminary Q2 release, falling -4.6% Q/Q saar after -7.4% as output fell -2.1% and aggregate hours worked rose 2.6% in a release that can be used to argue that both GDP should be revised up and/or payrolls revised down.
  • With hourly compensation jumping 5.7% (but -4.4% in real terms), ULCs saw a smaller moderation than expected from 12.7% to 10.8% (cons 9.5%).
  • There are clear differences by industry though, supporting the view of a rotation towards services. Manufacturing labour productivity jumped 5.5% which outside of immediate pandemic distortions pushed the first, admittedly small, decline in mfg ULCs since 2Q18 (-0.5% Q/Q) with Y/Y growth at 4.4% vs 9.5% for all nonfarm business.
  • The data have helped drive a pause in the belly-led sell-off in Treasuries, with larger rallies in the belly and long-end on the release leaving the curve with a bear flattening with 2YY +4.2bps and 10YY +2.4bps on the day.

% Y/Y ULC for nonfarm business (white) and manufacturing (yellow)Source: Bloomberg

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  • Nonfarm labour productivity was roughly as expected in the preliminary Q2 release, falling -4.6% Q/Q saar after -7.4% as output fell -2.1% and aggregate hours worked rose 2.6% in a release that can be used to argue that both GDP should be revised up and/or payrolls revised down.
  • With hourly compensation jumping 5.7% (but -4.4% in real terms), ULCs saw a smaller moderation than expected from 12.7% to 10.8% (cons 9.5%).
  • There are clear differences by industry though, supporting the view of a rotation towards services. Manufacturing labour productivity jumped 5.5% which outside of immediate pandemic distortions pushed the first, admittedly small, decline in mfg ULCs since 2Q18 (-0.5% Q/Q) with Y/Y growth at 4.4% vs 9.5% for all nonfarm business.
  • The data have helped drive a pause in the belly-led sell-off in Treasuries, with larger rallies in the belly and long-end on the release leaving the curve with a bear flattening with 2YY +4.2bps and 10YY +2.4bps on the day.

% Y/Y ULC for nonfarm business (white) and manufacturing (yellow)Source: Bloomberg