US: Unit Labor Costs rise by 4.2% in Q1 vs. 6% expected

• US Q1 Unit Labor Costs are revised sharply lower from 6.3% to 4.2%. 
• US Dollar pulls back after the data, offsetting the ADP impact. 

Nonfarm business sector labor productivity decreased 2.1% in the first quarter of 2023. Labor productivity was revised up 0.6%, the combined effect of a 0.3-percentage point upward revision to output and a 0.4-percentage point downward revision to hours worked. 

“From the same quarter a year ago, nonfarm business sector labor productivity decreased 0.8 percent, reflecting a 1.4-percent increase in output and a 2.2-percent increase in hours worked. The 0.8-percent productivity decline is the first time the four-quarter change series has remained negative for five consecutive quarters; this series begins in the first quarter of 1948”, said the Bureau of Labor Statistics. 

“Unit labor costs in the nonfarm business sector increased 4.2% percent in the first quarter of 2023, reflecting a 2.1-percent increase in hourly compensation and a 2.1-percent decrease in productivity. Unit labor costs increased 3.8 percent over the last four quarters”, added the press release. Unit labor costs in the manufacturing sector increased 3.1% in Q1, reflecting a 0.5%increase in hourly compensation and a 2.5% decrease in productivity. From the same quarter a year ago, manufacturing ULC increased 4.5%. 

Market reaction: 

Usually, the ULC report has a muted reaction but the sharp revision shows less inflationary pressures than initially reported. The US Dollar weakened after the report and US yields declined, offsetting the reaction to the ADP Employment report release earlier which surpassed expectations. The DXY turned negative for the day, and it was falling toward 104.00.