Data from the US Bureau of Labor Statistics on Thursday showed that due to a slowdown in productivity growth, the increase in labor costs in the first quarter of the year was the biggest in the first quarter. This means that after a significant slowdown in growth in this indicator in the second half of 2023, there was a sharp jump, which may increase the risk that US inflation will continue to be high.

According to specific data, the initial value of labor costs for non-farm units in the US in the first quarter was 4.7%, which was much higher than the expected 3.6%. The previous value was only 0.4%. The unit labor cost, that is, the cost that an enterprise pays an employee to produce a unit of output after taking into account changes in productivity, is rising at an annual rate of 4.7%.

The initial value of US non-farm productivity in the first quarter was only 0.3% annualized, lower than the forecast of 0.7%. The previous value was raised to 3.5% from 3.3%. Productivity indicators refer to the hourly output of non-farm workers.

Thursday's report also showed that output for the first quarter of this year increased by 1.3% compared to the previous three months, the smallest increase in nearly two years, when output data recorded a decline. The number of working hours increased by 1% in the first quarter. The increase in hourly wages in the first quarter was 5% over the previous quarter, the biggest increase in nearly a year.

Federal Reserve Chairman Powell said at a press conference after the FOMC meeting on Wednesday that it is difficult to judge whether the strong increase in US productivity will continue in 2023. He has previously said that increased immigration can support US economic growth without increasing inflation, and the influx of immigrants has also been shown to increase productivity.

Financial blogger ZeroEdge commented that wage inflation has been confirmed and is growing at the fastest rate in a year. The productivity-boosting benefits we were told to expect from artificial intelligence (AI) didn't show up in the data.

Last week, the US Bureau of Labor Statistics revised quarterly and annual productivity data for the past five years, as well as work time data. In recent quarters, if any, the data was generally revised down by 0.1%-0.2%, and the data for the first year of the COVID-19 pandemic was much larger.

The latest data such as labor costs for non-farm units on Thursday is consistent with another labor cost data released earlier this week by the US Bureau of Labor Statistics, showing trends. According to data released on Tuesday, the Employment Cost Index (Employment Cost Index), which measures wages and benefits, rose 1.2% in the first quarter, exceeding market expectations by 1%. The previous value was 0.9%, the biggest increase in a year.

Note that in recent years, labor costs in the US usually rise sharply in the first quarter, but tend to slow down in the subsequent period. Although this data fluctuates greatly, its failure to continue to slow down will inevitably become another obstacle for the Federal Reserve to fight inflation. After a series of recent reports showed that inflationary pressure was stubborn, labor cost data further increased market concerns about the progress of Fed policymakers in achieving inflation targets.

As US interest rates are expected to remain high for some time, corporate investment in equipment may continue to be a weakening factor in America's overall economic growth. According to the latest US manufacturing PMI data, the US manufacturing industry started weakly in the second quarter, and the recovery in the first quarter was only short-lived.