RTTNews - With hours worked falling at a faster pace than output, the Labor Department released a report on Tuesday showing a much bigger than expected increase in productivity in the second quarter. At the same time, the report also showed a steep drop in unit labor costs.

The report showed that productivity increased by 6.4 percent in the second quarter compared to a downwardly revised 0.3 percent increase in the first quarter. Economists had expected productivity to increase by 5.5 percent.

The revised productivity growth in the first quarter reflects a notable downward revision from the 1.6 percent growth that was reportedly previously.

A continued drop in hours worked contributed to the bigger than expected increase in second quarter productivity, which is measured by output per hour. Hours fell by 7.6 percent following an unrevised 9.0 percent decrease in the first quarter.

Output also fell in the second quarter, decreasing by a more modest 1.7 percent compared to a revised 8.8 percent drop in the first quarter.

Lindsey Piegza, economic analyst for FTN Financial, said, Stronger-than-expected productivity growth in the second quarter underlines the tremendous slack in the labor market and the employment cutbacks made across all sectors of the economy.

It also highlights the tremendous need for the recovery to begin not just to slow the progression of job losses but begin to stimulate real and positive job creation in an attempt to replace some of the more than 6 million jobs lost since the onset of the economic tsunami, Piegza added.

Meanwhile, the Labor Department also said that unit labor costs fell by 5.8 percent in the second quarter following a revised 2.7 percent decrease in the first quarter. The steep drop in costs exceeded the expectations of economists, who had expected a 2.5 percent drop.

The revised decrease in labor costs in the first quarter reflects a substantial revision compared to the 3.0 percent increase in costs that had been reported.

At the same time, the report showed that hourly compensation edged up 0.2 percent in the second quarter compared to a revised 2.4 percent drop in the first quarter. Hourly compensation in the first quarter was previously reported to show a 4.6 percent increase.

Real hourly compensation, which takes into account changes in consumer prices, fell 1.1 percent in the second quarter compared to a revised 0.1 percent drop in the first quarter. Real hourly compensation in the first quarter was previously reported to show a 7.1 percent increase.

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