Back from the dead?

The news last week that first-quarter productivity slumped while unit labour costs soared should be viewed with some scepticism, since the non-farm business sector figures are distorted by the probable mis-measurement of output. In contrast, the alternative non-financial sector figures showed a sharp acceleration in annual productivity growth, with unit labour costs broadly unchanged over the past 12 months. The latter suggest that even as wage growth accelerates, the Fed might have more scope to delay raising interest rates than we previously believed. That said, with employment gains mounting again, we still expect the Fed to begin raising rates in September.