Americans are working hard, productivity data released on Friday showed, but the data might well be a leading indicator of economic distress.

Nonfarm productivity increased at an annual rate of 2.2% in the second quarter, which less than the 2.7% gain expected by economists polled by Thomson Financial, but still a strong showing.

The 2.2% increase reflected a 1.7% jump in output and a 0.5% decline in hours worked

Unit labor costs rose 1.3% as expected, down from the 2.5% increase in unit labor costs in the prior quarter. Wyss was pleased to see that there was not a lot of evidence of any pressure on labor costs.

Over the last four quarters productivity is up 2.8%, and unit labor costs are up 1.5%. That means the cost to employers of their workers trails that of consumer price inflation signifcantly. The Consumer Price Index for June was up 5.0% from the level the previous year. (See “U.S. Inflation Heats Up.”)

But in the manufacturing sector, productivity fell at a 1.4% annual pace in the second quarter, as output dropped faster than hours worked. Unit labor costs for manufacturers rose 6.1% in the quarter, the largest increase seen since the fourth quarter of 2006.

Financial markets did not show much direct reaction to the data. The yield on the 10-year government bond edged up to 3.95% from 3.93% late on Friday. More interesting was the dollar, which has been surging in recent weeks, though that may be more a reflection of expected slack in Europe’s economy than enthusiasm about America’s.

All in all, the economy looks good only if you have massive amounts of cash to play with in the markets.