manufacturing worker on assemly line Copyright Scott Olson, Getty Images

US Productivity Gains Accelerate While Pace Remains Tepid

Paltry productivity has been a disappointing characteristic of the current economic expansion.

Worker productivity gains in the U.S. accelerated in the second quarter to a pace that’s still tepid by historical standards, a Labor Department report showed Wednesday.

Highlights

  • The measure of nonfarm business employee output per hour increased at a 0.9% annualized rate (est. 0.7% rise) after an upwardly revised 0.1% rise in the prior three months.
  • Unit labor costs rose at 0.6% pace (est. 1.1%) after an upwardly revised 5.4% rate.
  • The report reflects annual revisions to economywide data from July 28, including upward revision to hourly compensation in 1Q.

Key Takeaways

Paltry productivity has been a disappointing characteristic of the current economic expansion that’s managed about 2% growth on average over the past eight years. Without more gains in efficiency, the economy’s so-called speed limit -- the pace at which it can expand without stoking inflation -- is reduced. Weaker output per hour has its roots in less corporate investment in equipment and a slower pace of innovation. Subdued productivity also helps explain why companies have been slow to boost worker pay that would boost the standard of living.

Other Details

  • Productivity rose 1.2% from the second quarter of 2016; unit labor costs, which are adjusted for efficiency gains, were down 0.2% from a year earlier.
  • Adjusted for inflation, hourly earnings rose at a 1.9% rate last quarter, after increasing at a 2.3% pace in the first quarter
  • Output rose at a 3.4% rate, the fastest since the first quarter of 2015, following a 1.8% gain.
  • Hours worked rose at a 2.5% pace, the most in more than a year, after a 1.6% gain; compensation for each hour worked rose at a 1.6% annual pace following 5.5%.
  • Latest rise in productivity compares with the 1.2% average over the period spanning 2007 to 2016.
  • Among manufacturers, productivity rose at a 2.5% rate in the second quarter on gains at durable-goods factories, after a 0.3% gain.
  • Annual average productivity change for 2016 revised to 0.1% decline from 0.2% increase, marking first annual decrease since 1982; productivity gains revised upward for 2014 and 2015 to 1% and 1.3%, respectively.

By Patricia Laya

TAGS: Operations
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