Productivity gains in the U.S. accelerated by more than expected to the fastest pace since 2015 while labor costs fell, amid an economic-growth pickup supported by tax cuts and federal spending, a Labor Department report showed Wednesday.
Highlights of Productivity (Second Quarter)
- Measure of nonfarm business employee output per hour increased at 2.9% annualized rate (est. 2.4%) after 0.3% pace in previous three months; fastest since 1Q 2015.
- Unit labor costs fell at 0.9% rate (est. unchanged) following 3.4% rise; biggest drop since 2014.
- Productivity increased 1.3% year over year; unit labor costs rose 1.9% y/y.
The data indicate that the lift to growth in the quarter from Republican-backed tax cuts also came with a boost to productivity. That gives President Donald Trump another economic point to cheer, though many analysts are skeptical that the administration’s policies will deliver a large, sustained acceleration in efficiency.
The latest advance in productivity compares with a 1.3% average pace over the period spanning 2007 to 2017, and a 2.7% average from 2000 to 2007. Improved gains in efficiency would support faster economic growth without generating higher inflation, a development that could suggest a slower pace of Federal Reserve interest-rate hikes than otherwise warranted.
Productivity figures can be volatile from quarter to quarter, as shown by the jump in the most recent data following a lull in the first quarter. U.S. trade tariffs and reciprocal levies may also curb business investment, and some companies have already lowered profit estimates.
- Adjusted for inflation, hourly earnings rose at a 0.3% after a 0.2% increase.
- Output rose at a 4.8% rate, fastest since 2014, following 2.6% gain.
- Hours worked rose at a 1.9% pace; compensation for each hour worked advanced 2%.
Among manufacturers, productivity rose at a 0.9% pace after a 1% decline in the first quarter.
By Katia Dmitrieva