US productivity posts sharpest fall in a year

WASHINGTON – The productivity of American workers fell in the first quarter by the sharpest amount in a year, while labour costs increased.

Productivity declined at an annual rate of 0.6 per cent in the January-March quarter after rising at a 1.8 per cent rate in the fourth quarter, the Labor Department reported Thursday. It was the biggest decline since a 0.7 per cent rate of decline in the first quarter of last year.

Labour costs rose at a 3 per cent rate, up from a 1.3 per cent rate of increase in the fourth quarter.

Productivity, the amount of output per hour of work, has been weak through most of the current recovery. Many analysts believe it is the biggest economic challenge facing the country, but there is no consensus on the cause of the slowdown.

The weak performance for productivity had been expected given that overall output, as measured by the gross domestic product, slowed to a weak annual gain of just 0.7 per cent in the first quarter. It was the slowest performance in three years.

Productivity gains have been anemic for the past decade. Since 2007, increases have averaged just 1.2 per cent. That’s less than half the 2.6 per cent average annual gains turned in from 2000 to 2007, when the country was benefiting from increased efficiency from greater integration of computers and the internet into the workplace.

Rising productivity means increased output for each hour of work, which allows employers to boost wages without triggering higher inflation. Federal Reserve Chair Janet Yellen has pointed to the slowdown in productivity as a key challenge facing the country.

The effort to boost productivity back to the levels since before the Great Recession will likely be a key factor in determining whether President Donald Trump will achieve his goal of boosting overall growth from the weak 2.1 per cent average seen since the recession. During the campaign, Trump pledged to double growth to 4 per cent or better. But since taking office, Trump’s Treasury Secretary Steven Mnuchin has said he believed that growth of 3 per cent or better is achievable if Congress adopts the president’s economic program.