US productivity down in spring, while labour costs rise

WASHINGTON – U.S. productivity fell in the April-June quarter by a larger amount than first estimated, while labour costs accelerated sharply.

Productivity declined at an annual rate of 0.6 per cent, even worse than the 0.5 per cent drop initially reported, the Labor Department reported Thursday. It marked the third straight quarter that productivity has fallen.

Labour costs rose at an annual rate of 4.3 per cent, the biggest rise since a 5.7 per cent increase in the fourth quarter. Labor costs had fallen at a 0.3 per cent rate in the first quarter.

Productivity is the amount of output per hour of work. It is the major factor that supports rising living standards and has been lagging in the current seven-year economic expansion.

The downward revision in productivity for the second quarter matched the 0.6 per cent decline in productivity in the first quarter. The latest figure reflected the fact that the government last week revised lower its estimate of overall output, as measured by the gross domestic product. The revision showed GDP grew at an anemic 1.1 per cent rate in the second quarter, slightly lower than the 1.2 per cent first reported.

Productivity growth has slowed significantly in this recovery and is a major reason that overall growth has been so slow.

Economic growth has averaged just 1.2 per cent over the seven years of the expansion following the 2007-2009 Great Recession. That is the poorest showing in the post-World War II period. Economists say the weakness in productivity has been a factor in this slowdown. Federal Reserve Chair Janet Yellen has pointed to productivity as a key challenge facing the country.

Economists believe that businesses need to start focusing more on raising the efficiency of their existing workforce rather than just hiring more workers to meet demand. They expect companies to start focusing on productivity as the labour market hits full employment and the pool of available qualified workers diminishes.