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US productivity rebounds, but trend remains weak

Tuesday, August 11, 2015 - 20:44

[WASHINGTON] US nonfarm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists have anticipated.

Productivity increased at a 1.3 per cent annual rate in the April-June period, the Labour Department said on Tuesday.

In line with annual revisions to gross domestic product published last week, first quarter productivity was revised to show it falling at a 1.1 per cent rate instead of the previously reported 3.1 per cent pace of decline.

But productivity, which measures hourly output per worker, rose only 0.3 per cent from a year ago, and annual revisions showed it was much softer in 2013 and 2012.

Growth in productivity is an important determinant of the economy's non-inflationary speed limit. The downward revisions suggested the economy's growth potential could be lower than the 1.5 per cent to 2.0 per cent pace that economists have been estimating.

That would imply the spare capacity in the economy is being squeezed out more quickly than thought and that inflation pressures may take hold a little bit faster than had been anticipated.

Economists polled by Reuters had forecast productivity rising at a 1.6 per cent rate in the second quarter. The economy grew at a 2.3 per cent annual pace in period.

But for now, inflation remains benign. Unit labour costs, the price of labour per single unit of output, rose at only a 0.5 per cent rate in the second quarter after advancing at a downwardly revised 2.3 per cent pace in the first quarter.

Unit labour costs were previously reported to have increased at a 6.7 per cent rate in the January-March period. Unit labour costs rose 2.1 per cent compared to the second quarter of 2014.

Compensation per hour increased at a 1.8 per cent rate in the second quarter after rising at a downwardly revised 1.1 per cent pace in the first quarter.

Compensation was previously reported to have increased at a 3.3 per cent rate in the first quarter. It was up 2.4 per cent compared to the second quarter of 2014.

REUTERS