Productivity in US climbs 2.9%, fastest pace in three years

[WASHINGTON] Productivity gains in the US 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.

Measure of nonfarm business employee output per hour increased at 2.9 per cent annualised rate (est. - 2.4 per cent) after 0.3 per cent pace in previous three months; fastest since Q12015 unit labour costs fell at 0.9% rate (est. unchanged) following 3.4 per cent rise; biggest drop since 2014 productivity increased 1.3 per cent year-on-year; unit labour costs rose 1.9 per cent year-on-year.

Key Takeaways

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 per cent average pace over the period spanning 2007 to 2017, and a 2.7 per cent 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. US trade tariffs and reciprocal levies may also curb business investment, and some companies have already lowered profit estimates.

Other Details

Adjusted for inflation, hourly earnings rose at a 0.3 per cent after a 0.2 per cent increase.

Output rose at a 4.8 per cent rate, fastest since 2014, following 2.6 per cent gain.

Hours worked rose at a 1.9 per cent pace; compensation for each hour worked advanced two per cent.

Among manufacturers, productivity rose at a 0.9 per cent pace after a one per cent decline in the first quarter.

BLOOMBERG