US productivity drops for first time since 2022 as output fell
The retreat in productivity was largely due to a 0.3% decline in business output,
[WASHINGTON] US labour productivity fell in the first quarter for the first time in nearly three years as economic output declined, snapping a streak of efficiency gains that have helped temper the inflationary impact from employment costs.
Productivity, or nonfarm employee output per hour, decreased at a 0.8 per cent annualised rate after a revised 1.7 per cent increase in the fourth quarter, data from the Bureau of Labor Statistics (BLS) showed on Thursday (May 8)
Unit labour costs – what businesses pay employees to produce one unit of output, adjusted for productivity – jumped 5.7 per cent in the January-March period, the most in a year.
The retreat in productivity was largely due to a 0.3 per cent decline in business output, foreshadowed by data last week showing a trade-related slide in gross domestic product, even as worker hours climbed. Over the near term, productivity gains may suffer somewhat as companies reconsider investment plans until there’s more clarity about US trade and tax policy.
In addition to seeking fairness in bilateral commerce and shoring up national industrial security, the Trump administration is using tariffs to achieve its goal of stoking domestic manufacturing and investment.
Productivity gains – combined with a surge in immigration – have been largely seen as providing a boost to the economy and helping keeping a lid on inflation in the aftermath of the pandemic.
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Federal Reserve officials pay close attention to the data because productivity gains – including through technological enhancements like artificial intelligence – can help curb wage inflation. Labour costs are the biggest expense for many businesses, so firms often seek out new technologies and upgrade equipment to make their workers more efficient, helping blunt the inflationary impact of higher wages.
Many companies are still making efforts to improve efficiency, though high borrowing costs, lingering inflation and economic uncertainty have forced some to be selective about capital investments.
The BLS report showed hours worked rose 0.6 per cent in the first quarter, while hourly compensation growth accelerated.
Another government report closely watched by the Fed showed that labour costs rose 0.9 per cent in the first quarter, matching the pace at the end of last year.
Separate figures out Thursday showed applications for US unemployment benefits fell to 228,000 last week, underscoring layoffs remain limited. BLOOMBERG
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