U.S. Productivity Unexpectedly Falls for Third Straight Quarter

United States labour productivity fell for a third consecutive quarter over the three months ending in June, pressuring labour costs higher despite slower wage growth, although inflationary pressures eased substantially, leaving economists divided on the implications of the data for monetary policy.

The Labor Department released a report on Tuesday showing an unexpected decline in US labor productivity in the second quarter.

According to a Bloomberg survey, the median forecast called for a 0.4 per cent gain.

As well, the rate of growth in unit labour costs for 2015 was revised lower from 2.3% to 2.1%.

Productivity against a year earlier was down for the first time since 2013 with subdued global markets forcing companies to scale back capital investment plans. We should be seeing productivity rising. Should we believe the productivity numbers? Productivity fell at an unrevised 0.6 per cent rate in the first quarter. Productivity in the second quarter was down 0.4% from a year earlier, the first annual decline in three years and just the sixth year-over- year drop recorded since 1982.

This further decline, after a -0.6% decline in the first quarter and a decline of -2.4% in the last quarter 2015, is due to an increase in hours worked (+ 1.8%) greater than that of production (1,2%).

America’s nonfarm productivity unexpectedly stayed in contraction during the second quarter, despite an increase in labor-related production costs.

Hourly compensation per hour rose at a 1.5 per cent rate in the second quarter after falling at a 0.8 per cent pace in the prior quarter.

The estimate for second-quarter GDP growth could be revised slightly up after a separate report from the Commerce Department yesterday showed wholesale inventories increased 0.3 per cent in June. It’s why the economy has grown only about 1% at an annual rate in each of the last three quarters even while monthly job growth has averaged a healthy 210,000.

The underlying trend in productivity growth has been quite weak since the recession. Deutsche Bank says business capital spending is unlikely to accelerate the presidential election results lingering uncertainty over taxes and regulation. That may bode ill for USA workers, whose potential for wage increases could suffer as companies look to get the most out of weak profits.

But public investment, workforce development and the pace of technological progress are widely seen by economists as factors that could influence productivity and “should be on Congress’ list to focus on”, she said.