Productivity rises more than forecast, limiting U.S. costs

The productivity of U.S. workers rose more than projected in the second quarter, rebounding from the biggest drop in more than three decades and helping to restrain labor costs. More

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economic indicators

Productivity rises more than forecast, limiting U.S. costs

Posted 8/8/14

The productivity of U.S. workers rose more than projected in the second quarter, rebounding from the biggest drop in more than three decades and helping to restrain labor costs.

The measure of employee output per hour increased at a 2.5 percent annualized rate, after a revised 4.5 percent decrease in the prior three months that was the biggest since 1981, a Labor Department report showed Friday in Washington. The median forecast in a Bloomberg survey of 57 economists called for a 1.6 percent advance. Expenses per worker increased at a 0.6 percent pace, less than estimated.

Companies that have been relying on wringing efficiency gains from existing staff may take on more employees and increase investment as demand grows. Advances in productivity together with limited labor costs provide more room for the Federal Reserve to keep interest rates close to zero while trimming monthly bond purchases.

“As businesses see improvement in demand, they are more likely to increase hiring to keep up with orders,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “The gains in labor costs are still subtle and very early. It’s premature to worry about labor costs overheating.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.4 percent to 1,912.3 at 8:43 a.m. in New York following a report that Russia wants to de-escalate the crisis in eastern Ukraine.

Survey results

Economists’ estimates for productivity ranged from no change to a gain of 4 percent. The prior quarter’s reading was previously reported as a drop of 3.2 percent.

Unit labor costs, which are adjusted for efficiency gains, were forecast to rise 1 percent in the second quarter, according to the Bloomberg survey median. They jumped 11.8 percent in the prior quarter, revised from an initially reported increase of 5.7 percent.

Nonetheless, revisions also showed costs barely budged in 2013, climbing 0.2 percent, down from a prior estimate of 1.1 percent. The increase was the smallest since a drop in 2010. That meant that in the 12 months through June, expenses rose 1.9 percent, down from a 2.6 percent gain in the year through March.

Adjusted for inflation, hourly earnings increased at a 0.1 percent rate, after increasing at a 4.8 percent pace.

Among manufacturers, productivity increased at a 3.6 percent rate.

About average

The second-quarter reading on productivity was in line with the average of 2.2 percent over the period spanning 2000 to 2012.

Economic growth is improving and the labor market is strengthening while inflation is edging up closer to the Federal Reserve’s goal. That helps explain why central bank officials are continuing to trim monthly bond purchases even as they hold the target interest rate close to zero.

The U.S. expanded at a 4 percent annualized rate from April through June, after shrinking 2.1 percent in the first quarter, according to Commerce Department data. The increase matched the average growth rate from July through December of 2013 that marked the strongest six months in a decade.

Rising demand is helping underpin the labor market recovery. Employers added more than 200,000 workers to payrolls in July for a sixth straight month, the first time that’s happened since 1997, a report showed on Aug. 1. The unemployment rate advanced to 6.2 percent as more Americans entered the labor force seeking work.

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