Productivity in U.S. climbs 2.9%, fastest pace in 3 years

U.S. NONFARM business employee output per hour increased at a 2.9 percent annualized rate in the second quarter, the fastest increase since the first quarter of 2015. / BLOOMBERG NEWS FILE PHOTO/TY WRIGHT

NEW YORK – Productivity gains in the United States 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.

Highlights of productivity (second quarter)

  • Measure of nonfarm business employee output per hour increased at a 2.9 percent annualized rate (estimated 2.4 percent) after 0.3 percent pace in previous three months; the fastest increase since the first quarter of 2015
  • Unit labor costs fell at 0.9 percent rate (estimated unchanged) following 3.4 percent rise; biggest drop since 2014
  • Productivity increased 1.3 percent year over year; unit labor costs rose 1.9 percent year over 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.

- Advertisement -

The latest advance in productivity compares with a 1.3 percent average pace over the period spanning 2007 to 2017, and a 2.7 percent 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. U.S. 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 percent after a 0.2 percent increase
  • Output rose at a 4.8 percent rate, fastest since 2014, following 2.6 percent gain
  • Hours worked rose at a 1.9 percent pace; compensation for each hour worked advanced 2 percent
  • Among manufacturers, productivity rose at a 0.9 percent pace after a 1 percent decline in the first quarter

Katia Dmitrieva is a reporter for Bloomberg News.