GROWTH PICKS UP: The economy expanded at a 2.3 percent annual rate in the second quarter, after growing just 0.6 percent in the first.
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U.S. productivity rose at a moderate pace in the April-June quarter as growth picked up and hiring remained steady. This second-quarter reading was up by 1.3%, short of the 1.6% consensus estimate from Bloomberg. Unit labour costs, the price of labour per single unit of output, rose at only a 0.5% rate in the second quarter after advancing at a downwardly revised 2.3% pace in the first quarter. From a year earlier, productivity was up 0.3%. Over the last four quarters, manufacturing productivity increased 1.1 percent, as output increased 2.3 percent and hours increased 1.2 percent.
While the debate rages on about measurement problems and the outlook for productivity, the persistent slowdown in recent years has more immediate implications for how far and how fast the Fed may raise the benchmark rate once they begin to tighten.
Economists polled by Reuters had forecast productivity rising at a 1.6% rate in the second quarter. From a year earlier, unit labor costs were up 2.1%.
“The broader picture on productivity growth remains dim”, said BNP Paribas economist Laura Rosner.
The dry spell of productivity in this economic expansion is even worse than previously thought, according to new data released Tuesday. For example, productivity was flat in 2013. Employers have added to payrolls each month for almost five years, but the economy has struggled to grow at much better than a 2% pace during that time. The Labor Department previously estimated a 0.9% improvement.
Productivity growth has been sluggish since the recession. For nondurable goods entities, unit labor costs declined by 0.6 percent, with output and hours worked up by 1.3 percent and 0.1 percent, respectively.
The data “means that potential growth is sharply lower than where most economists were assuming”, said Amherst Pierpont Securities economist Stephen Stanley.
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The lack of stronger productivity gains is one factor restraining increases in average hourly earnings. Companies haven’t had to increase pay much to hold onto workers. Over time, standards of living are entirely dependent on rising productivity. On the ULC [unit labor costs] side, the big downward revision is the result of a modest upward revision to the hourly cost of labor and a very large upward revision to the amount of output that is generated by this labor (thus, more output per dollar spent on labor). Steady job growth could put the central bank in a position to act as soon as September.
