US worker productivity rises at 2.3 per cent rate in second quarter while labour costs edge down

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WASHINGTON – U.S. workers’ productivity increased in the April-June quarter after a big decline in the first quarter while their labour costs edged down slightly.

Productivity, the amount of output per hour of work, rose at a seasonally adjusted annual rate of 2.3 per cent in the second quarter, the Labor Department reported Thursday. That represented a large rebound from the first quarter when productivity fell at a 4.5 per cent rate. Unit labour costs edged down 0.1 per cent at an annual rate in the second quarter, a significant moderation from an 11.6 per cent surge in the first quarter.

Gains in productivity mean workers can be paid more without worsening inflation.

The new estimates for productivity and labour costs were revised from initial estimates a month ago that productivity rose 2.5 per cent in the second quarter and unit labour costs were up 0.6 per cent.

The changes were based on revisions the government made in its initial estimate of overall economic output, as measured by the gross domestic product. The government last week estimated that the GDP grew at an annual rate of 4.2 per cent in the spring quarter, a slight revision from its initial estimate of growth of 4 per cent. Other factors such as hours worked and compensation costs also underwent revision between the first and second reports on productivity.

Greater productivity is the key factor determining rising living standards. It enables companies to pay their workers more without having to increase prices, which can boost inflation.

Over the past 12 months, labour costs have risen a modest 1.7 per cent. That is well below the long-run average of 2.8 per cent and suggests that wages and salaries are not rising fast enough to spur inflation. The Federal Reserve keeps close watch on productivity and labour costs for any signs that inflation may be accelerating.

In the past 12 months, productivity has increased just 1.1 per cent, below the long-run average of 2.2 per cent.

Productivity growth surged in 2009 and 2010 in the aftermath of the recession. Companies did trim output as demand plunged, but the job cuts came even faster, driving productivity higher as fewer workers did more. Productivity grew 3.2 per cent in 2009 and 3.3 per cent in 2010.

But in the past three years, productivity growth has averaged just 0.7 per cent per year, which remains far below the norm. Economists are divided over whether that is a temporary stumble, or the new norm.

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