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US worker productivity falls in 2Q, causing annual decline

WASHINGTON – American workers’ productivity slipped in the April-June quarter, feeding into a 12 month decline in how much people are producing for each hour worked.

Productivity fell at an annual rate of 0.5 per cent in the second quarter after a 0.6 per cent drop during the first three months of the year, the Labor Department said Tuesday. Over the past 12 months, productivity has dropped 0.4 per cent, as labour costs and the hours worked are rising faster than the output of workers’ goods and services. Unit labour costs rose 2 per cent in the second quarter, after decreasing 0.2 per cent in the first quarter.

Productivity has been weak for the past five years, a thorny problem since productivity growth is the key factor supporting rising living standards and higher incomes. The decline corresponds with a U.S. economy in which overall economic growth has been sluggish while hiring has been relatively robust.

“As for the underlying trend of productivity, it is likely to remain in a soft trend in coming months as output rises at a modest pace and hours worked continue to move ahead,” said Joshua Shapiro, chief U.S. economist at the forecasting firm MFR.

The economy expanded at an annual pace of 1 per cent during the first six months of the year. The growth rate is roughly half the already tepid average of the seven-year recovery from the Great Recession.

Yet hiring has been remarkably solid with employers adding 255,000 jobs in July and 292,000 jobs in June, as the unemployment rate has held at a healthy 4.9 per cent, the Labor Department said last week. The rise in labour costs indicates that worker pay is finally climbing after a prolonged phase of anemic wage gains.