Highlights of Productivity (Second Quarter)
- Measure of nonfarm business employee output per hour increased at 2.9-percent annualized rate (est. 2.4 percent) after 0.3-percent pace in previous three months; fastest since 1Q 2015.
- Unit labor costs fell at 0.9-percent rate (est. 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 y/y.
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.
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
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