U.S. Productivity Rose Less Than Forecast in Second Quarter

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Productivity in the U.S. took a step back in the second quarter, indicating an easing in the rapid pace of efficiency gains seen at the start of the year.

Nonfarm business employee output per hour increased at a 2.3% annualized rate in the second quarter, according to Labor Department figures Tuesday. That compared to a 4.3% rate in the first quarter and the 3.2% projected in a Bloomberg survey of economists.

Growth in productivity generally means the economy can produce more goods and services without a corresponding pickup in inflation. While the figures can be volatile, productivity has generally firmed since the onset of the pandemic. 

“For now, productivity growth is sufficiently strong to keep wage pressures from bleeding significantly into inflation,” Sarah House, senior economist at Wells Fargo & Co. wrote following the report. 

Unit labor costs rose at a 1% rate following a 2.8% decline in the previous three months.

The latest reading of consumer prices is due out Wednesday. The sustainability of a recent surge in inflation has become a key question for the U.S. recovery, the Biden administration’s spending plans and the Federal Reserve’s outlook. 

“Whether this is a short-term boost stemming from the throes of the pandemic, or the advent of a new era of tech-fueled productivity growth will bear heavily on the outlook for inflation beyond the current reopening pressures,” House wrote.

Read more: U.S. Inflation to Stay Hot in July as Sellers Flex Pricing Power

Productivity has risen this year as employers race to keep pace with the rapid snapback in demand with fewer workers. Persistent hiring challenges have led to a record number of job openings. In the wake of the pandemic-driven recession, U.S. gross domestic product, or the of goods and services produced within the country, has recovered much faster than employment.

Many firms have had to raise compensation or offer incentives like hiring bonuses to attract applicants. As a result, hourly compensation growth remains robust at a 3.3% rate.

Tuesday’s report showed output rose at an annualized 7.9% pace from the prior period, while hours worked increased at a 5.5% pace.

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