U.S. First-Quarter Productivity Rises 3.6%, Fastest Since 2014

(Bloomberg) -- Productivity gains in the U.S. accelerated by more than expected last quarter to the fastest pace since 2014, adding fuel to the Trump administration’s argument that its tax cuts are boosting the economy without stoking inflation.

Nonfarm business employee output per hour increased at a 3.6 percent annualized rate in the January-March period, according to Labor Department figures Thursday. That topped all forecasts in Bloomberg’s survey of economists and followed a downwardly revised 1.3 percent gain in the fourth quarter. Unit labor costs fell at a 0.9 percent rate following a 2.5 percent increase.

Key Insights

• The pickup partly reflects faster economic growth, which hit an unexpectedly high 3.2 percent in the first quarter. Inflation also cooled during the period. President Donald Trump has said muted price gains call for the Federal Reserve to inject monetary stimulus so the economy can take off like a “rocket.”
• It will still probably take more time to determine whether productivity is enjoying persistent increases after relatively slow gains throughout the current expansion, with an average of 1.3 percent from 2007 to 2018. Fed Chairman Jerome Powell on Wednesday brushed aside pressure for an interest-rate cut and said productivity is partly driven by technology developments and very hard to predict.
• Thursday’s report showed output rose at a 4.1 percent pace, while hours worked increased 0.5 percent; that gain was last slower in 2015.
• The U.S. jobs report Friday is forecast to show wages churned higher in April. Increasing productivity suggests the economy can grow at a faster pace without spurring a big jump in inflation.

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• Analyst estimates for the quarterly productivity gain ranged from 0.2 percent to 3.1 percent, with a median of 2.2 percent.
• From a year earlier, productivity rose 2.4 percent -- the most since 2010 -- while labor costs advanced 0.1 percent, the least since 2013.
• The report showed inflation-adjusted hourly compensation rose at a 1.7 percent pace after a 2.3 percent increase. Nominal compensation rose 2.6 percent, the least in three quarters.
• A separate Labor Department report on Thursday showed filings for unemployment benefits were unchanged last week at 230,000, possibly reflecting the late timing of this year’s Easter holiday and spring vacations.

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