U.S. Productivity Posts Best Back-to-Back Quarters Since 2015

(Bloomberg) -- Productivity gains in the U.S. posted the best back-to-back quarters since 2015, echoing a pickup in economic growth and offering some hope that faster expansion without stoking inflation is possible.

The main measure of nonfarm business employee output per hour increased at a 2.2 percent annualized rate in the July-September period, a Labor Department report showed Thursday. That compared with an estimated 2.1 percent rise in Bloomberg’s survey of economists and a revised 3 percent in the previous three months.

Unit labor costs rose at a 1.2 percent annualized rate, slightly above projections, following a 1 percent drop.

Tepid gains in productivity in recent years have puzzled economists, who are watching to see if Republican-backed tax cuts, a tightening labor market and new technologies can finally deliver a sustained pickup. For Federal Reserve policy makers, a persistent increase in efficiency would potentially limit the need for higher interest rates.

What Our Economists Say

The latest productivity results are not particularly surprising given the recent vigor in GDP growth. We believe the near-term trajectory of productivity growth masks the true underlying trend. Economic growth strongly dependent on the strength of the consumer in the absence of solid growth in capital investment does not bode well for further gains in productivity. Bloomberg Economics continues to estimate that wage pressures need to accelerate for faster productivity gains.

-- Yelena Shulyatyeva, Tim Mahedy and Carl Riccadonna, Bloomberg Economics

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Compared with a year earlier, productivity rose 1.3 percent, the same pace as in the second quarter and equal to the average annual rate from 2007 to 2017. That’s well below the 3 percent pace of the late 1990s.

U.S. Productivity Posts Best Back-to-Back Quarters Since 2015

A separate report on Thursday showed the labor market remains tight. Filings for unemployment benefits fell by 2,000 last week to 214,000, near the lowest level since 1969, according to Labor Department figures. The number of Americans on jobless-benefit rolls dropped during the prior week to 1.63 million, the lowest since 1973.

Elsewhere in the productivity report, inflation-adjusted hourly earnings rose at a 1.4 percent annualized pace after a 0.3 percent increase, while hours worked rose 1.8 percent. Output advanced at a 4.1 percent rate, following 5 percent.

Among manufacturers, productivity rose at a 0.5 percent pace after a 1.2 percent rate in the prior quarter. That compares with an annual average gain of 0.7 percent from 2007 to 2017.

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