Productivity gains in the U.S. accelerated by more than expected to the fastest pace since 2015 while labor costs fell, amid an economic-growth pickup supported by tax cuts and federal spending, a Labor Department report showed Wednesday.
The measure of nonfarm business employee output per hour increased at a 2.9% annualized rate (estimates were for a 2.4% rise) after a 0.3% pace in previous three months. This was the fastest since the first quarter of 2015. Unit labor costs fell at a 0.9% rate (estimates were for an unchanged level) following a 3.4% rise. This was the biggest drop since 2014.
Productivity increased 1.3% year over year, while unit labor costs rose 1.9% year over year.
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% average pace over the period spanning 2007 to 2017, and a 2.7% 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 estimates.
Adjusted for inflation, hourly earnings rose at a 0.3% after a 0.2% increase in the first quarter, Output rose at a 4.8% rate, the fastest since 2014, following a 2.6% gain. Hours worked rose at a 1.9% pace, while compensation for each hour worked advanced 2%.
Among manufacturers, productivity rose at a 0.9% pace after a 1% decline in the first quarter.
