U.S. Productivity Rose at 0.9% Rate in Second Quarter

By Ben Leubsdorf and Sarah ChaneyFeaturesDow Jones Newswires

U.S. worker productivity picked up in the second quarter but has remained worryingly sluggish throughout the current economic expansion.

Nonfarm business-sector productivity, measured as the goods and services produced per hour worked, increased at a 0.9% seasonally adjusted annual rate in the second quarter, up from a 0.1% growth rate for the first three months of 2017, the Labor Department said Wednesday. Economists surveyed by The Wall Street Journal had expected a 0.6% growth rate for the latest quarter.

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Output rose at a 3.4% rate from the first quarter, while hours worked were up at a 2.5% pace.

Compared with a year earlier, productivity was up 1.2% in the second quarter as output rose faster than hours worked.

Productivity data tend to be volatile from quarter to quarter, and Wednesday's report included revisions going back several years. The productivity trend was slightly stronger than earlier estimated in 2014 and 2015, and slightly weaker than initially thought in 2016. Productivity fell 0.1% last year, the first calendar-year decline since 1982.

Annual growth averaged 1.2% from 2007 to 2016, well below the long-term average of 2.1%.

Unit labor costs at nonfarm businesses rose at a 0.6% rate in the second quarter; economists had expected a 1.0% growth pace. From a year earlier, unit labor costs fell 0.2%.

In theory, higher labor costs can be passed on to consumers in the form of higher prices, though wage growth and consumer-price inflation have both been sluggish in recent years.

Productivity is a critical factor for determining the future trajectory of wages, prices and overall economic output. Rapid productivity gains, as seen during the information technology-fueled boom of the late 1990s and early 2000s, can boost household incomes and economic growth.

Sluggish productivity growth, on the other hand, can cause slower economic growth and prevent wages from rising much without generating uncomfortably high inflation.

"If labor productivity grows an average of 2% per year, average living standards for our children's generation will be twice what we experienced," Federal Reserve Vice Chairman Stanley Fischer said in a July speech. "If labor productivity grows an average of 1% per year, the difference is dramatic: Living standards will take two generations to double."

In the U.S., productivity growth was slowing before the recession began in December 2007 and has been historically weak throughout the recovery that began in mid-2009. That may have restrained wage growth and overall growth in economic activity in recent years.

Looking forward, some forecasters think continued sluggish productivity gains will help keep overall economic growth from exceeding its modest recent pace of roughly 2% a year. President Donald Trump has said he wants to boost U.S. economic growth above 3% a year, which likely would require a significant pickup in productivity growth.

Government policies could help promote stronger productivity growth, Mr. Fischer said, mentioning the potential for investment in basic research, early childhood education programs, infrastructure and other priorities.

"Reasonable people can disagree about the right way forward, but if we as a society are to succeed, we need to follow policies that will support and advance productivity growth," Mr. Fischer said. "That is easier said than done. But it can be done."

The Labor Department's report on labor productivity and costs can be accessed at: https://www.bls.gov/news.release/prod2.nr0.htm

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

August 09, 2017 08:45 ET (12:45 GMT)