US productivity likely showed even better rebound in second quarter than first estimate

Economic IndicatorsAssociated Press

The Commerce Department revises its estimate of U.S. worker productivity and costs for the April-June quarter. The report will be issued Thursday at 8:30 a.m. Eastern.

EFFICIENCY UP: The expectation is that productivity will be revised slightly higher to show growth at a seasonally adjusted annual rate of 2.4 percent in the second quarter.

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PRODUCTIVITY REBOUND: In its previous estimate, the government said worker productivity grew at a 2.3 percent rate in the spring. That's a substantial rebound from the 4.5 percent plunge in productivity in the first quarter.

Unit labor costs are expected to edge up a modest 0.6 percent in the second quarter, unchanged from the first estimate.

Productivity is the amount of output per hour of work. It is expected to show slightly greater strength in the second quarter because the government last week revised output higher. The revision showed that the gross domestic product, the economy's total output of goods and services, grew at a 4.2 percent annual rate in the second quarter, a slightly improvement from the 4 percent initial estimate.

Greater productivity enables companies to pay their workers more without having to increase prices, which can boost inflation.

Over the past 12 months, labor costs have risen just 1.9 percent. That is well below the long-run average of 2.8 percent and suggests that wages and salaries are not rising fast enough to spur inflation.

The Federal Reserve keeps close watch on productivity and labor costs for any signs that inflation may be accelerating.

In the past 12 months, productivity has increased 1.2 percent, below the long-run average of 2.2 percent.

Productivity growth surged in 2009 and 2010 in the aftermath of the recession. Companies did trim output as demand plunged, but the job cuts came even faster, driving productivity higher as fewer workers did more. Productivity grew 3.2 percent in 2009 and 3.3 percent in 2010.

But in the past three years, productivity growth has averaged just 0.7 percent per year, which remains far below the norm. Economists are divided over whether that is a temporary stumble, or the new norm.