US Productivity FELL in Q2 – Significant Bad Sign
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Business productivity fell for the first time in 18 months in the second quarter and labor costs were flat,
according to government data released earlier this summer.
Productivity declined by an annual rate of 0.9 percent after rising at a revised 3.9 percent rate in the first quarter, a Labor Department report showed.
Falling output per worker implies the economy is operating less efficiently because overall production is below its potential.
Business productivity fell for the first time in 18 months in the second quarter and labor costs were flat,
according to government data released earlier this summer.
Productivity declined by an annual rate of 0.9 percent after rising at a revised 3.9 percent rate in the first quarter, a Labor Department report showed.
Falling output per worker implies the economy is operating less efficiently because overall production is below its potential.
It was the first time since the fourth quarter of 2008 that output per worker declined.
Other data showed consumers growing increasingly gloomy about the economic outlook
while business inventories increased, and sales slumped, as we have noted.
Notably, employers pushed the hours worked by employees up at a 3.6 percent annual rate in the second quarter,
more than triple the first-quarter increase.
It was the sharpest rise in hours worked in more than four years,
since a 4.1 percent rate in the first quarter of 2006.
Any major pickup in hiring may be months away, since
businesses still seem to be cutting costs while assessing whether consumer demand will pick up.
Inflation-adjusted compensation per worker was flat in the second quarter and it shrank by 1.5 percent in the first quarter.
Separately, the Commerce Department said June wholesale inventories rose slightly by 0.1 percent to $399.2 billion but sales dropped 0.7 percent.
Inventory restocking has been a driver of the recovery from the worst recession in decades.
But falling sales will do little to encourage stockpiling.
Mike Englund, an economist at Action Economics, called the inventories data “ugly”
and said it “took a further chunk out of second-quarter G.D.P. growth.”
He said gross domestic product most likely expanded only 2 percent in the second quarter rather than the 2.4 percent so far estimated.
The productivity report showed unit labor costs,
a gauge of potential inflation pressures closely watched by the Federal Reserve,
edged up at a 0.2 percent annual rate after shrinking at a revised 3.7 percent rate in the first three months this year.
But the data pointed to growing pressure on household incomes, which in turn is likely to crimp the spending that drives overall economic activity.
Compensation per hour contracted at a 0.7 percent annual rate in the second quarter and was flat in the first three months of the year.
Weak productivity is in line with other broad signs that the economic recovery is losing momentum, according to this piece in New York Times.
The overall economy grew at only a 2.4 percent annual rate in the second quarter, down from a 3.7 percent rate in the first quarter.
