U.S. productivity slows in second quarter; labor costs revised up in first quarter

FILE PHOTO: An assembly line worker works on the production line at Renegade RV manufacturing plant in Bristol, Indiana, U.S., April 16, 2019. REUTERS/Tim Aeppel

WASHINGTON, (Reuters) - U.S. worker productivity slowed in the second quarter amid a sharp drop in productivity in the manufacturing sector, while labor costs were far stronger than previously estimated in the first quarter.

The Labor Department said on Thursday nonfarm productivity, which measures hourly output per worker, increased at a 2.3% annualized rate in the last quarter. Data for the first quarter was revised slightly up to show productivity rising at a pace of 3.5% instead of the previously reported 3.4% rate.

Economists polled by Reuters had forecast second-quarter productivity would rise at a 1.5% rate. Manufacturing productivity fell at a 1.6% rate in the second quarter, the worst performance since the third quarter of 2017, after rising at a 1.1% pace in the first three months of the year.

The slowdown in overall productivity was flagged by a deceleration in gross domestic product growth in the April-June period. The economy grew at a 2.1% rate in the second quarter after expanding at a 3.1% pace in the first three months of the year. Compared to the second quarter of 2018, productivity increased at a rate of 1.8%.

The government also published revisions to prior productivity data, which showed unit labor costs surging in the first quarter instead of declining as previously reported.

Unit labor costs, the price of labor per single unit of output, rose at a 2.4% rate in the second quarter after surging at a 5.5% rate in the prior quarter.

Unit labor costs were previously reported to have slumped at a 1.6% pace in the first quarter. Compared to the second quarter of 2018, labor costs rose at a 2.5% rate, suggesting inflation could remain moderate.

In the second quarter, hourly compensation increased at a 4.8% rate, slowing from the first quarter’s upwardly revised 9.2% pace. Hourly compensation increased at a 4.3% rate compared to the second quarter of 2018.

Reporting by Lucia Mutikani Editing by Paul Simao