U.S. second-quarter productivity raised to 1.5 percent

FILE PHOTO: Construction workers are seen at The Moynihan Train Hall in New York City, U.S., August 17, 2017. REUTERS/Brendan McDermid

WASHINGTON (Reuters) - U.S. worker productivity was stronger than initially thought in the second quarter, leading to a modest increase in labor costs that could keep inflation muted in the near term.

The Labor Department said on Thursday that nonfarmproductivity, which measures hourly output per worker, rose at a1.5 percent annualized rate. Productivity was previously reported to have increased at a 0.9 percent pace in the April-June period. It grew at a 0.1 percent rate in the first quarter.

Economists polled by Reuters had expected that productivity would be revised up to a 1.3 percent pace in the second quarter.

The government last week revised up second-quarter gross domestic product growth to a 3.0 percent rate from a 2.6 percent pace.

Despite the upward revision to productivity, the trend remains weak, suggesting it would be difficult to achieve robust economic growth. President Donald Trump has vowed to boost annual growth to 3 percent through tax cuts, infrastructure spending and regulatory rollbacks.

Compared to the second quarter of 2016, productivity increased at a 1.3 percent rate, instead of the previously reported 1.2 percent pace. That was the strongest performance in two years. With productivity rising, unit labor costs, the price of labor per single unit of output, increased at only a 0.2 percent pace in the second quarter. Unit labor costs were previously reported to have risen at a 0.6 percent pace. They surged at a 4.8 percent rate in the January-March period. Compared to the second quarter of 2016, unit labor costsfell at a 0.2 percent rate as previously reported.

Wage growth has remained sluggish even as the labor market nears full employment. Productivity increased at an average annual rate of 1.2percent from 2007 to 2016, below its long-term rate of 2.1percent from 1947 to 2016, indicating the economy’s potential growth rate has declined. Some economists blame soft productivity on a shortage of workers as well as the impact of rampant drug addiction in some parts of the country. Others also argue that low capital expenditure, which they say has resulted in a sharp drop in the capital-to-labor ratio, is holding down productivity. There is also a belief that productivity is being inaccurately measured, especially on the information technology side. Hours worked rose at a rate of 2.5 percent in the April-June period as previously reported. That was the quickest pace since the fourth quarter of 2015, and followed a 1.6 percent rate of increase in the first quarter. As a result, output per worker surged at a 4.0 percent rate, the fastest since the third quarter of 2014, after rising at a1.8 percent pace at the start of the year.

Output was previously reported to have increased at a 3.4 percent pace in the second quarter.

Reporting by Lucia Mutikani