U.S. productivity growth slows in Q2; labor costs revised down in Q1

A man wearing a protective face mask walks by 14 Wall Street in the financial district of New York
A man wearing a protective face mask walks by 14 Wall Street in the financial district of New York, U.S., November 19, 2020. REUTERS/Shannon Stapleton

WASHINGTON, Aug 10 (Reuters) - U.S. worker productivity growth slowed in the second quarter and labor costs were far weaker than previously estimated in the first quarter, the Labor Department said on Tuesday.

Nonfarm productivity, which measures hourly output per worker, increased at a 2.3% annualized rate last quarter. Data for the first quarter was revised lower to show productivity rising at a 4.3% rate instead of the previously reported 5.4% pace.

Economists polled by Reuters had expected productivity to rise at a 3.5% rate. Productivity jumped early in the pandemic before slumping in the final three months of 2020, and has since rebounded. The see-sawing has been partly attributed to the cratering of lower-wage industries, like leisure and hospitality, which have been reopening over the past few months at an increasingly brisk pace.

Compared to the second quarter of 2020, productivity rose at a 1.9% pace. Hours worked increased at a 5.5% rate last quarter, accelerating from a revised 4.0% growth pace in the January-March period.

Overall output is now 1.2% above pre-pandemic levels but hours worked remain 2.8% below it, the report also showed. The resurgence in economic activity has not been matched by people flooding back into the workforce. On Monday, U.S. job openings jumped to a fresh record high in June, Labor Department data showed. read more

Small business owners across the United States grew less confident in the economic recovery in July as labor shortages remained an issue, according to a National Federation of Independent Business survey released on Tuesday. read more

The cooling in the most recent data notwithstanding, Oxford Economics lead U.S. economist Lydia Boussour said the pandemic appears to have "induced an upside shock to productivity."

"The adoption of technology has accelerated, new firms are being created at an historic pace, and the shift to remote work is likely to outlast the crisis," she wrote in a note on Tuesday. "While some of the pandemic-driven efficiencies could take years to be fully realized, we think these four forces will lead to a sustained productivity revival in the medium run."

Unit labor costs - the price of labor per single unit of output - rose at a 1.0% rate. They contracted at a revised 2.8% pace in the first quarter. Unit labor costs increased at a 0.1% rate from a year ago. They have also been distorted by the pandemic's disproportionate impact on lower-wage industries.

Hourly compensation rose at a 3.3% rate last quarter. That followed a revised 1.4% growth pace in the first quarter. Compensation increased at a 2.0% rate compared to the first quarter of 2020.

Reporting by Lindsay Dunsmuir; Editing by Nick Zieminski

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