U.S. Productivity Falls by Most in a Year; Labor Costs Climb

U.S. worker productivity declined in the first quarter by the most in a year as growth in the world’s largest economy weakened, a Labor Department report showed Thursday.

Key Points

  • The measure of employee output per hour decreased at a 0.6 percent annual rate (forecast was a 0.1 percent decline) after a revised 1.8 percent gain in the prior three months
  • Expenses per worker rose at a 3 percent pace (forecast was 2.7 percent increase) after a revised 1.3 percent gain

Big Picture

The results reflect the first-quarter slowdown in the economy, which grew at the slowest pace in three years while the job market remained solid. The report underscores the challenge of achieving a sustained acceleration in productivity, which has been elusive through most of this expansion. As wages remained weak in recent years, businesses relied on new hires rather than more investment in efficiency-boosting technology, though that trend may change eventually as weak productivity erodes profits.

Other Details

  • Productivity rose 1.1 percent from the first quarter of 2016; unit labor costs, which are adjusted for changes in efficiency, were up 2.8 percent from a year earlier
  • Adjusted for inflation, hourly compensation fell at a 0.8 percent rate last quarter, after no change in the fourth quarter
  • Output rose at a 1 percent rate, following a 2.7 percent gain in the fourth quarter
  • Hours worked increased at a 1.6 percent pace, after a 1 percent advance; compensation for each hour worked rose at a 2.4 percent annual pace
  • Latest drop in productivity compares with an average annual gain of 0.6 percent from 2012 through last year
  • Among manufacturers, productivity rose at a 0.4 percent rate in the first quarter after a 2 percent gain
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