The Economy

U.S. Productivity Posts Best Quarter in 2 Years

Output rose at a 3.1% annual rate in the third quarter, ending three straight quarters of decline, but the overall trend remains weak.
Matthew HellerNovember 4, 2016
U.S. Productivity Posts Best Quarter in 2 Years

U.S. worker productivity grew in the third quarter at the fastest rate in two years, but economists are not expecting a sustained surge in output.

According to the Labor Department, productivity, which measures hourly output per worker, rose at a 3.1% annual rate for the July-September period, ending three straight quarters of decline. Economists polled by Reuters had forecast productivity rising at a 2.0% rate.

The third-quarter gain reflected a strong increase in output while hours worked increased only slightly. Output per worker increased at a 3.4% rate, also the fastest pace since the third quarter of 2014 , while total hours worked rose only at a 0.3% rate, slowing from a 1.7% in the second quarter.

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But the overall trend remains weak, with productivity unchanged compared to the third quarter of 2015. “Many economists expect the rate of output gains to slow again in the final three months of the year,” The Wall Street Journal reported.

Productivity growth started to slow before the 2007-2009 recession and has all but stalled in recent years. The slump has been attributed, in part, to weak business investment.

“As it stands now, the slowdown in productivity growth, together with the aging of the population, suggests that the U.S. economy’s potential growth rate is well below 2%,” said Paul Ashworth, economist at Capital Economics.

Gross domestic product grew at a 2.9% pace in the third quarter after expanding at a 1.4% rate in the April-June period, but the gain reflected in part an unusual surge in soybean exports and changes in inventory levels.

The latest productivity report also showed that unit labor costs at nonfarm businesses rose at a 0.3% annual rate in the third quarter, compared with a 3.9% increase in the previous quarter. “Rising unit labor costs can erode profits and put pressure on firms to raise prices,” the WSJ noted.

Inflation-adjusted hourly compensation advanced at a 1.7% pace last quarter, a modest acceleration from the second quarter.