U.S. worker productivity rose at the fastest pace in more than four years in the first quarter, a possible sign that the economy can continue to grow without sparking inflation.
The Labor Department reported Thursday that nonfarm productivity, which measures hourly output per worker, increased at a 3.6% annualized rate in the last quarter. It was the biggest gain since the third quarter of 2014 and followed a revised 1.3% increase in the fourth quarter of 2018.
Economists had forecast an increase of 2.2% in the first quarter. Compared with the year-ago period, productivity increased at a rate of 2.4%, the best performance since the third quarter of 2010.
“One quarter does not make a trend, and we do not expect productivity growth to be sustained at the current level, but a gradual shift towards 1.5-2.0 percent seems plausible to us,” Blerina Uruci, an economist at Barclays in Washington, told Reuters.
MarketWatch suggested productivity has gotten a boost from companies investing “more in technology and workers in the past few years, the first step in enabling them to produce more goods and services in the same amount of time.”
“What’s still unclear, however, is whether the recent increase can be sustained,” MarketWatch added. “Business investment tapered off toward the end of 2018 and the outlook for this year is uncertain.”
Data released earlier this week showed moderate wage growth in the first quarter and a key inflation measure posting its smallest annual gain in 14 months in March. “The rebound in productivity is restraining labor costs and keeping inflation in check,” said Joel Naroff, chief economist at Naroff Economic Advisors.
According to the Labor Department, unit-labor costs declined 0.9% in the first quarter, bringing the gain over the past year to only 0.1%, the smallest increase since 2013.
The Federal Reserve on Wednesday held interest rates steady, citing muted core inflation that is running below the Fed’s 2% target. “The decline in unit-labor costs adds to a slew of recent evidence that inflation has waned after a sharp burst last year,” MarketWatch said.