US productivity up 3.1 per cent in third quarter

WASHINGTON – The productivity of American workers rose in the July-September quarter at the fastest pace in two years while labour costs slowed after a big jump in the spring.

Productivity increased in the third quarter at a 3.1 per cent rate, the Labor Department reported Tuesday. That followed three quarterly declines and was the best showing since a 4.2 per cent increase in the third quarter of 2014. Labor costs edged up at a 0.7 per cent rate in the third quarter following a much faster 6.2 per cent jump in the second quarter. The productivity figure was unchanged from an initial estimate a month ago while the 0.7 per cent rise in unit labour costs was slightly higher than an initial estimate of a 0.3 per cent gain.

The rebound in productivity was expected to be temporary.

“Productivity growth had a good quarter but the trend still looks weak,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. O’Sullivan said the recent gains in unit labour costs add to the case that the Federal Reserve should boost interest rates at next week’s Fed meeting.

Economists are forecasting that productivity will return to the anemic gains seen over the past nine years. Since 2007, annual productivity increases have averaged just 1.3 per cent. That is just have the 2.6 per cent average gains turned in from 2000 through 2007 when the country was benefiting from the increased efficiency from greater integration of computers and the internet into the workplace.

Productivity, the amount of output per hour of work, is the key factor that supports rising living standards. Rising productivity means increased output which allows employers to boost wages without triggering higher inflation.

The revised estimates for productivity and output follow the government’s revisions to the gross domestic product, the economy’s total output of goods and services, last week. The revision boosted GDP growth in the third quarter to 3.2 per cent, up from an initial estimate of 2.9 per cent.

Productivity growth has been weak since the Great Recession. The 1.3 per cent average gain from 2007 through 2015 compares to 2.6 per cent from 2000 to 2007 and a 2.2 per cent average from 1947 through 2015.

Federal Reserve Chair Janet Yellen has pointed to the slowdown in productivity growth as a key challenge facing the country.

Economists say that businesses need to start focusing more on raising the efficiency of their existing workforce rather than just hiring more workers to meet demand. Analysts expect companies to put more emphasis on increasing productivity as the labour market hits full employment and the pool of available qualified workers diminishes.