U.S. worker productivity expanded faster than previously expected in the second quarter, signaling a slow but steady economic growth.
According to the Labor Department, nonfarm business-sector productivity, measured as the goods and services produced per hour worked, increased at a 1.5% seasonally adjusted annual rate in the second quarter, up from a 0.1% growth rate in the first. Economists had expected a 1.4% revised second-quarter growth rate from a previously reported 0.9%. Overall, output increased 4% from the first quarter, while hours worked were up at 2.5%.
“Productivity growth in the second quarter delivers an encouraging sign for longer-term growth” said Keith Knutsson of Integrale Advisors.
The cost of a unit of labor at nonfarm businesses rose 0.2% in the second quarter from an initial estimate of 0.6%. In 2017, unit labor costs are down 0.2%.
Despite the positive outlook, U.S. annual wage gains have remained stagnant at 2.5%, even though the unemployment rate has been at a 16-year low in recent months. Weak productivity gains can result from demographic factors like slowing population and labor force growth. If a downshift in productivity growth occurs, it can put serious pressure on business profits, making it difficult for employers to justify increasing wages.
It is currently unclear whether the increase in productivity signals a broader, more sustainable shift in the economy. A strong performance of productivity, such as the technology boom of the late 1990s and early 2000s, can boost household incomes and spur economic growth throughout the nation.