The productivity of American workers unexpectedly declined for a third straight quarter, consistent with lacklustre efficiency that’s characterised the economic expansion.
The measure of employee output per hour decreased at a 0.5% annualised rate in the three months through June after dropping 0.6% in the prior quarter, a Labour Department report showed yesterday in Washington. The median forecast in a Bloomberg survey called for a 0.4% gain. Expenses per worker climbed at a 2% pace after being revised to a decline in the previous period.
Productivity compared with a year earlier fell for the first time since 2013 as lacklustre global markets prompted companies to scale back capital investment plans. In the face of deteriorating corporate profits and an absence of faster economic growth, the risk is that businesses may begin to ratchet back the hiring they’ve relied on to meet demand.
“Firms have been substituting labour for capital,” Richard Moody, chief economist at Regions Financial Corp in Birmingham, Alabama, said before the report. “The advantage for firms is that if growth does fall off, it’s a lot easier to rid yourself of excess labour than it is excess capital.”
Economists’ estimates for productivity ranged from a decrease of 0.4% to a 1.1% gain.
Unit labour costs, which are adjusted for efficiency gains, were forecast to increase 1.8% in the second quarter, according to the Bloomberg survey median. In the prior quarter, they were revised to a 0.2% decrease from an initially reported 4.5% advance.
Adjusted for inflation, hourly compensation fell at a 1.1% rate in the second quarter, the most in two years, after dropping 0.4% in the first three months of 2016.
Worker efficiency fell 0.4% in the second quarter from the same time in 2015, while labour costs climbed 2.1%.
The second-quarter reading on productivity compares with the 2.6% average over the period spanning 2000 to 2007.
Among manufacturers, productivity declined at a 0.2% rate in the second quarter after a 1.5% gain.
Growth continued to disappoint in the second quarter. The economy expanded at a 1.2% annualised rate, according to Commerce Department data released July 29. Gross domestic product growth probably will pick up to a 2% rate by year-end, according to Bloomberg survey data.
Amid fragile global growth prospects and US presidential election year uncertainty, the risk is that business investment continues to languish. That may bode ill for US workers, whose potential for wage increases could suffer as companies look to get the most out of weak profits.
Some economists have suggested that the government’s productivity data are outdated and insufficient in capturing changes in technology that have allowed for more progress. At the same time, the figures show that the economy’s potential to grow without stoking inflation probably is limited.