WASHINGTON -- The productivity of American workers rose just modestly in the spring, extending a worrisome issue that has persisted throughout this expansion.
Productivity grew at an annual rate of 0.9 percent in the April-June quarter, slightly better than a scant 0.1 percent rate of increase in the first quarter, the Labor Department reported Wednesday. Labor costs edged up at a 0.6 percent rate in the second quarter, a sharp slowdown from a 5.4 percent growth rate in the first quarter.
Productivity, the amount of output per hour of work, has been weak throughout the economic recovery, now in its ninth year. Many analysts say the issue is the biggest economic challenge facing the country.
Without more gains in efficiency, the economy's so-called speed limit -- the pace at which it can expand without stoking inflation -- is reduced.
"Despite the recent pickup, productivity growth remains subdued by historical standards," Barclays PLC economist Blerina Uruçi wrote in a note after the report. "Slow growth in output prices, disappointing productivity trends, and fast-rising unit labor costs have depressed unit profits for companies in recent years and have been one factor preventing wages from picking up at a faster pace."
For 2016 overall, productivity actually declined -- the first fall in 34 years. Productivity last year had previously been reported as a slight increase of 0.2 percent. However, that gain evaporated as part of the government's annual benchmark data revisions. It marked the first annual decline in productivity since a 1 percent drop in 1982.
The small improvement in the second quarter reflected the fact that overall economic growth, as measured by the gross domestic product, accelerated to a 2.6 percent rate of increase compared with a 1.2 percent gain in the first quarter.
Since 2007, annual productivity increases have averaged just 1.2 percent. That's less than half the average annual gains of 2.6 percent logged in 2000 to 2007, when the country was benefiting from increased efficiency from computers and the Internet in the workplace.
Rising productivity means increased output for each hour of work, which allows employers to raise wages without triggering inflation.
The challenge of increasing productivity back to the levels before the recession of 2007-2009 will be a key factor in determining whether President Donald Trump will achieve his goal of increasing overall growth. The economy's potential for growth is a combination of labor force expansion and growth in productivity.
During the campaign, Trump pledged to double growth to 4 percent or better. But since taking office, his administration has projected a slightly lower but still ambitious goal of pushing annual growth back up to 3 percent. Trump's first budget projects that faster economic growth will produce $2 trillion in deficit reduction over the next decade, a forecast most private economists view as overly optimistic.
Information for this article was contributed by Martin Crutsinger of The Associated Press and Patricia Laya, Vince Golle and Jordan Yadoo of Bloomberg News.
Business on 08/10/2017