U.S. productivity up 3.3%; labor costs fall

U.S. productivity in the spring rose at the fastest pace since late 2013, while labor costs declined.

Worker productivity increased at an annual rate of 3.3 percent in the April-June quarter, the Labor Department reported Wednesday. That was a rebound from the first quarter when productivity had fallen at a 1.1 percent rate and a sizable upward revision from the government’s first estimate of a 1.3 percent growth rate.

Labor costs fell at a 1.4 percent rate in the second quarter, indicating that wages are not rising as unemployment declines.

Even with the strong gain in the second quarter, productivity over the past year has increased by just 0.7 percent, far below the long-run average of 2.2 percent. Productivity, the amount of output per hour of work, has been sluggish since the recession and economists have been at a loss to explain it.

“This update does not change the underlying story. Productivity growth remains low,” said Patrick Newport, an economist at IHS Global Insight. “Productivity’s slow pace has the profession puzzled.”

Faster productivity growth allows employers to boost pay without pushing up inflation. The Federal Reserve closes monitors both productivity and labor costs to determine whether inflation is starting to become a problem. However, the deep recession of 2007-2009 has left workers with less ability to demand higher wages.

The productivity figure reflects the government’s revised estimate for economic growth as measured by the gross domestic product.