Worker output up 10.1%

But labor hours lowest on record

SILVER SPRING, Md. — U.S. productivity rose at a 10.1% rate in the second quarter as the number of hours worked declined by the largest amount since the government started compiling the data more than 70 years ago.

The Labor Department said Thursday that hours worked fell by 42.9%, contributing to a 37.1% decline in output as the coronavirus pandemic ripped through nearly every corner of the U.S. economy. The decline in output was also the biggest drop-off since the government began tracking the data in 1947.

In its second and final estimate for the second quarter, the government said labor costs rose 9%, slightly less than last month’s first estimate of 12.2.%. The original estimate for productivity was a 7.3% increase.

Productivity — the amount of output per hour of work — is the key to rising living standards, and the slow pace of growth in recent years has contributed to sluggish wage increases. Productivity mostly lagged during the record long

11-year expansion that followed the last recession, confounding economists.

From 2000 to 2007, the year the last recession began, annual productivity gains averaged 2.7%. But since then, productivity has slowed to about half that pace, rising at an average annual rate of 1.4% from 2007 through 2019. That rate rose to 1.9% in 2019 stoking some optimism for a resurgence in productivity, but the coronavirus pandemic hit in the first quarter of 2020, sinking the economy and dragging down virtually every economic indicator.

Last week, the government reported an astonishing 31.7% plunge in second-quarter gross domestic product, the value of goods the country produced in the April-June quarter. It was the sharpest such drop on records dating to 1947, and almost entirely related to the fallout from the coronavirus pandemic, which has shuttered most businesses temporarily and many permanently, sending millions of workers to the unemployment rolls.

The Trump administration has predicted a third-quarter economic rebound, but many economists think that the economy can’t fully recover until the virus has been tamed.

Economists have warned that the economic disruptions caused by the coronavirus likely would hinder productivity in coming quarters.

Separately, growth in the U.S. services sector, where most Americans work, slowed in August after big rebounds in June and July, indicating lingering problems stemming from the coronavirus pandemic.

The Institute for Supply Management reported Thursday that its index of activity in the services activity showed a reading of 56.9 in August, down 1.2 percentage-points from the July reading of 58.1. Readings above 50 indicate growth.

The report does not detail the actual levels of activity from one month to the next since the survey asks purchasing managers whether activity is increasing, decreasing or stagnant. So the figures are subject to bigger swings during turning points in the economy.

Fifteen service industries reported growth in August, including health care, transportation and construction.

The group’s index of business activity dropped 4.8 points to a still-robust 62.4 in August, while the index of new orders fell 10.9 points to a three-month low of 56.8.

The institute’s measure of services employment increased to a six-month high of 47.9 from 42.1, signaling some improvement in the labor market. One respondent in the survey said that hiring was “authorized yet slow to materialize.” The Labor Department will release its August jobs report today.