U.S. firms and their workers were less productive in the first quarter.
WASHINGTON
(MarketWatch) —The productivity of American firms and their employees
fell in the first quarter at the fastest rate in a year, reflecting a
cutback in the amount of goods and services made available to customers.
U.S.
productivity — the key to a higher standard of living — declined at a
0.6% annual pace in the first three months of 2017, the government said
Thursday. Economists polled by MarketWatch had forecast no change.
Productivity
has been weak since an economic recovery began almost eight years ago,
increasing at 1.2% annual clip since 2007. That’s well below the 2.1%
average since World War Two or the 2.6% average from 2000 to 2007.
The “underlying trend in productivity remains disappointing,” economists at Oxford Economics wrote in a note to clients.
The
slowdown in productivity has broad ramifications for the U.S. economy.
Pay rises more slowly, for example, and that makes it harder for
American families to dramatically improve their economic circumstances
as was often the case in the half century after World War Two.
In early trading, the Dow Jones Industrial Average
DJIA, -0.07%
was flat.
Also read:U.S. trade deficit with Mexico in goods highest since 2007
The
decline in productivity from the fourth quarter’s revised 1.8% clip
mostly stemmed from a lower tempo at many businesses. Companies sought
to reduce inventory levels to avoid getting stuck with unsold goods or
products they’d have to discount steeply to move.
The increase in output, or how many goods and services companies produce, rose just 1% after a 2.7% gain in the fourth quarter.
Yet workers put in even more time on the job. Hours worked increased 1.6%.
The combination of slower production and higher hours cause unit-labor costs to rise to a 3% rate from 1.3% at the end of 2016.
The
closely follow measure shows how much it costs a business to produce
one unit of output, such as a ton of steel, a crate of toys or a bushel
of corn.
Labor costs rose in 2016 at the fastest clip
in nine years, a sign companies have to pay more to employees at a time
when a shrinking pool of available workers makes good help harder to
find.
Also read:U.S. jobless claims fall sharply to three-week low
The
combination of rising wages and low productivity, however, could spell
trouble for the economy unless the pattern is broken. Wages can’t keep
rising without an improvement in productivity
Productivity
increases when workers generate more goods and services in the same
amount of time. That leads to higher wages for employees, more profits
for companies and better returns for shareholders, a virtuous loop that
feeds on itself and bolsters an economy.
Some economists
suggest a tightening labor market could spur companies to invest more
in labor-saving devices or technology that boosts productivity, but so
far there’s little evident to support such a shift.
All figures reflect seasonally adjusted annual rates.
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