U.S. worker productivity falls in Q2, causing annual decline

Jobs push stock market

WASHINGTON -- American workers' productivity slipped in the April-June quarter, feeding into a 12-month decline in how much people are producing for each hour worked.

Productivity fell at an annual rate of 0.5 percent in the second quarter after a 0.6 percent drop during the first three months of the year, the Labor Department said Tuesday. Over the past 12 months, productivity has dropped 0.4 percent, as labor costs and the hours worked are rising faster than the output of workers' goods and services. Unit labor costs rose 2 percent in the second quarter, after decreasing 0.2 percent in the first quarter.

"The lack of productivity directly relates to the slow economic recovery seen since the recession," Peter Boockvar, chief market analyst at the Lindsey Group, said in an emailed note. "Combine this with a good pace of hiring and higher labor costs as a percent of revenue will only continue to increase."

Productivity has been weak for the past five years, a thorny problem since productivity growth is the key factor supporting rising living standards and higher incomes. The decline corresponds with a U.S. economy in which overall economic growth has been sluggish while hiring has been relatively robust.

The economy expanded at an annual pace of 1 percent during the first six months of the year. The growth rate is roughly half the already tepid average of the seven-year recovery from the Great Recession.

Yet hiring has been remarkably solid with employers adding 255,000 jobs in July and 292,000 jobs in June, as the unemployment rate has held at a healthy 4.9 percent, the Labor Department said last week. The rise in labor costs indicates that worker pay is finally climbing after a prolonged phase of anemic wage gains.