US productivity down in spring, while labor costs rise

Productivity declined at an annual rate of 0.6 percent, even worse than the 0.5 percent drop initially reported, the Labor Department reported Thursday. It marked the third straight quarter that productivity has fallen.

Labor costs rose at an annual rate of 4.3 percent, the biggest rise since a 5.7 percent increase in the fourth quarter. Labor costs had fallen at a 0.3 percent rate in the first quarter.

Productivity is the amount of output per hour of work. It is the major factor that supports rising living standards and has been lagging in the current seven-year economic expansion.

The downward revision in productivity for the second quarter matched the 0.6 percent decline in productivity in the first quarter. The latest figure reflected the fact that the government last week revised lower its estimate of overall output, as measured by the gross domestic product. The revision showed GDP grew at an anemic 1.1 percent rate in the second quarter, slightly lower than the 1.2 percent first reported.

Productivity growth has slowed significantly in this recovery and is a major reason that overall growth has been so slow.

Economic growth has averaged just 1.2 percent over the seven years of the expansion following the 2007-2009 Great Recession. That is the poorest showing in the post-World War II period. Economists say the weakness in productivity has been a factor in this slowdown. Federal Reserve Chair Janet Yellen has pointed to productivity as a key challenge facing the country.

Economists believe that businesses need to start focusing more on raising the efficiency of their existing workforce rather than just hiring more workers to meet demand. They expect companies to start focusing on productivity as the labor market hits full employment and the pool of available qualified workers diminishes.